<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 61-1337096
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>
------------------------------
1020 PETERSBURG ROAD, HEBRON, KENTUCKY 41048
(606) 586-0600
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
STEPHEN E. POMEROY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
1020 PETERSBURG ROAD
HEBRON, KENTUCKY 41048
(606) 586-0600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
WILLIAM G. KOHLHEPP, ESQ. DAVID J. SORIN, ESQ.
ELIZABETH A. HORWITZ, ESQ. ANDREW P. GILBERT, ESQ.
CORS & BASSETT BUCHANAN INGERSOLL PROFESSIONAL
CORPORATION
537 E. PETE ROSE WAY, SUITE 400 500 COLLEGE ROAD EAST
CINCINNATI, OHIO 45202 PRINCETON, NEW JERSEY 08540
(513) 852-8200 (609) 987-6800
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE 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, check the following box and
list the Securities Act registration statement 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Class A Common Stock, $0.01 par value per share................................... $57,500,000 $15,985
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.
</TABLE>
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
PROSPECTUS (Not Complete)
Issued: January 15, 1999
SHARES
[LOGO]
CLASS A COMMON STOCK
----------------
Pomeroy Select Integration Solutions, Inc. is offering shares of its Class A
Common Stock in a firmly underwritten offering. This is Pomeroy Select's initial
public offering and no public market currently exists for Pomeroy Select's
shares. Pomeroy Select anticipates that the initial public offering price for
its shares of Class A Common Stock will be between $ and $ per share.
After the offering, the market price for Pomeroy Select's shares of Class A
Common Stock may be outside of this range.
The Company has two classes of authorized Common Stock, the Class A Common
Stock, par value $0.01 per share, offered hereby and Class B Common Stock, par
value $0.01 per share. The rights of the holders of Class A Common Stock and
Class B Common Stock are substantially identical, except with respect to voting,
conversion and transfer. Each share of Class A Common Stock entitles its holder
to one vote, and each share of Class B Common Stock entitles its holder to ten
votes, on all matters submitted to a vote of stockholders. The Company is
currently wholly owned by Pomeroy Computer Resources, Inc. ("PCR") which,
immediately after the consummation of the offering, will continue to
beneficially own 100% of the 10,000,000 shares of outstanding Class B Common
Stock of the Company. At such time (assuming the Underwriters do not exercise
their right to purchase additional shares in this offering to cover any
over-allotments), the outstanding shares of Class B Common Stock will represent
approximately % of the combined voting power of the Company. As a result of
such ownership, PCR will be able to control the vote on all matters submitted to
a vote of stockholders, including the election of Directors and the approval of
extraordinary corporate transactions. Shares of Class B Common Stock are
convertible, subject to certain conditions, into shares of Class A Common Stock
on a share-for-share basis at the option of PCR and automatically upon certain
transfers by PCR or first public trade. See "Risk Factors," "Relationship with
PCR," "Principal Stockholders" and "Description of Capital Stock."
------------------------
Application has been made for quotation of the Company's Class A Common
Stock on the Nasdaq National Market under the symbol "PSIS."
INVESTING IN THE CLASS A COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 10.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------ ------------------
<S> <C> <C>
Offering Price $ $
Discounts and Commissions to Underwriters $ $
Offering Proceeds to Company $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Pomeroy Select has granted the Underwriters the right to purchase up to an
additional shares of Class A Common Stock to cover any over-allotments. The
Underwriters can exercise this right at any time within thirty days after the
offering. NationsBanc Montgomery Securities LLC expects to deliver the shares of
Class A Common Stock to investors on or about , 1999.
NATIONSBANC MONTGOMERY SECURITIES LLC
J. C. BRADFORD & CO.
WHEAT FIRST UNION
------------------------
_______ __, 1999
<PAGE>
Inside Front Cover
[LOGO]
<TABLE>
<S> <C>
A circular photo of a technician LIFE CYCLE SERVICES
repairing an open computer system - Technology Deployment
- Multi-Vendor Repair and Maintenance
- Install, Move, Add or Change ("IMAC")
- Redeployment and Mobile Systems Management
- Asset Discovery and Tracking
- Asset End-Of-Life Services
A circular photo of systems engineers INTERNETWORKING SERVICES
integrating a rack-mounted server - Project Management
solution - Network Design
- Network Integration
- Network Management
- Network Migration
- Network Support
- Cabling
A circular photo of a help desk END-USER SUPPORT SERVICES
employee assisting a customer - Custom Help Desk
- Internet-Based Training
- Video/Teleconferencing
- Ancillary Services
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
IT IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN THE CLASS A COMMON STOCK. YOU SHOULD READ THE
ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND THE
FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS. THIS PRELIMINARY
PROSPECTUS IS SUBJECT TO COMPLETION PRIOR TO THIS OFFERING.
THE COMPANY
Pomeroy Select is a single-source provider of integrated desktop management
and network services that help corporate clients manage their information
technology ("IT") assets. We provided IT services to more than 2,100 customers
in the nine months ended October 5, 1998. Our customers generally range from
mid-sized organizations to Fortune 500 companies in a wide variety of
industries. We deliver our services nationally through over 900 technical and
engineering personnel located in 30 offices. Over the four-year period ended
January 5, 1998, our revenue grew at a compounded annual growth rate of 51.0%
and for the nine-month period ended October 5, 1998, our revenue grew by 61.1%
over the comparable nine-month period for the prior year.
We offer three categories of services: life cycle services, internetworking
services and end-user support services. Our life cycle services include a full
range of IT services designed to help our customers manage and maintain their
distributed asset base of computer and networking equipment throughout their
product life cycles. Our technical personnel provide customized configuration of
software and hardware for workstations and servers and perform technology
deployment at customer sites. We also service and repair equipment at customer
sites and provide drop-off repair service at our service depot. For customers
with large fleets of laptop PCs, we offer mobile systems management by providing
storage, reconfiguration and rapid exchange services. We also offer asset
discovery and tracking services to help our customers track and evaluate their
current IT asset base and end-of-life services to dispose economically of
obsolete IT equipment. Our support service is available 24 hours a day, seven
days a week, depending on the needs of the customer.
Our internetworking services enable our customers to meet their increasing
need for network connectivity by helping them effectively utilize an increasing
number of IT solutions. We design, manage and integrate local and wide area
networks for our customers. We also help them migrate from older systems to
newer network platforms such as Microsoft Windows NT. For larger projects, such
as deployment of a new network or large-scale migrations, we offer services
ranging from project management services to turn-key cabling services which help
our customers build their network infrastructure.
Our end-user support services include customized help desk services,
Internet-based training on many popular software packages and
video/teleconferencing services. These services enable our customers to maximize
the use of their IT assets and increase productivity.
The recent growth in demand for our services has been driven by increased
needs for IT solutions by our customers who are becoming more dependent on the
use of IT as a competitive tool to improve service, lower costs, increase
productivity and shorten time to market. These business needs have been driving
the continued proliferation of IT solutions, including network-enabled
applications and related internetworking equipment. Internetworking environments
are often characterized by multi-vendor products and services, multi-protocol
technologies and rapid technological innovation, all of which require complex
system design and integration. For many organizations, this increasingly complex
IT infrastructure has created demands that often exceed the capabilities and
capacity of internal management information systems departments. As a result,
many organizations increasingly elect to outsource some or all of their design,
management, maintenance and implementation requirements to independent IT
services providers.
3
<PAGE>
We deliver cost-effective, flexible, consistent, reliable and comprehensive
solutions to meet our customers' IT service requirements related to their
distributed asset base of computer and network equipment. By maintaining a
highly qualified staff of technical professionals who are certified by multiple
IT vendors, we are able to customize solutions to meet specific customer needs.
In addition, we have excellent relationships with industry-leading vendors,
enabling us to integrate and support technology from multiple hardware
manufacturers and software developers.
Our objective is to be the leading single-source provider of integrated
desktop management and network services. To achieve our objective, we pursue the
following strategies:
LEVERAGE STRONG CUSTOMER RELATIONSHIPS. We have developed strong
relationships with our existing customers by offering a flexible implementation
approach while emphasizing high-quality services. We seek to leverage these
strong customer relationships to provide additional services to existing
customers and to gain access to new customers.
MAINTAIN AND ENHANCE TECHNICAL EXPERTISE. We seek to maintain and enhance
our technical expertise by hiring and training highly qualified technicians and
systems engineers. We utilize our in-house recruiting capabilities to
continually identify qualified candidates for service technician and systems
engineer positions. In addition to a comprehensive training program, we use our
incentive programs, advancement opportunities and recognition programs to
motivate, reward and retain our employees.
EXPAND SALES AND MARKETING ACTIVITIES. We are actively seeking to expand
the size and enhance the quality of our direct sales force. By hiring additional
highly qualified sales personnel, we intend to increase direct sales, build
market awareness, establish name recognition and promote our reputation as a
high-quality, single-source IT services provider. In addition, our agreement
with PCR provides PCR's sales force with performance-based commissions and
bonuses for continuing to generate IT services revenue for us. We also intend to
establish alternative sales channels which may include strategic relationships
with a variety of hardware manufacturers and vendors.
BROADEN SERVICE OFFERINGS. We regularly offer, and intend to continue to
offer, new services which respond to evolving customer needs.
LEVERAGE STRATEGIC RELATIONSHIPS WITH INDUSTRY LEADERS. We have alliances
with and authorizations from industry-leading hardware, software and
internetworking product vendors, such as Bay Networks, Cisco Systems, Compaq,
Computer Associates, Hewlett-Packard, IBM, Microsoft, Novell and 3Com. We
believe that these authorizations provide a competitive advantage through
enhanced credibility and access to a broader market. We have made, and intend to
continue to make, the investments in employee training and marketing necessary
to obtain or maintain a wide array of service authorizations with such industry
leaders.
PURSUE ACQUISITIONS. We intend to pursue acquisitions of IT services
businesses to broaden our service offerings, add technical or sales personnel,
increase our presence in existing markets, expand into new geographic markets,
improve operating efficiencies through economies of scale, establish strategic
relationships and obtain desirable customer relationships. We believe that
acquisitions will continue to be an effective means to supplement our internal
growth.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered by
the Company..................... shares
Common Stock to be outstanding
after the offering:
Class A Common Stock............ shares(1)
Class B Common Stock............ 10,000,000 shares(2)
Voting rights..................... The Class A Common Stock and Class B Common Stock vote
as a single class on all matters, except as otherwise
required by law, with each share of Class A Common Stock
entitling its holder to one vote and each share of Class
B Common Stock entitling its holder to ten votes. All of
the outstanding shares of Class B Common Stock are owned
by PCR. After the offering, PCR will own shares of Class
B Common Stock having approximately % of the
combined voting power of the outstanding shares of
Common Stock. See "Principal Stockholders" and
"Description of Capital Stock."
Use of proceeds................... We intend to use approximately $ of the net
proceeds to repay indebtedness under our credit
facility. We expect to use the remaining proceeds for
working capital, capital expenditures and general
corporate purposes, including expanding sales and
marketing activities and possible acquisitions. See "Use
of Proceeds."
Risk factors...................... Investing in the Class A Common Stock involves a high
degree of risk. See "Risk Factors."
Proposed Nasdaq National Market
symbol.......................... PSIS
</TABLE>
- ------------------------
(1) Excludes, as of January 14, 1999, (i) 620,000 shares of Class A Common Stock
issuable upon the exercise of outstanding stock options under the Company's
1999 Stock Plan with an exercise price per share equal to the initial public
offering price and (ii) 2,380,000 shares of Class A Common Stock reserved
for issuance upon the exercise of options available for grant under the 1999
Stock Plan. See "Risk Factors -- Shares Eligible for Future Sale; Potential
Adverse Impact of the Distribution" and "Management -- 1999 Stock Plan."
(2) Shares of Class B Common Stock are convertible, subject to certain
conditions, into shares of Class A Common Stock on a share-for-share basis
at the option of PCR and automatically upon certain transfers by PCR or
first public trade. See "Risk Factors -- Shares Eligible for Future Sale;
Potential Adverse Impact of the Distribution," "Relationship with PCR,"
"Principal Stockholders" and "Description of Capital Stock."
5
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JANUARY 5, OCTOBER 5,
----------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1997 1998
----------- ----------- ------- ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue......................................... $8,706 $13,103 $17,243 $26,396 $45,209 $31,903 $51,401
Gross profit.................................... 4,252 5,798 7,120 9,909 18,072 13,485 20,768
Operating income................................ 1,192 1,485 1,833 3,372 6,033 4,476 7,592
Net income...................................... $ 507 $ 833 $ 1,010 $ 1,919 $ 3,743 $ 2,752 $ 4,599
Pro forma net income per share.................. $ 0.37 $ 0.46
Pro forma weighted average shares(1)............ 10,000 10,000
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 5, AS OF OCTOBER 5, 1998
-------------------- ------------------------
1997 1998 ACTUAL PRO FORMA AS
--------- --------- --------- ADJUSTED(2)
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................. $ 100 $ 2,497 $ 4,146 $
Total assets.................................................... 17,682 24,702 37,185
Bank note payable............................................... 731 1,630 7,409
Due to parent................................................... 6,614 6,588 6,158
Stockholder's equity............................................ 4,270 8,013 12,612
</TABLE>
- ------------------------
(1) Assumes that all 10,000,000 shares of Class B Common Stock issued to PCR on
January 6, 1999 were outstanding for the entire period. See "Prospectus
Summary -- Summary of Relationship with PCR."
(2) Gives pro forma effect to the transfer of the assets, liabilities, business,
operations and personnel from PCR to the Company on January 6, 1999, as
adjusted to give effect to the consummation of the offering and the
application of the net proceeds therefrom. See "Use of Proceeds,"
"Relationship with PCR" and Notes 13 and 14 of Notes to Financial
Statements.
6
<PAGE>
SUMMARY OF RELATIONSHIP WITH PCR
The Company was incorporated in Delaware on December 14, 1998. On January 6,
1999, PCR contributed the assets, liabilities, business, operations and
personnel comprising its IT services business to Pomeroy Select in exchange for
10,000,000 shares of Pomeroy Select's Class B Common Stock.
OWNERSHIP OF OUR CLASS B COMMON STOCK BY PCR. Pomeroy Select is currently a
wholly-owned subsidiary of PCR. Upon completion of this offering, PCR will own
100% of the outstanding shares of Pomeroy Select's Class B Common Stock,
representing approximately % of the voting power of Pomeroy Select
(approximately % of the voting power if the Underwriters exercise in full
their right to purchase additional shares in this offering to cover
over-allotments).
CONDUCT OF BUSINESS OF POMEROY SELECT. Prior to January 6, 1999, our
business was conducted within PCR and PCR provided all administrative,
management and support services. PCR will continue to provide most of these
services pursuant to the Administrative Services and Marketing Agreement (the
"Services Agreement"). See "Relationship with PCR."
CONTRIBUTION AGREEMENT. On January 6, 1999, PCR and Pomeroy Select entered
into a Contribution Agreement which provided for, among other things, the
transfer from PCR to Pomeroy Select of the assets, business and personnel
comprising the business of Pomeroy Select and the assumption by Pomeroy Select
of the liabilities relating to its business as agreed to by PCR and Pomeroy
Select.
OPERATIONAL AND ADMINISTRATIVE AGREEMENTS. Our agreements with PCR also
govern our various interim and ongoing relationships. All of the agreements with
PCR were made in the context of a parent-subsidiary relationship and were
negotiated in the overall context of our separation from PCR. The terms of these
agreements may be more or less favorable to us than if they had been negotiated
with unaffiliated third parties. See "Risk Factors -- Potential Conflicts of
Interest between the Company and PCR" and "Relationship with PCR."
Our agreements with PCR include:
- Services Agreement: PCR has agreed to continue to provide various
administrative, management, marketing and support services to us. In
addition, the Services Agreement provides that: (i) Pomeroy Select and PCR
shall not compete with each other; (ii) PCR shall give us a right of first
refusal to participate in all services sales opportunities which come to
the attention of PCR; and (iii) we shall give PCR a right of first refusal
to participate in all hardware sales opportunities which come to our
attention. Further, we have agreed with PCR to joint market and cross-sell
our respective offerings. PCR's sales force can earn performance-based
commissions and bonuses for continuing to generate services revenue for
us;
- Space Sharing Agreement: Pomeroy Select and PCR have agreed to share
certain office facilities, including the Company's headquarters and branch
offices;
- Indemnification Agreement: Pomeroy Select and PCR have agreed to indemnify
each other and their respective directors, officers, employees, agents and
representatives for certain liabilities; and
- Stock Registration Agreement: We have granted to PCR rights which may
require us to register, under certain circumstances, the shares of Class A
Common Stock beneficially owned by PCR. See "Description of Capital Stock
-- Registration Rights of PCR."
CREDIT FACILITY. We have entered into an agreement for an interim credit
facility with Deutsche Financial Services Corporation, the primary lender to
PCR. This credit facility allows us to borrow up to the lesser of $20.0 million
or the maximum borrowing capacity as calculated under the credit facility. The
borrowing capacity, interest rate and other terms of our credit facility are
dependent upon the continued satisfaction of certain terms and conditions by
PCR. PCR has also guaranteed the entire
7
<PAGE>
amount of the credit facility which is secured by all of the assets of PCR. Upon
consummation of this offering, we intend to replace the interim credit facility
with a permanent credit facility. We cannot assure you that we will be able to
obtain a new credit facility or that any new credit facility will be available
on terms acceptable to us. See "Risk Factors -- Absence of PCR Financial
Support; Limited Borrowing Capacity," "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operation --
Liquidity and Capital Resources."
POSSIBLE DISTRIBUTION. Following completion of this offering, PCR intends
to consider its options regarding its ownership interest in Pomeroy Select,
including whether to retain such ownership interest, sell all or a portion of
its shares of Class B Common Stock to the public in another public offering or
to a strategic investor or make a distribution of the shares to its stockholders
(the "Distribution"). If the Class B Common Stock is transferred in a manner
other than the Distribution or a sale of a controlling interest involving at
least 50% of the Class B Common Stock, the shares of Class B Common Stock
automatically convert to shares of Class A Common Stock. If the Distribution is
made, the Class B Common Stock will automatically convert upon first transfer by
the distributees. As a result, the Class B Common Stock will never trade in the
public markets. The occurrence of the Distribution is only one possibility and
is not a certainty. For a Distribution by PCR to occur, the Board of Directors
of PCR must conclude, at the time that the Distribution may be considered, that
the Distribution is in the best interests of the stockholders of PCR. PCR has
advised Pomeroy Select that such determination may be conditioned upon the
receipt of a favorable ruling from the Internal Revenue Service (the "IRS") as
to the tax-free nature of the Distribution. PCR has not applied for such a
ruling as of the date of this offering. PCR has agreed with the Underwriters
that it will not transfer or distribute shares of Class B Common Stock for a
period of at least 180 days from the consummation of this offering. See "Risk
Factors -- Shares Eligible for Future Sale; Potential Adverse Impact of the
Distribution" and "Description of Capital Stock -- Common Stock."
8
<PAGE>
THIS PROSPECTUS CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" CONCERNING THE
COMPANY'S OPERATIONS, PERFORMANCE AND FINANCIAL CONDITION, INCLUDING ITS FUTURE
ECONOMIC PERFORMANCE, PLANS AND OBJECTIVES AND THE LIKELIHOOD OF SUCCESS IN
DEVELOPING AND EXPANDING ITS BUSINESS. THESE STATEMENTS ARE BASED UPON A NUMBER
OF ASSUMPTIONS AND ESTIMATES WHICH ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES,
MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. THE WORDS "MAY," "WOULD,"
"COULD," "WILL," "EXPECT," "ANTICIPATE," "BELIEVE," "INTEND," "PLAN," "ESTIMATE"
AND SIMILAR EXPRESSIONS ARE MEANT TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY INCLUDE, BUT ARE NOT LIMITED TO, THOSE SET FORTH IN "RISK FACTORS."
Readers are cautioned not to place undue reliance on these forward-looking
statements which reflect our views only as of the date of this Prospectus. The
Company undertakes no obligation to update such statements or publicly release
the result of any revisions to these forward-looking statements which it may
make to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
In this Prospectus, "Pomeroy Select," the "Company," "we," "us" and "our"
each refers to Pomeroy Select Integration Solutions, Inc. and "PCR" refers to
Pomeroy Computer Resources, Inc. and its consolidated subsidiaries other than
the Company. The data presented has been derived by the Company using various
allocation methodologies to reflect the historical balance sheets, results of
operations and cash flows of PCR's IT services business for each respective
period; however, it does not reflect potential changes that may occur in our
operations and funding as a result of our becoming a stand-alone company. Our
fiscal year is a 12-month period ending January 5. For more information, you
should read the "Risk Factors -- Absence of History as a Stand-Alone Company,"
"-- Limited Relevance of Historical Financial Information," "Selected Historical
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" sections of this Prospectus.
Unless otherwise stated, all information in this Prospectus assumes that the
Underwriters will not exercise their right to purchase additional shares of
Class A Common Stock in this offering.
The Company's principal executive offices are located in the Greater
Cincinnati area at 1020 Petersburg Road, Hebron, Kentucky 41048, and its
telephone number is (606) 586-0600.
9
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING FACTORS IN EVALUATING WHETHER TO INVEST IN THE
SHARES OF CLASS A COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE
NOT THE ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT
PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR
BUSINESS OPERATIONS AND FINANCIAL RESULTS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED. IN
SUCH CASE, THE TRADING PRICE OF OUR CLASS A COMMON STOCK COULD DECLINE AND YOU
MAY LOSE ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
ABSENCE OF HISTORY AS A STAND-ALONE COMPANY
After this offering and prior to the Distribution, if any, or other sale or
transfer of shares of the Class B Common Stock held by PCR, if any, we will
continue to be a subsidiary of PCR but will operate as a stand-alone company.
The IT services business of PCR commenced in 1981 and has been operated as part
of PCR since that time. On January 6, 1999, PCR transferred the assets,
liabilities, business, operations and personnel of its IT services business to
us. We have never operated as a stand-alone company and have limited name
recognition. An investor in our Class A Common Stock must consider the risks and
uncertainties frequently encountered by companies in the early stages of
development, particularly those faced by companies in the highly competitive and
rapidly evolving market to provide IT services. These risks include our:
- Reliance on PCR for referrals, sales opportunities and marketing
functions;
- Need to expand our sales, marketing and support organizations;
- Reliance on strategic relationships;
- Ability to compete with IT services providers with greater name
recognition and greater resources;
- Need to manage changing operations;
- Dependence on key and technical personnel; and
- Ability to independently operate and manage the Company as a result of
PCR's control.
To compete in the IT services market, we believe that we must devote
substantial resources to expand our sales and marketing activities, broaden our
service offerings, maintain and enhance our technical expertise and pursue
acquisitions. Although our revenue has increased in recent years, we cannot be
certain that we can sustain continued revenue growth or that we will remain
profitable on a quarterly or annual basis in the future.
In addition, the IT services component of PCR's business was operated within
the context of a significantly larger, integrated IT hardware and services
company. We cannot assure you that the separation of our services business from
the hardware business retained by PCR or that our contractual relationships with
PCR will be successful. Further, most of our administrative functions, including
our payroll, accounting, human resources, management information systems
("MIS"), legal and marketing functions, will continue to be provided by PCR
pursuant to our Services Agreement. We intend, over time, to develop our own
administrative infrastructure. We cannot assure you that we will be able to
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develop adequate administrative functions in a timely and cost effective manner.
See "Relationship with PCR."
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The historical financial information included in this Prospectus has been
prepared based upon certain estimates and assumptions by PCR and us with respect
to allocations of costs of sales, gross profit and general and administrative
expenses. These estimates, allocations and assumptions were necessary because
PCR did not account for us as, and we were not operated as, a single stand-alone
business or a separate division for any of the periods presented. We believe the
historical financial data presented in this Prospectus reflects the historical
results of operations and cash flows of PCR's IT services business for each
respective period; however, it does not reflect potential changes that may occur
in our funding and operations as a result of becoming a stand-alone company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Therefore, the historical financial information included in this
Prospectus may not reflect our results of operations and financial condition had
we been a separate, stand-alone, publicly-held entity during the periods
presented or be indicative of our future results of operations and financial
condition.
RELIANCE ON REFERRALS FROM PCR; NEED TO EXPAND SALES AND SUPPORT ORGANIZATIONS
Historically, PCR's approximately 300-person sales staff generated
substantially all of our sales leads. Although we currently have 24 direct sales
people and are continuing to build our own direct sales force, we expect that
PCR's sales staff will continue to generate the majority of our sales leads for
the foreseeable future. The Services Agreement provides us with the right of
first refusal to perform IT services for PCR's customers.
We need to substantially expand our direct and indirect sales activities to
build market awareness, establish name recognition and sell our services. Our
services require a sophisticated sales effort targeted at professionals at
different levels within our prospective customers' organizations. Competition
for qualified IT sales personnel is intense, and we may not be able to hire the
quality and number of sales people we are targeting. We also intend to establish
alternative sales channels which may include strategic relationships with a
variety of hardware manufacturers and vendors. We cannot be certain that we will
be able to successfully expand our sales staff or that we will be able to
successfully promote our existing or future service offerings. See "Business --
Strategy" and "-- Sales and Marketing."
COMPETITIVE MARKET FOR TECHNICAL PERSONNEL
Our future success depends to a significant extent on our ability to
attract, train and retain highly skilled technical personnel, particularly
service technicians, systems engineers and other senior technical personnel. We
believe that there is a worldwide shortage of, and significant competition for,
professionals with the advanced technical skills necessary to perform the
services we offer. This makes it difficult for us to hire the quality and number
of technical personnel we require. In addition, it makes it more expensive to
hire those personnel we can attract. Such competition has adversely affected,
and is likely to continue to adversely affect, our gross profits, margins and
results of operations. Our business, financial condition, operating results and
growth prospects could decline significantly if we are unable to hire and retain
qualified technical personnel that are necessary to conduct and expand our
operations successfully. We cannot assure you that we will be successful in
attracting and retaining the technical personnel required. See "Business --
Strategy" and "-- Employees."
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SUBSTANTIAL VARIABILITY OF QUARTERLY OPERATING RESULTS
Our revenue, gross profit, operating income and net income may vary
substantially from quarter to quarter due to a number of factors. Many factors,
some of which are not within our control, may contribute to fluctuations in
operating results. These factors include the following:
- Variations in billing margins and personnel utilization rates;
- Short-term nature of customers' commitments;
- Patterns of IT-oriented capital spending by customers;
- Seasonal impact on projects for customers;
- Our hiring patterns;
- Timing, size and mix of product and service orders and deliveries by PCR
and other product vendors;
- Timing and size of new projects, including projects for new customers and
changes to existing projects;
- Pricing changes in response to customer demand and various competitive
factors;
- Fluctuations in selling and operating expenses based on our allocated
portion of expenses shared with PCR;
- Costs associated with fixed-price contracts;
- Market factors affecting the availability or costs of qualified technical
personnel;
- Timing and customer acceptance of our new service offerings;
- Changes in trends affecting outsourcing of IT services;
- Length of sales cycle;
- Effect of acquisitions and new branch office openings;
- Changes in personnel, parts inventory and other operating costs; and
- Industry and general economic conditions.
Historically, our revenue growth generally has been lower in the fourth
quarter due to reduced activity during the holiday season and fewer working days
for those customers who curtail operations during such period. We anticipate
that our business will continue to be subject to such seasonal variations.
Many of our costs, such as personnel and facilities costs, are relatively
fixed in nature. Our expense levels are based in part on expectations of future
revenue. As a result, our operating results have been and in the future will
continue to be impacted by changes in technical personnel billing and
utilization rates. Technical personnel utilization rates have been and are
expected to continue to be adversely affected during periods of rapid and
concentrated hiring. In addition, during such periods, we are likely to incur
greater technical training costs. Depending upon the availability of qualified
technical personnel, during periods of rapid growth we have utilized, and are
likely to continue to utilize, contract personnel, which also adversely affects
gross margins. Due to these and other factors, if we are successful in expanding
our service offerings and revenue, periods of variability in utilization are
likely to occur. We believe, therefore, that past operating results and
period-to-period comparisons should not be relied upon as an indication of
future operating performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Selected Quarterly Results of
Operations" and "Relationship with PCR."
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DEPENDENCE ON INDUSTRY ALLIANCES AND RELATIONSHIPS; CONTINUED AUTHORIZATION TO
PROVIDE MANUFACTURER-AUTHORIZED SERVICES
Our future success depends largely on our relationships with leading
hardware and software vendors and on our status as an authorized service
provider. We maintain service authorizations with many industry-leading
hardware, software and internetworking product vendors, including Bay Networks,
Cisco Systems, Compaq, Computer Associates, Hewlett-Packard, IBM, Microsoft,
Novell and 3Com. Without such authorizations, we would be unable to provide our
current range of services, including warranty services. Since we utilize our
authorizations as a marketing tool, any negative change in these relationships
could adversely affect our financial condition and results of operations while
we seek to establish alternative relationships. Also, we intend to establish
additional alliances and relationships to keep pace with changes in technology
and enhance our service offerings. In general, authorization agreements between
the Company and manufacturers include termination provisions, some of which are
immediate. We cannot assure you that manufacturers will continue to authorize us
as an approved service provider. In addition, we cannot assure you that
companies which introduce new products will authorize us as an approved service
provider for such new products. See "Business -- Strategy."
INTENSE COMPETITION
We compete in rapidly changing markets that are intensely competitive and
highly fragmented. We compete, directly and indirectly, with a variety of
national and regional service providers, including services organizations of
established computer product manufacturers, value added resellers ("VARs"),
systems integrators, internal corporate MIS staffs and, to a lesser extent,
consulting firms, aggregators and distributors.
Many of our current and potential competitors have longer operating
histories and substantially greater financial, marketing, technical and other
resources than we do. As a result, our competitors may be able to adapt more
quickly to changes in customer needs or to devote greater resources to the
provisioning of IT services. Such competitors may attempt to increase their
presence in our markets by forming strategic alliances with other competitors or
our customers, offering new or improved products and services to our customers
or increasing their efforts to gain and retain market share through competitive
pricing. In addition, competition for quality technical personnel has continued
to intensify, resulting in increased personnel costs. Such competition has
adversely affected, and is likely to continue to adversely affect, our gross
profits, margins and results of operations. Furthermore, we believe the barriers
to entry into our markets are relatively low, which enable new competitors to
offer competing services.
We believe that the principal competitive factors in the market for IT
services include technical expertise, the availability of skilled technical
personnel, breadth of service offerings, reputation, financial stability and
price. To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our service offerings and expand our sales
channels. Any pricing pressures, reduced margins or loss of market share
resulting from our failure to compete effectively could materially adversely
affect our business. See "Business -- Competition."
POTENTIAL LIABILITY TO CUSTOMERS
Many of our projects are critical to the operations of our customers'
businesses and provide benefits that are difficult to quantify. Any material
failure in a customer's computer system could result in a claim for substantial
damages against us, regardless of our responsibility for such failure. We
attempt to contractually limit our liability for damages arising from errors,
mistakes, omissions or negligent acts performed while rendering our services.
However, the limitations of liability set forth in our contracts may not be
enforceable in all instances or may not otherwise protect us from liability for
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damages. Additionally, we do not have written contracts with many of our
customers, and therefore we have no contractual limitation of liability. We do
not carry errors and omissions insurance. We intend to pursue such coverage.
However, we cannot assure you that such coverage will be available on terms
acceptable to us. Our business, financial condition and operating results could
decline if customers successfully assert one or more large claims that exceed
available insurance coverage, if any, against us.
MANAGEMENT OF GROWTH
We have experienced substantial growth in revenue, employees and customers
during the past five years. Any future growth is expected to continue to place
significant and increasing demands on our management, operational infrastructure
and technical resources. Our future performance will depend in part on our
ability to finance and manage expanding operations and to adapt our information
systems to changes in our business. If we fail to manage our growth effectively,
it could adversely affect our business, financial condition and results of
operations. Historically, and in the foreseeable future, our management,
operational and other infrastructure resources have been and will continue to be
provided, in large part, by PCR. For the near term, our ability to manage our
growth effectively will depend, in part, upon PCR's timely and complete
performance of its obligations to provide such management, operational and other
infrastructure resources. Over the long term, our ability to manage growth will
depend on our ability to develop independent internal operational, financial and
other systems, as well as our own business development capabilities. In
addition, our ability to maintain and renew existing service contracts and
obtain new business will depend, in large part, on our ability to attract, train
and retain technical personnel with the skills that keep pace with continuing
changes in IT, evolving industry standards and changing customer preferences.
Further, we must train and manage our growing employee base, requiring an
increase in the level of responsibility for both existing and new management
personnel. It is uncertain whether the management skills and systems currently
in place will be adequate or that we will be able to assimilate new employees
successfully. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview."
ABSENCE OF PCR FINANCIAL SUPPORT; LIMITED BORROWING CAPACITY
Prior to January 6, 1999, the assets, liabilities, business, operations and
personnel associated with our business did not reside in a single independent
legal entity but were distributed within PCR and our business was operated
within a larger public company. As such, PCR provided all cash and capital
resources required to operate our business. Consequently, we have not
independently maintained or managed any cash or been responsible for obtaining
external sources of financing. Any of our capital requirements in excess of
internally generated funds were financed by PCR internally or through PCR's
equity offerings or credit facilities. While our agreements with PCR permit
intercompany loans, PCR is not obligated to provide cash for our operations.
We have obtained an interim credit facility from Deutsche Financial Services
Corporation. This credit facility is terminable at will by either party. In
addition, we cannot be certain that the credit facility will be sufficient to
meet our current or future needs. The borrowing capacity, interest rate and
other terms of our credit facility are dependent upon the continued satisfaction
of certain terms and conditions by PCR. Upon consummation of this offering, we
intend to replace the interim credit facility with a permanent credit facility.
However, we cannot assure you that we will be able to obtain a new credit
facility or that a new credit facility will be available on terms acceptable to
us. Consequently, our borrowing costs may be higher in the future than is
reflected in our historical financial statements. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Relationship with PCR."
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RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL CHANGE
The market for our services is characterized by rapidly changing technology
and frequent new service introductions. The development and commercialization of
new technologies and the introduction of new services could render our existing
services obsolete or unmarketable. Our continued success will depend on our
ability to attract and retain highly capable technical personnel, to enhance
existing services and to develop, integrate and introduce new service offerings
on a timely and cost-effective basis that keep pace with technological
developments and address increasingly sophisticated customer requirements. We
cannot assure you that we will be successful in identifying, developing,
marketing or implementing new services necessary to keep pace with technological
change. In addition, we may experience contractual or technical difficulties
that could delay or prevent our successful deployment of such new services. See
"Business -- Industry Background."
DEPENDENCE ON KEY PERSONNEL
Our future performance depends to a significant degree upon the continued
service of the key members of our management team, as well as marketing, sales
and technical personnel, and our ability to attract and retain new management
and other personnel. We are particularly dependent upon David B. Pomeroy, II,
Chairman of the Board, Stephen E. Pomeroy, President and Chief Executive
Officer, and Larry H. Lokey, Vice President of Sales, because of their industry
knowledge, marketing skills and relationships with our major vendors, customers
and employees. The loss of the services of any one of them could materially
adversely affect us. We intend to enter into employment agreements with each
executive officer which contain non-competition covenants that extend for a
period of up to one year following termination of employment. Substantially all
of our salespersons and technical personnel have entered into agreements which
contain non-disclosure, non-solicitation and non-competition provisions.
Although we have entered into such agreements, we cannot guarantee that such
agreements are enforceable. In any case, such agreements do not ensure continued
service by such individuals. We cannot be certain that we will retain our key
employees or that the departure of one or more of them would not materially
adversely affect us. Furthermore, we cannot guarantee that we will be successful
in attracting and retaining the new or additional managerial personnel we
require to conduct our operations or to manage growth successfully. We intend to
apply for, maintain, and be the beneficiary of, a life insurance policy on the
life of Stephen E. Pomeroy in the amount of $500,000. We do not intend to
maintain key person life insurance on any of our other executive officers,
salespersons or technical personnel. See "Management -- Key Person Insurance."
RISKS ASSOCIATED WITH NEW SERVICE OFFERINGS
During 1998, we began to offer new services to our clients, including asset
discovery and tracking and advanced UNIX services. All such services constitute
only a small percentage of our total revenue and remain in an early stage of
marketing and customer acceptance. In 1999, we plan to offer additional
services, including advanced systems management. We have had limited previous
experience in developing, marketing or providing new services. In certain cases,
offering new services requires additional training of existing technical
personnel or the hiring of new personnel with the requisite skills. As a result,
we may not be able to develop such capabilities, or such capabilities may not be
developed in a timely and profitable manner. Furthermore, it is uncertain
whether we will be able to successfully market such services to new and existing
clients, or whether we will be able to integrate and manage the additional
technical personnel required to deliver such services or meet client
expectations. See "Business -- Strategy."
POSSIBILITY OF OVER-RUNS ON FIXED-PRICE CONTRACTS
An increasing number of our future projects may be fixed-price contracts
rather than contracts billed on a time-and-materials basis. Currently, many of
our cabling services contracts are fixed-price
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contracts. We bear the risk of cost over-runs and inflation in connection with
fixed-price projects. If we fail to: (i) estimate accurately the resources and
time required for a fixed-price project, or (ii) complete the services within
the time frame committed, our business and results of operations could suffer.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON PCR AND OTHER THIRD-PARTY SUPPLIERS AND VENDORS
Our business depends upon the adequate and timely supply to our customers of
hardware and software products from third parties at competitive prices and on
reasonable terms. To date, we have elected to procure substantially all of the
products we use on customer projects from PCR, given our historic relationship
with PCR. We have not entered into any long-term supply contracts with PCR or
other distributors. However, under the Services Agreement, PCR has the right of
first refusal to evaluate and participate in any sales opportunities for
microcomputer hardware and related products which come to our attention. From
time to time, PCR and other third-party suppliers may not be able to supply us
or our customers with products in a timely manner. Any material disruption in
the supply of products from third-party vendors could adversely affect our
results of operations. In addition, we are also dependent on PCR to provide us
with sales leads. If PCR's sales force does not continue to provide us with
sales opportunities, our financial condition and results of operations will be
materially adversely affected. See "Relationship with PCR."
RISKS ASSOCIATED WITH GOVERNMENT CONTRACTS
We derive a portion of our revenue from contracts with state and local
governments and government agencies. In the event of a dispute, we would have
limited recourse against the government or government agency. Furthermore,
future statutes and/or regulations may reduce the profitability of such
contracts. In addition, certain of our government contracts have no contractual
limitation of liability for damages resulting from the provision of our
services. See "Risk Factors -- Potential Liability to Customers."
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
As part of our growth strategy, we intend to pursue acquisitions of IT
services businesses to broaden our service offerings, add technical or sales
personnel, increase our presence in existing markets, expand into new geographic
markets, improve operating efficiencies through economies of scale, establish
strategic relationships and obtain desirable customer relationships. If we buy a
company, selected assets or technologies, we could have difficulty assimilating
acquired personnel, operations, customers or vendors. In addition, one or more
of such personnel, customers or vendors may decide not to work for or continue
to do business with us. These difficulties could disrupt our ongoing business,
distract our management and employees and increase our expenses. Although we
conduct due diligence reviews with respect to all acquisition candidates, we may
not successfully identify all material liabilities or risks related to a
potential acquisition candidate. Furthermore, we may have to incur debt or issue
equity securities to pay for any future acquisitions, the issuance of which
could be dilutive to our existing stockholders. See "Business -- Strategy."
POTENTIAL CONFLICTS OF INTEREST BETWEEN THE COMPANY AND PCR
Our relationship with PCR could create conflicts of interest in a number of
areas including:
- PCR's ability to control our management and affairs;
- Shared sales and marketing functions;
- Indemnification obligations of each of PCR and Pomeroy Select;
- PCR's right to require us to register its shares of our Class A Common
Stock;
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- Sales or distributions by PCR of its remaining shares of our Class A or
Class B Common Stock;
- Differing financing needs or goals adversely affecting our borrowing terms
or ability; and
- Differing operational, financial and employee benefit objectives.
Conflicts of interest which may develop between PCR and the Company may not
be resolved in our favor. Pursuant to the Services Agreement with PCR, PCR has
agreed not to engage in activities which are competitive with Pomeroy Select.
This agreement is terminable on relatively short notice. However, PCR's
agreement not to compete with us shall survive for the longer of two years from
the date of the Services Agreement or one year from the date of termination of
the Services Agreement. There can be no assurance that this agreement will
prevent PCR from engaging in competitive activities with us or that we will not
compete with PCR regarding activities not currently engaged in by either
company.
For purposes of governing and defining our ongoing relationship, we have
entered into a number of agreements with PCR which became effective on January
6, 1999. As a result of PCR's ownership interest in Pomeroy Select, the terms of
these agreements were not, and the terms of any future amendments to those
agreements will not be, the result of arm's-length negotiations. Our agreements
with PCR include:
- Services Agreement: PCR has agreed to continue to provide various
administrative, management, marketing and support services to us. In
addition, the Services Agreement provides that: (i) Pomeroy Select and PCR
shall not compete with each other; (ii) PCR shall give us a right of first
refusal to participate in all services sales opportunities which come to
the attention of PCR; and (iii) we shall give PCR a right of first refusal
to participate in all hardware sales opportunities which come to our
attention. Further, we have agreed with PCR to joint market and cross-sell
our respective offerings. PCR's sales force can earn performance-based
commissions and bonuses for continuing to generate services revenue for
us.
- Space Sharing Agreement: Pomeroy Select and PCR have agreed to share
certain office facilities, including the Company's headquarters and branch
offices;
- Indemnification Agreement: Pomeroy Select and PCR have agreed to indemnify
each other and their respective directors, officers, employees, agents and
representatives for certain liabilities and financial obligations; and
- Stock Registration Agreement: We have granted to PCR rights which may
require us to register, under certain circumstances, the shares of Class A
Common Stock beneficially owned by PCR. See "Description of Capital Stock
-- Registration Rights of PCR."
It is our policy and the policy of PCR that services provided to us by PCR
will generally be provided on terms and conditions comparable to those granted
to an unaffiliated third party for similar services. However, because these
agreements were negotiated in the context of a parent-subsidiary relationship,
we cannot guarantee that these agreements, or the transactions with PCR
contemplated by such agreements, will be effected on terms as favorable to us as
could have been obtained from unaffiliated third parties.
Additionally, two of our Directors, David B. Pomeroy, II and Stephen E.
Pomeroy, are also directors of PCR. As a result, such Directors may have
conflicts of interest with respect to matters potentially or actually involving
or affecting Pomeroy Select and PCR. Conflicts of interest and the lack of
arm's-length transactions with PCR could adversely affect our business,
financial condition and results of operations. See "Management" and
"Relationship with PCR."
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BROAD DISCRETION IN USE OF PROCEEDS
The primary purposes of this offering are to repay indebtedness under our
credit facility, increase our working and equity capital, create a public market
for the Company's Class A Common Stock, facilitate future access to public
markets, provide incentives for our current and future employees pursuant to our
stock option program and increase our visibility and credibility in our markets.
We currently intend to use approximately $ of the net proceeds of this
offering to repay indebtedness under our credit facility. As of the date of this
Prospectus, we have no specific plans with respect to the use of the remaining
proceeds of this offering. As a consequence, we will have the discretion to
allocate a large percentage of such proceeds to uses that the stockholders may
not deem desirable, and there can be no assurance that the proceeds can or will
be invested to yield a significant return. See "Use of Proceeds."
YEAR 2000 RISKS
BACKGROUND. Many computer programs and embedded chips in other forms of
technology use only the last two digits to identify a year in a date field. As a
result of this design decision, some of these systems could fail to operate or
fail to produce correct results if "00" is interpreted to mean 1900, rather than
2000. These problems are widely expected to increase in frequency and severity
as the year 2000 approaches and are commonly referred to as the "Year 2000
Problem."
ASSESSMENT. We believe our exposure to Year 2000 problems lies primarily in
two areas: (i) our reliance upon PCR's internal operating systems; and (ii) Year
2000 compliance by third parties with whom we have a material relationship. We
have worked with PCR to complete an assessment of its principal internal
systems. However, we are continuing to assess our Year 2000 exposure with
respect to third parties. While the costs of these assessment efforts are not
expected to be material to our financial position or any year's results of
operations, we cannot assure you that this will be the case.
INTERNAL OPERATING SYSTEMS. We have determined that our principal internal
systems are or we believe will be Year 2000 compliant. We are in the process of
testing the Year 2000 compliant versions of the software used in our principal
IT modules and systems. Upon completion of the testing, we will implement the
conversion of the existing software to the Year 2000 compliant versions. In
addition, some of our non-critical applications may not be Year 2000 compliant.
We are conducting a program to identify and resolve any such exposure. Although
the costs related to these efforts are not expected to be material to our
business, financial condition or results of operations, we cannot assure you
that this will be the case.
THIRD-PARTY RELATIONSHIPS. The failure of a supplier to deliver timely Year
2000 compliant products to our customers could jeopardize our ability to meet
our obligations to our customers. We are conducting a program to identify and
resolve Year 2000 exposure from third parties. Any failure of third parties with
whom we have a material relationship to resolve Year 2000 problems with their
products in a timely manner could materially adversely affect our business,
financial condition or results of operations.
RISKS OF OUR YEAR 2000 ISSUES. We expect to identify and resolve all Year
2000 problems that could materially adversely affect our business, financial
condition or results of operations. However, we believe that it is not possible
to determine with complete certainty that all Year 2000 problems affecting us
have been identified or corrected. In addition, we may experience difficulties
with the conversion of our existing software to the Year 2000 compliant
versions. Further, we cannot accurately predict how
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many failures related to the Year 2000 Problem will occur or the severity,
duration or financial consequences of such failures. As a result, we expect that
we could possibly suffer the following consequences:
- A significant number of operational inconveniences and inefficiencies for
us and our customers that may divert our time and attention and financial
and human resources from our ordinary business activities; and
- A lesser number of serious system failures that may require significant
efforts by us, our customers or our vendors to prevent or alleviate
material business disruptions.
OUR CONTINGENCY PLANS. We believe our plans for addressing the Year 2000
Problem are adequate. We do not believe we will incur a material financial
impact from system failures, or from the costs associated with assessing the
risks of failure, arising from the Year 2000 Problem. Consequently, we do not
intend to create a detailed contingency plan. In the event that we do not
adequately identify and resolve our Year 2000 issues, the absence of a detailed
contingency plan may materially adversely affect our business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Year 2000 Issues."
POTENTIAL ADVERSE EFFECT ON VALUE AND LIQUIDITY OF CLASS A COMMON STOCK FROM
DISPARATE VOTING RIGHTS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The different voting rights of the Class A Common Stock and Class B Common
Stock both prior to and following the Distribution, if any, could adversely
affect the value of the Class A Common Stock to the extent that investors or any
potential future purchaser of the Class A Common Stock attributes value to the
superior voting rights of the Class B Common Stock. The holders of Class A
Common Stock and Class B Common Stock generally have identical rights except
that (i) holders of Class A Common Stock are entitled to one vote per share
while holders of Class B Common Stock are entitled to ten votes per share on all
matters to be voted on by stockholders, and (ii) holders of Class A Common Stock
are not eligible to vote on any alteration of the powers, preferences, or
special rights of the Class B Common Stock that would not adversely affect the
holders of Class A Common Stock. Holders of Class A Common Stock and Class B
Common Stock are entitled to class votes on amendments to the Certificate of
Incorporation that would alter or adversely affect the powers, preferences or
special rights of the shares of their respective class. See "Description of
Capital Stock."
CONTROL BY PCR; ANTI-TAKEOVER CONSIDERATIONS
Upon completion of this offering, PCR will own 100% of our outstanding Class
B Common Stock ( % of the combined voting power of Pomeroy Select, or % if
the Underwriters exercise in full their right to purchase additional shares in
this offering). As a result, PCR will have the ability to continue to exercise
control with respect to the election of the members of our Board of Directors
and all other corporate actions requiring stockholder approval. See "Principal
Stockholders."
We have an authorized class of shares of undesignated Preferred Stock which
may be issued by the Board of Directors on such terms and with such rights,
preferences and designations as the Board of Directors may determine without
further stockholder action. Issuance of such Preferred Stock, depending upon the
rights, preferences and designations thereof, may have the effect of delaying,
deterring or preventing a change in control of the Company. See "Description of
Capital Stock -- Preferred Stock" and "-- Anti-Takeover Effects of Certain
Certificate of Incorporation and Bylaw Provisions."
Our Certificate of Incorporation and the Delaware General Corporation Law
(the "DGCL") contain provisions that may deter unsolicited takeover proposals or
delay or prevent changes in control or management of the Company, if such
proposals do occur. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. The
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DGCL also contains provisions preventing certain stockholders from engaging in
business combinations with us, subject to certain exceptions. Furthermore, PCR's
voting control of us means that it must consent to any change in control of the
Company or our Board of Directors.
These provisions have the potential to reduce the value of your shares
because they may:
- Prevent takeover transactions in which stockholders would otherwise
receive a premium over the then-current market price of their shares;
- For so long as PCR continues to own a controlling interest, prevent, and
thereafter, may discourage potential acquirors from making a bid for
Pomeroy Select, including bids at prices above the then-current market
value of the shares; and
- Generally cause a lower valuation of the shares because stockholders
realize the potential for an acquisition at above-market prices is
reduced.
See "Description of Capital Stock -- Anti-Takeover Effects of Certain
Certificate of Incorporation and Bylaw Provisions" and "-- Delaware Law and
Certain Certificate of Incorporation and Bylaw Provisions."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
There has not been a public market for the Class A Common Stock prior to
this offering, and we cannot guarantee you that an active trading market in the
Class A Common Stock will develop or, if one develops, that it will be
sustained. The initial public offering price of the Class A Common Stock was
determined through negotiations among Pomeroy Select, PCR and the
representatives of the Underwriters, and may not reflect the price at which the
Class A Common Stock will trade after this offering. In addition, the
possibility of the Distribution, the occurrence of the Distribution or the non-
occurrence of the Distribution could have an effect on the market price of the
Class A Common Stock. The market price of the Class A Common Stock could
fluctuate in response to various factors such as:
- Anticipated quarterly results;
- Changes in earnings estimates by securities analysts;
- Announcements of material events by us, our major customers, our vendors
or our competitors; and
- General industry or economic conditions.
In addition, the stock prices for many technology-related companies,
including IT services providers, have experienced wide fluctuations which often
have been unrelated to operating performance. These broad fluctuations may
adversely affect the market price of the Class A Common Stock. As a result of
any of the reasons listed above, you may be unable to resell your shares of
Class A Common Stock at or above the offering price. See "Risk Factors --
Substantial Variability of Quarterly Operating Results" and "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL ADVERSE IMPACT OF THE DISTRIBUTION
The Distribution, if it occurs, or future sales of substantial amounts of
Class A Common Stock (including shares issuable upon the exercise of stock
options), or the perception that the Distribution or such sales may or may not
occur, could cause the market price of our Class A Common Stock to drop.
Additional shares of Class A Common Stock may become eligible for future sale
under the following circumstances:
- A new offering of Class A Common Stock by us;
- Exercise of options granted under our 1999 Stock Plan; or
20
<PAGE>
- Registration of the shares of Class A Common Stock underlying the Class B
Common Stock owned by PCR or a subsequent holder of such shares.
Upon completion of this offering, we will have shares of Class A
Common Stock outstanding, all of which will be freely tradable by persons other
than "affiliates" of the Company without restriction or further registration
under the Securities Act. All of the outstanding 10,000,000 shares of Class B
Common Stock will be held by PCR. Although such shares may not be sold by PCR
absent registration under the Securities Act or an exemption from such
registration, PCR has advised us that it contemplates that the Distribution, if
it occurs, could be effected without registration under the Securities Act and
that the shares of Class A Common Stock underlying such distributed shares of
Class B Common Stock would thereafter be freely tradable by persons other than
"affiliates" of Pomeroy Select. In addition, following this offering, PCR will
have the contractual right to require us to register under the Securities Act
all shares of Class A Common Stock beneficially owned by PCR. Shares of Class B
Common Stock will not trade publicly because they automatically convert to
shares of Class A Common Stock on any sale or other transfer other than the
Distribution and certain other permitted transfers. See "Description of Capital
Stock -- Common Stock." Pomeroy Select, its Directors and officers, and PCR have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock
(other than any shares issued by the Company pursuant to acquisitions of
businesses) for a period of 180 days after the date of this Prospectus without
the prior written consent of NationsBanc Montgomery Securities LLC. See
"Principal Stockholders," "Shares Eligible for Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
The offering price of shares of the Class A Common Stock is substantially
higher than the book value per share of the Class A Common Stock. As a result,
purchasers of shares of the Class A Common Stock in this offering will incur
immediate and substantial dilution. See "Dilution."
ABSENCE OF DIVIDENDS
We have never paid cash dividends and do not anticipate paying any cash
dividends on our Common Stock for the foreseeable future. Our interim credit
facility restricts our ability to pay cash dividends. See "Dividend Policy."
21
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Class
A Common Stock being offered hereby are estimated to be approximately $
($ if the Underwriters exercise in full their over-allotment option),
assuming an initial public offering price of $ per share, after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company.
The primary purposes of this offering are to repay indebtedness under the
Company's credit facility, increase the Company's working and equity capital,
create a public market for the Company's Class A Common Stock, facilitate access
to public markets, provide incentives for our current and future employees
pursuant to the Company's stock option programs and increase the Company's
visibility and credibility in its markets. The Company currently intends to use
approximately $ of the net proceeds to repay indebtedness under the
Company's credit facility with Deutsche Financial Services Corporation. The
Company's credit facility carries an interest rate equal to the prime rate minus
1.25% per annum, subject to adjustment based on PCR's aggregate monthly
borrowing volume under its Distribution Financial Facility with Deutsche
Financial Services Corporation. At January 6, 1999, the interest rate was 6.50%
per annum and the outstanding balance was approximately $18.0 million. The
Company utilizes the credit facility primarily for working capital. The
anticipated repayment of debt will increase the availability of bank credit for
future working capital needs and general business purposes. The Company expects
to use the remaining net proceeds from the offering for working capital and
other general corporate purposes, including expansion of the Company's sales and
marketing and customer support activities and capital expenditures. Other than
the repayment of debt, the Company currently has no specific plans for the use
of the proceeds of the offering. See "Risk Factors -- Broad Discretion in Use of
Proceeds."
The Company may also use a portion of the net proceeds to finance
acquisitions that complement the Company's business. Currently, however, the
Company does not have any understandings, commitments or agreements with respect
to any such acquisitions. Pending application of the net proceeds for the
purposes described above, the Company intends to invest such funds in
short-term, investment-grade, interest bearing securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain any future earnings
to fund future growth and development of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. Payment of
future dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
earnings, financial condition, operating results and current and anticipated
cash needs, as well as any economic conditions the Board of Directors may deem
relevant. The Company's interim credit facility with Deutsche Financial Services
Corporation restricts our ability to pay cash dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
22
<PAGE>
CAPITALIZATION
The following table sets forth, as of October 5, 1998, (i) the pro forma
capitalization of the Company adjusted to give effect to the transfer of certain
assets and liabilities of PCR to the Company and the issuance of 10,000,000
shares of Class B Common Stock by the Company to PCR on January 6, 1999, and
(ii) as adjusted for the sale by the Company of shares of Class A Common
Stock offered hereby, assuming an initial public offering price of $ per
share, after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company and the application of the estimated
net proceeds therefrom. You should read this table in conjunction with "Selected
Historical Financial Data," our historical financial statements, including the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" which appear elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF OCTOBER 5, 1998
------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
----------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Short-term debt(1)........................................................................ $ 18,315 $
Long-term debt(2)......................................................................... 207
Stockholder's equity(3):
Class A Common Stock: $0.01 par value, 30,000,000 shares authorized; no shares issued
and outstanding, shares issued and outstanding pro forma as adjusted(4)........... -
Class B Common Stock: $0.01 par value, 15,000,000 shares authorized 10,000,000 shares
issued and outstanding................................................................ 100
Preferred Stock: $0.01 par value, 5,000,000 shares authorized; no shares issued and
outstanding........................................................................... -
Additional paid-in capital................................................................ 12,512
Retained earnings......................................................................... -
----------- -----------
Total stockholder's equity............................................................ 12,612
----------- -----------
Total capitalization(5)............................................................... $ 31,134 $
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) Short-term debt includes the current portion of notes payable and bank note
payable. Bank note payable represents the impact of the actual contribution
of the short-term debt to the Company by PCR which occurred on January 6,
1999 as if it had occurred on October 5, 1998.
(2) Represents the Company's allocated share of PCR's debt related to
acquisitions consummated by PCR prior to January 6, 1999.
(3) Reflects the incorporation of the Company on December 14, 1998.
(4) Excludes 620,000 shares subject to outstanding options to purchase Class A
Common Stock granted on January 6, 1999 at an exercise price per share equal
to the initial public offering price per share.
(5) Consists of short-term debt, long-term debt and total stockholder's equity.
23
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of October 5, 1998
was $5.8 million, or $0.58 per share of Common Stock. Pro forma net tangible
book value per share is determined by dividing the Company's pro forma tangible
net worth (tangible assets less liabilities), by the number of shares of pro
forma Common Stock outstanding. After giving effect to the sale of the shares of
Class A Common Stock offered by the Company hereby (at an assumed initial public
offering price of $ per share) and after deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company, the pro forma net tangible book value of the Company as of October 5,
1998 was $ per share of Common Stock. This represents an immediate increase
in such pro forma net tangible book value of $ per share to existing holders
and immediate dilution of $ per share to new investors purchasing shares in
this offering. The following table illustrates the per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $
Pro forma net tangible book value per share as of
October 5, 1998....................................... $ 0.58
Increase per share attributable to this offering........
---------
Pro forma net tangible book value per share after this
offering................................................
---------
Dilution per share to new investors....................... $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of October 5, 1998,
the total number of shares of Common Stock purchased from the Company, the total
consideration paid and the average consideration per share paid by the
stockholder and by new investors purchasing shares offered by the Company
hereby, at an assumed initial public offering price of $ per share:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED
------------------------ ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholder(1)............................ % $ % $
New investors...................................... % % $
----------- ----- --------- -----
Total.......................................... 100.0% $ 100.0%
----------- ----- --------- -----
----------- ----- --------- -----
</TABLE>
- ------------------------
(1) Excludes 620,000 shares subject to outstanding options to purchase Class A
Common Stock granted on January 6, 1999 at an exercise price per share equal
to the initial public offering price per share.
24
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected historical financial data with respect to the
Company's statements of income for the years ended January 5, 1996, 1997 and
1998 and for the nine months ended October 5, 1998 and with respect to the
Company's balance sheets as of January 5, 1997, January 5, 1998 and October 5,
1998 have been derived from the Company's Financial Statements which have been
audited by Grant Thornton, LLP, independent accountants, which appear elsewhere
in this Prospectus. The selected financial data as of January 5, 1994 and 1995,
and for the years then ended, and as of October 5, 1997, and for the nine-month
period then ended, are derived from unaudited financial statements of the
Company. In the opinion of management, the unaudited results of operations for
such periods include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the information. The results of
operations for the nine months ended October 5, 1998 are not necessarily
indicative of the results that may be expected for the full year. The selected
historical financial data reflects the results of operations, financial position
and cash flows of the business transferred to the Company from PCR. The selected
historical data is presented as if the Company had existed as a corporation
separate from PCR during the periods presented and includes the historical
assets, liabilities, sales and expenses directly related to the Company's
operations that were either specifically identifiable or allocable using
methodologies which took into consideration the ratio of the Company's gross
profit contribution to the consolidated gross profit of PCR and other
appropriate factors. The following information is qualified by reference to, and
should be read in conjunction with, "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
audited financial statements and notes thereto and the unaudited condensed
financial statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JANUARY 5, OCTOBER 5,
--------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1997 1998
----------- ----------- --------- --------- --------- ----------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue................................ $ 8,706 $ 13,103 $ 17,243 $ 26,396 $ 45,209 $ 31,903 $ 51,401
Cost of revenue........................ 4,454 7,305 10,123 16,487 27,137 18,418 30,633
----------- ----------- --------- --------- --------- ----------- ---------
Gross profit....................... 4,252 5,798 7,120 9,909 18,072 13,485 20,768
Operating expenses:
Selling, general and administrative
expenses............................. 2,984 4,167 5,089 6,199 11,457 8,634 12,439
Depreciation and amortization.......... 76 146 198 338 582 375 737
----------- ----------- --------- --------- --------- ----------- ---------
Total operating expenses........... 3,060 4,313 5,287 6,537 12,039 9,009 13,176
----------- ----------- --------- --------- --------- ----------- ---------
Operating income................... 1,192 1,485 1,833 3,372 6,033 4,476 7,592
Other expense, net..................... 331 85 133 130 110 121 292
----------- ----------- --------- --------- --------- ----------- ---------
Income before provision for income
taxes................................ 861 1,400 1,700 3,242 5,923 4,355 7,300
Provision for income taxes............. 354 567 690 1,323 2,180 1,603 2,701
----------- ----------- --------- --------- --------- ----------- ---------
Net income......................... $ 507 $ 833 $ 1,010 $ 1,919 $ 3,743 $ 2,752 $ 4,599
----------- ----------- --------- --------- --------- ----------- ---------
----------- ----------- --------- --------- --------- ----------- ---------
Pro forma net income per share......... $ 0.37 $ 0.46
Pro forma weighted average shares(1)... 10,000 10,000
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 5, AS OF OCTOBER 5,
----------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1997 1998
----------- ----------- ----------- --------- --------- ----------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........... $ (85) $ 477 $ 1,076 $ 100 $ 2,497 $ 1,801 $ 4,146
Total assets........................ 4,359 7,432 8,500 17,682 24,702 28,546 37,185
Bank note payable................... 1,464 1,410 1,651 731 1,630 785 7,409
Due to parent....................... - 750 - 6,614 6,588 12,774 6,158
Stockholder's equity................ 508 1,340 2,351 4,270 8,013 7,022 12,612
</TABLE>
- --------------------------
(1) Assumes that all 10,000,000 shares of Class B Common Stock issued to PCR on
January 6, 1999 were outstanding for the entire period. See "Prospectus
Summary -- Summary of Relationship with PCR."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Pomeroy Select is a single-source provider of integrated desktop management
and network services that help corporate clients manage their IT assets. Pomeroy
Select provided IT services to more than 2,100 customers in the nine months
ended October 5, 1998. The Company's customers generally range from mid-sized
organizations to Fortune 500 companies in a wide variety of industries. We
deliver our services nationally through over 900 technical and engineering
personnel located in 30 offices. For the nine months ended October 5, 1998, none
of the Company's customers represented more than 5% of the Company's revenue.
Over the four-year period ended January 5, 1998, the Company's revenue grew at a
compounded annual growth rate of 51.0%, principally due to expansion of our
geographic markets, increased business with existing customers, increased demand
for life cycle services, acquisitions and, to a lesser extent, increased demand
for internetworking services. For the nine-month period ended October 5, 1998,
the Company's revenue grew by 61.1% over the comparable nine-month period for
the prior year, principally due to expansion of our geographic markets and
increased demand for internetworking and life cycle services by both new and
existing customers.
The Company's services range from single engagements to long-term projects
involving multiple personnel. The Company provides these services to its
customers primarily on a time-and-materials basis and pursuant to written
contracts or purchase orders. The Company's arrangements can be terminated with
limited advance notice, typically not more than 30 days, upon payment of fees
due to and expenses incurred by the Company through the date of termination. The
Company also provides some of its services under fixed-price contracts rather
than contracts billed on a time-and-materials basis. Fixed-price contracts are
used when the Company believes it can clearly define the scope of services to be
provided and the cost of providing those services. See "Risk Factors --
Possibility of Over-runs on Fixed-Price Contracts." Revenue is recognized as
services are performed or ratably over the term of the particular contract. The
Company generally bills its customers monthly for services provided by its
technical personnel at contracted rates. In some cases, the Company bills in
advance on a quarterly, semi-annual or annual basis for maintenance, extended
service and certain other service contracts. Where contractual provisions
permit, customers also are billed for reimbursement of expenses incurred by the
Company on the customer's behalf.
The Company's most significant cost is technical personnel payroll. Thus,
the Company's financial performance is based primarily upon billing margin
(billable hourly rate less the cost to the Company of a technician or systems
engineer on an hourly basis) and personnel utilization rates (actual billable
hours divided by available work hours.)
The Company is actively seeking to expand the size and enhance the quality
of its direct sales force which currently consists of 24 persons. By hiring
additional highly qualified sales personnel, the Company intends to establish
name recognition and promote its reputation as a high-quality, single-source IT
services provider. The Company also has a right of first refusal on all services
business generated by sales personnel of PCR. The Company's agreement with PCR
provides PCR's sales force with performance-based commissions and bonuses for
continuing to generate IT services revenue for the Company. The Company's
inability to expand its independent sales and marketing activities may adversely
impact the Company's future growth.
For the periods presented, certain general and administrative expenses
reflected in the financial statements include allocations of certain corporate
expenses from PCR. These allocations took into consideration the ratio of the
Company's gross profit contribution to the consolidated gross profit of PCR and
other appropriate bases. These expenses generally include administrative
expenses related to
26
<PAGE>
general management, occupancy, marketing, insurance, information management and
other miscellaneous services. In addition, other expenses such as depreciation,
amortization and bad debt reserve were allocated based on management's best
estimate of actual expenses.
Since the transfer of the assets, liabilities, business, operations and
personnel comprising the Company on January 6, 1999 (the "Formation
Transaction"), except as set forth in "Relationship with PCR," the Company has
managed the various required administrative functions using its own resources or
contracted with third parties to perform these services. In addition, the
Company is now responsible for the costs and expenses associated with the
management of a publicly traded corporation.
Since January 6, 1999, certain expenses such as payroll relating to PCR
branch managers, utilities, property taxes, insurance premiums and other
applicable taxes, licenses and fees have been allocated by the Company and PCR
based on the ratio of the Company's gross profit contribution to the
consolidated gross profit of PCR and its subsidiaries, including the Company. In
addition, the Company and PCR have agreed to allocate the consolidated sales
commissions of PCR and its subsidiaries, including the Company. The Company's
portion of such sales commissions is based on the average of (i) the ratio of
the Company's gross profit contribution to the consolidated gross profit of PCR
and its subsidiaries, including the Company, and (ii) the ratio of the Company's
net revenue contribution to such consolidated net revenue. As a result, in the
event that the Company's share of gross profit and revenue relative to that of
PCR changes, the Company's operating expenses may increase or decrease in a
manner that is not directly related to the Company's financial performance. In
addition, PCR provides certain administrative services such as MIS, accounting,
marketing, legal and insurance services to the Company for an annual fee equal
to the greater of $450,000 or 0.45% of the Company's annual revenue. See
"Relationship with PCR."
With respect to income taxes, historically, all tax returns have been filed
by PCR. For historical periods, the Company's share of the tax expense has been
allocated to the Company based on the effective tax rate for the PCR
consolidated group and may not reflect the tax expense that would have been
incurred if the Company had operated as a stand-alone, publicly-held entity.
However, the Company believes that the difference would not have been material
had the income tax expense for the Company been calculated on a separate basis.
Upon completion of this offering, we anticipate that the Company will not be
eligible to file as part of the PCR consolidated group for federal income tax
purposes and with respect to some states.
Although the Company believes that the allocations and charges for the
expenses shared between the Company and PCR are reasonable, these costs are not
necessarily indicative of the costs that would have been incurred if the Company
had operated as a stand-alone, publicly-held entity, and may not be indicative
of the actual expenses that would have been incurred by the Company. As a
result, the financial information included herein may not necessarily reflect
what the results of operations, financial position and cash flows would have
been had the Company been a separate, stand-alone, publicly-held entity during
the periods presented or be indicative of the results of operations, financial
position and cash flows of the Company in the future. The financial information
included herein also does not reflect potential changes that may occur in the
operations and funding of the Company as a result of and subsequent to the
Formation Transaction and this offering.
27
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of revenue:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
---------------------------------------------------------
NINE MONTHS ENDED
YEARS ENDED JANUARY 5, OCTOBER 5,
------------------------------- ------------------------
1996 1997 1998 1997 1998
--------- --------- --------- ------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue............................... 58.7 62.5 60.0 57.7 59.6
--------- --------- --------- ----- ---------
Gross profit................................ 41.3 37.5 40.0 42.3 40.4
Operating expenses:
Selling, general and administrative
expenses.................................... 29.5 23.5 25.4 27.1 24.2
Depreciation and amortization................. 1.1 1.2 1.3 1.2 1.4
--------- --------- --------- ----- ---------
Total operating expenses.................... 30.6 24.7 26.7 28.3 25.6
--------- --------- --------- ----- ---------
Operating income............................ 10.7 12.8 13.3 14.0 14.8
Other expenses (income), net:
Interest expense.............................. 0.9 0.7 0.2 0.3 0.7
Other expense (income)........................ (0.1) (0.2) 0.0 0.1 (0.1)
--------- --------- --------- ----- ---------
Total other expenses........................ 0.8 0.5 0.2 0.4 0.6
--------- --------- --------- ----- ---------
Income before provision for income taxes........ 9.9 12.3 13.1 13.6 14.2
Provision for income taxes...................... 4.0 5.0 4.8 5.0 5.3
--------- --------- --------- ----- ---------
Net income.................................. 5.9% 7.3% 8.3% 8.6% 8.9%
--------- --------- --------- ----- ---------
--------- --------- --------- ----- ---------
</TABLE>
NINE MONTHS ENDED OCTOBER 5, 1997 COMPARED TO NINE MONTHS ENDED OCTOBER 5,
1998
REVENUE. Revenue increased by 61.1%, or $19.5 million, from $31.9 million
for the nine months ended October 5, 1997 to $51.4 million for the nine months
ended October 5, 1998. The increase in revenue resulted principally from
expansion of the Company's geographic markets and increased demand for
internetworking and life cycle services by both new and existing customers.
GROSS PROFIT. Cost of revenue consists primarily of salaries for billable
technical professionals. Costs associated with providing the Company's services
are recorded when incurred. Cost of revenue increased by 66.3%, or $12.2
million, from $18.4 million for the nine months ended October 5, 1997 to $30.6
million for the nine months ended October 5, 1998. This increase was primarily
attributable to increased personnel costs resulting from the hiring of
additional technical personnel to support the increased demand for the Company's
services. The Company's gross profit increased by 54.0%, or $7.3 million, from
$13.5 million for the nine months ended October 5, 1997 to $20.8 million for the
nine months ended October 5, 1998. Gross profit margin decreased from 42.3% of
revenue during the nine months ended October 5, 1997 to 40.4% of revenue for the
nine months ended October 5, 1998. The decrease in gross profit margin was
attributable primarily to the implementation of a strategic decision during the
1998 period to increase sales by aggressively pricing certain service offerings
resulting in lower billing margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist primarily of sales and sales management
compensation, administrative salaries, and other operating costs, principally
rent, utilities and marketing. Selling, general and administrative expenses
increased by
28
<PAGE>
44.1%, or $3.8 million, from $8.6 million for the nine months ended October 5,
1997 to $12.4 million for the nine months ended October 5, 1998, but decreased
as a percentage of revenue from 27.1% for the nine months ended October 5, 1997
to 24.2% for the nine months ended October 5, 1998. The increase in total
dollars of selling, general and administrative expenses was primarily
attributable to an increase in those expenses which vary directly with revenue,
such as commissions. The decrease of selling, general and administrative
expenses as a percentage of revenue was a result of revenue increasing at a
faster rate than such expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization consist of
depreciation expense related to furniture, fixtures and equipment and
amortization of intangibles. Depreciation and amortization increased by 96.5%,
or $362,000, from $375,000 for the nine months ended October 5, 1997 to $737,000
for the nine months ended October 5, 1998 and increased as a percentage of
revenue from 1.2% for the nine months ended October 5, 1997 to 1.4% for the nine
months ended October 5, 1998. These increases were due to depreciation for
equipment additions and increased amortization of goodwill related to
acquisitions.
OTHER EXPENSE (INCOME), NET. Other expense (income), net consists primarily
of interest expense. Interest expense was allocated to the Company from PCR
based on the working capital and operating needs of the Company. Other expense,
net increased by 141.3%, or $171,000 from $121,000 for the nine months ended
October 5, 1997 to $292,000 for the nine months ended October 5, 1998.
PROVISION FOR INCOME TAXES. The provision for income taxes was based on the
Company's proportionate share of the tax expense based on the effective tax rate
for the PCR consolidated group. Provision for income taxes increased by 68.5%,
or $1.1 million, from $1.6 million for the nine months ended October 5, 1997 to
$2.7 million for the nine months ended October 5, 1998. This increase was
primarily a result of higher income before provision for income taxes. The
effective income tax rate increased from 36.8% for the nine months ended October
5, 1997 to 37.0% for the nine months ended October 5, 1998.
YEAR ENDED JANUARY 5, 1997 COMPARED TO YEAR ENDED JANUARY 5, 1998
REVENUE. Revenue increased by 71.3%, or $18.8 million, from $26.4 million
for the year ended January 5, 1997 to $45.2 million for the year ended January
5, 1998. This increase resulted principally from expansion of our geographic
markets, increased business with existing customers and increased demand for
internetworking and life cycle services.
GROSS PROFIT. Cost of revenue increased by 64.6%, or $10.7 million, from
$16.5 million for the year ended January 5, 1997 to $27.1 million for the year
ended January 5, 1998 as a result of increased personnel costs resulting from
the hiring of technical personnel to support the increased demand for the
Company's services. The Company's gross profit increased by 82.4%, or $8.2
million, from $9.9 million for the year ended January 5, 1997 to $18.1 million
for the year ended January 5, 1998. Gross profit margin increased from 37.5% of
revenue for the year ended January 5, 1997 to 40.0% of revenue for the year
ended January 5, 1998. The increase in gross profit margin was primarily
attributable to a combination of improved billing margins and greater billable
personnel utilization.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 84.8%, or $5.3 million, from $6.2 million
for the year ended January 5, 1997 to $11.5 million for the year ended January
5, 1998, and increased as a percentage of revenue from 23.5% for the year ended
January 5, 1997 to 25.4% for the year ended January 5, 1998. These increases
were primarily due to growth in sales commissions as revenue increased and a
higher level of administrative staffing and related personnel costs necessary to
manage the Company's revenue growth.
29
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
72.2%, or $244,000, from $338,000 for the year ended January 5, 1997 to $582,000
for the year ended January 5, 1998, and increased as a percentage of revenue
from 1.2% for the year ended January 5, 1997 to 1.3% for the year ended January
5, 1998. These increases were due to depreciation for equipment additions and
increased amortization of goodwill related to acquisitions.
OTHER EXPENSE (INCOME), NET. Other expense (income), net remained
relatively constant at $130,000 and $110,000, for each of the years ended
January 5, 1997 and 1998, respectively.
PROVISION FOR INCOME TAXES. Provision for income taxes increased by 64.8%,
or $857,000, from $1.3 million for the year ended January 5, 1997 to $2.2
million for the year ended January 5, 1998. The increase was primarily due to
substantially higher income before provision for income taxes for the year ended
January 5, 1998. The effective tax rate decreased from 40.8% for the year ended
January 5, 1997 to 36.8% for the year ended January 5, 1998. This decrease was
due to a lower effective tax rate for the PCR consolidated group resulting
primarily from state tax credits.
YEAR ENDED JANUARY 5, 1996 COMPARED TO YEAR ENDED JANUARY 5, 1997
REVENUE. Revenue increased by 53.1%, or $9.2 million, from $17.2 million
for the year ended January 5, 1996 to $26.4 million for the year ended January
5, 1997. This increase resulted principally from expansion of our geographic
markets, increased business with existing customers, increased demand for life
cycle services and acquisitions.
GROSS PROFIT. Cost of revenue increased by 62.9%, or $6.4 million, from
$10.1 million for the year ended January 5, 1996 to $16.5 million the year ended
January 5, 1997. This increase was primarily attributable to increased personnel
costs resulting from the hiring of additional technical personnel to support the
increased demand for the Company's services. The Company's gross profit
increased by 39.2%, or $2.8 million, from $7.1 million for the year ended
January 5, 1996 to $9.9 million for the year ended January 5, 1997. Gross profit
margin decreased from 41.3% for the year ended January 5, 1996 to 37.5% for the
year ended January 5, 1997. This decrease was primarily attributable to the
increased costs for technical personnel and lower utilization rates during a
period of concentrated hiring.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 21.8%, or $1.1 million, from $5.1 million
for the year ended January 5, 1996 to $6.2 million for the year ended January 5,
1997 but decreased as a percentage of revenue, from 29.5% for the year ended
January 5, 1996 to 23.5% for the year ended January 5, 1997. The decrease as a
percentage of revenue was as a result of revenue increasing at a faster rate
than such expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
70.7%, or $140,000, from $198,000 for the year ended January 5, 1996 to $338,000
for the year ended January 5, 1997, and increased as a percentage of revenue
from 1.1% for the year ended January 5, 1996 to 1.2% for the year ended January
5, 1997. These increases were primarily due to increased amortization of
goodwill related to acquisitions.
OTHER EXPENSE (INCOME), NET. Other expense (income), net remained
relatively constant at $133,000 and $130,000 for each of the years ended January
5, 1996 and 1997, respectively.
PROVISION FOR INCOME TAXES. Provision for income taxes increased by 91.7%,
or $633,000, from $690,000 for the year ended January 5, 1996 to $1.3 million
for the year ended January 5, 1997, while the effective tax rate for the PCR
consolidated group increased from 40.6% for the year ended January 5, 1996 to
40.8% for the year ended January 5, 1997.
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SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table presents certain condensed unaudited quarterly financial
information for each of the seven quarters ended October 5, 1998. This
information is derived from unaudited financial statements of the Company that
include, in the opinion of the Company, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of results of
operations for such periods, when read in conjunction with the financial
statements of the Company and notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
APRIL 5, JULY 5, OCTOBER 5, JANUARY 5, APRIL 5, JULY 5, OCTOBER 5,
1997 1997 1997 1998 1998 1998 1998
----------- --------- ----------- ----------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue............................. $ 9,101 $ 10,277 $ 12,524 $ 13,306 $ 14,787 $ 16,781 $ 19,833
Cost of revenue..................... 5,492 5,785 7,320 8,540 9,299 10,271 11,064
----------- --------- ----------- ----------- --------- --------- -----------
Gross profit...................... 3,609 4,492 5,204 4,766 5,488 6,510 8,769
Operating expenses:
Selling, general and
administrative expenses......... 2,350 2,748 3,165 3,194 3,406 4,090 4,943
Depreciation and amortization..... 126 131 151 173 188 231 317
----------- --------- ----------- ----------- --------- --------- -----------
Total operating expenses........ 2,476 2,879 3,316 3,367 3,594 4,321 5,260
----------- --------- ----------- ----------- --------- --------- -----------
Operating income.................. 1,133 1,613 1,888 1,399 1,894 2,189 3,509
Other expense, net.................. 22 60 4 24 63 132 97
----------- --------- ----------- ----------- --------- --------- -----------
Income before provision for income
taxes............................. 1,111 1,553 1,884 1,375 1,831 2,057 3,412
Provision for income taxes.......... 409 572 693 506 678 761 1,262
----------- --------- ----------- ----------- --------- --------- -----------
Net income........................ $ 702 $ 981 $ 1,191 $ 869 $ 1,153 $ 1,296 $ 2,150
----------- --------- ----------- ----------- --------- --------- -----------
----------- --------- ----------- ----------- --------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
APRIL 5, JULY 5, OCTOBER 5, JANUARY 5, APRIL 5, JULY 5, OCTOBER 5,
1997 1997 1997 1998 1998 1998 1998
----------- --------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue..................... 60.3 56.3 58.5 64.2 62.9 61.2 55.8
----------- --------- ----------- ----------- --------- --------- -----------
Gross profit...................... 39.7 43.7 41.5 35.8 37.1 38.8 44.2
Operating expenses:
Selling, general and
administrative expenses......... 25.8 26.7 25.2 24.0 23.0 24.4 24.9
Depreciation and amortization..... 1.4 1.3 1.2 1.3 1.3 1.4 1.6
----------- --------- ----------- ----------- --------- --------- -----------
Total operating expenses........ 27.2 28.0 26.4 25.3 24.3 25.8 26.5
----------- --------- ----------- ----------- --------- --------- -----------
Operating income.................. 12.5 15.7 15.1 10.5 12.8 13.0 17.7
Other expense, net.................. 0.3 0.6 0.1 0.2 0.4 0.7 0.5
----------- --------- ----------- ----------- --------- --------- -----------
Income before provision for income
taxes............................. 12.2 15.1 15.0 10.3 12.4 12.3 17.2
Provision for income taxes.......... 4.5 5.6 5.5 3.8 4.6 4.6 6.4
----------- --------- ----------- ----------- --------- --------- -----------
Net income........................ 7.7% 9.5% 9.5% 6.5% 7.8% 7.7% 10.8%
----------- --------- ----------- ----------- --------- --------- -----------
----------- --------- ----------- ----------- --------- --------- -----------
</TABLE>
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The Company's historical operating results have varied substantially from
quarter to quarter, and the Company expects that they will continue to do so.
Due to the relatively fixed nature of certain of the Company's costs, including
technical personnel payroll and facilities costs, a decline in revenue in any
fiscal quarter would result in lower profitability in that quarter. Many
factors, some of which are not within our control, may contribute to
fluctuations in operating results. These factors include the following:
- Variations in billing margins and personnel utilization rates;
- Short-term nature of customers' commitments;
- Patterns of IT-oriented capital spending by customers;
- Seasonal impact on projects for customers;
- Hiring patterns by the Company;
- Timing, size and mix of product and service orders and deliveries by PCR
and other product vendors;
- Timing and size of new projects, including projects for new customers and
changes to existing projects;
- Pricing changes in response to customer demand and various competitive
factors;
- Costs associated with fixed-price contracts;
- Fluctuations in selling and operating expenses based on our allocated
portion of expenses shared with PCR;
- Market factors affecting the availability or costs of qualified technical
personnel;
- Timing and customer acceptance of our new service offerings;
- Changes in trends affecting outsourcing of IT services;
- Length of sales cycle;
- Effect of acquisitions and new branch office openings;
- Changes in personnel, parts inventory and other operating costs; and
- Industry and general economic conditions.
The Company believes, therefore, that past operating results and
period-to-period comparisons should not be relied upon as an indication of
future performance. Historically, growth of the Company's revenue generally has
been lower in the fourth quarter due to reduced activity during the holiday
season and fewer working days for those customers who curtail operations during
such period. The Company anticipates that its business will continue to be
subject to such seasonal variations.
BACKLOG
The Company generally enters into written contracts or purchase orders with
its customers at the time it commences work on a project. However, the Company
does not generally believe it is appropriate to characterize such arrangements
as creating backlog. These arrangements often can be terminated with limited
advance notice and without penalty. The Company, therefore, does not believe
that projects in process at any one time are a reliable indicator or measure of
expected future revenue. In the event that a customer terminates a project, the
customer remains obligated to pay the Company for services performed and any
expenses incurred through the date of termination.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to the completion of this offering, PCR provided all cash and capital
resources required to operate the Company's business. Consequently, the Company
has not independently maintained or managed any cash or been responsible for
obtaining external sources of financing. Any of the Company's capital
requirements in excess of internally generated funds were financed by PCR
internally or through PCR's equity offerings or credit facilities. See
"Relationship with PCR -- Contractual Arrangements." Upon consummation of this
offering, the Company will need to meet its cash needs from internal operations,
access to credit and the proceeds of this offering.
Prior to January 6, 1999, when the Company's business was still operated
within PCR, PCR's credit facility provided for the working capital needs related
to the Company's business. In connection with the Formation Transaction, a
portion of the outstanding indebtedness under the PCR credit facility was
assumed by the Company. As a result of obtaining an interim credit facility with
Deutsche Financial Services Corporation, the Company's assets no longer
collateralize PCR's credit facility. However, substantially all of the Company's
assets now collateralize its interim credit facility with Deutsche Financial
Services Corporation.
Effective January 6, 1999, the Company entered into an agreement for an
interim credit facility with Deutsche Financial Services Corporation, the
primary lender to PCR. The credit facility is terminable at will by either
party. This credit facility allows the Company to borrow up to the lesser of
$20.0 million or the maximum borrowing capacity as calculated under the credit
facility. PCR has agreed to reserve certain of its assets to serve as collateral
in order to maintain the Company's maximum borrowing capacity of $20.0 million.
Absent such agreement, at January 6, 1999, the Company's maximum borrowing
capacity under the credit facility would have been $10.0 million. The Company's
outstanding balance under such credit facility as of January 6, 1999 was
approximately $18.0 million. The Company's credit facility carries an interest
rate equal to the prime rate minus 1.25% per annum; provided, however, that if
at any time the aggregate monthly volume under the Distribution Finance Facility
between PCR and Deutsche Financial Services Corporation is less than $20.0
million per month for a three-month consecutive period, then for the following
month and for every month thereafter until the month after such aggregate volume
again exceeds $20.0 million per month for a three-month consecutive period, the
interest rate shall equal the prime rate minus 0.50% per annum. At January 6,
1999, the interest rate was 6.50% per annum. PCR has also guaranteed the entire
amount of the credit facility which is secured by all of the assets of PCR. In
addition, certain of the financial covenants are determined on a consolidated
basis.
Upon consummation of this offering, the Company intends to replace the
interim credit facility with a permanent credit facility. There can be no
assurance that the Company will be able to obtain a new credit facility or that
any new credit facility will be available on terms acceptable to the Company.
The Company's working capital was $2.5 million and $4.1 million as of
January 5, 1998 and October 5, 1998, respectively.
The Company's operating activities used cash of $1.9 million for the year
ended January 5, 1997, provided cash of $1.1 million for the year ended January
5, 1998 and used cash of $1.3 million for the nine months ended October 5, 1998.
The fluctuation in each period resulted from variations in working capital
requirements.
The Company's investing activities used cash of $254,000 for the year ended
January 5, 1997, $1.0 million for the year ended January 5, 1998 and $261,000
for the nine months ended October 5, 1998. Cash used in the Company's investing
activities for each period related to capital expenditures.
The Company's financing activities provided cash of $2.1 million for the
year ended January 5, 1997, used cash of $99,000 for the year ended January 5,
1998 and provided cash of $1.6 million for the
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<PAGE>
nine months ended October 5, 1998. Cash provided by the Company's financing
activities for all periods
was principally the result of intercompany borrowings from PCR.
The foregoing cash flows are not necessarily indicative of the cash flows
that would have resulted if the Company were a stand-alone, publicly-held
entity.
The Company believes that cash flows expected to be generated from
operations, together with access to credit facilities and the net proceeds of
this offering, will be sufficient to satisfy its current and planned operations
for at least the next twelve months.
YEAR 2000 ISSUES
BACKGROUND. Many computer programs and embedded chips in other forms of
technology use only the last two digits to identify a year in a date field. As a
result of this design decision, some of these systems could fail to operate or
fail to produce correct results if "00" is interpreted to mean 1900, rather than
2000. These problems are widely expected to increase in frequency and severity
as the year 2000 approaches and are commonly referred to as the "Year 2000
Problem."
ASSESSMENT. The Company believes its exposure to Year 2000 problems lies
primarily in two areas: (i) its reliance upon PCR's internal operating systems;
and (ii) Year 2000 compliance by third parties with whom the Company has a
material relationship. The Company has worked with PCR to complete an assessment
of its principal internal systems. However, the Company is continuing to assess
its Year 2000 exposure with respect to third parties. While the costs of these
assessment efforts are not expected to be material to our financial position or
any year's results of operations, the Company cannot assure you that this will
be the case.
INTERNAL OPERATING SYSTEMS. The Company has determined that its principal
internal systems are or it believes will be Year 2000 compliant. The Company is
in the process of testing the Year 2000 compliant versions of the software used
in its principal IT modules and systems. Upon completion of the testing, the
Company will implement the conversion of the existing software to the Year 2000
compliant versions. In addition, some of the Company's non-critical applications
may not be Year 2000 compliant. The Company is conducting a program to identify
and resolve any such exposure. Although the costs related to these efforts are
not expected to be material to the Company's business, financial condition or
results of operations, no assurance can be made that this will be the case.
THIRD-PARTY RELATIONSHIPS. The failure of a supplier to deliver timely Year
2000 compliant products to the Company's customers could jeopardize the
Company's ability to meet its obligations to its customers. The Company is
conducting a program to identify and resolve Year 2000 exposure from third
parties. Any failure of third parties with whom the Company has a material
relationship to resolve Year 2000 problems with their products in a timely
manner could materially adversely affect the Company's business, financial
condition or results of operations.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The Company expects to identify
and resolve all Year 2000 problems that could materially adversely affect the
Company's business, financial condition or results of operations. However, the
Company believes that it is not possible to determine with complete certainty
that all Year 2000 problems affecting it have been identified or corrected. In
addition, the Company may experience difficulties with the conversion of its
existing software to the Year 2000 compliant versions. Further, the Company
cannot accurately predict how many failures related to the Year 2000 Problem
will occur or the severity, duration or financial consequences of such failures.
As a result, the Company expects that it could possibly suffer the following
consequences:
- A significant number of operational inconveniences and inefficiencies for
the Company and the Company's customers that may divert the Company's time
and attention and financial and human resources from the Company's
ordinary business activities; and
34
<PAGE>
- A lesser number of serious system failures that may require significant
efforts by the Company, its customers or vendors to prevent or alleviate
material business disruptions.
THE COMPANY'S CONTINGENCY PLANS. The Company believes its plans for
addressing the Year 2000 Problem are adequate. The Company does not believe it
will incur a material financial impact from system failures, or from the costs
associated with assessing the risks of failure, arising from the Year 2000
Problem. Consequently, the Company does not intend to create a detailed
contingency plan. In the event that the Company does not adequately identify and
resolve its Year 2000 issues, the absence of a detailed contingency plan may
materially adversely affect its business, financial condition and results of
operations. See "Risk Factors -- Year 2000 Risks."
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
No. 130") with an effective date for fiscal years beginning after December 15,
1997. SFAS No. 130 establishes standards for the reporting of comprehensive
income in a company's financial statements. Comprehensive income includes all
changes in a company's equity during the period that result from transactions
and other economic events other than transactions with its stockholders.
In the fourth quarter of 1997, the Company elected to adopt early SFAS No.
130 retroactive to January 6, 1997. The adoption of SFAS No. 130 did not affect
the financial reporting in the accompanying consolidated financial statements
because the Company does not presently have any comprehensive income other than
net income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS No. 131") with an effective date for
fiscal years beginning after December 15, 1997. A reportable segment, referred
to as an operating segment, is a component of an entity about which separate
financial information is produced internally, that is evaluated by the chief
operating decision-maker to assess performance and allocate resources. The
Company does not presently believe that it operates in more than one
identifiable segment.
In February 1998, the Accounting Standards Executive Committee issued SOP
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 establishes the accounting for costs of software
developed or purchased for internal use, including when such costs should be
capitalized. The Company does not expect SOP 98-1, which is effective for the
Company beginning January 6, 1999, to have a material effect on the Company's
financial condition or results of operations.
35
<PAGE>
BUSINESS
GENERAL
Pomeroy Select is a single-source provider of integrated desktop management
and network services that help corporate clients manage their IT assets. The
Company offers three categories of services: life cycle services,
internetworking services and end-user support services. Life cycle services
include technology deployment, warranty and non-warranty repair and maintenance,
a full range of install, move, add or change ("IMAC") services, redeployment and
mobile systems management, asset discovery and tracking and end-of-life
services. Internetworking solutions include project management; network design,
integration, management, migration and support; and cabling services. End-user
support services include customized help desk services, Internet-based training
on many popular software packages and video/teleconferencing services. The
Company delivers its services nationally through over 900 technical and
engineering personnel located in 30 offices in 14 states throughout the
Southeast and Midwest United States. The Company provided IT services to more
than 2,100 customers in the nine months ended October 5, 1998. The Company's
customers generally range from mid-sized organizations to Fortune 500 companies
in a wide variety of industries. None of the Company's customers represented
more than 5% of the Company's revenue for the nine-month period ended October 5,
1998. Over the four-year period ended January 5, 1998, the Company's revenue
grew at a compounded annual growth rate of 51.0%. For the nine-month period
ended October 5, 1998, the Company's revenue grew by 61.1% over the comparable
nine-month period for the prior year.
INDUSTRY BACKGROUND
PROLIFERATION OF IT SOLUTIONS. Organizations are increasingly dependent on
the use of IT as a competitive tool in today's business environment. Companies
rely upon IT solutions to improve service, lower costs, increase productivity
and shorten time to market. These business needs have been driving the continued
proliferation of IT solutions, including network-enabled applications and
related internetworking equipment. Historically, the rapid growth of IT
solutions has resulted primarily from the migration from mainframe environments
to distributed computing environments. More recently, the proliferation of IT
solutions has been driven by increased internetworking resulting from:
- Demand for Internet/intranet/extranet connectivity;
- Increased use of Internet and Web-based applications for corporate
communications and business-to-business transactions;
- Convergence of voice, video and data services;
- Increasingly mobile workforces;
- Use of pre-packaged and enterprise-wide software solutions; and
- Continued advances in computing and communications technologies.
INCREASED COMPLEXITY OF CORPORATE COMPUTER NETWORKS. As a result of the
above trends, internetworking environments are often characterized by
multi-vendor products and services, multi-protocol technologies and rapid
technological innovation, all of which require complex system design and
integration. In response to the explosive increase in network traffic, IT
vendors continue to introduce products and solutions to integrate disparate
systems and maximize performance, security and reliability. As organizations
rely more heavily on IT and as end-users demand the latest technologies,
companies must frequently deploy new technology with minimal downtime or
interruption of service. Although these emerging technologies offer faster, more
functional and more flexible IT solutions, their design, implementation and
maintenance present major challenges. As a result, companies need on-going and
immediate access to technical professionals with expertise in many diverse
technologies and
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<PAGE>
architectures to provide continual support and services including designing,
implementing, upgrading and maintaining IT solutions.
OUTSOURCING TRENDS. For many organizations, this increasingly complex IT
infrastructure has created demands that often exceed the capabilities and
capacity of internal MIS departments. As organizations evaluate alternatives for
providing enhanced levels of service and support to end-users, they increasingly
elect to outsource some or all of their design, management, maintenance and
implementation requirements to independent IT services providers. One key reason
for this decision is the recognition by many organizations of the importance of
focusing internal resources on their core competencies, such as product design,
marketing and operations. In addition, the trend toward outsourcing IT functions
is driven by the significant costs and practical limitations associated with
developing, training and maintaining a full-service internal MIS staff. Industry
sources estimate that the U.S. market for desktop and network operations
outsourcing was $7.4 billion in 1997 and will be $17.3 billion in 2002. Industry
sources also estimate that the total U.S. market for IT services was $139
billion in 1997 and is expected to increase to $273 billion by 2002.
CHALLENGES IN FINDING THE RIGHT IT SERVICES PROVIDER. As organizations
outsource their IT service requirements, they seek to maximize the quality,
consistency and cost effectiveness of the services they receive. Many
organizations also seek to minimize the number of providers they employ. IT
services are offered by numerous companies, ranging from small independent
consultants to global service providers. Customers can retain several IT
services providers, each offering a relatively narrow range of specialized
services, or a single-source provider offering a comprehensive range of
services. A single-source provider can leverage its comprehensive knowledge of
the organization's distributed asset base of computers and networking equipment
to enhance efficiency, improve quality and reduce costs. In addition,
organizations desire a flexible, customer-driven approach to implementation. The
use of multiple service providers requires that an organization coordinate the
efforts of the various providers resulting in increased time, cost and
management effort. By failing to identify and retain a single-source provider
which can rapidly deliver high-quality, flexible solutions, organizations risk
business interruption, inconsistent service delivery, less dependable
information infrastructure and management diversion, resulting in increased
costs and loss of competitive advantage.
THE POMEROY SELECT APPROACH
The Company is a single-source provider of integrated desktop management and
network services including life cycle services, internetworking services and
end-user support services. The Company seeks to build strong, long-term
relationships with its customers by focusing on their specific business needs
and by providing solutions tailored to their requirements. The Company delivers
cost-effective, flexible, consistent, reliable and comprehensive solutions to
meet customers' distributed asset base and IT infrastructure service
requirements. By maintaining a highly qualified staff of technical professionals
who are certified by multiple IT vendors, the Company is able to customize
solutions to meet specific customer needs. In addition, the Company has
developed excellent relationships with industry-leading vendors, enabling it to
integrate and support technology from multiple hardware manufacturers and
software developers. Based upon direct feedback from customers, the Company
regularly adds new services such as mobile systems management, hardware
redeployment and Internet-based training. The Company believes that its approach
has resulted in a high level of customer satisfaction.
STRATEGY
The Company's objective is to be the leading single-source provider of
integrated desktop management and network services. To achieve its objective,
the Company pursues the following strategies:
LEVERAGE STRONG CUSTOMER RELATIONSHIPS. The Company seeks to achieve a high
degree of customer satisfaction by offering a flexible implementation approach
while emphasizing high quality services. By
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<PAGE>
customizing IT solutions to the specific needs of its customers, the Company
develops strong customer relationships. These strong relationships, coupled with
interaction with multiple decision makers within customer organizations, keep
the Company informed of evolving customer IT needs. The Company seeks to use
this knowledge to offer additional IT services to existing customers. For
example, after the Company successfully completed a technology deployment
project for a financial institution, the customer retained the Company to
perform an additional project consisting of server installations and data
migrations at 90 locations. The Company also leverages its experiences with, and
uses references from, existing customers to demonstrate its capabilities when
seeking new customers.
MAINTAIN AND ENHANCE TECHNICAL EXPERTISE. The Company seeks to maintain and
enhance its technical expertise by hiring and training highly qualified
technicians and systems engineers. The Company utilizes its in-house recruiting
capabilities to continually identify qualified candidates for service technician
and systems engineer positions. In addition to a comprehensive training program,
the Company uses its incentive programs, advancement opportunities and
recognition programs to motivate, reward and retain its employees. As of January
6, 1999, the Company employed 613 service technicians, up approximately 120%
from January 5, 1997, and 340 systems engineers, up approximately 218% over the
same period.
EXPAND SALES AND MARKETING ACTIVITIES. The Company is actively seeking to
expand the size and enhance the quality of its sales force which currently
includes 24 direct sales representatives. By hiring additional highly qualified
sales personnel, the Company intends to increase direct sales, build market
awareness, establish name recognition and promote Pomeroy Select's reputation as
a high-quality, single-source IT services provider. A portion of the proceeds of
this offering will be used to increase the direct sales force and to establish
and build the Pomeroy Select name. In addition, the Company intends to continue
to use PCR's sales force to generate sales leads for the Company. Under the
Services Agreement, PCR's sales force can earn performance-based commissions and
bonuses for generating services revenue for the Company. The Company also
intends to establish additional alternative sales channels which may include
strategic relationships with a variety of hardware manufacturers and vendors.
BROADEN SERVICE OFFERINGS. The Company regularly offers new services which
respond to evolving customer needs. For example, in response to a customer's
need to service and support remote sales representatives, the Company created a
mobile systems management solution to provide overnight exchanges of laptops
with the customer's standard image and configuration anywhere in the United
States with complete asset tracking and reporting and repair services. In
addition, the Company began offering asset discovery and tracking and advanced
UNIX services in 1998 and intends to introduce advanced systems management in
1999.
LEVERAGE STRATEGIC RELATIONSHIPS WITH INDUSTRY LEADERS. The Company has
alliances with and authorizations from industry-leading hardware, software and
internetworking product vendors, such as Bay Networks, Cisco Systems, Compaq,
Computer Associates, Hewlett-Packard, IBM, Microsoft, Novell and 3Com. These
authorizations permit the Company to provide a range of services unavailable to
service providers without such authorizations. The Company believes that these
authorizations provide a competitive advantage through enhanced credibility and
access to a broader market. With respect to many of these industry leaders, the
Company maintains the highest levels of service authorizations awarded. The
Company has made, and intends to continue to make, the investments in employee
training and marketing necessary to obtain or maintain a wide array of service
authorizations with such industry leaders. The Company intends to continue to
pursue strategic alliances and authorizations to expand its offerings further
and to remain a leading edge IT services provider.
PURSUE ACQUISITIONS. The Company intends to pursue acquisitions of IT
services businesses to broaden its service offerings, add technical or sales
personnel, increase its presence in existing markets,
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<PAGE>
expand into new geographic markets, improve operating efficiencies through
economies of scale, establish strategic relationships and obtain desirable
customer relationships. In the past, acquisitions have contributed significantly
to the growth of its business. For example, over the last three years, the
Company has acquired a network service provider, two network integrators and a
systems integrator. The Company believes that the acquired operations, business,
employees and customers have been successfully integrated into the Company's
business. The Company believes that acquisitions will continue to be an
effective means to supplement its internal growth. The Company also believes
that acquisitions create opportunities to establish "centers of expertise,"
comprised of highly experienced personnel who can provide highly specialized IT
solutions, without regard to customer location.
SERVICES OFFERED
The Company is a single-source provider of integrated desktop management and
network services including life cycle services, internetworking services and
end-user support services:
<TABLE>
<CAPTION>
LIFE CYCLE SERVICES INTERNETWORKING SERVICES END-USER SUPPORT SERVICES
<S> <C> <C>
- Technology deployment - Project management - Custom help desk
- Multi-vendor repair and - Network design - Internet-based training
maintenance - Network integration - Video/teleconferencing
- Install, move add or - Network management - Ancillary services
change ("IMAC") - Network migration
- Redeployment and mobile - Network support
systems management - Cabling
- Asset discovery and
tracking
- End-of-life services
</TABLE>
LIFE CYCLE SERVICES
The Company provides its customers with a full range of IT services
throughout the life cycle of a customer's distributed asset base of computer and
networking equipment. Most customers rely on the Company's ability to provide
dispatched on-site services in response to customer requests. Such support is
available 24 hours a day, seven days a week, depending on the needs of the
customer. The Company's systems engineers and technicians provide customized
configuration of software and hardware for workstations and servers and perform
technology deployment at customer sites. The Company also services and repairs
equipment at the Company's facility pursuant to its depot, or drop-off, service.
The Company tracks service requests through its customer database which
maintains current status reports and historical logs of customer communications.
The Company is authorized and its technical personnel are certified to
provide services by many industry-leading manufacturers, including Bay Networks,
Cisco Systems, Compaq, Computer Associates, Hewlett-Packard, IBM, Microsoft,
Novell and 3Com. The Company offers a warranty upgrade program to provide faster
response and repair times, additional hours of coverage, warranty extensions and
warranty administration services for customers who desire broader service
offerings than those offered by the manufacturer or reseller. Most of the
technicians employed by the Company are "A+ Certified." The A+ Certification
Program is sponsored by the Computer Technology Industry Association (CompTIA)
and is recognized by leading manufacturers as the industry-wide standard of
professional competency for technical personnel. The Company's systems engineers
and technicians service and support a wide variety of IT products including
desktop and laptop PCs, printers and LAN/WAN infrastructure products such as
hubs, routers and switches.
39
<PAGE>
REPRESENTATIVE LIFE CYCLE SERVICES PROJECT. The Company provides mobile
systems management services for the computing equipment used by the 3,000
person sales force of a large Midwestern insurance company with 250 offices
throughout North America. Services offered by the Company in this project
include:
- Custom configuration;
- Exchanges of inoperable equipment within 24 hours;
- Laptop repair and maintenance; and
- Preparation and delivery of detailed asset-tracking reports.
These services minimize downtime and business interruption for our customer,
ensuring on-going productivity of the customer's sales force. The Company
has successfully leveraged its relationship with this customer by
cross-selling a broad range of other services, including:
- Pre-deployment technology planning;
- Multi-vendor repair and maintenance of PCs, printers and servers;
- Technology deployment and maintenance; and
- End-of-life services relating to mobile equipment.
INTERNETWORKING SERVICES
The Company's systems engineers and technicians provide customers with a
wide array of internetworking services, including project management; network
design, integration, management, migration and support; and cabling services.
When requested by a customer, the Company provides network management and
support coverage 24 hours a day, seven days a week. As part of internetworking
service engagements, the Company may also provide:
- LAN/WAN performance analyses;
- Network upgrade services;
- New technology feasibility and impact analyses; and
- End-user group needs analyses.
The Company provides advanced network services and support, utilizing
products of many industry-leading manufacturers, including Bay Networks, Cisco
Systems, Compaq, Computer Associates, Hewlett-Packard, IBM, Microsoft, Novell
and 3Com. The Company's systems engineers and technicians have knowledge and
experience in LAN/WAN platforms including Microsoft Windows NT, Novell NetWare
and AIX.
As part of its strategy to offer customers a single-source solution to their
IT requirements, the Company provides a broad range of cabling services through
its CommTec division. Certain of the Company's cabling employees hold
certifications from one or more of the following organizations: NORDX/CDT,
Lucent Systimax and Building Industry Consulting Services International (BICSI).
The CommTec division provides turnkey design, installation, certification and
support services for data, voice, audio and video cabling systems.
40
<PAGE>
REPRESENTATIVE INTERNETWORKING SERVICES PROJECT. The Company provided a
turnkey network solution for a supplier of electrical distribution,
industrial control and automation products, systems and services with over
150 offices throughout North America. Key elements of the Company's service
offering included:
- Development of a project plan;
- Pre-design planning and administration including gathering physical
plant information;
- Design of optimal network infrastructure for over 150 offices;
- Computer-generated documentation of the physical infrastructure designs
to support ongoing maintenance;
- Installation, configuration, testing and verification of all network
components including workstations, servers, printers, hubs and routers;
and
- Installation, testing and verification of LAN and WAN cabling.
The project was executed by a team consisting of 24 technical personnel,
three administrative personnel and a project leader who provided a single
point-of-contact to communicate regularly with the customer regarding
project status. The Company's personnel completed this project under budget
within a tight time constraint of only four months.
END-USER SUPPORT SERVICES
The Company offers a wide spectrum of end-user support services to its
customers, including customized help desk, Internet-based training and video and
teleconferencing services.
The Company's customized help desk services include software and network
support performed either on site or from the Company's premises. Help desk
services include:
- Call response and logging;
- Problem determination and source identification; and
- Call tracking, escalation and resolution.
The Company offers third-party developed Internet-based training programs,
including tailored packages, that deliver on-demand, interactive, multi-media
training. The training programs are platform independent and accessible on
popular browsers from any location. The current course catalog includes over 140
topics, including Microsoft Windows 95 and NT, Office 95 and 97, Netscape
Navigator, Internet Explorer, WordPerfect, Lotus Notes 4.0 and 4.5, and ACT!
3.0.
The Company offers a variety of ancillary services such as network security
consulting, including the implementation of firewalls, web design and hosting
and teleconferencing services.
41
<PAGE>
CUSTOMERS
The Company performs IT services for customers ranging from mid-sized
organizations to Fortune 500 companies in a wide variety of industries. During
the nine months ended October 5, 1998, the Company had more than 2,100
customers, with approximately 50 customers purchasing at least $150,000 of the
Company's services. No single customer accounted for more than 5% of the
Company's total revenue in the years ended January 5, 1996 and 1997 or the nine
months ended October 5, 1998. Set forth below is a representative list of the
Company's larger customers:
<TABLE>
<CAPTION>
BANKING STATE GOVERNMENT
- ----------------------------------------- -----------------------------------------
<S> <C>
Bank of America State of Florida
Norwest Mortgage, Inc. State of North Carolina
Star Bank, N.A.
EDUCATION TECHNOLOGY AND ENGINEERING
- ----------------------------------------- -----------------------------------------
University of Cincinnati Lexmark International, Inc.
Indianapolis Public Schools Square D Company
University of Kentucky
West Virginia Department of Education
HEALTHCARE UTILITIES
- ----------------------------------------- -----------------------------------------
Alliant Health System KN Energy, Inc.
The Health Alliance of Greater Cincinnati Knoxville Utilities Board
Mid-American Energy Company
INSURANCE
- -----------------------------------------
Principal Mutual Life Insurance Company
Providian Corporation
Western-Southern Life Insurance Company
</TABLE>
The Company seeks to achieve a high degree of customer satisfaction by
offering a flexible implementation approach while emphasizing high quality
services. By customizing IT solutions to the specific needs of its customers,
the Company develops strong customer relationships. These strong relationships,
coupled with interaction with multiple decision makers within its customers'
organizations, keep the Company informed of its evolving customer IT needs. The
Company leverages its experiences with, and uses references from, existing
customers to demonstrate its capabilities when seeking new customers.
The Company has ongoing service contracts with many of its customers to
provide warranty and non-warranty repair. These contracts are typically for
one-year periods but are terminable upon relatively short notice. The Company
also enters into contracts for project-based services, such as desktop and
software migrations, technology deployment and IMAC services, which usually
provide for the services to be performed over a defined period ranging from 30
days to two years. Most of the Company's contracts are performed on a
time-and-materials basis. Fixed-price contracts are used when the Company
believes it can clearly define the scope of services to be provided and the cost
of providing those services. For many customers, services are not provided under
contract, but rather are procured on a purchase-order basis, based on a proposal
submitted by the Company. There can be no assurance that the Company's customers
will continue to enter into service contracts with the Company or that existing
contracts will not be terminated.
SALES AND MARKETING
The Company's marketing efforts include networking with existing customers
and developing relationships with new customers through referrals, requests for
proposals, responses to customer-initiated
42
<PAGE>
contacts and Company-initiated contacts with desired customers. The Company
focuses its marketing efforts in the geographic reach of its 30-branch office
network located in 14 states throughout the Southeast and Midwest United States.
The Company is seeking to expand the size and enhance the quality of its sales
force, which currently includes 24 direct sales representatives. By hiring
additional highly qualified sales personnel, the Company intends to increase
direct sales, build market awareness, establish name recognition and promote
Pomeroy Select's reputation as a high-quality, single-source IT services
provider. A portion of the net proceeds of this offering will be used to
increase the Company's direct sales force and to establish and build recognition
of the Pomeroy Select name. In addition, the Company intends to continue to use
PCR's sales force to generate sales leads for the Company. See "Relationship
with PCR." The Company's agreement with PCR provides PCR's sales force with
performance-based commissions and bonuses for continuing to generate IT services
revenue for the Company. The Company also intends to establish additional
alternative sales channels which may include strategic relationships with a
variety of hardware manufacturers and vendors.
The length of the sales cycle varies depending on the type of service and
size of customer, typically ranging from approximately one to six months. The
sales representative or account executive works with the technical team to
define the scope, deliverables, assumptions and execution strategies for a
proposed project; develop project estimates; prepare pricing in accordance with
corporate guidelines and margin analyses; and finalize sales proposals. Branch
and services managers review and approve the proposal, which is then presented
to the prospective customer. Sales and branch management personnel remain
actively involved in the project through the execution phase. The Company
believes that its direct sales strategy, coupled with its branch office support,
leads to better account penetration and management, better communication and
long-term relationships with its clients, and more opportunities for follow-on
sales of services to its existing client base.
The Company's direct sales representatives typically have college degrees as
well as three or more years of sales experience in the IT services industry.
Territory assignments are based on skill, experience and demonstrated sales
results. Compensation programs for direct sales representatives include salary,
commission and other incentive compensation awards. Commissions are based on
volume, gross profits, type of service sold and strategic importance of the
sale. The Company provides additional incentives in the form of contests to
encourage the representatives to sell various services.
TECHNICAL CAPABILITIES
As of January 6, 1999, the Company employed 613 service technicians, up
approximately 120% from January 5, 1997, and 340 systems engineers, up
approximately 218% over the same period. The Company's technical staff is
authorized by many industry-leading manufacturers and service providers,
including Bay Networks, Cisco Systems, Compaq, Computer Associates,
Hewlett-Packard, IBM, Microsoft, Novell and 3Com. These authorizations enable
the Company to provide advanced hardware and network services and support for
each vendor's products and services. The Company's technical personnel currently
have an aggregate of more than 200 Microsoft certifications, more than 300
Novell certifications, 33 Bay Networks Specialist certifications, five Bay
Networks Expert certifications, 17 IBM Professional Service Expert
certifications, 19 Compaq Accredited Systems Engineer certifications, 15 HP
Network Technical Professional certifications, nine Citrix Certified
Administrator certifications, five certified Cisco Internetworking Engineer
certifications, four Computer Associates Certified Unicenter Engineer
certifications, and one of each of the following certifications: Cisco Design
Specialist, Protean Router, Network General Sniffer, Fore Systems and Oracle
Advanced SQL.
The Company seeks to maintain and enhance its technical expertise by hiring
and training highly qualified technicians and systems engineers. The Company
utilizes its in-house recruiting capabilities to continually identify qualified
candidates for service technician and systems engineer positions. In addition to
a comprehensive training program, the Company uses its incentive systems,
advancement opportunities and recognition programs to motivate, reward and
retain its employees. The Company's ability
43
<PAGE>
to maintain and renew existing service contracts and obtain new business will
depend, in large part, on its ability to attract, train and retain technical
personnel with the skills necessary to keep pace with continuing changes in IT,
evolving industry standards and changing customer preferences.
In an effort to retain technical personnel, the Company's employees
participate in PCR's Texcellence program, which rewards and recognizes the
Company's technical personnel. Under the Texcellence program, technical
personnel can earn stock options and participate in deferred compensation
programs after certain periods of service. In addition to longevity awards, the
Company offers performance-based awards and advancement opportunities.
COMPETITION
The Company competes in rapidly changing markets that are intensely
competitive and highly fragmented. The Company competes, directly and
indirectly, with a variety of national and regional service providers, including
services organizations of established computer product manufacturers, VARs,
systems integrators, internal corporate MIS staffs and, to a lesser extent,
consulting firms, aggregators and distributors.
Many of the Company's current and potential competitors have longer
operating histories and substantially greater financial, marketing, technical
and other resources than the Company. As a result, our competitors may be able
to adapt more quickly to changes in customer needs or to devote greater
resources to the provisioning of IT services. Such competitors may attempt to
build their presence in the Company's markets by forming strategic alliances
with other competitors or the Company's customers, offering new or improved
products and services to the Company's customers or increasing their efforts to
gain and retain market share through competitive pricing. In addition,
competition for quality technical personnel has continued to intensify,
resulting in increased personnel costs. Such competition has adversely affected,
and is likely to continue to adversely affect, the Company's gross profits,
margins and results of operations. Furthermore, the Company believes the
barriers to entry into its markets are relatively low, which enable new
competitors to offer competing services.
The Company believes that the principal competitive factors in the market
for IT services include technical expertise, the availability of skilled
technical personnel, breadth of service offerings, reputation, financial
stability and price. To be competitive, the Company must respond promptly and
effectively to the challenges of technological change, evolving standards and
its competitors' innovations by continuing to enhance its service offerings and
expand its sales channels. Any pricing pressures, reduced margins or loss of
market share resulting from the Company's failure to compete effectively could
materially adversely affect the Company's business.
The Company believes that it competes successfully by providing a
single-source solution for its customers' integrated desktop management and
network services needs. The Company delivers cost-effective, flexible,
consistent, reliable and comprehensive solutions to meet customers' distributed
asset base and IT infrastructure service requirements. The Company also believes
that it distinguishes itself on the basis of its technical expertise,
competitive pricing and our ability to understand our customers' needs.
44
<PAGE>
FACILITIES
The Company does not own or directly lease or sublease any real property.
The Company currently is permitted to occupy and use all of its office space
pursuant to the terms of the Space Sharing Agreement with PCR. The Company's
principal executive offices are located in the Greater Cincinnati area at 1020
Petersburg Road, Hebron, Kentucky. The Company's headquarters includes
sufficient space for certain of its sales and technical staffs and its
marketing, administrative, finance and management personnel. The Company
maintains offices in the following locations:
<TABLE>
<CAPTION>
ALABAMA FLORIDA GEORGIA INDIANA
- -------------- -------------------------- ---------------------- -----------
<S> <C> <C> <C>
Birmingham Jacksonville Atlanta Evansville
Montgomery Orlando Indianapolis
Miami
Tallahassee
Tampa
IOWA KENTUCKY NORTH CAROLINA OHIO
- -------------- -------------------------- ---------------------- -----------
Hebron (Greater
Cedar Rapids Cincinnati) Charlotte Cleveland
Des Moines Lexington Raleigh Columbus
High Point
Louisville (Greensboro)
OKLAHOMA SOUTH CAROLINA TENNESSEE TEXAS
- -------------- -------------------------- ---------------------- -----------
Oklahoma City Columbia Knoxville Dallas
Tulsa Memphis
Nashville
VIRGINIA WEST VIRGINIA
- -------------- --------------------------
Richmond Charleston
Morgantown
</TABLE>
The Company believes that its existing facilities are adequate to meet its
current needs and that suitable additional or alternative space will be
available in the future on reasonable terms as needed.
EMPLOYEES
As of January 6, 1999, the Company employed 1,086 persons of whom 24 were
engaged in sales, 953 were engaged in providing the Company's technical services
and training, 72 were engaged in services support and 37 were engaged in
management functions. Of the Company's 1,086 employees, 66 were added as a
result of an acquisition which was completed in December 1998. A substantial
portion of the Company's finance and administrative services are provided by PCR
pursuant to the Services Agreement.
None of the Company's employees are covered by a collective bargaining
agreement. Substantially all of the Company's employees have executed
non-competition agreements. In addition, the Company requires that all new
employees execute such agreements as a condition of employment by the Company.
The Company believes there is a worldwide shortage of, and significant
competition for, professionals with the advanced technical skills necessary to
perform the services offered by the Company. The future success of the Company
will depend, to a significant extent, on its ability to attract, train and
retain highly qualified personnel, particularly technical personnel. The Company
considers its relationships with its employees to be good.
45
<PAGE>
INTELLECTUAL PROPERTY RIGHTS
The Company does not rely on registered trademarks or patents to protect its
proprietary information. Instead, the Company relies primarily on a combination
of copyright and trademark laws, trade secrets, confidentiality procedures and
contractual provisions. Although the Company's various dealer agreements do not
generally allow the Company to use the trademarks and trade names of these
various manufacturers, the agreements do permit the Company to refer to itself
as an "authorized dealer" of the products of those manufacturers and to use
their trademarks and trade names for marketing purposes. The Company considers
the use of these trademarks and trade names in its marketing efforts to be
important to its business.
LEGAL PROCEEDINGS
There are currently no material legal proceedings pending to which the
Company is a party or to which any of its property is subject.
46
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Directors, executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
David B. Pomeroy, II(1).............................. 49 Chairman of the Board and Director
Stephen E. Pomeroy(2)................................ 30 President, Chief Executive Officer and Director
Larry H. Lokey....................................... 50 Vice President of Sales
Mark P. Schwarz...................................... 43 Chief Financial Officer, Secretary and Treasurer
Curtis R. Dunseath................................... 32 Director of Service Operations
Kenneth R. Waters (1)(2)............................. 47 Director
Gerald L. Von Deylen (1)(2).......................... 56 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
All Directors hold office until the next annual meeting of stockholders or
until their successors have been elected and qualified. All executive officers
of the Company are elected annually by the Board of Directors and serve at the
discretion of the Company's Board of Directors and until their successors are
elected and qualified.
DAVID B. POMEROY, II has served as Chairman of the Board and Director of the
Company since its formation in December 1998. Mr. Pomeroy founded PCR and has
served as its Chairman of the Board, President and Chief Executive Officer since
February 1992.
STEPHEN E. POMEROY has served as President, Chief Executive Officer and a
Director of the Company since its formation in December 1998. He served as Chief
Financial Officer of PCR from May 1997 to January 1999 and has been a director
of PCR since February 1998. Prior to that time, Mr. Pomeroy was the Vice
President of Marketing and Corporate Development for PCR from September 1996 to
May 1997, the Director of New Market Development of PCR from June 1994 to
September 1996 and an Account Executive for PCR from February 1992 to June 1994.
Mr. Pomeroy was employed by PCR's predecessor from January 1985 until PCR's
formation in February 1992.
LARRY H. LOKEY has been the Vice President of Sales of the Company since its
formation in December 1998. Prior to that, he served in various management
capacities for PCR, including Vice President of Services and Director of
Services Marketing from January 1996 to December 1998. From mid-1993 to January
1996, Mr. Lokey served as PCR's Account Executive for Procter & Gamble. From
1977 to mid-1993, Mr. Lokey was employed by IBM in various marketing positions
from Marketing Representative to Unit Marketing Manager.
MARK P. SCHWARZ has been the Chief Financial Officer, Secretary and
Treasurer of the Company since its formation in December 1998. Prior to that, he
was employed by PCR as Manager -- Acquisitions from November 1996 to December
1998 and as PCR's Assistant Controller from December 1995 to November 1996. From
1993 until 1995, Mr. Schwarz was a Financial Analyst with Quantum Chemical
Company, a chemical manufacturer. From 1988 until 1993, Mr. Schwarz was
Accounting Manager with Thriftway Foods, a retail food and drug company.
CURTIS R. DUNSEATH has been the Director of Services Operations for the
Company since its formation in December 1998. Prior to that, he was employed by
PCR since June 1988 in various capacities
47
<PAGE>
including Director of Services Operations (October 1997 to December 1998),
Services Marketing Manager (March 1996 to October 1997), Business Services
Manager (September 1993 to March 1996) and Account Executive (June 1988 to
September 1993).
KENNETH R. WATERS has been a Director of the Company since December 1998.
Mr. Waters was a director of PCR from April 1997 until his resignation in
January 1999. Mr. Waters has worked in the computer industry since 1978. Most
recently, he has been an industry consultant, serving as such from February 1995
until present as well as from April 1993 to August 1993 and from January 1991 to
August 1992. Mr. Waters has provided consulting services to PCR since January
1997. From September 1993 to January 1995, Mr. Waters was the President of
MicroAge, Inc., a computer reseller. From September 1992 to March 1993, Mr.
Waters was the President and CEO of Power Up Software, a software manufacturer.
From July 1978 to September 1988, Mr. Waters was employed by Vanstar (then known
as ComputerLand), holding various management positions, with his last position
being the CEO. Mr. Waters was also a director of Vanstar from September 1987 to
July 1989.
GERALD L. VON DEYLEN has been a Director of the Company since December 1998.
Mr. Von Deylen is a certified public accountant and has been engaged in private
practice as a business and financial consultant, specializing in nontraditional
services since September 1996. Mr. Von Deylen was a partner with Arthur Andersen
from 1979 through August 1996. He started his career with Arthur Andersen in
1968 and served the firm in various professional capacities.
Other than David B. Pomeroy, II and Stephen E. Pomeroy, who are father and
son, there are no other family relationships among the Company's Directors and
executive officers.
The Board of Directors has a Compensation Committee, which approves salaries
and incentive compensation for executive officers of the Company and administers
the Company's stock plan, and an Audit Committee, which reviews the results and
scope of the audit and other services provided by the Company's independent
accountants.
DIRECTORS' COMPENSATION
Each member of the Board of Directors who is not an officer or an owner or
the representative of an owner of more than 5% of the outstanding Common Stock
will receive annual compensation of $5,000 for attending three or more Board
meetings and will receive $500 for each committee meeting attended. The Company
also will reimburse Directors for any expenses incurred in attending meetings of
the Board of Directors and the committees thereof. On January 6, 1999, each
non-employee Director was granted options to purchase 10,000 shares of the Class
A Common Stock. Such options will be exercisable at the initial public offering
price of the Class A Common Stock. On January 6 of each year thereafter, each
non-employee Director will be granted an option to purchase 5,000 shares of
Class A Common Stock at the fair market value on the date of such grants.
48
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
for services in all capacities awarded to, earned by or paid to the Company's
chief executive officer and each of the other executive officers of the Company
whose aggregate compensation exceeded $100,000 during the year ended January 5,
1999 (collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
---------------------------------------- AWARDS(2)
ALL OTHER ANNUAL ----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY BONUS(3) COMPENSATION(4) STOCK OPTIONS COMPENSATION(5)
- -------------------------------- ---------- --------- ----------------- ----------------------- ----------------
<S> <C> <C> <C> <C> <C>
Stephen E. Pomeroy
President and Chief Executive
Officer....................... $ 125,000 $ 52,000 - 45,000 $ 39,016
Larry H. Lokey
Vice President of Sales....... $ 95,000 $ 18,000 $ 1,000 4,000 $ 35,028
</TABLE>
- ------------------------
(1) All compensation reflects compensation paid by PCR.
(2) Long-term compensation awards reflect grants by PCR of options to purchase
shares of PCR's common stock.
(3) Excludes annual bonuses payable to be determined pursuant to PCR's 1998
year-end financial results.
(4) Includes 401(k) contributions paid by the Company to the Named Executive.
(5) Includes deferred compensation paid by PCR to and life insurance premiums
paid on behalf of the Named Executive.
The Company did not grant stock options to any of the Named Executives
during 1998. The Company has never granted any stock appreciation rights.
1999 STOCK PLAN
The 1999 Stock Plan was adopted by the Board of Directors on January 5, 1999
and approved by PCR, as sole stockholder of the Company, on January 13, 1999.
The 1999 Stock Plan was effective as of January 6, 1999 and shall terminate ten
years from such date, unless terminated earlier by the Board of Directors. A
total of 3,000,000 shares of Class A Common Stock have been reserved for
issuance upon the exercise of options granted thereunder. Those eligible to
receive stock option grants under the 1999 Stock Plan shall include employees,
non-employee Directors and consultants. The 1999 Stock Plan shall be
administered by the Compensation Committee of the Board of Directors of the
Company.
Subject to the provisions of the 1999 Stock Plan, the administrator of the
1999 Stock Plan shall have the discretion to determine the optionees and/or
grantees, the type of options to be granted (incentive stock options ("ISOs") or
non-qualified stock options ("NQSOs")), the vesting provisions, the terms of the
grants and other related provisions as are consistent with the 1999 Stock Plan.
The exercise price of an ISO may not be less than the fair market value per
share of the Class A Common Stock on the date of grant or, in the case of an
optionee who beneficially owns 10% or more of the voting power of all classes of
capital stock of the Company, not less than 110% of the fair market value per
share on the date of grant. The exercise price of a NQSO may not be less than
85% of the fair market value per share of the Class A Common Stock on the date
of grant or, in the case of an
49
<PAGE>
optionee who beneficially owns 10% or more of the voting power of all classes of
capital stock of the Company, not less than 100% of the fair market value per
share on the date of grant. Fair market value is determined by the Board of
Directors in good faith. The Company anticipates that following consummation of
this offering, fair market value shall be determined in accordance with the
closing sale price of its Class A Common Stock as quoted on the Nasdaq National
Market. In addition, the 1999 Stock Plan allows for the grant of stock purchase
rights. The purchase price of shares issued pursuant to stock purchase rights
may not be less than 50% of the fair market value of such shares as of the offer
date of such rights.
The options terminate not more than ten years from the date of grant,
subject to earlier termination upon or after a fixed period following the
optionee's death, disability or termination of employment with the Company. The
term of any options granted to a holder of more than 10% of the capital stock
may be no longer than five years. Options granted under the 1999 Stock Plan to
employees of the Company will vest in the manner determined by the Board of
Directors. Options are not assignable or otherwise transferable except by will
or as per the laws of descent and distribution. In the event of a merger or
consolidation of the Company with or into another corporation or the sale of all
or substantially all of the Company's assets in which the successor corporation
does not assume outstanding options or issue equivalent options, the Board of
Directors of the Company is required to provide accelerated vesting of
outstanding options.
Effective as of January 6, 1999, the Company granted the following options
to purchase shares of Class A Common Stock under the 1999 Stock Plan, all of
which are exercisable at the initial public offering price: (i) David B.
Pomeroy, II was granted a NQSO to purchase 200,000 shares; (ii) Stephen E.
Pomeroy was granted a NQSO to purchase 400,000 shares; (iii) Kenneth R. Waters
was granted a NQSO to purchase 10,000 shares; and (iv) Gerald L. Von Deylen was
granted a NQSO to purchase 10,000 shares. Contingent upon the following persons
entering into employment agreements with the Company, the Company anticipates
that it will grant the following options to purchase shares of Class A Common
Stock, all of which will be exercisable at the initial public offering price:
(i) Larry H. Lokey will be granted an ISO to purchase 50,000 shares; (ii) Mark
P. Schwarz will be granted an ISO to purchase 25,000 shares; and (iii) Curtis R.
Dunseath will be granted an ISO to purchase 25,000 shares. The options granted
to David B. Pomeroy, II, Kenneth R. Waters and Gerald L. Von Deylen vested
immediately. One half of the options granted to Stephen E. Pomeroy vested
immediately and the remainder of such options will vest ratably over a
three-year period. One half of the options expected to be granted to Larry H.
Lokey, Mark P. Schwarz and Curtis D. Dunseath will vest immediately and the
remainder of such options will vest ratably over a three-year period.
Notwithstanding the immediate vesting of certain of the forgoing options, each
of the aforementioned persons have each entered into lock-up agreements with the
Underwriters which will prevent them from selling or otherwise transferring
shares of Class A Common Stock issuable upon exercise of any vested options for
a period of 180 days from the date of this Prospectus. See "Shares Eligible for
Future Sale," "Principal Stockholders" and "Underwriting."
No stock options were granted, exercised or outstanding during the year
ended January 5, 1999.
EMPLOYMENT AGREEMENTS
The Company intends to enter into employment agreements with each of the
Named Executives and certain other key employees of the Company. Such employment
agreements prohibit each of the respective officers and key employees from
competing with the Company for the term of the agreement and for a period of one
year after termination of employment.
The Company has entered into an employment agreement with Stephen E. Pomeroy
effective January 6, 1999. Mr. Pomeroy's employment agreement has a term of
three years, which is extended on a daily basis resulting in a perpetual three
year term. Mr. Pomeroy's employment agreement provides
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for an annual base salary of $175,000 during the year ending January 5, 2000 and
for each subsequent year unless modified by the Compensation Committee. Under
the employment agreement, Mr. Pomeroy may earn bonuses of up to $200,000 in the
year ending January 5, 2000 in the event the Company meets certain quarterly and
annual goals. Thereafter, the amount of such bonuses and the goals will be
established annually by the Compensation Committee.
Pursuant to his employment agreement, on January 6, 1999, Mr. Pomeroy was
granted an option to purchase 400,000 shares of Class A Common Stock with an
exercise price equal to the initial public offering price of the Class A Common
Stock. One half of such options vested immediately and the remainder of such
options will vest ratably over a three-year period.
The Company intends to enter into an employment agreement with Larry H.
Lokey prior to this offering. The Company expects that the agreement will be for
an initial term of one year and will be extended annually for additional
one-year periods unless either party gives 30 days written notice of
termination. The agreement will provide for a base salary of $95,000, certain
incentive compensation, incentive deferred compensation and additional stock
option awards upon meeting predetermined goals as determined by the Compensation
Committee. The base salary in any renewal period shall be determined by the
Compensation Committee. Upon entering into the agreement, Mr. Lokey will be
granted an option to purchase 50,000 shares of Class A Common Stock with an
exercise price equal to the initial public offering price. One half of such
options will vest immediately and the remainder of such options will vest
ratably over a three-year period.
The Company intends to enter into an employment agreement with Mark P.
Schwarz prior to this offering. The Company expects that the agreement will be
for an initial term of one year and will be extended annually for additional
one-year periods unless either party gives 30 days written notice of
termination. The agreement will provide for a base salary of $75,000, certain
incentive compensation, incentive deferred compensation and additional stock
option awards upon meeting predetermined goals as determined by the Compensation
Committee. The base salary in any renewal period shall be determined by the
Compensation Committee. Upon entering into the agreement, Mr. Schwarz will be
granted an option to purchase 25,000 shares of Class A Common Stock with an
exercise price equal to the initial public offering price. One half of such
options will vest immediately and the remainder of such options will vest
ratably over a three-year period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ending January 5, 1999, the compensation of executive
officers of the Company was determined by the Board of Directors. The
Compensation Committee was established by the Board of Directors on January 6,
1999. The Compensation Committee consists of David B. Pomeroy, II, Kenneth R.
Waters and Gerald L. Von Deylen. There are no Compensation Committee Interlocks.
Pomeroy Investments, LLC ("Pomeroy Investments"), a Kentucky limited
liability company controlled by David B. Pomeroy, II, owns the headquarters
facility and distribution facility which are leased by PCR. The total base rent
to be paid by PCR to Pomeroy Investments under the lease for all types of uses
is $863,000 per year (plus pass-through costs such as taxes and insurance). The
rental terms were determined on the basis of a fair market rental opinion given
to PCR by an unrelated third party. The Company shares space with PCR in the
headquarters facility and distribution facility pursuant to the Space Sharing
Agreement. See "Relationship with PCR."
PCR, from time to time, has made advances without interest obligations to
Pomeroy Investments to satisfy Pomeroy Investments' working capital needs. The
Company currently does not anticipate making advances to Pomeroy Investments.
Kenneth R. Waters, a Director of the Company since December 1998, provides
consulting services to PCR on an ongoing basis. Mr. Waters is paid $1,500 per
month for such consulting services.
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KEY PERSON INSURANCE
The Company intends to apply for, maintain, and be the beneficiary of, a
life insurance policy on the life of Stephen E. Pomeroy in the amount of
$500,000. The Company does not intend to maintain key person life insurance on
any of its other executive officers, sales persons or technical personnel.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and Bylaws provide that the
Company is authorized to provide indemnification of Directors and officers to
the fullest extent authorized under the DGCL. The Company intends to enter into
indemnification agreements with each of its Directors and officers providing for
indemnification of such Directors and officers to the fullest extent permitted
by applicable law. The Company believes that such indemnification will assist
the Company in continuing to attract and retain talented Directors and officers
in light of the growing risk of litigation against directors and officers of
publicly-held corporations.
RELATIONSHIP WITH PCR
OWNERSHIP OF COMMON STOCK
Upon completion of this offering, PCR will own 100% of the outstanding Class
B Common Stock, representing approximately % of the voting power in the
Company (approximately % of the voting power if the Underwriters exercise in
full their over-allotment option).
Accordingly, PCR will continue to have the ability to elect all of the
members of the Board and otherwise control the management and affairs of the
Company. In addition, two of the four current Directors of the Company are also
directors of PCR. While transactions between PCR and the Company will require
approval by the Board of Directors of the Company, they may not require the
separate approval of the independent Directors who are not also directors of
PCR. Certain provisions of the Company's Certificate of Incorporation, Bylaws
and applicable law also facilitate PCR's ability to exercise control of the
Company. The ability of PCR to control the Company could have an adverse effect
on the market price of shares of Class A Common Stock. See "Management,"
"Principal Stockholders" and "Description of Capital Stock."
CONTRACTUAL ARRANGEMENTS
For purposes of governing and defining our ongoing relationship, the Company
has entered into a number of agreements with PCR which became effective on
January 6, 1999. As a result of PCR's ownership interest in the Company, the
terms of such agreements were not, and the terms of any future amendments to
those agreements will not be, the result of arm's-length negotiations.
The following discussion of agreements between the Company and PCR is
qualified in its entirety by reference to such agreements, which have been filed
as exhibits to the Registration Statement of which this Prospectus forms a part.
See "Available Information."
SERVICES AGREEMENT. The Company and PCR have entered into a Services
Agreement pursuant to which PCR will continue to provide to the Company, at the
Company's request, certain administrative services, including the following:
- Payroll services, including the use of PCR's common paymaster;
- Accounting services, including reporting, account reconciliation, cash
management, bank account services, preparation of financial statements,
invoicing of customer accounts, collection of accounts receivable and
payment of accounts payable;
- Insurance and risk management services, including insurance coverage and
administration of risk management;
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- Tax services, including preparation and filing of all tax returns,
assistance with tax compliance and accounting for taxes, and supervision
of audits and other proceedings and litigation;
- Human resources services, including advice and assistance relating to
employee benefits, employee screening, recruitment and training of
personnel, facilitation of government/regulatory reporting and assistance
with compliance issues;
- MIS services, including operational and technical support for telephones
and voice mail;
- Legal services, including contract review, drafting and negotiation,
litigation coordination and SEC compliance;
- Marketing services, including preparation and production of promotional
materials; and
- Employee benefit plan design, qualification and administration.
The Services Agreement provides for the allocation between the Company and
PCR of various joint expenses, such as payroll costs for shared employees,
utilities costs, equipment expenses, taxes and supplies, plus the payment by the
Company to PCR of an annual fee equal to the greater of $450,000 or 0.45% of the
Company's annual revenue. This fee is to be paid to PCR by the Company in
monthly installments based on the Company's revenue for the previous month.
PCR and the Company have agreed to joint market and cross-sell their
respective offerings. In addition, the Services Agreement requires PCR to
provide the Company with the right of first refusal to evaluate and participate
in service opportunities which come to PCR's attention. The Company is required
to provide a similar right of first refusal regarding any sales opportunities
for microcomputer hardware and related products which come to the Company's
attention. The Company and PCR have agreed to allocate the consolidated sales
commissions of PCR and its subsidiaries, including the Company. The Company's
portion of such sales commissions is based on the average of (i) the ratio of
the Company's gross profit contribution to the consolidated gross profit of PCR
and its subsidiaries, including the Company, and (ii) the ratio of the Company's
net revenue contribution to such consolidated net revenue. During the term of
the Services Agreement, and until the later of (i) one year after termination of
the Services Agreement or (ii) two years from the effective date of the Services
Agreement, PCR is restricted from engaging in activities which are competitive
with the services business transferred to the Company and the Company is
restricted from engaging in activities which are competitive with the
microcomputer hardware and related products business retained by PCR.
The initial term of the Services Agreement is for a period of one year
beginning on January 6, 1999. The Services Agreement shall automatically renew
for additional one-year periods unless either party gives notice of its intent
not to renew at least 30 days prior to the end of any term. The Services
Agreement can be terminated by either party upon 90 days written notice and
shall automatically terminate in the event of the Distribution or in the event
that PCR no longer owns a majority of the voting power of the Company.
Except for the services provided by PCR pursuant to the Services Agreement
and the other agreements described below, the Company will be responsible for
providing or otherwise obtaining all of the necessary administrative, management
and support services required to conduct its business, all of which were
previously provided or obtained by PCR.
SPACE SHARING AGREEMENT. The Company and PCR have entered into a Space
Sharing Agreement providing for the sharing by the Company and PCR of certain
office facilities, including the office facilities located in Hebron, Kentucky
at which the Company's and PCR's principal executive offices are located (the
"Headquarters Facility"). Under the Space Sharing Agreement, the costs
associated with leasing and maintaining facilities are, in general, allocated
between the Company and PCR on the basis of the ratio of the Company's gross
profit contribution to the consolidated gross profit of PCR and its subsidiaries
including the Company. The Company's rights to use portions of the shared
facilities (including the Headquarters Facility) leased from third parties, and
the corresponding obligations to
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pay for such use, may be terminated as to any such facility by either the
Company or PCR on 90 days prior written notice. The Headquarters Facility is
leased by PCR from Pomeroy Investments, LLC. See "Management -- Compensation
Committee Interlocks and Insider Participation."
INDEMNIFICATION AGREEMENT. The Company and PCR have also entered into an
Indemnification Agreement. The Indemnification Agreement provides that each
party thereto (the "Indemnifying Party") will indemnify the other party thereto
and its directors, officers, employees, agents and representatives (the
"Indemnified Party") for liabilities that may be incurred by the Indemnified
Party relating to, resulting from or arising out of (i) the businesses and
operations conducted or formerly conducted, or assets owned or formerly owned,
by the Indemnifying Party and its subsidiaries (except, in the case where PCR is
the Indemnifying Party, the businesses, operations and assets of the Company) or
(ii) the failure by the Indemnifying Party to comply with any agreements
executed between the Company and PCR and those agreements executed in connection
with this offering.
STOCK REGISTRATION AGREEMENT. Pursuant to the terms of a Stock Registration
Agreement with PCR, the Company has provided PCR with certain registration
rights, including demand registration rights and certain "piggy-back"
registration rights, with respect to the shares of Class A Common Stock
underlying the shares of Class B Common Stock owned by PCR after this offering.
The Company's obligation is subject to certain limitations relating to a minimum
amount of Common Stock required for registration, the timing of registration and
other similar matters. The Company is obligated to pay all expenses incidental
to such registration, excluding underwriters' discounts and commissions and
certain legal fees and expenses. See "Risk Factors -- Shares Eligible for Future
Sale; Potential Adverse Impact of the Distribution" and "Description of Capital
Stock -- Registration Rights of PCR."
CREDIT FACILITY. The Company has entered into an agreement for an interim
credit facility with Deutsche Financial Services Corporation, the primary lender
to PCR. This credit facility allows the Company to borrow up to the lesser of
$20.0 million or the maximum borrowing capacity as calculated under the credit
facility. PCR has agreed to reserve certain of its assets to serve as collateral
to maintain the Company's maximum borrowing capacity of $20.0 million. Absent
such agreement, as of January 6, 1999, the Company's maximum borrowing capacity
under the credit facility would have been $10.0 million. The Company's
outstanding balance under such credit facility as of January 6, 1999 was
approximately $18.0 million. The Company's credit facility carries an interest
rate equal to the prime rate minus 1.25% per annum; provided, however, that if
at any time the aggregate monthly volume under the Distribution Finance Facility
between PCR and Deutsche Financial Services Corporation is less than $20.0
million per month for a three-month consecutive period, then for the following
month and for every month thereafter until the month after such aggregate volume
again exceeds $20.0 million per month for a three-month consecutive period, the
interest rate shall equal the prime rate minus 0.50% per annum. At January 6,
1999, the interest rate was 6.50% per annum. PCR has also guaranteed the entire
amount of the credit facility which guarantee is secured by all of the assets of
PCR. In addition, certain of the financial covenants are determined on a
consolidated basis. The Company intends to replace the interim credit facility
with a permanent credit facility after the consummation of this offering. There
can be no assurance that the Company will be able to obtain a new credit
facility or that any new credit facility will be available on terms acceptable
to the Company.
CONFLICTS OF INTEREST
Conflicts of interest may arise between the Company and PCR in a number of
areas, including:
- PCR's ability to control the Company's management and affairs;
- Shared sales and marketing functions;
- Indemnification obligations of each of PCR and Pomeroy Select;
- PCR's right to require us to register its shares of the Company's Class A
Common Stock;
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- Sales or distributions by PCR of its shares of the Company's Class A or
Class B Common Stock;
- Differing financing needs or goals adversely affecting the Company's
borrowing terms or ability; and
- Differing operational, financial and employee benefit objectives.
Conflicts of interest which may develop, now or in the future, between PCR
and the Company may not be resolved in favor of the Company. Pursuant to the
Services Agreement, PCR has agreed not to engage in activities which are
competitive with Pomeroy Select. The Services Agreement is terminable on
relatively short notice. However, PCR's agreement not to compete with the
Company shall survive for the longer of two years from the date of the Services
Agreement or one year from the date of termination of the Services Agreement.
There can be no assurance that this agreement will prevent PCR from engaging in
such competitive activities or that the Company will not compete with PCR
regarding activities not currently engaged in by either company. Under the
Services Agreement, the Company may not engage in the distribution and direct
sales of hardware and software products in which PCR is engaged. In addition,
PCR may not to engage in the business of providing integrated desktop management
and network solutions, except through its ownership of the Company's Common
Stock. However, circumstances could arise in which the Company and PCR would
engage in activities in competition with one another.
The Company and PCR may enter into material transactions and agreements in
the future in addition to those described above. The Company has been advised by
PCR that it intends that, for so long as PCR owns a majority of the voting power
of the Company, the terms of any future transactions and agreements between the
Company and PCR or its affiliates will be at least as favorable to the Company
as could be obtained from unrelated third parties. The Board will utilize such
procedures in evaluating the terms and provisions of any material transactions
between the Company and PCR or its affiliates as the Board may deem appropriate
in light of its fiduciary duties under state law. Depending on the nature and
size of the particular transaction, in any such evaluation, the Board may rely
on management's statements and opinions and may or may not utilize outside
experts or consultants or obtain independent appraisals or opinions.
Two of the four Directors of the Company are also directors of PCR. Such
Directors are PCR's Chairman and Chief Executive Officer, David B. Pomeroy, II,
and Stephen E. Pomeroy, President and Chief Executive Officer of the Company.
Directors of the Company who are also directors of PCR will have conflicts of
interest with respect to matters potentially or actually involving or affecting
the Company and PCR, such as acquisitions, financing and other corporate
opportunities that may be suitable for the Company and PCR. To the extent that
such opportunities arise, such Directors may consult with their legal advisors
and make a determination after consideration of a number of factors, including
whether such opportunity is presented to any such Director in his capacity as a
Director of the Company, whether such opportunity is within the Company's line
of business or consistent with its strategic objectives and whether the Company
will be able to undertake or benefit from such opportunity. In addition,
determinations may be made by the Board, when appropriate, by the vote of the
disinterested Directors only. Notwithstanding the foregoing, there can be no
assurance that conflicts will be resolved in favor of the Company.
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PRINCIPAL STOCKHOLDERS
The following table sets forth as of January 6, 1999, and as adjusted to
give effect to the sale of Class A Common Stock offered hereby, certain
information regarding beneficial ownership of the Company's Class A Common Stock
by (i) each person the Company expects to be the beneficial owner of more than
5% of the outstanding shares of Common Stock, (ii) each Director, (iii) each of
the Named Executives and (iv) all Directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE(3)
----------------------------------
NAME(1) NUMBER(2) PRIOR TO OFFERING AFTER OFFERING
- ------------------------------------------------------------------- ------------ ----------------- ---------------
<S> <C> <C> <C>
Pomeroy Computer Resources, Inc.(4)................................ 10,000,000 100.0%
David B. Pomeroy, II(5)............................................ 10,200,000 100.0%
Stephen E. Pomeroy(6).............................................. 200,000 2.0%
Larry H. Lokey(7).................................................. - *
Mark P. Schwarz(8)................................................. - *
Kenneth R. Waters(9)............................................... 10,000 *
Gerald L. Von Deylen(10)........................................... 10,000 *
All executives officers and Directors as a group (6 persons)(11)... 10,420,000 100.0%
</TABLE>
- ------------------------
* Less than 1%.
(1) The address of Pomeroy Computer Resources, Inc. and all persons who are
executive officers or Directors of the Company is in care of the Company,
1020 Petersburg Road, Hebron, Kentucky 41048.
(2) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission (the
"Commission") and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual or entity has sole
or shared voting power or investment power and also any shares which the
individual or entity has a right to acquire within 60 days after this
offering through the exercise of any stock option, warrant or other right.
The inclusion herein of such shares, however, does not constitute an
admission that the named stockholder is a direct or indirect beneficial
owner of such shares. Unless otherwise indicated, each person or entity
named in the table has sole voting power and investment power (or shares
such power with his or her spouse) with respect to all shares of capital
stock listed as owned by such person or entity.
(3) Applicable percentage of ownership is based on an aggregate of 10,000,000
shares of Common Stock outstanding on January 6, 1999 (consisting of no
shares of Class A Common Stock and 10,000,000 shares of Class B Common
Stock) and an aggregate of shares of Common Stock outstanding after
the completion of this offering (consisting of shares of Class A
Common Stock and 10,000,000 shares of Class B Common Stock).
(4) Represents 10,000,000 shares of Class A Common stock underlying the
10,000,000 shares of Class B Common Stock held by PCR.
(5) Includes 10,000,000 shares of Class A Common Stock underlying the Class B
Common Stock held by PCR. David B. Pomeroy, II, as Chairman, CEO and
beneficial owner of approximately 21.1% of the outstanding stock of PCR, may
be deemed to be the beneficial owner of such shares. David B. Pomeroy, II
disclaims beneficial ownership of such shares in excess of his pro rata
ownership of the common stock of PCR. Includes 200,000 shares of Class A
Common Stock issuable upon immediately exercisable options granted to David
B. Pomeroy, II as of January 6, 1999.
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(6) Includes 200,000 shares of Class A Common Stock issuable upon immediately
exercisable options granted to Stephen E. Pomeroy as of January 6, 1999.
(7) Excludes 25,000 shares of Class A Common Stock issuable upon immediately
exercisable options expected to be granted to Mr. Lokey prior to the
consummation of this offering, contingent upon Mr. Lokey entering into an
employment agreement with the Company.
(8) Excludes 12,500 shares of Class A Common Stock issuable upon immediately
exercisable options expected to be granted to Mr. Schwarz prior to the
consummation of this offering, contingent upon Mr. Schwarz entering into an
employment agreement with the Company.
(9) Includes 10,000 shares of Class A Common Stock issuable upon immediately
exercisable options granted to Mr. Waters as of January 6, 1999.
(10) Includes 10,000 shares of Class A Common Stock issuable upon immediately
exercisable options granted to Mr. Von Deylen as of January 6, 1999.
(11) Includes 420,000 shares of Class A Common Stock issuable upon immediately
exercisable options granted to the officers and Directors of the Company as
of January 6, 1999.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 30,000,000 shares of
Class A Common Stock, par value $0.01 per share, 15,000,000 shares of Class B
Common Stock, par value $0.01 per share, and 5,000,000 shares of undesignated
preferred stock, par value $0.01 per share (the "Preferred Stock"). The
following statements are brief summaries of certain provisions with respect to
the Company's capital stock contained in its Certificate of Incorporation and
Bylaws, copies of which have been filed as exhibits to the Registration
Statement. The following summary is qualified in its entirety by reference
thereto.
COMMON STOCK
VOTING RIGHTS
The holders of Class A Common Stock and Class B Common Stock generally have
identical rights, except that holders of Class A Common Stock are entitled to
one vote per share while holders of Class B Common Stock are entitled to ten
votes per share on all matters to be voted on by stockholders. Holders of shares
of Class A Common Stock and Class B Common Stock are not entitled to cumulate
their votes in the election of Directors. Generally, all matters to be voted on
by stockholders must be approved by a majority (or, in the case of election of
Directors, by a plurality) of the votes entitled to be cast by the holders of
Class A Common Stock and Class B Common Stock present in person or represented
by proxy, voting together as a single class, subject to any voting rights
granted to holders of any Preferred Stock. Except as otherwise provided by law
or in the Certificate of Incorporation, and subject to any voting rights granted
to holders of any outstanding Preferred Stock, amendments to the Certificate of
Incorporation must be approved by a majority of the votes entitled to be cast by
the holders of Class A Common Stock and Class B Common Stock, voting together as
a single class. However, amendments to the Certificate of Incorporation that
would alter or change the powers, preferences or special rights of the Class A
Common Stock or the Class B Common Stock so as to affect them adversely also
must be approved by a majority of the votes entitled to be cast by the holders
of the shares affected by the amendment, voting as a separate class.
Notwithstanding the foregoing, any amendment to the Certificate of Incorporation
to increase the authorized shares of any class of capital stock of the Company
requires the approval only of a majority of the votes entitled to be cast by the
holders of Class A Common Stock and Class B Common Stock, voting together as a
single class.
DIVIDENDS
Holders of Class A Common Stock and Class B Common Stock will share ratably
on a per share basis in any dividend declared by the Board of Directors, subject
to any preferential rights of any outstanding Preferred Stock. Dividends payable
in shares of Common Stock may be paid only as follows: (i) shares of Class A
Common Stock may be paid only to holders of Class A Common Stock, and shares of
Class B Common Stock may be paid only to holders of Class B Common Stock; and
(ii) the number of shares so paid will be equal on a per share basis with
respect to each outstanding share of Class A Common Stock and Class B Common
Stock.
The Company may not reclassify, subdivide or combine shares of either class
of Common Stock without at the same time proportionally reclassifying,
subdividing or combining shares of the other class.
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CONVERSION
Each share of Class B Common Stock is convertible while held by PCR at the
option of PCR into one share of Class A Common Stock. Following a Distribution
of Class B Common Stock to stockholders of PCR (whether or not a Distribution is
intended to qualify as a tax-free distribution), if any, shares of Class B
Common Stock will no longer be convertible into shares of Class A Common Stock
at the option of the stockholder but will convert automatically upon the first
transfer by the distributees. Each share of Class B Common Stock shall
automatically convert into one share of Class A Common Stock if, at any time
prior to a Distribution, the number of outstanding shares of Class B Common
Stock owned by PCR or a Class B Transferee, as defined in the Certificate of
Incorporation, as the case may be, is less than 50% of the aggregate number of
all shares of Common Stock then outstanding.
The occurrence of a Distribution is not a certainty. For a Distribution to
occur, the Board of Directors of PCR must conclude, at the time that the
Distribution may be considered, that the Distribution is in the best interests
of the stockholders of PCR. PCR has advised Pomeroy Select that such
determination may be conditioned upon the receipt of a favorable ruling from the
IRS as to the tax-free nature of the Distribution. PCR has not applied for such
a ruling as of the date of this offering.
Except for shares distributed through a Distribution or certain other
transfers permitted by the Certificate of Incorporation, upon the sale or other
transfer of shares of Class B Common Stock, such shares of Class B Common Stock
will be automatically converted into shares of Class A Common Stock on any other
transfer or sale. PCR has agreed with the Underwriters that it will not transfer
or distribute shares of Class B Common Stock for a period of at least 180 days
from the consummation of this offering.
OTHER RIGHTS
Unless approved by a majority of the votes entitled to be cast by the
holders of each class of Common Stock, voting separately as a class, in the
event of any reorganization or consolidation of the Company with one or more
corporations or a merger of the Company with another corporation in which shares
of Common Stock are converted into or exchangeable for shares of stock, other
securities or property (including cash), all holders of Common Stock, regardless
of class, will be entitled to receive the same kind and amount of shares of
stock and other securities and property (including cash).
On liquidation, dissolution or winding up of the Company, after payment in
full of the amounts required to be paid to holders of Preferred Stock, if any,
all holders of Common Stock, regardless of class, are entitled to receive the
same amount per share with respect to any distribution of assets to holders of
shares of Common Stock.
No shares of either class of Common Stock are subject to redemption or have
preemptive rights to purchase additional shares of Common Stock or other
securities of the Company.
Upon completion of this offering, all of the issued and outstanding shares
of Class A Common Stock and Class B Common Stock will be validly issued, fully
paid and nonassessable.
As of January 6, 1999, there were (i) no shares of Class A Common Stock
issued or outstanding, (ii) 10,000,000 shares of Class B Common Stock issued and
outstanding, (iii) one (1) stockholder of record and (iv) outstanding options to
purchase an aggregate of 620,000 shares of Class A Common Stock, 420,000 of
which were immediately exercisable. See "Management -- 1999 Stock Plan."
PREFERRED STOCK
The Preferred Stock is issuable from time to time in one or more series and
with such designations, preferences and other rights for each series as shall be
stated in the resolutions providing for the
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designation and issue of each such series adopted by the Board of Directors of
the Company. The Board of Directors is authorized by the Certificate of
Incorporation to determine, among other things, the voting, dividend,
redemption, conversion, exchange and liquidation powers, rights and preferences
and the limitations thereon pertaining to such series. The Board of Directors,
without stockholder approval, may issue Preferred Stock with voting and other
rights that could adversely affect the voting power of the holders of the Common
Stock and that could have certain anti-takeover effects. The Company has no
present plans to issue any shares of Preferred Stock. The ability of the Board
of Directors to issue Preferred Stock without stockholder approval could have
the effect of delaying, deferring or preventing a change in control of the
Company or the removal of existing management.
ANTI-TAKEOVER EFFECTS OF CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW
PROVISIONS
GENERAL
Certain provisions of the Certificate of Incorporation and Bylaws summarized
below may be deemed to have an anti-takeover effect and may delay, deter, or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in its best interest, including offers or attempts that might result in a
premium being paid over the market price for the shares held by stockholders.
BOARD OF DIRECTORS
The Certificate of Incorporation and Bylaws provide that the number of
Directors of the Company shall be fixed from time to time exclusively by
resolution adopted by the affirmative vote of not less than 66 2/3% of the
entire Board of Directors, but shall not be less than three nor more than nine
Directors. In addition, the Bylaws provide that any vacancies will be filled by
the affirmative vote of a majority of the remaining Directors, even if less than
a quorum, or by a sole remaining Director, or by stockholders if such vacancy
was caused by the action of stockholders (in which event such vacancy may not be
filled by the Directors or a majority thereof).
The Bylaws provide that Directors may be removed from office by the
affirmative vote of the holders of at least a majority of the voting power of
the Company entitled to vote generally in the election of Directors, voting
together as one class. Notwithstanding the foregoing, whenever holders of
outstanding shares of one or more series of Preferred Stock are entitled to
elect Directors of the Company pursuant to the provisions applicable in the case
of arrearages in the payment of dividends or other defaults contained in the
resolution or resolutions of the Board of Directors providing for the
establishment of any such series, any such Director of the Company so elected
may be removed in accordance with the provision of such resolution or
resolutions.
ADVANCE NOTICE PROCEDURES
The Bylaws provide for an advance notice procedure for the nomination, other
than by or at the direction of the Board of Directors, of candidates for
election as Directors, as well as for other stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a Director or raise matters at such meetings will have to be received
in writing by the Company at least 150 days prior to the anniversary of the
previous year's annual meeting of stockholders, and must contain certain
information concerning the person to be nominated or the matters to be brought
before the meeting and concerning the stockholder submitting the proposal.
SPECIAL MEETINGS AND ACTION BY WRITTEN CONSENT
The Bylaws provide that, unless otherwise provided by law, special meetings
of stockholders may be called only by (i) the Chairman, (ii) the Board of
Directors pursuant to a resolution approved by a majority of the Directors, or
(iii) the holders of at least two-thirds of the Company's issued and outstanding
capital stock entitled to vote at such special meeting of stockholders. In
addition, the
60
<PAGE>
Certificate of Incorporation provides that on or after the date on which neither
PCR nor a Class B Transferee, as defined therein, continues to beneficially own
50% or more of the total voting power of all classes of Common Stock,
stockholders of the Company may not act by written consent in lieu of a meeting
of stockholders.
AMENDMENT
Amendments of a number of the foregoing provisions, including the
Certificate of Incorporation and Bylaw provisions with respect to stockholder
action by written consent, stockholder right to call special meetings, advance
notice procedures, board classification and removal provisions, require approval
by holders of at least 66 2/3% of all of the outstanding shares of all classes
of capital stock of the Company entitled to cast votes in the election of
Directors, voting together as a single class. The Bylaws may also be amended by
action of the Board of Directors.
CONDUCT OF CERTAIN AFFAIRS OF THE CORPORATION
The Company's Certificate of Incorporation provides that, except as
otherwise agreed to in writing by PCR and the Company, in the event that a
Director or officer of the Company who is also a director or officer of PCR
acquires knowledge of a matter which may be a corporate opportunity for both the
Company and PCR, such Director or officer shall have fully fulfilled his
fiduciary duties to the Company and its stockholders so long as the Director or
officer acts in accordance with the following policy: (i) a corporate
opportunity offered to an officer of the Company who is a director (but not an
officer) of PCR belongs to the Company; (ii) a corporate opportunity offered to
a person who is a Director (but not an officer) of the Company and who is a
director or officer of PCR shall belong to the Company only if expressly offered
to such person in writing solely in his capacity as an officer of the Company;
and (iii) a corporate opportunity offered to any person who is an officer of
both the Company and PCR shall belong to the Company only if expressly offered
to such person in writing solely in his capacity as an officer of the Company.
DELAWARE LAW AND CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Section 203 of the DGCL, as amended ("Section 203"), provides that, subject
to certain exceptions specified therein, an "interested stockholder" of a
Delaware corporation shall not engage in any business combination, including
mergers or consolidations, asset sales or other transactions, with the
corporation for a three-year period following the date at which the stockholder
becomes an "interested stockholder" unless (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an "interested
stockholder," (ii) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time that the transaction commenced (excluding certain shares), or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors of the corporation and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the "interested stockholder." Except as
otherwise specified in Section 203, an "interested stockholder" is defined to
include (i) any person which is the owner of 15% or more of the outstanding
voting stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within three years immediately prior to the relevant
date and (ii) the affiliates and associates of any such person. The Company's
stockholders, by adopting an amendment to its Certificate of Incorporation or
Bylaws, may elect not to be governed by Section 203, effective immediately upon
adoption of such amendment. Neither the Certificate of Incorporation nor the
Bylaws presently exclude the Company from the restrictions imposed by Section
203.
61
<PAGE>
These and other provisions could have the effect of making it more difficult
to acquire the Company by means of a tender offer, proxy contest or otherwise or
to remove the incumbent officers and Directors of the Company. These provisions
may discourage certain types of coercive takeover practices and encourage
persons seeking to acquire control of the Company to first negotiate with the
Company.
LIMITATIONS ON DIRECTORS' LIABILITY
The Certificate of Incorporation provides that no Director of the Company
shall be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except for liability (i) for any breach
of the Director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases as provided in Section 174 of the DGCL or
(iv) for any transaction from which the Director derived an improper personal
benefit. The effect of these provisions will be to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a Director for breach of
fiduciary duty as a Director (including breaches resulting from grossly
negligent behavior), except in the situations described above. The Company's
Certificate of Incorporation and Bylaws provide that the Company is authorized
to provide indemnification of Directors to the fullest extent authorized under
the DGCL. The Company intends to enter into indemnification agreements with each
of its Directors providing for indemnification of such Directors to the fullest
extent permitted by applicable law. The Company believes that such
indemnification will assist the Company in continuing to attract and retain
talented Directors in light of the growing risk of litigation directed against
directors of publicly-held corporations.
REGISTRATION RIGHTS OF PCR
Pursuant to the terms of the Stock Registration Agreement, the Company has
provided PCR with certain registration rights, including demand registration
rights and certain "piggy-back" registration rights, with respect to the shares
of Class A Common Stock underlying the shares of Class B Common Stock owned by
PCR after this offering. The Company's obligation is subject to certain
limitations relating to a minimum amount of Common Stock required for
registration, the timing of registration and other similar matters. The Company
is obligated to pay all expenses incidental to such registration, excluding
underwriters' discounts and commissions and certain legal fees and expenses. See
"Risk Factors -- Shares Eligible for Future Sale; Potential Adverse Impact of
the Distribution."
LISTING
Application has been made to have the Company's Class A Common Stock
approved for quotation on the Nasdaq National Market under the symbol "PSIS."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is The Fifth
Third Bank, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have shares of
Class A Common Stock outstanding and 10,000,000 shares of Class B Common Stock
outstanding. Of these shares, the shares of Class A Common Stock sold
in the offering (plus any additional shares sold upon exercise of the
Underwriters' over-allotment option) will be freely transferable by persons
other than "affiliates" of the Company without restriction or further
registration under the Securities Act. The 10,000,000 shares of Class B Common
Stock held by PCR, and the 10,000,000 shares of Class A Common Stock underlying
the Class B Common Stock held by PCR, will be "restricted securities" (the
"Restricted Shares") within the meaning of Rule 144 under the Securities Act and
may not be sold in
62
<PAGE>
the absence of registration under the Securities Act unless an exemption from
registration is available, including an exemption afforded by Rule 144.
The Company, its officers and Directors, and PCR each have entered into
"lock-up" agreements with a Representative of the Underwriters, providing that,
subject to certain exceptions, they will not offer, sell or otherwise dispose of
any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of NationsBanc Montgomery
Securities LLC, acting as a Representative of the Underwriters. NationsBanc
Montgomery Securities LLC may release any of such shares in its sole discretion
at any time and without prior notice. In the event of a Distribution, the shares
of Class A Common Stock underlying the distributed shares of Class B Common
Stock will be freely transferable by such distributees. PCR has agreed with the
Underwriters that it will not transfer or distribute shares of Class B Common
Stock for a period of at least 180 days from the consummation of this offering.
Following expiration of the "lock-up" period, all of the Restricted Shares will
become eligible for sale at various times commencing January 7, 2000 pursuant to
Rule 144, subject to certain limitations described below. In addition, the
Restricted Shares may be sold earlier if PCR or a subsequent transferee
exercises any available registration rights or following a Distribution. PCR has
the right in certain circumstances to require the Company to register under the
Securities Act all of the shares of Class A Common Stock beneficially owned by
PCR. See "Description of Capital Stock -- Registration Rights of PCR."
Rule 144, as currently in effect, provides that an affiliate of the Company
or a person (or persons whose sales are aggregated) who has beneficially owned
Restricted Shares for at least one year is entitled to sell, commencing 90 days
after the date of this Prospectus, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Class A Common Stock (an aggregate of shares of Class A Common Stock
will be outstanding immediately after this offering) or the average weekly
trading volume in the Class A Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 also are subject to certain
manner-of-sale provisions, notice requirements and the availability of current
public information about the Company. However, a person who is not an
"affiliate" of the Company at any time during the three months preceding a sale,
and who has beneficially owned Restricted Shares for a least two years, is
entitled to sell such shares under Rule 144 without regard to the limitations
described above.
As of the date of this Prospectus, there were outstanding options to
purchase an aggregate of 620,000 shares of Class A Common Stock. Giving effect
to vesting provisions limiting the exercisability of all of the outstanding
options and the "lock-up" period applicable to certain option holders, none of
these shares will become available for sale in the public market pursuant to
Rules 144 and 701 under the Securities Act (relating to the sale of shares
issuable under certain compensatory stock plans) until at least 180 days after
completion of this offering. 420,000 of such shares will become available for
resale at the expiration of the "lock-up" period. The Company may register on a
Form S-8 registration statement under the Securities Act, during the 180-day
lock-up period, the resale of 3,000,000 shares of Class A Common Stock issuable
upon the exercise of outstanding options or reserved for issuance under the 1999
Stock Plan. See "Management -- 1999 Stock Plan."
Since there has been no public market for shares of the Class A Common Stock
prior to this offering, the Company is unable to predict the effect that sales
made pursuant to Rules 144 or 701 under the Securities Act, or otherwise, may
have on the prevailing market price of the shares of the Class A Common Stock.
Sales of a substantial amount of the Class A Common Stock in the public market,
or the perception that such sales could occur, could adversely affect market
prices. See "Risk Factors -- Shares Eligible for Future Sale; Potential Adverse
Impact of the Distribution."
63
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC, J.C. Bradford & Co. and Wheat First
Union, a division of Wheat First Securities, Inc., (the "Representatives"), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company the number of shares of
Class A Common Stock indicated below opposite their respective names at the
initial public offering price less the underwriting discount set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters to pay for and accept delivery of the shares of
Class A Common Stock are subject to certain terms and conditions precedent, and
that the Underwriters are committed to purchase all of such shares, if any are
purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
NationsBanc Montgomery Securities LLC......................................
J.C. Bradford & Co.........................................................
Wheat First Securities, Inc................................................
-----------------
TOTAL..................................................................
-----------------
-----------------
</TABLE>
The Representatives have advised the Company that the Underwriters initially
propose to offer the shares of Class A Common Stock to the public on the terms
set forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After, but not prior to the
completion of this offering, the offering price and concessions and reallowances
to dealers may be changed by the Representatives. The shares of Class A Common
Stock are offered subject to receipt and acceptance by the Underwriters and to
certain other conditions, including the right to reject orders in whole or in
part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
aggregate maximum of additional shares of Class A Common Stock to cover
over-allotments, if any, at the same price per share as the initial
shares to be purchased by the Underwriters. To the extent that the Underwriters
exercise this option, each of the Underwriters will be committed, subject to
certain conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
The Company's officers and Directors, certain option holders and PCR, who
immediately following this offering (assuming no exercise of the over-allotment
option) collectively will beneficially own shares of Class A Common
Stock and 10,000,000 shares of Class B Common Stock, have agreed not to directly
or indirectly sell, offer, contract or grant any option to sell, pledge,
transfer, establish an open put equivalent position or otherwise dispose of any
rights with respect to any shares of Common Stock, any options to purchase
Common Stock, or any securities convertible or exchangeable for Common Stock,
owned directly by such holders or with respect to which they have the power of
disposition for a period of 180 days after the date of this Prospectus without
the prior written consent of NationsBanc Montgomery Securities LLC. In addition,
the Company has agreed not to sell, offer to sell, contract to sell or otherwise
sell or dispose of any shares of Common Stock or any rights to acquire Common
Stock, other than options for shares granted pursuant to its stock plan, shares
issued upon the exercise of outstanding options, and shares issued pursuant to
acquisitions of business of
64
<PAGE>
businesses, for a period of 180 days after the date of this Prospectus without
the prior written consent of NationsBanc Montgomery Securities LLC. NationsBanc
Montgomery Securities LLC may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to the Lock-up
Agreements. See "Shares Eligible for Future Sale."
The Underwriting Agreement provides that the Company and PCR will indemnify
the several Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or will contribute to payments the
Underwriters may be required to make in respect thereof.
Prior to this offering, there has been no public market for the Class A
Common Stock. Consequently, the initial public offering price has been
determined by negotiations among the Company, PCR and the Representatives. Among
the factors considered in such negotiations were the history of, and prospects
for, the Company and the industry in which it competes, an assessment of the
Company's management, the Company's past and present operations, its past and
present financial performance, the prospects for future earnings of the Company,
the present state of the Company's development, the general condition of the
securities markets at the time of the offering and the market prices of and
demand for publicly traded common stock of comparable companies in recent
periods, and other factors deemed relevant.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A Common
Stock offered hereby. Such transactions may include stabilizing, the purchase of
Class A Common Stock to cover syndicate short positions and the imposition of
penalty bids. A stabilizing bid means the placing of any bid or the effecting of
any purchase for the purpose of pegging, fixing or maintaining the price of the
Class A Common Stock. A syndicate covering transaction means the placing of any
bid on behalf of the underwriting syndicate or the effecting of any purchase to
reduce a short position created in connection with the offering. A penalty bid
means an arrangement that permits the Underwriters to reclaim a selling
concession from a syndicate member in connection with the offering when shares
of Class A Common Stock sold by the syndicate member are purchased in syndicate
covering transactions. Such transactions may stabilize or maintain the market
price of the Class A Common Stock at a level above that which otherwise might
prevail in the open market and, if commenced, may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales in excess of 5% of the number of shares of Class A Common
Stock offered hereby to accounts over which they exercise discretionary
authority.
LEGAL MATTERS
The validity of the shares of the Class A Common Stock offered hereby will
be passed upon for the Company by Cors & Bassett, Cincinnati, Ohio. Certain
legal matters in connection with the offering will be passed upon for the
Underwriters by Buchanan Ingersoll Professional Corporation, Princeton, New
Jersey.
EXPERTS
The financial statements of the Company at October 5, 1998, January 5, 1998
and January 5, 1997 and for the nine months ended October 5, 1998 and for each
of the three years in the period ended January 5, 1998, appearing in this
Prospectus and Registration Statement have been audited by Grant Thornton LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
65
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to the
shares of Class A Common Stock offered hereby. This Prospectus, which forms a
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules filed
therewith. For further information with respect to the Company and the shares of
Class A Common Stock offered hereby, reference is made to the Registration
Statement and to such exhibits and schedules filed therewith. Statements
contained herein as to the content of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, and each such statement shall be deemed qualified in its entirety by
such reference.
The Registration Statement and the exhibits and schedules thereto may be
inspected without charge at the principal office of the Commission at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such documents may be obtained from the Public Reference Section of
the Commission, at prescribed rates. This material also may be accessed
electronically by means of the Commission's website on the Internet at
http://www.sec.gov. Information regarding the operation of the Public Reference
Room may be obtained by calling the Commission at 1(800) SEC-0330.
The Company intends to furnish its stockholders with annual reports
containing financial statements certified by its independent accountants and
make available quarterly reports containing unaudited financial information for
the first three quarters of each year. In addition, PCR is subject to the
information requirements of the Securities Exchange Act of 1934, as amended, and
in accordance therewith files reports and other information with the Commission.
Such reports and other information may be inspected and copied at the locations
set forth above.
66
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants....................................................... F-2
Balance Sheets........................................................................................... F-3
Statements of Income..................................................................................... F-4
Statements of Stockholder's Equity....................................................................... F-5
Statements of Cash Flows................................................................................. F-6
Notes to Financial Statements............................................................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder
Pomeroy Select Integration Solutions, Inc.
We have audited the accompanying balance sheets of Pomeroy Select
Integration Solutions, Inc. as of January 5, 1997 and 1998 and October 5, 1998,
and the related statements of income, equity, and cash flows for each of the
three years in the period ended January 5, 1998 and the nine months ended
October 5, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pomeroy Select Integration
Solutions, Inc. at January 5, 1997 and 1998 and October 5, 1998, and the results
of its operations and its cash flows for each of the three years in the period
ended January 5, 1998 and the nine months ended October 5, 1998 in conformity
with generally accepted accounting principles.
Grant Thornton LLP
/s/ Grant Thorton LLP
Cincinnati, Ohio
December 9, 1998, except for
Notes 1, 9 and 14 as to which the
date is January 6, 1999.
F-2
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AS OF
JANUARY 5, OCTOBER 5, 1998
-------------------- ----------------------
1997 1998 ACTUAL
--------- --------- --------- PRO FORMA
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable:
Trade, less allowance of $52 and $50 at January 5, 1997 and 1998
and $59 at October 5, 1998, respectively........................ $ 7,453 $ 11,008 $ 13,145 $ 13,145
Vendor receivables, less allowance of $158 and $330 at January 5,
1997 and 1998 and $247 at October 5, 1998, respectively......... 2,315 2,135 8,273 8,273
Other............................................................. 28 87 168 168
--------- --------- --------- -----------
Total receivables............................................... 9,796 13,230 21,586 21,586
--------- --------- --------- -----------
Inventories......................................................... 3,280 5,246 6,037 6,037
Other............................................................... 283 595 889 231
--------- --------- --------- -----------
Total current assets............................................ 13,359 19,071 28,512 27,854
--------- --------- --------- -----------
FURNITURE, FIXTURES AND EQUIPMENT:
Furniture, fixtures and equipment................................... 1,416 2,426 2,758 2,758
Less accumulated depreciation....................................... 404 678 1,047 1,047
--------- --------- --------- -----------
Net furniture, fixtures and equipment........................... 1,012 1,748 1,711 1,711
--------- --------- --------- -----------
Goodwill and other intangible assets.................................. 3,153 3,800 6,854 6,854
Other assets.......................................................... 158 83 108 -
--------- --------- --------- -----------
Total assets.................................................... $ 17,682 $ 24,702 $ 37,185 $ 36,419
--------- --------- --------- -----------
--------- --------- --------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of notes payable.................................... $ 63 $ 166 $ 246 $ 246
Trade accounts payable.............................................. 2,543 2,848 5,486 -
Bank note payable................................................... 731 1,630 7,409 18,069
Due to parent....................................................... 6,614 6,588 6,158 -
Deferred revenue.................................................... 2,318 3,503 4,059 4,059
Accrued liabilities................................................. 990 1,839 1,008 1,226
--------- --------- --------- -----------
Total current liabilities....................................... 13,259 16,574 24,366 23,600
--------- --------- --------- -----------
Notes payable......................................................... 153 115 207 207
STOCKHOLDER'S EQUITY:
Preferred Stock, $0.01 par value, 5,000 authorized; none authorized,
issued and outstanding at January 5, 1997 and 1998 and October 5,
1998; pro forma, none issued and outstanding...................... - - - -
Class A Common Stock, $0.01 par value, 30,000 authorized; none
authorized, issued and outstanding at January 5, 1997 and 1998 and
October 5, 1998; pro forma, none issued and outstanding........... - - - -
Class B Common Stock, $0.01 par value, 15,000 authorized; none
authorized, issued and outstanding at January 5, 1997 and 1998 and
October 5, 1998; pro forma, 10,000 shares issued and
outstanding....................................................... - - - 100
Additional paid-in-capital.......................................... - - - 12,512
Stockholder's net investment........................................ 4,270 8,013 12,612 -
--------- --------- --------- -----------
Total stockholder's equity...................................... 4,270 8,013 12,612 12,612
--------- --------- --------- -----------
Total liabilities and stockholder's equity...................... $ 17,682 $ 24,702 $ 37,185 $ 36,419
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JANUARY 5, OCTOBER 5,
------------------------------- ----------------------
1996 1997 1998 1997 1998
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue...................................... $ 17,243 $ 26,396 $ 45,209 $ 31,903 $ 51,401
Cost of revenue.............................. 10,123 16,487 27,137 18,418 30,633
--------- --------- --------- ----------- ---------
Gross profit............................. 7,120 9,909 18,072 13,485 20,768
Operating expenses:
Selling, general and administrative
expenses................................. 5,089 6,199 11,457 8,634 12,439
Depreciation and amortization.............. 198 338 582 375 737
--------- --------- --------- ----------- ---------
Total operating expenses................. 5,287 6,537 12,039 9,009 13,176
--------- --------- --------- ----------- ---------
Operating income 1,833 3,372 6,033 4,476 7,592
Other expenses (income), net:
Interest expense........................... 149 180 94 96 339
Other expense (income)..................... (16) (50) 16 25 (47)
--------- --------- --------- ----------- ---------
Total other expense...................... 133 130 110 121 292
--------- --------- --------- ----------- ---------
Income before provision for income taxes..... 1,700 3,242 5,923 4,355 7,300
Provision for income taxes................... 690 1,323 2,180 1,603 2,701
--------- --------- --------- ----------- ---------
Net income............................... $ 1,010 $ 1,919 $ 3,743 $ 2,752 $ 4,599
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCKHOLDER'S
---------------------- PAID-IN NET TOTAL
SHARES AMOUNT CAPITAL INVESTMENT EQUITY
--------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balances at January 5, 1995................. - $ - $ - $ 1,341 $ 1,341
Net income................................ - - - 1,010 1,010
--------- ----- ----------- ----------- ---------
Balances at January 5, 1996................. - - - 2,351 2,351
Net income................................ - - - 1,919 1,919
--------- ----- ----------- ----------- ---------
Balances at January 5, 1997 - - - 4,270 4,270
Net income................................ - - - 3,743 3,743
--------- ----- ----------- ----------- ---------
Balances at January 5, 1998................. - - - 8,013 8,013
Net income................................ - - - 4,599 4,599
--------- ----- ----------- ----------- ---------
Balances at October 5, 1998................. - - - 12,612 12,612
Pro forma issuance of Class B Common Stock
upon incorporation of the Company
(unaudited)............................. 10,000 100 12,512 (12,612) -
--------- ----- ----------- ----------- ---------
Pro forma balances at October 5, 1998
(unaudited)............................... 10,000 $ 100 $ 12,512 $ - $ 12,612
--------- ----- ----------- ----------- ---------
--------- ----- ----------- ----------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JANUARY 5, OCTOBER 5,
------------------------------- ----------------------
1996 1997 1998 1997 1998
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 1,010 $ 1,919 $ 3,743 $ 2,752 $ 4,599
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation............................ 112 167 274 198 370
Amortization............................ 86 171 308 177 367
Changes in working capital accounts, net of
effects of acquisitions:
Accounts receivable..................... (299) (2,239) (2,975) (6,431) (1,700)
Inventories............................. (163) (156) (1,723) (1,967) (281)
Trade payables.......................... (80) (752) 37 167 (3,596)
Deferred revenue........................ 648 (418) 1,031 892 473
Other, net.............................. 57 (582) 359 (334) (1,575)
--------- --------- --------- ----------- ---------
Net operating activities................ 1,371 (1,890) 1,054 (4,546) (1,343)
--------- --------- --------- ----------- ---------
Cash flows from investing activities:
Capital expenditures.................... (236) (254) (955) (663) (261)
--------- --------- --------- ----------- ---------
Net investing activities................ (236) (254) (955) (663) (261)
--------- --------- --------- ----------- ---------
Cash flows from financing activities:
Net decrease in notes payable........... (26) (993) (219) (154) (480)
Net increase (decrease) in bank note
payable............................... 241 (920) 899 54 5,779
Net increase (decrease) in due to
parent................................ (1,350) 4,057 (779) 5,309 (3,695)
--------- --------- --------- ----------- ---------
Net financing activities................ (1,135) 2,144 (99) 5,209 1,604
--------- --------- --------- ----------- ---------
Increase (decrease) in cash................. - - - - -
Cash:
Beginning of period..................... - - - - -
--------- --------- --------- ----------- ---------
End of period........................... $ - $ - $ - $ - $ -
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
1. FORMATION AND OPERATIONS
Pomeroy Select Integration Solutions, Inc. (the "Company") was incorporated
on December 14, 1998 as a wholly-owned subsidiary of Pomeroy Computer Resources,
Inc. ("PCR"). The financial statements presented relate to the information
technology ("IT") services business of PCR. On January 6, 1999, PCR contributed
the assets, liabilities, business, operations and personnel of its IT services
business to the Company in exchange for 10,000,000 shares of the Company's Class
B Common Stock.
The Company is a single-source provider of integrated desktop management and
network services that help corporate clients manage their IT assets. The Company
offers three categories of services: life cycle services, internetworking
services and end-user support services. Life cycle services include technology
deployment, warranty and non-warranty repair and maintenance, a full range of
install, move, add or change services, redeployment and mobile systems
management, asset discovery and tracking and end-of-life services.
Internetworking solutions include project management; network design,
integration, management, migration and support; and cabling services. End-user
support services include customized help desk, Internet-based training and
video/teleconferencing services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The accompanying financial statements consist of
the financial statements of the Company as described in Note 1. These statements
are presented as if the Company had existed as a corporation separate from PCR
and include the Company's historical assets, liabilities, sales and expenses
directly related to the Company's operations that were either specifically
identifiable or allocable using methods which took into consideration the ratio
of the Company's gross profit contribution to the consolidated gross profit of
PCR and other appropriate factors.
As part of PCR's central cash management system, all cash generated from and
cash required to support the Company's operations were deposited and received
through PCR's corporate operating cash accounts. As a result, there were no
separate bank accounts or accounting records for the Company's transactions.
Accordingly, the amounts represented by the caption "Due to parent" and "Bank
note payable" on the Company's Financial Statements represent the net effect of
all cash transactions for the Company.
For the periods presented, certain general and administrative expenses
reflected in the financial statements include allocations of certain corporate
expenses from PCR. These allocations took into consideration the ratio of the
Company's gross profit contribution to the consolidated gross profit of PCR and
other appropriate factors and generally include administrative expenses related
to general management, insurance, information management, occupancy, marketing
and other miscellaneous services. Allocations of corporate expenses are
estimates based on management's best estimate of actual expenses. It is
management's opinion that the expenses charged to the Company are reasonable.
Interest expense shown in the financial statements reflects interest expense
associated with Bank note payable allocated based on the weighted average
interest rate under PCR's credit facility agreement (see Note 5). Management
believes that such an allocation is reasonable.
The financial information included herein may not necessarily reflect the
financial position, results of operations or cash flows of the Company in the
future or what the balance sheets, results of
F-7
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
operations or cash flows of the company would have been if it had been a
separate, stand-alone, publicly-held corporation during the periods presented.
FISCAL YEAR -- The Company's fiscal year is a 12-month period ending January
5.
REVENUE AND COST RECOGNITION -- Revenue is recognized as services are
performed or ratably over the term of the particular contract. Fixed-price
contracts are recognized on the percentage-of-completion method. Contract costs
are recognized as incurred. Any possible losses on contracts are recognized when
known or estimatable.
FURNITURE, FIXTURES AND EQUIPMENT -- Furniture, fixtures and equipment,
which are specifically identifiable to the business of the Company, are stated
at cost. Depreciation on furniture, fixtures and equipment is computed using the
straight-line method over estimated useful lives, principally three to seven
years. Expenditures for repairs and maintenance are charged to expense as
incurred and additions and improvements that significantly extend the lives of
assets are capitalized. Upon sale or retirement of depreciable property, the
cost and accumulated depreciation are removed from the related accounts and any
gain or loss is reflected in the results of operations.
GOODWILL AND OTHER INTANGIBLE ASSETS -- Goodwill represents specifically
identifiable amounts and allocations from PCR relating to the Company's share of
each of PCR's historical acquisitions. The allocations took into consideration
each acquisition's IT services component and the Company's proportionate share
of income before provision for income taxes. Management believes that such
allocations are reasonable. Goodwill is being amortized on a straight-line basis
over the expected period to be benefited, generally fifteen to twenty-five
years. In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, Accounting for The Impairment of Long-Lived Assets, the Company
evaluates its goodwill on an ongoing basis to determine potential impairment by
comparing the carrying value to the undiscounted estimated expected future cash
flows of the related assets. Other intangible assets are amortized using the
straight-line method over periods up to ten years.
INCOME TAXES -- The provision for income taxes is based on the Company's
proportionate share of the tax expense based on the effective tax rate for the
PCR consolidated group. The provision for income taxes would not have been
materially different had the provision for the Company been calculated on a
separate return basis.
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
VENDOR INCENTIVE FUNDS -- Certain vendors provide incentive funds to perform
training and advertising activities. The Company recognizes these funds when it
has completed its obligation to perform under the specific incentive
arrangement. Incentive funds are recorded as reductions of selling, general and
administrative expenses.
F-8
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES -- Inventories, which are specifically identifiable to the
business of the Company, are stated at the lower of cost or market. Cost is
determined by the average cost method.
EARNINGS PER COMMON SHARE -- There are no earnings per common share because
at October 5, 1998, the Company had no shares of common stock issued and
outstanding.
USE OF ESTIMATES IN FINANCIAL STATEMENTS -- In preparing financial
statements in conformity with generally accepted accounting principles,
management makes 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, as well as the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE DISCLOSURES -- The fair value of financial instruments
approximates carrying value.
NEW PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, with an effective date for fiscal years
beginning after December 15, 1997. SFAS No. 130 established standards for the
reporting of comprehensive income in a company's financial statements.
Comprehensive income includes all changes in a company's equity during the
period that result from transactions and other economic events other than
transactions with its stockholders.
In the fourth quarter of 1997, the Company elected to early adopt SFAS No.
130 retroactive to January 6, 1997. The adoption of SFAS No. 130 did not affect
the financial reporting in the accompanying financial statements because the
Company does not presently have any comprehensive income other than net income.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, with an
effective date for fiscal years beginning after December 15, 1997. A reportable
segment, referred to as an operating segment, is a component of an entity about
which separate financial information is produced internally, that is evaluated
by the chief operating decision-maker to assess performance and allocate
resources. The Company does not believe that it operates in more than one
identifiable segment.
In February 1998, the Accounting Standards Executive Committee issued SOP
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 established the accounting for costs of software
developed or purchased for internal use, including when such costs should be
capitalized. The Company does not expect SOP 98-1, which is effective for the
Company beginning January 6, 1999, to have a material effect on the Company's
financial condition or results of operations.
F-9
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
3. ACCOUNTS RECEIVABLE
The following table summarizes the activity in the allowance for doubtful
accounts for the years ended January 5, 1996, 1997 and 1998, and the nine months
ended October 5, 1998.
<TABLE>
<CAPTION>
TRADE OTHER
----- ---------
(IN THOUSANDS)
<S> <C> <C>
Balance January 5, 1995....................................................... $ 9 $ 32
Provision 1995................................................................ 13 57
Accounts written-off.......................................................... (12) (62)
Recoveries.................................................................... 18 2
--- ---------
Balance January 5, 1996....................................................... 28 29
Provision 1996................................................................ 35 144
Accounts written-off.......................................................... (35) (85)
Recoveries.................................................................... 24 70
--- ---------
Balance January 5, 1997....................................................... 52 158
Provision 1997................................................................ 18 626
Accounts written-off.......................................................... (84) (496)
Recoveries.................................................................... 64 42
--- ---------
Balance January 5, 1998....................................................... 50 330
Provision 1998................................................................ - 402
Accounts written-off.......................................................... (42) (509)
Recoveries.................................................................... 51 24
--- ---------
Balance October 5, 1998....................................................... $ 59 $ 247
--- ---------
--- ---------
</TABLE>
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following as of the end
of the periods indicated net of accumulated amortization of $400,000 as of
January 5, 1997, $671,000 as of January 5, 1998 and $779,000 as of October 5,
1998, respectively (See Note 8):
<TABLE>
<CAPTION>
AS OF AS OF
JANUARY 5, OCTOBER 5,
-------------------- -----------
1997 1998 1998
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill....................................................... $ 2,838 $ 3,584 $ 6,676
Other.......................................................... 315 216 178
--------- --------- -----------
$ 3,153 $ 3,800 $ 6,854
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-10
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
5. BORROWING ARRANGEMENTS
For purposes of the financial statements presented herein, Bank note payable
represents the Company's allocated share of PCR's credit facility necessary to
fund the Company's operations and acquisitions. These amounts have been
classified as current based on the terms of PCR's credit facility. Amounts Due
to parent represent intercompany borrowings to fund additional working capital
needs.
Interest expense was calculated using the weighted average interest rate on
PCR's credit facility agreements for the current and prior years. These rates
were 8.7%, 8.2%, 7.3% and 7.5% for the years ended January 5, 1996, 1997 and
1998, and the nine months ended October 5, 1998, respectively. No interest
expense was charged to the Company on intercompany borrowings.
In July 1998, PCR finalized a $120 million credit facility with Deutsche
Financial Services Corporation. This credit facility provides a credit line of
$60 million for inventory financing and $60 million for accounts receivable
financing. The inventory financing portion of the credit facility utilizes
thirty day notes and provides interest free financing due to subsidies by
manufacturers. The credit facility can be amended, with proper notification, if
the thirty day interest free subsidies provided by manufacturers are revised.
The accounts receivable portion of the credit facility carries a variable
interest rate based on the prime rate less 125 basis points. The credit facility
is collateralized by substantially all of the assets of PCR, except those assets
that collateralize certain other financing arrangements.
Substantially all of the assets of the Company have been pledged as
collateral on PCR's credit facility. Prior to January 6, 1999, the Company
anticipates obtaining its own credit facility with Deutsche Financial Services
Corporation (see Note 14).
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JANUARY 5, OCTOBER 5,
------------------------------- ----------------------
1996 1997 1998 1998
--------- --------- --------- ---------
1997
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current:
Federal............................ $ 489 $ 974 $ 2,124 $ 1,502 $ 2,462
State.............................. 141 332 218 148 204
--------- --------- --------- ----------- ---------
Total current...................... 630 1,306 2,342 1,650 2,666
--------- --------- --------- ----------- ---------
Deferred:
Federal............................ 46 14 (138) (39) 32
State.............................. 14 3 (24) (8) 3
--------- --------- --------- ----------- ---------
Total deferred..................... 60 17 (162) (47) 35
--------- --------- --------- ----------- ---------
Total income tax provisions........ $ 690 $ 1,323 $ 2,180 $ 1,603 $ 2,701
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
F-11
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
6. INCOME TAXES (CONTINUED)
The approximate tax effect of the temporary differences giving rise to the
Company's deferred income tax assets (liabilities) are:
<TABLE>
<CAPTION>
AS OF JANUARY 5,
-------------------- AS OF OCTOBER 5,
1997 1998 1998
--------- --------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Bad debt provision....................................... $ 86 $ 140 $ 113
Depreciation............................................. - 73 28
Deferred compensation.................................... 50 123 160
--------- --------- -----
Total deferred tax assets.................................. 136 336 301
--------- --------- -----
Deferred tax liabilities:
Depreciation............................................. (35) - -
Accounts receivable...................................... - (73) (73)
--------- --------- -----
Total deferred tax liabilities............................. (35) (73) (73)
--------- --------- -----
Net deferred tax asset..................................... $ 101 $ 263 $ 228
--------- --------- -----
--------- --------- -----
</TABLE>
The Company's effective income tax rate differs from the Federal statutory
rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 5,
------------------------------- NINE MONTHS ENDED
1996 1997 1998 OCTOBER 5, 1998
--------- --------- --------- ---------------------
<S> <C> <C> <C> <C>
Tax at Federal statutory rate................. 34.0% 34.0% 35.0% 35.0%
State taxes................................... 6.3 6.6 4.7 4.5
Kentucky relocation credits................... - - (2.2) (2.0)
Other......................................... 0.3 0.2 (0.7) (0.5)
--- --- --- ---
Effective tax rate............................ 40.6% 40.8% 36.8% 37.0%
--- --- --- ---
--- --- --- ---
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company will participate in PCR's existing employee benefit plans, which
among others, include a savings plan intended to qualify under sections 401(a)
and 401(k) of the Internal Revenue Code. The plan covers substantially all
employees of the Company. The Company did not contribute to the plan for the
years ended January 5, 1997 and 1998. Beginning January 6, 1998 the Company made
contributions to the plan based on a participant's annual pay. Contributions
made by the Company for the nine months ended October 5, 1998 were approximately
$44,000.
F-12
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
8. ACQUISITIONS
During the years ended January 5, 1997 and 1998, and the nine months ended
October 5, 1998, PCR completed several acquisitions. The goodwill allocated to
the Company related to these acquisitions was $2.8 million in 1996, $1.0 million
in 1997, and $3.4 million in 1998. The acquisitions were accounted for as
purchases, accordingly the purchase price was allocated to assets and
liabilities based on their estimated value as of the dates of acquisition. The
results of operations of the acquisitions are included in the statement of
income from the dates of acquisition.
In the year ended January 5, 1997, PCR acquired certain assets of The
Computer Supply Store, Inc. ("TCSS") a privately held computer reseller located
in Des Moines, Iowa, AA Microsystems, Inc. ("AA Micro"), a network service
provider located in Birmingham, Alabama, and Communications Technology, Inc.
("DILAN"), a privately held network integrator located in Hickory, North
Carolina . The Company recorded $1.7 million, $407,000 and $729,000 of goodwill
in connection with those acquisitions, respectively.
In the year ended January 5, 1998, PCR acquired certain assets of Magic Box,
Inc. ("Magic Box"), a privately held network integrator located in Miami,
Florida, and Micro Care, Inc. ("Micro Care"), a privately held systems
integrator located in Indianapolis, Indiana. A wholly owned subsidiary of PCR,
Pomeroy Computer Resources of South Carolina, Inc., acquired all the assets and
liabilities of The Computer Store Inc., a network integrator located in
Columbia, South Carolina. The Company recorded $420,000, $462,000 and $93,000 of
goodwill in connection with those acquisitions, respectively.
In the nine months ended October 5, 1998, PCR acquired certain assets of
Commercial Business Systems, a privately held systems integrator in Richmond,
Virginia and Global Combined Technologies, Inc., a privately held systems
integrator located in Oklahoma City, Oklahoma. The Company recorded $607,000 and
$2.8 million of goodwill in connection with those acquisitions, respectively.
The following table summarizes, on an unaudited pro forma basis, the
estimated combined results of the Company including the acquisitions assuming
the acquisitions had occurred at the beginning of the year of acquisition and
the preceding year. These results include certain adjustments, primarily
goodwill amortization and interest expense, and are not necessarily indicative
of what results would have been had the Company owned these businesses during
the periods presented:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY
5,
-------------------- NINE MONTHS ENDED
1997 1998 OCTOBER 5, 1998
--------- --------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue............................................. $ 35,016 $ 57,266 $ 52,011
Net income.......................................... $ 2,526 $ 3,922 $ 4,531
</TABLE>
9. LEASE OBLIGATIONS
The Company has entered into a Space Sharing Agreement with PCR (see Note
14). Per the Agreement, the Company is permitted to lease space in PCR
facilities. The Company's right to lease space in PCR facilities shall terminate
upon 90 days written notice from either the Company or PCR, or upon termination
of the applicable PCR lease. Rent charged to the Company will be based on the
ratio of the Company's gross profit contribution to consolidated gross profit of
PCR. The Company's
F-13
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
9. LEASE OBLIGATIONS (CONTINUED)
expected future minimum lease payments for the year ending January 5, 2000,
under the Space Sharing Agreement, is approximately $810,000.
Rent expense for the years ended January 5, 1996, 1997, 1998 and for the
nine months ended October 5, 1998 was $237,000, $352,000, $587,000 and $634,000,
respectively.
10. SUPPLEMENTAL CASH FLOW DISCLOSURES
As a result of the Company participating in PCR's central cash management
system, the Company made no cash payments for interest and income taxes. The
Company's non-cash activities were as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY NINE MONTHS ENDED
5, OCTOBER 5,
-------------------- ----------------------
1997 1998 1997 1998
--------- --------- ----------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Details of investing activities:
Allocation of goodwill................ $ 2,843 $ 975 $ 883 $ 3,421
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Business acquisitions accounted for as
purchases:
Assets acquired....................... $ 6,509 $ 1,523 $ 1,301 $ 9,672
Liabilities assumed................... $ (2,752) $ (461) $ (203) $ (5,788)
Note payable.......................... $ (1,199) $ (309) $ (247) $ (620)
--------- --------- ----------- ---------
Due to parent......................... $ 2,558 $ 753 $ 851 $ 3,264
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
11. LITIGATION
The Company is not a party to any legal proceedings. PCR is a party to
various legal actions arising in the normal course of its business, some of
which may involve the business or operations of the Company but none of which,
in the opinion of management would have a material adverse effect on the
Company's financial position or results of operations.
12. DEPENDENCE ON VENDOR AUTHORIZATIONS
The Company is required to have authorizations from manufacturers in order
to service their products. The loss of a significant vendor's authorization
could have a material adverse effect on the Company's business.
13. PRO FORMA INFORMATION (UNAUDITED)
The pro forma amounts on the financial statements of the Company as of
October 5, 1998 represent the impact of the actual contribution of the assets
and liabilities to the Company by PCR expected to occur on January 6, 1999 as if
it had occurred on October 5, 1998. Only specifically identifiable assets and
liabilities will be contributed to the Company. The Company intends to obtain
its own credit
F-14
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
13. PRO FORMA INFORMATION (UNAUDITED) (CONTINUED)
facility with Deutsche Financial Services Corporation in the amount of the bank
note payable. PCR's existing credit facility will be reduced by the same amount.
The pro forma amounts also include the shares to be issued to PCR on January 6,
1999, as if the issuance of shares had occurred on October 5, 1998. (See Note
14)
14. SUBSEQUENT EVENTS
On January 6, 1999, the Company's Board of Directors authorized management
to file a registration statement with the Securities and Exchange Commission
(the "SEC") with respect to an initial public offering of the Company's Class A
Common Stock.
The Company entered into a number of agreements with PCR which became
effective on January 6, 1999. As a result of PCR's ownership interest in the
Company, the terms of such agreements were not, and the terms of any future
amendments to those agreements will not be, the result of arm's-length
negotiations.
ADMINISTRATIVE SERVICES AND MARKETING AGREEMENT. The Company and PCR have
entered into an Administrative Services and Marketing Agreement (the "Services
Agreement") pursuant to which PCR will continue to provide to the Company, at
the Company's request, certain administrative services, including the following:
- Payroll services, including the use of PCR's common paymaster;
- Accounting services, including reporting, account reconciliation, cash
management, bank account services, preparation of financial statements,
invoicing of customer accounts, collection of accounts receivable and
payment of accounts payable;
- Insurance and risk management services, including insurance coverage and
administration of risk management;
- Tax services, including preparation and filing of all tax returns,
assistance with tax compliance and accounting for taxes, and supervision
of audits and other proceedings and litigation;
- Human resources services, including advice and assistance relating to
employee benefits, employee screening, recruitment and training of
personnel, facilitation of government/regulatory reporting and assistance
with compliance issues;
- MIS services, including operational and technical support for telephones
and voice mail;
- Legal services, including contract review, drafting and negotiation,
litigation coordination and SEC compliance;
- Marketing services, including preparation and production of promotional
materials; and
- Employee benefit plan design, qualification and administration.
The Services Agreement provides for the allocation between the Company and
PCR of various joint expenses, such as payroll costs for shared employees,
utilities costs, equipment expenses, taxes and supplies, plus the payment by the
Company to PCR of an annual fee equal to the greater of $450,000
F-15
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
14. SUBSEQUENT EVENTS (CONTINUED)
or 0.45% of the Company's annual revenue. This fee is to be paid to PCR by the
Company in monthly installments based on the Company's revenue for the previous
month.
In addition, the Services Agreement requires PCR to provide the Company with
the right of first refusal to evaluate and participate in service opportunities
which come to PCR's attention. The Company is required to provide a similar
right of first refusal regarding any sales opportunities for microcomputer
hardware and related products which come to the Company's attention. The Company
and PCR have agreed to allocate the consolidated sales commissions of PCR and
its subsidiaries, including the Company. The Company's portion of such sales
commission is based on the average of (i) the ratio of the Company's gross
profit contribution to the consolidated gross profit of PCR and its
subsidiaries, including the Company, and (ii) the ratio of the Company's net
revenue contribution to such consolidated net revenue. During the term of the
Services Agreement, and until the later of (i) one year after termination of the
Services Agreement or (ii) two years from the effective date of the Services
Agreement, PCR is restricted from engaging in activities which are competitive
with the services business transferred to the Company and the Company is
restricted from engaging in activities which are competitive with the
microcomputer hardware and related products business retained by PCR.
The initial term of the Services Agreement is for a period of one year
beginning on January 6, 1999. The Services Agreement shall automatically renew
for additional one-year periods unless either party gives notice of its intent
not to renew at least 30 days prior to the end of any term. The Services
Agreement can be terminated by either party upon 90 days written notice and
shall automatically terminate in the event of the Distribution or in the event
that PCR no longer owns a majority of the voting power of the Company.
Except for the services provided by PCR pursuant to the Services Agreement
and the other agreements described below, the Company will be responsible for
providing or otherwise obtaining all of the necessary administrative, management
and support services required to conduct its business, all of which were
previously provided or obtained by PCR.
SPACE SHARING AGREEMENT. The Company, PCR and two other PCR Subsidiaries
have entered into a space sharing agreement (the "Space Sharing Agreement")
providing for the sharing by the Company and PCR of certain office facilities,
including the office facilities located in Hebron, Kentucky at which the
Company's and PCR's principal executive offices are located (the "Headquarters
Facility"). Under the Space Sharing Agreement, the costs associated with leasing
and maintaining facilities are, in general, allocated between the Company and
PCR on the basis of the ratio of the Company's gross profit contribution to the
consolidated gross profit of PCR and its subsidiaries including the Company. The
Company's rights to use portions of the shared facilities (including the
Headquarters Facility) leased from third parties, and the corresponding
obligations to pay for such use, may be terminated as to any such facility by
either the Company or PCR on 90 days prior written notice.
The Headquarters Facility is owned by Pomeroy Investments, LLC ("Pomeroy
Investments"), a Kentucky limited liability company controlled by David B.
Pomeroy, II (Chairman of the Board of the Company). The rental terms of the
Headquarters Facility between Pomeroy Investments and PCR were determined on the
basis of a fair market rental opinion given to PCR by an unrelated third party.
F-16
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
14. SUBSEQUENT EVENTS (CONTINUED)
TAX ALLOCATION AGREEMENT. The Company, PCR and three other PCR subsidiaries
have entered into a Tax Allocation Agreement to provide for (i) the allocation
of payments of taxes for periods during which the Company and PCR (or any of its
affiliates other than the Company) are included in the same consolidated group
for federal income tax purposes or the same consolidated, combined or unitary
returns for state, local or foreign tax purposes, (ii) the allocation of
responsibility for the filing of tax returns, (iii) the conduct of tax audits
and the handling of tax controversies, and (iv) various related matters. As a
result of the ownership of Class A Common Stock by investors in this offering,
upon the completion of this offering, the Company and PCR will not be able to be
included in the same consolidated group for federal income tax purposes.
Accordingly, the Company will be responsible for the filing of federal, state,
local and foreign tax returns and related liabilities for itself and its
subsidiaries for all periods, to the extent not included in PCR's combined or
consolidated tax returns. For any periods during which the Company is included
in PCR's consolidated federal income tax returns or any state consolidated,
combined or unitary tax returns, the Company will be required to pay to PCR its
allocable portion of the consolidated federal income and state tax liability,
and will be entitled to receive from PCR its allocable share of any tax benefit
attributable to the use of the Company's losses, if any. Notwithstanding the Tax
Allocation Agreement, under federal income tax law, each member of a
consolidated group for federal income tax purposes is also jointly and severally
liable for the federal income tax liability of each other member of the
consolidated group. Similar rules apply under some state income tax laws. In the
event that PCR or members of its consolidated tax group (other than the Company)
do not comply with the provisions of the Tax Allocation Agreement and the
Company is required to make payments in respect of the tax liabilities allocated
to PCR or other members of the group thereunder, such payments could adversely
affect the business, results of operations and financial condition of the
Company.
INDEMNIFICATION AGREEMENT. The Company and PCR have also entered into an
Indemnification Agreement. The Indemnification Agreement provides that each
party thereto (the "Indemnifying Party") will indemnify the other party thereto
and its directors, officers, employees, agents and representatives (the
"Indemnified Party") for liabilities that may be incurred by the Indemnified
Party relating to, resulting from or arising out of (i) the businesses and
operations conducted or formerly conducted, or assets owned or formerly owned,
by the Indemnifying Party and its subsidiaries (except, in the case where PCR is
the Indemnifying Party, the businesses, operations and assets of the Company) or
(ii) the failure by the Indemnifying Party to comply with any agreements
executed between the Company and PCR and those agreements executed in connection
with this offering.
STOCK REGISTRATION AGREEMENT. Pursuant to the terms of a Stock Registration
Agreement with PCR, the Company has provided PCR with certain registration
rights, including demand registration rights and certain "piggy-back"
registration rights, with respect to the shares of Class A Common Stock
underlying the shares of Class B Common Stock owned by PCR after this offering.
The Company's obligation is subject to certain limitations relating to a minimum
amount of Common Stock required for registration, the timing of registration and
other similar matters. The Company is obligated to pay all expenses incidental
to such registration, excluding underwriters' discounts and commissions and
certain legal fees and expenses.
F-17
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
14. SUBSEQUENT EVENTS (CONTINUED)
CREDIT FACILITY. Effective January 6, 1999, the Company entered into an
agreement for an interim credit facility with Deutsche Financial Services
Corporation, the primary lender to PCR. The credit facility is terminable at
will by either party. This credit facility allows the Company to borrow up to
the lesser of $20 million or the maximum borrowing capacity as calculated under
the credit facility. PCR has agreed to reserve certain of its assets to serve as
collateral in order to maintain the Company's maximum borrowing capacity of $20
million. Absent such agreement, at January 6, 1999, the Company's maximum
borrowing capacity under the credit facility would have been $10.0 million. The
Company's outstanding balance under such credit facility as of January 6, 1999
was approximately $18.0 million. The Company's credit facility carries an
interest rate equal to the prime rate minus 1.25% per annum; provided, however,
that if at any time the aggregate monthly volume under the Distribution Finance
Facility between PCR and Deutsche Financial Services Corporation is less than
$20.0 million per month for a three-month consecutive period, then for the
following month and for every month thereafter until the month after such
aggregate volume again exceeds $20.0 million per month for a three-month
consecutive period, the interest rate shall equal the prime rate minus 0.50% per
annum. At January 6, 1997, the interest rate was 6.50% per annum. PCR has also
guaranteed the entire amount of the credit facility which is secured by all of
the assets of PCR. In addition, certain of the financial covenants are
determined on a consolidated basis. The Company intends to replace the interim
credit facility with a permanent credit facility after the consummation of this
offering. There can be no assurance that the Company will be able to obtain a
new credit facility or that any new credit facility will be available on terms
acceptable to the Company.
Prior to January 6, 1999, when the Company's business was still operated
within PCR, PCR's credit facility provided for the working capital needs related
to the Company's business. In connection with the Formation Transaction, a
portion of the outstanding indebtedness under the PCR credit facility was
assigned to the Company. The portion of such indebtedness assigned to the
Company represents the Company's allocated share of PCR's credit facility
necessary to fund the Company's operations. As a result of obtaining the interim
credit facility with Deutsche Financial Services Corporation, the Company's
assets no longer collateralize PCR's credit facility. However, substantially all
of the Company's assets now collateralize its interim credit facility with
Deutsche Financial Services Corporation.
Upon consummation of this offering, the Company intends to replace the
interim credit facility with a permanent credit facility. There can be no
assurance that the Company will be able to obtain a new credit facility or that
any new credit facility will be available on terms acceptable to the Company.
COMMON STOCK. The Company has the authority to issue up to 30,000,000
shares of Class A Common Stock and 15,000,000 shares of Class B Common Stock.
The holders of Class A Common Stock and Class B Common Stock generally have
identical rights, except that holders of Class A Common Stock are entitled to
one vote per share while holders of Class B Common Stock are entitled to ten
votes per share on all matters to be voted on by stockholders.
PREFERRED STOCK. The Company has the authority to issue up to 5,000,000
shares of Preferred Stock in one or more series and to fix and determine the
relative rights, preferences and limitations of each class or series so
authorized without any further vote or action by the stockholders. The Board of
Directors may issue Preferred Stock with voting and conversion rights which
could adversely affect the
F-18
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997, JANUARY 5,
1998 AND NINE MONTHS ENDED OCTOBER 5, 1998
14. SUBSEQUENT EVENTS (CONTINUED)
voting power of the holders of the Company's Common Stock and have the effect of
delaying or preventing a change in the control of the Company. At January 6,
1999, no shares of Preferred Stock were outstanding and the Company has no
current intention to issue any shares of Preferred Stock.
ACQUISITION. In December 1998, PCR acquired certain assets of Access
Technologies, Inc. ("Access"), a Memphis, TN telecommunications and computer
networking provider. The total consideration paid consisted of $8.5 million in
cash, a subordinated note of $1.2 million and stock of $0.8 million. Interest on
the subordinated note is payable quarterly while principal is payable in two
equal annual installments. The acquisition will be accounted for as a purchase,
accordingly the purchase price will be allocated to assets and liabilities based
on their estimated values as of the date of acquisition.
The Company will include Access' results of operations for its IT services
business in the statement of income from the date of acquisition. If the
acquisition had occurred on October 5, 1998, the pro forma operations of the
Company would not have been materially different than that reported in the
accompanying statements of income. The Company has not determined the allocable
portion of goodwill from this acquisition.
STOCK PLAN. Effective January 6, 1999, the Company's Board of Directors
adopted the 1999 Stock Plan. The 1999 Stock Plan provides certain employees,
non-employee members of the Board and consultants of the Company with options to
purchase Class A Common Stock of the Company through options at an exercise
price equal to the following:
(i) In the case of an Incentive Stock Option
(a) granted to an employee who owns stock representing more than 10% of
the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per share exercise price shall be no less than
110% of the fair market value per share on the date of the grant.
(b) granted to any employee, the per share price shall be no less than
the fair market value on the date of the grant.
(ii) In the case of a Non-Qualified Stock Option
(a) granted to a person who owns stock representing more than 10% of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per share exercise price shall be no less than 100%
of the fair market value per share on the date of the grant.
(b) granted to any person, the per share price shall be no less than 85%
of the fair market price per share on the date of the grant.
3,000,000 shares of the Class A Common Stock of the Company will be reserved
for issuance under the plan. The plan will terminate ten years from the date of
adoption. Such options granted under the plan are exercisable in accordance with
various terms as authorized by the Board of Directors. To the extent not
exercised, options will expire not more than ten years after the date of grant.
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pomeroy Select has not authorized any person to give you information that
differs from the information in this Prospectus. You should rely solely on the
information contained in this Prospectus. This Prospectus is not an offer to
sell these securities, and we are not soliciting offers to buy these securities
in any state where the offer or sale of these securities is not permitted. The
information in this Prospectus is accurate only as of the date of this
Prospectus, even if the Prospectus is delivered to you after the Prospectus
date, or you buy the Class A Common Stock after the Prospectus date.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 10
Use of Proceeds........................................................... 22
Dividend Policy........................................................... 22
Capitalization............................................................ 23
Dilution.................................................................. 24
Selected Historical Financial Data........................................ 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 26
Business.................................................................. 36
Management................................................................ 47
Relationship with PCR..................................................... 52
Principal Stockholders.................................................... 56
Description of Capital Stock.............................................. 58
Shares Eligible for Future Sale........................................... 62
Underwriting.............................................................. 64
Legal Matters............................................................. 65
Experts................................................................... 65
Available Information..................................................... 66
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
Until , 1999, all dealers that buy, sell or trade the Class A
Common Stock may be required to deliver a prospectus, regardless of whether they
are participating in the offering. This is in addition to the dealers'
obligations to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
Shares
[LOGO]
CLASS A COMMON STOCK
------------------------
PROSPECTUS
------------------------
NATIONSBANC MONTGOMERY
SECURITIES LLC
J.C. BRADFORD & CO.
WHEAT FIRST UNION
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission registration fee. All of the
expenses below will be paid by the Company.
<TABLE>
<CAPTION>
ITEM AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Securities and Exchange Commission Registration fee................................ $ 15,985
NASD filing fee.................................................................... 6,250
Nasdaq National Market listing (entry) fee......................................... *
Blue Sky fees and expenses......................................................... 2,000
Printing and engraving expenses.................................................... *
Legal fees and expenses............................................................ *
Accounting fees and expenses....................................................... *
Transfer Agent and Registrar fees.................................................. *
Miscellaneous...................................................................... *
---------
Total.......................................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the Delaware General Corporation Law
empowers a corporation to indemnify any person who was 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, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' 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, had no
reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation 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, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' 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 best interests of the corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all of the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
II-1
<PAGE>
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsection (a) and (b) or in the defense of any claim issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that the
indemnification provided by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the scope
of indemnification is extended to directors, officers, employees or agents of a
constituent corporation absorbed in consolidation or merger and persons serving
in that capacity at the request of the constituent corporation for another.
Section 145 also empowers the corporation to purchase and maintain insurance on
behalf of a director or officer of the corporation against any liability
asserted against him or 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 liabilities under Section 145.
Article Thirteenth of the Company's Certificate of Incorporation and Article
IX of the Company's Bylaws specify that the Company shall indemnify its
Directors, officers, employees and agents because he or she was or is a
Director, officer, employee or agent of the Company or was or is serving at the
request of the Company as a director, officer, employee or agent of another
entity to the full extent that such right of indemnity is permitted by the laws
of the State of Delaware. These provisions are deemed to be a contract between
the Company and each Director and officer who serves in such capacity at any
time while such provision and the relevant provisions of the Delaware General
Corporation Law are in effect, and any repeal or modification thereof shall not
offset any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts. The
affirmative vote of the holders of at least 66 2/3% of the voting power of all
outstanding shares of the capital stock of the Company is required to adopt,
amend or repeal such bylaws provisions.
The Company intends to enter into indemnification agreements with each of
its officers and Directors pursuant to which the Company will agree to indemnify
such parties to the full extent permitted by law, subject to certain exceptions,
if such party becomes subject to an action because such party is a Director or
officer of the Company.
Section 102(b)(7) of the Delaware General Corporation Law enables a
corporation in its certificate of incorporation to limit the personal liability
of members of its board of directors for violation of a director's fiduciary
duty of care. This Section does not, however, limit the liability of a director
for breaching his duty of loyalty, failing to act in good faith, engaging in
intentional misconduct or knowingly violating a law, or from any transaction in
which the director derived an improper personal benefit. This Section also will
have no effect on claims arising under the federal securities laws. The
Company's Certificate of Incorporation limits the liability of its directors as
authorized by Section 102(b)(7). The affirmative vote of the holders of at least
66 2/3% of the voting power of all outstanding shares of the capital stock of
the company is required to amend such provisions.
The Company is currently covered under a policy of liability insurance
obtained by PCR for the benefit of its Directors and officers that provides
coverage of losses of Directors and officers for liabilities arising out of
claims against such persons acting as Directors or officers of PCR or the
Company (or any of their subsidiaries) due to any breach of duty, neglect,
error, misstatement, misleading statement, omission or act done by such
Directors and officers, except as prohibited by law. The Company intends to
obtain its own directors and officers liability insurance policy.
At present, there is no pending litigation or proceeding involving a
Director or officer of the Company as to which indemnification is being sought
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer of Director. The form of Underwriting
Agreement filed as Exhibit 1 to this Registration Statement provides for
indemnification by the
II-2
<PAGE>
Underwriters of the Company and its Directors and officers, and by the Company
of the Underwriters, for certain liabilities arising under the Securities Act,
as amended or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Prior to this offering, the Company issued the following unregistered
securities:
On January 6, 1999, the Company issued 10,000,000 shares of Class B Common
Stock to PCR in exchange for the assets, liabilities, business, operations and
personnel comprising the Company's business. In addition, effective January 6,
1999, the Company granted stock options to purchase an aggregate of 620,000
shares of Class A Common Stock to its Directors, officers and certain employees
under the 1999 Stock Plan.
The Company believes that the foregoing described issuances of securities,
if they constitute sales, are exempt from registration under the Securities Act
by virtue of exemption provided by Section 4(2) thereof for transactions, not
involving a public offering or Rule 701 under the Securities Act as transactions
made pursuant to a written compensatory plan or pursuant to a written contract
relating to compensation. The sales of securities were made without the use of
an underwriter and the certificates evidencing the shares bear a restrictive
legend permitting the transfer thereof only upon registration of the shares or
an exemption under the Securities Act. All recipients had adequate access to
information about the Company.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ----------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Bylaws of the Company.
* 5 Form of Opinion of Cors & Bassett.
+10.1 Contribution Agreement by and among PCR, Global Combined Technologies, Inc., Pomeroy Computer
Resources of South Carolina, Inc. and the Company dated as of January 6, 1999.
* 10.2 Administrative Services and Marketing Agreement by and between PCR and the Company dated as of
January 6, 1999.
10.3 Space Sharing Agreement by and among PCR, Global Combined Technologies, Inc., Pomeroy Computer
Resources of South Carolina, Inc. and the Company dated as of January 6, 1999.
10.4 Stock Registration Agreement by and between PCR and the Company dated as of January 6, 1999.
* 10.5 Indemnification Agreement by and between PCR and the Company dated as of January 6, 1999.
10.6 Form of Indemnification Agreement by and between the Company and each of its Directors and executive
officers.
* 10.7 Employment Agreement by and between the Company and Stephen E. Pomeroy dated as of January 6, 1999.
* 10.8 Employment Agreement by and between the Company and Larry H. Lokey dated as of January 6, 1999.
* 10.9 Employment Agreement by and between the Company and Mark P. Schwarz dated as of January 6, 1999.
10.10 1999 Stock Plan.
+10.11 Business Credit and Security Agreement between the Company and Deutsche Financial Services
Corporation dated as of January 6, 1999.
23.1 Consent of Grant Thornton LLP.
* 23.2 Consent of Cors & Bassett (contained in the opinion filed as Exhibit 5 to the Registration
Statement).
24 Powers of Attorney of certain officers and Directors of the Company (contained on the signature page
of this Registration Statement).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment. All other exhibits are filed herewith.
+ The schedules or exhibits to this document are not being filed herewith
because the Company believes that the information contained therein should
not be considered material to an investment decision in the Company or such
information is otherwise adequately disclosed in this Registration
II-4
<PAGE>
Statement on Form S-1. The Company agrees to furnish supplementally a copy
of any schedule or exhibit to the Commission upon request.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes that:
(1) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted as to Directors, officers and controlling persons of the
Company pursuant to the provisions described in Item 14, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a Director, officer or controlling person of the
Company 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 Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(2) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus as filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company 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.
(3) 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.
(4) At the closing, specified in the Underwriting agreement, Company shall
provide the Underwriters certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Registration Statement on Form S-1 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Hebron,
State of Kentucky, on the 14th day of January, 1999.
<TABLE>
<S> <C> <C>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
By: /s/ STEPHEN E. POMEROY
-----------------------------------------
Stephen E. Pomeroy,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below hereby constitutes and appoints Stephen E. Pomeroy and Mark P.
Schwarz, and each of them, their true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and a related registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and in
each case, to file the same with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ DAVID B. POMEROY, II
- ------------------------------ Chairman of the Board of January 14, 1999
David B. Pomeroy, II Directors
President, Chief Executive
/s/ STEPHEN E. POMEROY Officer and Director
- ------------------------------ (Principal Executive January 14, 1999
Stephen E. Pomeroy Officer)
Chief Financial Officer,
/s/ MARK P. SCHWARZ Secretary and Treasurer
- ------------------------------ (Principal Financial and January 14, 1999
Mark P. Schwarz Accounting Officer)
/s/ KENNETH R. WATERS
- ------------------------------ Director January 14, 1999
Kenneth R. Waters
/s/ GERALD L. VON DEYLEN
- ------------------------------ Director January 14, 1999
Gerald L. Von Deylen
</TABLE>
II-6
<PAGE>
DRAFT: 1/11/99
_______________ SHARES
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
CLASS A COMMON STOCK
UNDERWRITING AGREEMENT
DATED [ ], 1999
<PAGE>
UNDERWRITING AGREEMENT
[Date]
NATIONSBANC MONTGOMERY SECURITIES LLC
J. C. BRADFORD & CO., LLC
WHEAT FIRST UNION, a division of WHEAT FIRST SECURITIES, INC.
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Pomeroy Select Integration Solutions, Inc., a
Delaware corporation (the "Company"), proposes to issue and sell to the several
underwriters named in SCHEDULE A (the "Underwriters") an aggregate of
[ ] shares (the "Firm Common Shares") of its Class A Common Stock, par
value $0.01 per share (the "Class A Common Stock"). In addition, the Company
has granted to the Underwriters an option to purchase up to an additional
[ ] shares (the "Optional Common Shares") of Class A Common Stock, as
provided in Section 2. The Firm Common Shares and, if and to the extent such
option is exercised, the Optional Common Shares are collectively called the
"Common Shares." The Company, prior to the transactions contemplated hereby, is
a wholly-owned subsidiary of Pomeroy Computer Resources, Inc., a Delaware
corporation ("PCR"). NationsBanc Montgomery Securities LLC, J. C. Bradford &
Co., LLC and Wheat First Union, a division of Wheat First Securities, Inc., have
agreed to act as representatives of the several Underwriters (in such capacity,
the "Representatives") in connection with the offering and sale of the Common
Shares.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-[ ]), which contains a form of prospectus to be used in
connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (collectively, the "Securities Act"),
including any information deemed to be a part thereof at the time of
effectiveness pursuant to Rule 430A or Rule 434 under the Securities Act, is
called the "Registration Statement". Any registration statement filed by the
Company pursuant to Rule 462(b) under the Securities Act is called the
"Rule 462(b) Registration Statement", and from and after the date and time of
filing of the Rule 462(b) Registration Statement the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. Such
prospectus, in the form first used by the Underwriters to confirm sales of the
Common Shares, is called the "Prospectus"; provided, however, if the Company
has,
<PAGE>
with the consent of NationsBanc Montgomery Securities LLC, elected to rely upon
Rule 434 under the Securities Act, the term "Prospectus" shall mean the
Company's prospectus subject to completion (each, a "preliminary prospectus")
dated [ ] (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
The Company and PCR hereby confirm their respective agreements
with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND PCR
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND PCR
Each of the Company and PCR hereby represents, warrants and covenants to
each Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The
Registration Statement and any Rule 462(b) Registration Statement have
been declared effective by the Commission under the Securities Act. The
Company has complied to the Commission's satisfaction with all requests
of the Commission for additional or supplemental information. No stop
order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceedings for
such purpose have been instituted or are pending or, to the best
knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed
by electronic transmission pursuant to EDGAR (except as may be permitted
by Regulation S-T under the Securities Act), was identical to the copy
thereof delivered to the Underwriters for use in connection with the
offer and sale of the Common Shares. Each of the Registration
Statement, any Rule 462(b) Registration Statement and any post-effective
amendment thereto, at the time it became effective and at all subsequent
times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented, as of its date and at all
subsequent times, did not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. The representations and
warranties set forth in the two
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immediately preceding sentences do not apply to statements in or
omissions from the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment thereto, or the Prospectus,
or any amendments or supplements thereto, made in reliance upon and in
conformity with information relating to any Underwriter furnished to the
Company in writing by any of the Representatives expressly for use
therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the
Registration Statement which have not been described or filed as
required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The
Company has delivered to the Representatives four complete manually
signed copies of the Registration Statement and of each consent and
certificate of experts filed as a part thereof, and conformed copies of
the Registration Statement (without exhibits) and preliminary
prospectuses and the Prospectus, as amended or supplemented, in such
quantities and at such places as the Representatives have reasonably
requested for each of the Underwriters.
(c) DISTRIBUTION OF OFFERING MATERIALS BY THE COMPANY. The
Company has not distributed and will not distribute, prior to the later
of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering materials
in connection with the offering and sale of the Common Shares other than
a preliminary prospectus, the Prospectus or the Registration Statement.
(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, each of the Company and PCR, enforceable in accordance
with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of
creditors or by general equitable principles.
(e) AUTHORIZATION OF THE COMMON SHARES. The Common Shares to
be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement, will be
validly issued, fully paid and nonassessable.
(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR
RIGHTS. Except for the registration rights of PCR disclosed in the
Prospectus, there are no persons with registration or other similar
rights to have any equity or debt securities registered for sale under
the Registration Statement or included in the offering contemplated by
this Agreement or otherwise. The registration rights of PCR disclosed
in the Prospectus are not triggered by the registration of the Common
Shares registered for sale under the Registration Statement.
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<PAGE>
(g) NO MATERIAL ADVERSE CHANGE. Except as otherwise
disclosed in the Prospectus, subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no
material adverse change, or any development that could reasonably be
expected to result in a material adverse change, in the condition,
financial or otherwise, or in the earnings, business, operations or
prospects, whether or not arising from transactions in the ordinary
course of business, of the Company (any such change is called a
"Material Adverse Change"); (ii) the Company has not incurred any
material liability or obligation, indirect, direct or contingent, not in
the ordinary course of business nor entered into any material
transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of capital stock or repurchase
or redemption by the Company of any class of capital stock.
(h) INDEPENDENT ACCOUNTANTS. Grant Thornton LLP, who have
expressed their opinion with respect to the financial statements (which
term as used in this Agreement includes the related notes thereto) and
supporting schedules filed with the Commission as a part of the
Registration Statement and included in the Prospectus, are independent
public or certified public accountants as required by the Securities
Act.
(i) PREPARATION OF THE FINANCIAL STATEMENTS. The financial
statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the financial
position of the Company as of and at the dates indicated and the results
of its operations and cash flows for the periods specified. The
supporting schedules included in the Registration Statement present
fairly the information required to be stated therein. Such financial
statements and supporting schedules have been prepared in conformity
with generally accepted accounting principles applied on a consistent
basis throughout the periods involved, except as may be expressly stated
in the related notes thereto. No other financial statements or
supporting schedules are required to be included in the Registration
Statement. The financial data set forth in the Prospectus under the
captions "Prospectus Summary -- Summary Historical Selected Financial
Data", "Capitalization," "Selected Historical Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Selected Quarterly Results of Operations" fairly
present the information set forth therein on a basis consistent with
that of the audited financial statements contained in the Registration
Statement.
(j) INCORPORATION AND GOOD STANDING OF THE COMPANY. The
Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation and has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and, in the case of the Company, to enter into and perform
its obligations under this Agreement. The Company is duly qualified as
a foreign corporation to transact business and is in good standing in
the Commonwealth of Kentucky and each other jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing
of
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property or the conduct of business, except for such jurisdictions
(other than the Commonwealth of Kentucky) where the failure to so
qualify or to be in good standing would not, individually or in the
aggregate, result in a Material Adverse Change. The Company has no
subsidiaries.
(k) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The
authorized, issued and outstanding capital stock of the Company is as
set forth in the Prospectus under the caption "Capitalization" (other
than for subsequent issuances, if any, pursuant to stock option plans or
other employee benefit plans described in the Prospectus or upon
exercise of outstanding options described in the Prospectus). The
Class A Common Stock (including the Common Shares) and the Class B
Common Stock, $0.01 par value per share (the "Class B Common Stock")
conform in all material respects to the descriptions thereof contained
in the Prospectus. Prior to the transactions contemplated hereby and by
the Prospectus, there are no shares of Class A Common Stock issued or
outstanding. All of the issued and outstanding shares of Class B Common
Stock have been duly authorized and validly issued, are fully paid and
nonassessable and have been issued in compliance with federal and state
securities laws. The shares of Class A Common Stock to be issued upon
conversion of the Class B Common Stock, such conversion to be in
compliance with the terms and provisions of the Company's certificate of
incorporation, will be validly issued, fully paid and nonassessable.
None of the outstanding shares of Class B Common Stock were issued in
violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company.
There are no authorized or outstanding options, warrants, preemptive
rights, rights of first refusal or other rights to purchase, or equity
or debt securities convertible into or exchangeable or exercisable for,
any capital stock of the Company other than those accurately described
in the Prospectus. The description of the Company's stock option, stock
bonus and other stock plans or arrangements, and the options or other
rights granted thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to
such plans, arrangements, options and rights.
(l) NO DIVIDENDS. No dividends have been declared, have
accrued or are due with respect to any shares of capital stock,
including the Class B Common Stock, of the Company.
(m) STOCK EXCHANGE LISTING. The Common Shares have been
approved for inclusion on the Nasdaq National Market, subject only to
official notice of issuance and effectiveness of the Registration
Statement.
(n) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER
AUTHORIZATIONS OR APPROVALS REQUIRED. The Company is not in violation
of its charter or by-laws or in default (or, with the giving of notice
or lapse of time, would be in default) ("Default") under any indenture,
mortgage, loan or credit agreement, note, contract, franchise, lease or
other instrument to which the Company is a party or by which it may be
bound
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<PAGE>
(including, without limitation, the Company's credit facility effective
January 6, 1999 with Deutsche Financial Services Corporation, as lead
lender, and Star Bank, as participant), or to which any of the property
or assets of the Company is subject (each, an "Existing Instrument"),
except for such Defaults as would not, individually or in the aggregate,
result in a Material Adverse Change. The Company's execution, delivery
and performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus (i) have been duly authorized
by all necessary corporate action and will not result in any violation
of the provisions of the charter or by-laws of the Company or PCR,
(ii) will not conflict with or constitute a breach of, or Default or a
Debt Repayment Triggering Event (as defined below) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, or require the consent of
any other party to, any Existing Instrument, except for such conflicts,
breaches, Defaults, liens, charges or encumbrances as would not,
individually or in the aggregate, result in a Material Adverse Change
and (iii) will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company.
No consent, approval, authorization or other order of, or registration
or filing with, any court or other governmental or regulatory authority
or agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been
obtained or made by the Company and are in full force and effect under
the Securities Act, applicable state securities or blue sky laws and
from the National Association of Securities Dealers, Inc. (the "NASD").
As used herein, a "Debt Repayment Triggering Event" means any event or
condition which gives, or with the giving of notice or lapse of time
would give, the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right to
require the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company.
(o) NO MATERIAL ACTIONS OR PROCEEDINGS. There are no legal
or governmental actions, suits or proceedings pending or, to the best of
the Company's knowledge, threatened (i) against or affecting the
Company, (ii) which has as the subject thereof any officer or director
of, or property owned or leased by, the Company or (iii) relating to
environmental or discrimination matters, where in any such case
(A) there is a reasonable possibility that such action, suit or
proceeding might be determined adversely to the Company and (B) any such
action, suit or proceeding, if so determined adversely, would reasonably
be expected to result in a Material Adverse Change or adversely affect
the consummation of the transactions contemplated by this Agreement. No
material labor dispute with the employees of the Company exists or, to
the best of the Company's knowledge, is threatened or imminent.
(p) INTELLECTUAL PROPERTY RIGHTS. The Company owns or
possesses the lawful right to use and exploit sufficient trademarks,
trade names, patent rights, copyrights, licenses, approvals, trade
secrets and other similar rights (collectively, "Intellectual Property
Rights") reasonably necessary to conduct its business as now
6
<PAGE>
conducted; and the expected expiration of any of such Intellectual
Property Rights would not result in a Material Adverse Change. Neither
the Company nor PCR has received any notice of infringement or conflict
with asserted Intellectual Property Rights of others, which infringement
or conflict, if the subject of an unfavorable decision, would result in
a Material Adverse Change.
(q) ALL NECESSARY PERMITS, AND AUTHORIZATIONS. The Company
possesses such valid and current certificates, authorizations or permits
issued by the appropriate state, federal or foreign regulatory agencies
or bodies or information technology vendors, hardware manufacturers
and/or software developers, including all authorizations described in or
contemplated by the Prospectus, necessary to conduct its business, and
the Company has not received any notice of proceedings relating to the
revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, could
result in a Material Adverse Change.
(r) TITLE TO PROPERTIES. The Company has good and marketable
title to all the properties and assets reflected as owned in the
financial statements referred to in Section 1(A)(i) above, or has the
right to use such properties pursuant to the Space Sharing Agreement
dated January 6, 1999 with PCR, in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims and
other defects, except such as do not materially and adversely affect the
value of such property and do not materially interfere with the use made
or proposed to be made of such property by the Company. The real
property, improvements, equipment and personal property held under lease
by the Company are held under valid and enforceable leases, with such
exceptions as are not material and do not materially interfere with the
use made or proposed to be made of such real property, improvements,
equipment or personal property by the Company.
(s) TAX LAW COMPLIANCE. PCR has filed all necessary federal,
state and foreign income and franchise tax returns applicable to the
historical business of the Company and has paid all taxes required to be
paid by PCR or the Company and, if due and payable, any related or
similar assessment, fine or penalty levied against either of them except
as may be being contested in good faith and by appropriate proceedings.
The Company has made adequate charges, accruals and reserves in the
applicable financial statements referred to in Section 1(A)(i) above in
respect of all federal, state and foreign income and franchise taxes for
all periods as to which the tax liability applicable to the Company has
not been finally determined.
(t) COMPANY NOT AN "INVESTMENT COMPANY". The Company has
been advised of the rules and requirements under the Investment Company
Act of 1940, as amended (the "Investment Company Act"). The Company is
not, and after receipt of payment for the Common Shares will not be, an
"investment company" within the
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meaning of Investment Company Act and will conduct its business in a
manner so that it will not become subject to the Investment Company Act.
(u) INSURANCE. The Company is insured by recognized,
financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are
generally deemed adequate and customary for its business including, but
not limited to, policies covering real and personal property owned or
leased by the Company against theft, damage, destruction, acts of
vandalism and earthquakes. The Company has no reason to believe that it
will not be able (i) to renew its existing insurance coverage as and
when such policies expire or (ii) to obtain comparable coverage from
similar institutions as may be necessary or appropriate to conduct its
business as now conducted and at a cost that would not result in a
Material Adverse Change. The Company has not been denied any insurance
coverage which it has sought or for which it has applied. The Company
has obtained and is the beneficiary of the key person life insurance
policy as set forth in the Prospectus.
(v) NO PRICE STABILIZATION OR MANIPULATION. The Company has
not taken and will not take, directly or indirectly, any action designed
to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Common Shares.
(w) RELATED PARTY TRANSACTIONS. There are no business
relationships or related-party transactions involving the Company or PCR
required to be described in the Prospectus which have not been described
as required.
(x) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the
Company nor PCR nor, to the best of the Company's knowledge, any
employee or agent of the Company or PCR, has made any contribution or
other payment to any official of, or candidate for, any federal, state
or foreign office in violation of any law or of the character required
to be disclosed in the Prospectus.
(y) COMPANY'S ACCOUNTING SYSTEM. The Company, either
directly or through its agreements with PCR, maintains a system of
accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(z) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as would not,
individually or in the aggregate, result in a Material Adverse Change
(i) neither the Company nor PCR is in violation of any federal, state,
local or foreign law or regulation
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relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata) or wildlife, including without
limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum and petroleum
products (collectively, "Materials of Environmental Concern"), or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Materials of
Environment Concern (collectively, "Environmental Laws"), which
violation includes, but is not limited to, noncompliance with any
permits or other governmental authorizations required for the operation
of the business of the Company under applicable Environmental Laws, or
noncompliance with the terms and conditions thereof, nor has the Company
or PCR received any written communication, whether from a governmental
authority, citizens group, employee or otherwise, that alleges that the
Company or PCR is in violation of any Environmental Law; (ii) there is
no claim, action or cause of action filed with a court or governmental
authority, no investigation with respect to which the Company or PCR has
received written notice, and no written notice by any person or entity
alleging potential liability for investigatory costs, cleanup costs,
governmental responses costs, natural resources damages, property
damages, personal injuries, attorneys' fees or penalties arising out of,
based on or resulting from the presence, or release into the
environment, of any Material of Environmental Concern at any location
owned, leased or operated by the Company, now or in the past
(collectively, "Environmental Claims"), pending or, to the best of the
Company's or PCR's knowledge, threatened against the Company or PCR or
any person or entity whose liability for any Environmental Claim the
Company or PCR has retained or assumed either contractually or by
operation of law; and (iii) to the best of the Company's or PCR's
knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of
any Material of Environmental Concern, that reasonably could result in a
violation of any Environmental Law or form the basis of a potential
Environmental Claim against the Company or PCR or against any person or
entity whose liability for any Environmental Claim the Company or PCR
has retained or assumed either contractually or by operation of law.
(aa) ERISA COMPLIANCE. The Company and any "employee benefit
plan" (as defined under the Employee Retirement Income Security Act of
1974, as amended, and the regulations and published interpretations
thereunder (collectively, "ERISA")) established or maintained by the
Company, or its "ERISA Affiliates" (as defined below) are in compliance
in all material respects with ERISA. "ERISA Affiliate" means, with
respect to the Company, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code
of 1986, as amended, and the regulations and published interpretations
thereunder (the "Code") of which the Company is a member. No
"reportable event" (as defined under ERISA) has occurred or is
reasonably expected to occur with respect to any "employee benefit plan"
established or maintained by the Company, or any of its ERISA
Affiliates. No "employee benefit plan"
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established or maintained by the Company or any of its ERISA
Affiliates, if such "employee benefit plan" were terminated, would
have any "amount of unfunded benefit liabilities" (as defined under
ERISA). Neither the Company nor any of its ERISA Affiliates has
incurred or reasonably expects to incur any liability under (i) Title
IV of ERISA with respect to termination of, or withdrawal from, any
"employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of
the Code. Each "employee benefit plan" established or maintained by
the Company or any of its ERISA Affiliates that is intended to be
qualified under Section 401(a) of the Code is so qualified and nothing
has occurred, whether by action or failure to act, which would cause
the loss of such qualification.
(bb) YEAR 2000 PROBLEM. The Company has reviewed its
products, business and operations which could be adversely affected by
the Year 2000 problem (as defined below). The Company has developed a
program to address on a timely basis the risk that computer applications
developed, marketed, sold and delivered or used by the Company may be
unable to recognize and properly perform date-sensitive functions
involving dates during and after 1999 (the "Year 2000 Problem"). The
Year 2000 Problem has not resulted in, and is not reasonably expected to
result in, a Material Adverse Change.
(cc) NO BROKERS OR FINDERS. Other than as contemplated by
this Agreement, there is no broker, finder or other party that is
entitled to receive from the Company any underwriting, brokerage or
finder's fee or other fee or commission as a result of any of the
transactions contemplated by this Agreement.
(dd) NASD AFFILIATION. To the best of the Company's or PCR's
knowledge, there are no affiliations or associations between any member
of the NASD and any of the Company's officers, directors or security
holders.
(ee) AGREEMENTS WITH PCR. Each agreement or contract by and
between the Company and PCR has been filed as an Exhibit to the
Registration Statement, and each of such agreements or contracts has
been duly authorized, executed and delivered by, and is a valid and
binding agreement of each of the Company and PCR enforceable in
accordance with its terms. Each agreement has been accurately described
in the Prospectus. There are no material agreements, written or oral,
required to be described in the Prospectus which have not been described
as required.
(ff) CONTRIBUTION AGREEMENT. Pursuant to the Contribution
Agreement by and between the Company and PCR dated January 6, 1999, the
form of which is filed as an Exhibit to the Registration Statement, the
Company has received from PCR and its subsidiaries all assets required to
operate the information technology services business of the Company as
described in or contemplated by the Prospectus. All services employees
of PCR have become employees of the Company and all material services
contracts with customers and authorizations from vendors have been
properly assigned to the Company. All
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requisite consents from all material customers and vendors have been
obtained by the Company and PCR.
Any certificate signed by an officer of the Company or PCR and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company or PCR, as the case
may be, to each Underwriter as to the matters set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
(a) THE FIRM COMMON SHARES. The Company agrees to issue and
sell to the several Underwriters the Firm Common Shares upon the terms
but subject to the conditions herein set forth. On the basis of the
representations, warranties and agreements herein contained, and upon
the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the
Company the respective number of Firm Common Shares set forth opposite
their names on SCHEDULE A. The purchase price per Firm Common Share to
be paid by the several Underwriters to the Company shall be
$[ ] per share.
(b) THE FIRST CLOSING DATE. Delivery of certificates for the
Firm Common Shares to be purchased by the Underwriters and payment
therefor shall be made at the offices of NationsBanc Montgomery
Securities LLC, 600 Montgomery Street, San Francisco, California (or
such other place as may be agreed to by the Company and the
Representatives) at 6:00 a.m. San Francisco time, on [ ], or
such other time and date not later than 10:30 a.m. San Francisco time,
on [ ] as the Representatives shall designate by notice to the
Company (the time and date of such closing are called the "First Closing
Date"). The Company hereby acknowledges that circumstances under which
the Representatives may provide notice to postpone the First Closing
Date as originally scheduled include, but are in no way limited to, any
reasonable determination by the Company or the Representatives to
recirculate to the public copies of an amended or supplemented
Prospectus or a delay as contemplated by the provisions of Section 10.
(c) THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE. In
addition, on the basis of the representations, warranties and agreements
herein contained, and upon the terms but subject to the conditions
herein set forth, the Company hereby grants an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate
of [ ] Optional Common Shares from the Company at the purchase
price per share to be paid by the Underwriters for the Firm Common
Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder
may be exercised at any time (but not more than once) upon notice by the
Representatives to the Company which notice may be given at any time
within 30 days from the date of this Agreement or the date of the
Prospectus, whichever is later. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to
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which the Underwriters are exercising the option, (ii) the names and
denominations in which the certificates for the Optional Common Shares
are to be registered and (iii) the time, date and place at which such
certificates will be delivered (which time and date may be simultaneous
with, but not earlier than, the First Closing Date; and in such case the
term "First Closing Date" shall refer to the time and date of delivery
of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First
Closing Date, is called the "Second Closing Date" and shall be
determined by the Representatives and shall not be earlier than three
nor later than five full business days after delivery of such notice of
exercise. If any Optional Common Shares are to be purchased, each
Underwriter agrees, severally and not jointly, to purchase the number of
Optional Common Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be
purchased as the number of Firm Common Shares set forth on SCHEDULE A
opposite the name of such Underwriter bears to the total number of Firm
Common Shares. The Representatives may cancel the option at any time
prior to its expiration by giving written notice of such cancellation to
the Company.
(d) PUBLIC OFFERING OF THE COMMON SHARES. The
Representatives hereby advise the Company that the Underwriters intend
to offer for sale to the public, as described in the Prospectus, their
respective portions of the Common Shares as soon after this Agreement
has been executed and the Registration Statement has been declared
effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
(e) PAYMENT FOR THE COMMON SHARES. Payment for the Common
Shares shall be made at the First Closing Date (and, if applicable, at
the Second Closing Date) by wire transfer of immediately available funds
to the order of the Company.
It is understood that the Representatives have been authorized,
for each of their respective accounts and the accounts of the several
Underwriters, to accept delivery of and receipt for, and make payment of
the purchase price for, the Firm Common Shares and any Optional Common
Shares the Underwriters have agreed to purchase. NationsBanc Montgomery
Securities LLC, individually and not as a Representative of the
Underwriters, may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not
have been received by the Representatives by the First Closing Date or
the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter
from any of its obligations under this Agreement.
(f) DELIVERY OF THE COMMON SHARES. The Company shall
deliver, or cause to be delivered, to the Representatives for the
accounts of the several Underwriters certificates for the Firm Common
Shares at the First Closing Date, against the irrevocable release of a
wire transfer of immediately available funds for the amount of the
purchase
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price therefor. The Company shall also deliver, or cause to be
delivered, to the Representatives for the accounts of the several
Underwriters, certificates for the Optional Common Shares the
Underwriters have agreed to purchase at the First Closing Date or the
Second Closing Date, as the case may be, against the irrevocable release
of a wire transfer of immediately available funds for the amount of the
purchase price therefor. The certificates for the Common Shares shall
be in definitive form and registered in such names and denominations as
the Representatives shall have requested at least two full business days
prior to the First Closing Date (or the Second Closing Date, as the case
may be) and shall be made available for inspection on the business day
preceding the First Closing Date (or the Second Closing Date, as the
case may be) at a location in New York City as the Representatives may
designate. Time shall be of the essence, and delivery at the time and
place specified in this Agreement is a further condition to the
obligations of the Underwriters.
(g) DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later
than 12:00 p.m. on the second business day following the date the Common
Shares are released by the Underwriters for sale to the public, the
Company shall deliver or cause to be delivered copies of the Prospectus
in such quantities and at such places as the Representatives shall
request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY AND PCR.
A. COVENANTS OF THE COMPANY. The Company further covenants
and agrees with each Underwriter as follows:
(a) REPRESENTATIVES' REVIEW OF PROPOSED AMENDMENTS AND
SUPPLEMENTS. During such period beginning on the date hereof and ending
on the later of the First Closing Date or such date, as in the opinion
of counsel for the Underwriters, the Prospectus is no longer required by
law to be delivered in connection with sales by an Underwriter or dealer
(the "Prospectus Delivery Period"), prior to amending or supplementing
the Registration Statement (including any registration statement filed
under Rule 462(b) under the Securities Act) or the Prospectus, the
Company shall furnish to the Representatives for review a copy of each
such proposed amendment or supplement, and the Company shall not file
any such proposed amendment or supplement to which the Representatives
reasonably object.
(b) SECURITIES ACT COMPLIANCE. After the date of this
Agreement, the Company shall promptly advise the Representatives in
writing (i) of the receipt of any comments of, or requests for
additional or supplemental information from, the Commission, (ii) of
the time and date of any filing of any post-effective amendment to the
Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time and date
that any post-effective amendment to the Registration Statement
becomes effective and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement
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or any post-effective amendment thereto or of any
order preventing or suspending the use of any preliminary prospectus or
the Prospectus, or of any proceedings to remove, suspend or terminate
from listing or quotation the Class A Common Stock from any securities
exchange upon which it is listed for trading or included or designated
for quotation, or of the threatening or initiation of any proceedings
for any of such purposes. If the Commission shall enter any such stop
order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. Additionally,
the Company agrees that it shall comply with the provisions of
Rules 424(b), 430A and 434, as applicable, under the Securities Act and
will use its reasonable efforts to confirm that any filings made by the
Company under such Rule 424(b) were received in a timely manner by the
Commission.
(c) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER
SECURITIES ACT MATTERS. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if in the
opinion of the Representatives or counsel for the Underwriters it is
otherwise necessary to amend or supplement the Prospectus to comply with
law, the Company agrees to promptly prepare (subject to Section 3(A)(a)
hereof), file with the Commission and furnish at its own expense to the
Underwriters and to dealers, amendments or supplements to the Prospectus
so that the statements in the Prospectus as so amended or supplemented
will not, in the light of the circumstances when the Prospectus is
delivered to a purchaser, be misleading or so that the Prospectus, as
amended or supplemented, will comply with law.
(d) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE
PROSPECTUS. The Company agrees to furnish the Representatives, without
charge, during the Prospectus Delivery Period, as many copies of the
Prospectus and any amendments and supplements thereto as the
Representatives may request.
(e) BLUE SKY COMPLIANCE. The Company shall cooperate with
the Representatives and counsel for the Underwriters to qualify or
register the Common Shares for sale under (or obtain exemptions from the
application of) the state securities or blue sky laws or Canadian
provincial securities laws of those jurisdictions designated by the
Representatives, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as
required for the distribution of the Common Shares. The Company shall
not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation. The Company will advise
the Representatives promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares
for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the
issuance of any order
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suspending such qualification, registration or exemption, the Company
shall use its best efforts to obtain the withdrawal thereof at the
earliest possible moment.
(f) USE OF PROCEEDS. The Company shall apply the net
proceeds from the sale of the Common Shares sold by it in the manner
described under the caption "Use of Proceeds" in the Prospectus.
(g) TRANSFER AGENT. The Company shall engage and maintain,
at its expense, a registrar and transfer agent for the Class A Common
Stock.
(h) EARNINGS STATEMENT. As soon as practicable but not later
than [ ], the Company will make generally available to its
security holders and to the Representatives an earnings statement (which
need not be audited), covering at least the twelve-month period
beginning after the effective date of the Registration Statement, that
satisfies the provisions of Section 11(a) of the Securities Act.
(i) PERIODIC REPORTING OBLIGATIONS. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the
Commission and the Nasdaq National Market all reports and documents
required to be filed under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Additionally, the Company shall file the
requisite reports with the Commission under the Exchange Act which
include all information as may be required under Rule 463 under the
Securities Act.
(j) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES.
During the period of 180 days following the date of the Prospectus,
the Company will not, without the prior written consent of NationsBanc
Montgomery Securities LLC (which consent may be withheld at the sole
discretion of NationsBanc Montgomery Securities LLC), directly or
indirectly, sell, offer, contract or grant any option to sell, pledge,
transfer or establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of or transfer, or announce the offering of, or file any registration
statement under the Securities Act in respect of, any shares of Class
A or Class B Common Stock, options or warrants to acquire shares of
Class A or Class B Common Stock or securities exchangeable or
exercisable for or convertible into shares of Class A or Class B
Common Stock (other than as contemplated by this Agreement with
respect to the Common Shares); PROVIDED, HOWEVER, that the Company may
issue shares of its Class A Common Stock or grant options to purchase
its Class A Common Stock, or issue shares of Class A Common Stock upon
exercise of options, pursuant to any stock option, stock bonus or
other stock plan or arrangement described in the Prospectus, but only
if (i) such options do not vest until after the expiration of the 180
day period following the date of the Prospectus or (ii) the holders of
such shares, options, or shares issued upon exercise of such options,
agree in writing not to sell, offer, dispose of or otherwise transfer
any such shares or options during such 180 day period without the
prior written consent of NationsBanc Montgomery Securities LLC (which
consent may be withheld at the sole discretion of the NationsBanc
Montgomery Securities LLC).
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(k) FUTURE REPORTS TO THE REPRESENTATIVES. During the period
of five years hereafter the Company will furnish to the Representatives
(NationsBanc Montgomery Securities, 600 Montgomery Street, San
Francisco, California 94111 Attention: Mark Kuperschmid; J. C. Bradford
& Co., 330 Commerce Street, Nashville, Tennessee 37201, Attention: Kirk
Lundblade; and Wheat First Union, Riverfront Plaza, West Tower, 901 East
Byrd Street, Richmond, Virginia 23219, Attention: Thomas Roberts) (i) as
soon as practicable after the end of each fiscal year, copies of the
Annual Report of the Company containing the balance sheet of the Company
as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public or certified public
accountants; (ii) as soon as practicable after the filing thereof,
copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by
the Company with the Commission, the NASD or any securities exchange;
and (iii) as soon as available, copies of any report or communication of
the Company mailed generally to holders of its capital stock.
(l) RELATED PARTY TRANSACTIONS. The Company will not enter
into any transaction with its officers, directors, principal stockholder
or any of their Affiliates (including PCR) on terms less favorable to
the Company than terms obtainable from unrelated third parties. Any
related party transaction shall be approved by a majority of the
disinterested members of the Company's Board of Directors.
B. COVENANTS OF PCR. PCR further covenants and agrees with
each Underwriter:
(a) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES.
PCR will not, without the prior written consent of NationsBanc
Montgomery Securities LLC (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant
any option to sell (including without limitation any short sale),
pledge, transfer, establish an open "put equivalent position" within
the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise
dispose of any shares of Class A or Class B Common Stock (including
any distribution or dividend of shares of Class B Common Stock to any
stockholder of PCR), options or warrants to acquire shares of Class A
or Class B Common Stock, or securities exchangeable or exercisable for
or convertible into shares of Class A or Class B Common Stock
currently or hereafter owned either of record or beneficially (as
defined in Rule 13d-3 under Securities Exchange Act of 1934, as
amended) by the undersigned, or publicly announce the undersigned's
intention to do any of the foregoing, for a period commencing on the
date hereof and continuing through the close of trading on the date
180 days after the date of the Prospectus.
NationsBanc Montgomery Securities LLC, on behalf of the several
Underwriters, may, in its sole discretion, waive in writing the performance by
the Company of any one or more of the foregoing covenants or extend the time for
their performance.
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SECTION 4. PAYMENT OF EXPENSES.
The Company agrees to pay all costs, fees and expenses incurred
in connection with the performance of its obligations hereunder and in
connection with the transactions contemplated hereby, including without
limitation (i) all expenses incident to the issuance and delivery of the Common
Shares (including all printing and engraving costs), (ii) all fees and expenses
of the registrar and transfer agent of the Class A Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified public accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the state securities or blue sky laws or the provincial
securities laws of Canada, and, if requested by the Representatives, preparing
and printing a "Blue Sky Survey" or memorandum, and any supplements thereto,
advising the Underwriters of such qualifications, registrations and exemptions,
such fees and expenses not to exceed $[ ], (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD's review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, such fees and expenses not to exceed $[ ], (viii) the fees and
expenses associated with listing the Common Shares on the Nasdaq National
Market, and (ix) all other fees, costs and expenses referred to in Item 13 of
Part II of the Registration Statement. Except as provided in this Section 4,
Section 6, Section 8 and Section 9 hereof, the Underwriters shall pay their own
expenses, including the fees and disbursements of their counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters to purchase and pay
for the Common Shares as provided herein on the First Closing Date and, with
respect to the Optional Common Shares, the First or Second Closing Date, shall
be subject to the accuracy of the representations and warranties on the part of
the Company set forth in Section 1 hereof as of the date hereof and as of the
First Closing Date as though then made and, with respect to the Optional Common
Shares, as of the Second Closing Date, if applicable, as though then made, to
the timely performance by the Company and of PCR, their respective covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) ACCOUNTANTS' COMFORT LETTER. On the date hereof, each of
the Representatives shall have received from Grant Thornton LLP,
independent public or certified public accountants for the Company, a
letter dated the date hereof addressed to the Underwriters, in form and
substance satisfactory to the Representatives, containing statements and
information of the type ordinarily included in accountant's "comfort
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letters" to underwriters, delivered according to Statement of Auditing
Standards No. 72 (or any successor bulletin), with respect to the
audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus
(and the Representatives shall have received an additional three (3)
conformed copies of such accountants' letter for each of the several
Underwriters).
(b) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER;
NO OBJECTION FROM NASD. For the period from and after effectiveness of
this Agreement and prior to the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with
the Commission (including the information required by Rule 430A
under the Securities Act) in the manner and within the time
period required by Rule 424(b) under the Securities Act; or the
Company shall have filed a post-effective amendment to the
Registration Statement containing the information required by
such Rule 430A, and such post-effective amendment shall have
become effective; or, if the Company elected to rely upon
Rule 434 under the Securities Act and obtained the
Representatives' consent thereto, the Company shall have filed a
Term Sheet with the Commission in the manner and within the time
period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement,
or any post-effective amendment to the Registration Statement,
shall be in effect and no proceedings for such purpose shall have
been instituted or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and
arrangements.
(c) NO MATERIAL ADVERSE CHANGE. For the period from and
after the date of this Agreement and prior to the First Closing Date
and, with respect to the Optional Common Shares, the Second Closing
Date, in the judgment of the Representatives there shall not have
occurred any Material Adverse Change.
(d) OPINION OF COUNSEL FOR THE COMPANY AND PCR. On each of
the First Closing Date and the Second Closing Date each of the
Representatives shall have received the favorable opinion of Cors and
Bassett, counsel for the Company and PCR, dated as of such Closing Date,
the form of which is attached as EXHIBIT A (and the Representatives
shall have received an additional ten (10) conformed copies of such
counsel's legal opinion for each of the several Underwriters).
(e) OPINION OF COUNSEL FOR THE UNDERWRITERS. On each of the
First Closing Date and the Second Closing Date each of the
Representatives shall have received the favorable opinion of Buchanan
Ingersoll Professional Corporation, counsel for the
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Underwriters, dated as of such Closing Date, with respect to the matters
set forth in paragraphs (i), (v) (with respect to subparagraph (i)
only), (vi), (vii), (viii), (ix), (x) and (xi) (with respect to the
captions "Description of Capital Stock" and "Underwriting" under
subparagraph (i) only), and the next-to-last paragraph of EXHIBIT A (and
the Representatives shall have received an additional ten (10) conformed
copies of such counsel's legal opinion for each of the several
Underwriters).
(f) OFFICERS' CERTIFICATE. On each of the First Closing
Date and the Second Closing Date the Representatives shall have
received a written certificate executed by the President and Chief
Executive Officer of the Company and the Chief Financial Officer of
the Company, dated as of such Closing Date, to the effect set forth in
subsection (b)(ii) of this Section 5, and further to the effect that:
(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not occurred
any Material Adverse Change;
(ii) the representations, warranties and covenants of
the Company set forth in Section 1(A) of this Agreement are true
and correct with the same force and effect as though expressly
made on and as of such Closing Date; and
(iii) the Company has complied with all the agreements
and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date.
(g) BRING-DOWN COMFORT LETTER. On each of the First Closing
Date and the Second Closing Date each of the Representatives shall have
received from Grant Thornton LLP, independent public or certified public
accountants for the Company, a letter dated such date, in form and
substance satisfactory to the Representatives, to the effect that they
reaffirm the statements made in the letter furnished by them pursuant to
subsection (a) of this Section 5, except that the specified date
referred to therein for the carrying out of procedures shall be no more
than three business days prior to the First Closing Date or Second
Closing Date, as the case may be (and the Representatives shall have
received an additional three (3) conformed copies of such accountants'
letter for each of the several Underwriters).
(h) PRINCIPAL STOCKHOLDERS' CERTIFICATE. On each of the
First Closing Date and the Second Closing Date each of the
Representatives shall received a written certificate executed by a duly
authorized officer of PCR, dated as of such Closing Date, to the effect
that:
(i) the representations, warranties and covenants of
PCR set forth in Section 1(A) of this Agreement are true and
correct with the same force and effect as though expressly made
by PCR on and as of such Closing Date; and
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(ii) PCR has complied with all the agreements and
satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date.
(i) LOCK-UP AGREEMENTS. On the date hereof, the Company
shall have furnished to the Representatives an agreement in the form of
EXHIBIT B hereto from each director, officer and each beneficial owner
of Class A or Class B Common Stock (as defined and determined according
to Rule 13d-3 under the Exchange Act) and such agreement shall be in
full force and effect on each of the First Closing Date and the Second
Closing Date.
(j) ADDITIONAL DOCUMENTS. On or before each of the First
Closing Date and the Second Closing Date, each of the Representatives
and counsel for the Underwriters shall have received such information,
documents and opinions as they may reasonably require for the purposes
of enabling them to pass upon the issuance and sale of the Common Shares
as contemplated herein, or in order to evidence the accuracy of any of
the representations and warranties, or the satisfaction of any of the
conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6,
Section 8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.
If this Agreement is terminated by the Representatives pursuant
to Section 5, Section 7 or Section 11, or if the sale to the Underwriters of the
Common Shares on the First Closing Date is not consummated because of any
refusal, inability or failure on the part of the Company or PCR to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse the Representatives and the other Underwriters (or such Underwriters
as have terminated this Agreement with respect to themselves), severally, upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by the Representatives and the Underwriters in connection with the proposed
purchase and the offering and sale of the Common Shares, including but not
limited to fees and disbursements of counsel, printing expenses, travel
expenses, postage, facsimile and telephone charges, subject to the limits, if
any, set forth in Section 4 hereof.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of
(i) the execution of this Agreement by the parties hereto and (ii) notification
by the Commission to the Company and the Representatives of the effectiveness of
the Registration Statement under the Securities Act.
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Prior to such effectiveness, this Agreement may be terminated by
any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 4
and 6 hereof, (b) of any Underwriter to the Company, or (c) of any party hereto
to any other party except that the provisions of Section 8 and Section 9 shall
at all times be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. Each of the Company
and PCR, jointly and severally, agree to indemnify and hold harmless
each Underwriter, its officers and employees, and each person, if any,
who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or
expense, as incurred, to which such Underwriter or such controlling
person may become subject, under the Securities Act, the Exchange Act or
other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of the Company), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof
as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading; or (ii) upon any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
or (iii) in whole or in part upon any inaccuracy in the representations
and warranties of the Company or PCR contained herein; or (iv) in whole
or in part upon any failure of the Company or PCR to perform their
respective obligations hereunder or under law; or (v) any act or failure
to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Class A Common Stock
or the offering contemplated hereby, and which is included as part of
any loss, claim, damage, liability or action arising out of or based upon
any matter covered by clause (i) or (ii) above, provided that the Company
shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that
such loss, claim, damage, liability or action resulted directly from any
such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its bad faith or willful misconduct; and to reimburse
each Underwriter and each such controlling person for any and all
expenses (including the fees and disbursements of counsel chosen by
NationsBanc Montgomery Securities LLC) as such expenses are reasonably
incurred by such Underwriter or such controlling person in connection
with investigating, defending,
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settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing
indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity
with written information furnished to the Company by the Representatives
expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto);
and provided, further, that with respect to any preliminary prospectus,
the foregoing indemnity agreement shall not inure to the benefit of any
Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Common Shares, or any person controlling
such Underwriter, if copies of the Prospectus were timely delivered to
the Underwriter pursuant to Section 2 and a copy of the Prospectus (as
then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf
of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Common Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss,
claim, damage, liability or expense. The indemnity agreement set forth
in this Section 8(a) shall be in addition to any liabilities that the
Company and PCR may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND
OFFICERS. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement and each person, if
any, who controls the Company within the meaning of the Securities Act
or the Exchange Act, against any loss, claim, damage, liability or
expense, as incurred, to which the Company, or any such director,
officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent
of such Underwriter), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out
of or is based upon any untrue or alleged untrue statement of a material
fact contained in the Registration Statement, any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto), or arises
out of or is based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus (or any amendment
or supplement thereto), in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly
for use therein; and to reimburse the Company, or any such director,
officer or controlling person for any legal and other expense reasonably
incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense
or action. Each of the Company and PCR, hereby acknowledges that
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the only information that the Unerwriters have furnished to the Company
expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto)
are the statements set forth in the table in the first paragraph and as
the second, seventh and eighth paragraphs under the caption
"Underwriting" in the Prospectus; and the Underwriters confirm that such
statements are correct. The indemnity agreement set forth in this
Section 8(b) shall be in addition to any liabilities that each
Underwriter may otherwise have.
(c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying
party under this Section 8, notify the indemnifying party in writing
of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent
it is not prejudiced as a proximate result of such failure. In case
any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it shall elect, jointly with
all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include
both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that a conflict may
arise between the positions of the indemnifying party and the
indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and
to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval
by the indemnified party of counsel, the indemnifying party will not
be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party
shall have employed separate counsel in accordance with the proviso to
the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than
one separate counsel (together with local counsel), approved by the
indemnifying party (NationsBanc Montgomery Securities LLC in the case
of Section 8(b) and Section 9), representing the indemnified parties
who are parties to such action) or (ii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice
of commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.
23
<PAGE>
(d) SETTLEMENTS. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and
(ii) such indemnifying party shall not have reimbursed the indemnified
party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or
consent to the entry of judgment in any pending or threatened action,
suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity was or could have been sought hereunder
by such indemnified party, unless such settlement, compromise or consent
includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any
reason held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and PCR on the one hand, and the Underwriters,
on the other hand, from the offering of the Common Shares pursuant to this
Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and PCR, on the one hand, and the Underwriters, on the
other hand, in connection with the statements or omissions or inaccuracies in
the representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company and PCR, on the
one hand, and the Underwriters, on the other hand, in connection with the
offering of the Common Shares pursuant to this Agreement shall be deemed to be
in the same respective proportions as the total net proceeds from the offering
of the Common Shares pursuant to this Agreement (before deducting expenses)
received by the Company, and the total underwriting discount received by the
Underwriters, in each case as set forth on the front cover page of the
Prospectus (or, if Rule 434 under the Securities Act is used, the corresponding
location on the Term Sheet) bear to the aggregate initial public offering price
of the Common Shares as set forth on such cover. The relative fault of the
Company and PCR, on the one hand, and the Underwriters, on the other hand, shall
be
24
<PAGE>
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company or
PCR, on the one hand, or the Underwriters, on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; PROVIDED, HOWEVER,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, PCR and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the underwriting
commissions received by such Underwriter in connection with the Common Shares
underwritten by it and distributed to the public. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 9 are several, and not joint, in proportion
to their respective underwriting commitments as set forth opposite their names
in SCHEDULE A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of the Securities Act and the
Exchange Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS.
If, on the First Closing Date or the Second Closing Date, as the
case may be, any one or more of the several Underwriters shall fail or refuse to
purchase Common Shares that it or they have agreed to purchase hereunder on such
date, and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase does not
exceed 10% of the aggregate number of the Common Shares to be purchased
25
<PAGE>
on such date, the other Underwriters shall be obligated, severally, in the
proportions that the number of Firm Common Shares set forth opposite their
respective names on SCHEDULE A bears to the aggregate number of Firm Common
Shares set forth opposite the names of all such non-defaulting Underwriters, or
in such other proportions as may be specified by the Representatives with the
consent of the non-defaulting Underwriters, to purchase the Common Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date. If, on the First Closing Date or the Second Closing Date,
as the case may be, any one or more of the Underwriters shall fail or refuse to
purchase Common Shares and the aggregate number of Common Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Common Shares
to be purchased on such date, and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares are not
made within 48 hours after such default, this Agreement shall terminate without
liability of any party to any other party except that the provisions of
Section 4, Section 8 and Section 9 shall at all times be effective and shall
survive such termination. In any such case either the Representatives or the
Company shall have the right to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed
to include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT.
Prior to the First Closing Date this Agreement may be terminated
by the Representatives by notice given to the Company if at any time (i) trading
or quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq Stock Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities;
(iii) there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective substantial change in United States' or
international political, financial or economic conditions, as in the reasonable
judgment of the Representatives is material and adverse and makes it
impracticable to market the Common Shares in the manner and on the terms
described in the Prospectus or to enforce contracts for the sale of securities;
(iv) in the judgment of the Representatives there shall have occurred any
Material Adverse Change; or (v) the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
in the reasonable judgment of the Representatives may interfere materially with
the conduct of the business and operations of the Company regardless of whether
26
<PAGE>
or not such loss shall have been insured. Any termination pursuant to this
Section 11 shall be without liability on the part of (a) the Company and PCR to
any Underwriter, except that the Company and PCR shall be obligated to reimburse
the expenses of the Representatives and the Underwriters pursuant to Section 4
hereof, (b) any Underwriter to the Company, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations,
warranties and other statements of the Company, of its officers, PCR and of the
several Underwriters set forth in or made pursuant to this Agreement will remain
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of its or their partners, officers or
directors or any controlling person, or PCR, as the case may be, and will
survive delivery of and payment for the Common Shares sold hereunder and any
termination of this Agreement.
SECTION 13. NOTICES.
All communications hereunder shall be in writing and shall be
mailed, hand delivered or telecopied and confirmed to the parties hereto as
follows:
If to the Representatives:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Mark Kuperschmid
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
and:
Buchanan Ingersoll Professional Corporation
500 College Road East
Princeton, New Jersey 08540
Facsimile: 609-520-0360
Attention: David J. Sorin, Esq.
27
<PAGE>
If to the Company:
Pomeroy Select Integration Solutions, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
Facsimile: 606-334-5399
Attention: Stephen E. Pomeroy
If to PCR:
Pomeroy Computer Resources, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
Facsimile: 606-334-5399
Attention: David B. Pomeroy, II
with a copy to:
Cors & Bassett
537 East Pete Rose Way
Suite 400
Cincinnati, Ohio 45202-3502
Facsimile: 513-852-8222
Attention: Elizabeth A. Horwitz, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS.
This Agreement will inure to the benefit of and be binding upon
the parties hereto, including any substitute Underwriters pursuant to Section 10
hereof, and to the benefit of the employees, officers and directors and
controlling persons referred to in Section 8 and Section 9, and in each case
their respective successors, and personal representatives, and no other person
will have any right or obligation hereunder. The term "successors" shall not
include any purchaser of the Common Shares as such from any of the Underwriters
merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY.
The invalidity or unenforceability of any Section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other Section, paragraph or provision hereof. If any Section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
28
<PAGE>
SECTION 16.
(a) GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN
SUCH STATE.
(b) CONSENT TO JURISDICTION. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the
transactions contemplated hereby ("Related Proceedings") may be
instituted in the federal courts of the United States of America located
in the City and County of San Francisco or the courts of the State of
California in each case located in the City and County of San Francisco
(collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted
in regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such
courts in any such suit, action or proceeding. Service of any process,
summons, notice or document by mail to such party's address set forth
above shall be effective service of process for any suit, action or
other proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit,
action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court
that any such suit, action or other proceeding brought in any such court
has been brought in an inconvenient forum.
(c) WAIVER OF IMMUNITY. With respect to any Related
Proceeding, each party irrevocably waives, to the fullest extent
permitted by applicable law, all immunity (whether on the basis of
sovereignty or otherwise) from jurisdiction, service of process,
attachment (both before and after judgment) and execution to which it
might otherwise be entitled in the Specified Courts, and with respect to
any Related Judgment, each party waives any such immunity in the
Specified Courts or any other court of competent jurisdiction, and will
not raise or claim or cause to be pleaded any such immunity at or in
respect of any such Related Proceeding or Related Judgment, including,
without limitation, any immunity pursuant to the United States Foreign
Sovereign Immunities Act of 1976, as amended.
SECTION 17. GENERAL PROVISIONS.
This Agreement constitutes the entire agreement of the parties to
this Agreement and supersedes all prior written or oral and all contemporaneous
oral agreements, understandings and negotiations with respect to the subject
matter hereof. This Agreement may be executed in two or more counterparts, each
one of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This Agreement may not be
amended or modified unless in writing by all of the parties hereto, and no
condition herein (express or implied) may be waived unless waived in writing by
each party whom the condition
29
<PAGE>
is meant to benefit. The Section headings herein are for the convenience of the
parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
[The remainder of the page intentionally left blank.]
30
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
By:
----------------------------------------
Stephen E. Pomeroy
Title: President and Chief Executive Officer
POMEROY COMPUTER RESOURCES, INC.
By:
----------------------------------------
David B. Pomeroy, II
Title: President and Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and
accepted by the Representatives in San Francisco, California as of the date
first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
J. C. BRADFORD & CO., LLC
WHEAT FIRST UNION, A DIVISION OF WHEAT FIRST SECURITIES, INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: NATIONSBANC MONTGOMERY SECURITIES LLC
By:
---------------------------------
Richard A. Smith,
Authorized Signatory
31
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM
COMMON SHARES TO BE
UNDERWRITERS PURCHASED
<S> <C>
NationsBanc Montgomery Securities LLC. . . . . . . . . [ ]
J C Bradford & Co., LLC. . . . . . . . . . . . . . . . [ ]
Wheat First Union, a division of Wheat First
Securities, Inc. . . . . . . . . . . . . . . . . . . [ ]
[ ]. . . . . . . . . . . . . . . . . . . . . . . [ ]
[ ]. . . . . . . . . . . . . . . . . . . . . . . [ ]
Total . . . . . . . . . . . . . . . . . . . . . . [ ]
</TABLE>
<PAGE>
EXHIBIT A
OPINION OF COUNSEL TO THE COMPANY
Opinion of counsel for the Company to be delivered pursuant to
Section 5(d) of the Underwriting Agreement.
References to the Prospectus in this EXHIBIT A include any
supplements thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Underwriting
Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the Commonwealth of Kentucky and in
each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions (other than the Commonwealth of Kentucky) where
the failure to so qualify or to be in good standing would not, individually or
in the aggregate, result in a Material Adverse Change.
(iv) The authorized, issued and outstanding capital stock of the
Company (including the Class A and Class B Common Stock) conform to the
descriptions thereof set forth in the Prospectus. All of the outstanding shares
of Class B Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable and, to the best of such counsel's knowledge, have been
issued in compliance with the registration and qualification requirements of
federal and state securities laws. The forms of certificate used to evidence
the Class A Common Stock and the Class B Common Stock are in due and proper form
and complies with all applicable requirements of the charter and by-laws of the
Company and the General Corporation Law of the State of Delaware. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(v) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to subscribe for
or purchase securities of the Company arising (i) by operation of the charter or
by-laws of the Company or the General Corporation Law of the State of Delaware
or (ii) to the best knowledge of such counsel, otherwise.
A-1
<PAGE>
(vi) The Underwriting Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, each of the Company
and PCR, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(vii) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant to
the Underwriting Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and nonassessable. The shares of
Class A Common Stock to be issued upon conversion of the Class B Common Stock,
will be validly issued, fully paid and nonassessable.
(viii) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the Commission
under the Securities Act. To the best knowledge of such counsel, no stop order
suspending the effectiveness of either of the Registration Statement or the
Rule 462(b) Registration Statement, if any, has been issued under the Securities
Act and no proceedings for such purpose have been instituted or are pending or
are contemplated or threatened by the Commission. Any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the time period required
by such Rule 424(b).
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or supplement to the
Registration Statement and the Prospectus, as of their respective effective or
issue dates (other than the financial statements and supporting schedules
included therein or in exhibits to or excluded from the Registration Statement,
as to which no opinion need be rendered) comply as to form in all material
respects with the applicable requirements of the Securities Act.
(x) The Common Shares have been approved for quotation on the
Nasdaq National Market.
(xi) The statements (i) in the Prospectus under the captions
"Prospectus Summary -- Summary of Relationship with PCR," "Risk
Factors -- Potential Adverse Effect on Value and Liquidity of Class A Common
Stock from Disparate Voting Rights of Class A Common Stock and Class B Common
Stock," "Risk Factors -- Potential Conflicts of Interest," "Risk
Factors -- Control by PCR; Anti-Takeover Considerations", "Risk
Factors -- Shares Eligible for Future Sale", "Management's Discussion and
Analysis and Results of Operations--Liquidity and Capital Resources",
"Business -- Intellectual Property Rights", "Business -- Legal Proceedings",
"Certain Relationships and Related Transactions", "Shares Eligible for Future
Sale", "Management -- Employment Agreements", Management -- Compensation
Committee Interlocks and Insider Participation", Management -- Indemnification",
"Relationship with PCR",
A-2
<PAGE>
"Description of Capital Stock" and "Underwriting" and (ii) in Item 14 and Item
15 of the Registration Statement, insofar as such statements constitute matters
of law, summaries of legal matters, the Company's charter or by-law provisions,
documents or legal proceedings, or legal conclusions, has been reviewed by such
counsel and fairly present and summarize, in all material respects, the matters
referred to therein.
(xii) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xiii) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto;
and the descriptions thereof and references thereto are correct in all material
respects.
(xiv) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance of the
Underwriting Agreement and consummation of the transactions contemplated thereby
and by the Prospectus, except as required under the Securities Act, applicable
state securities or blue sky laws and from the NASD.
(xv) The execution and delivery of the Underwriting Agreement by the
Company and PCR and the performance by each of the Company and PCR of their
respective obligations thereunder (other than performance by the Company and PCR
of their obligations under the indemnification section of the Underwriting
Agreement, as to which no opinion need be rendered) (i) have been duly
authorized by all necessary corporate action on the part of the Company and PCR;
(ii) will not result in any violation of the provisions of the charter or
by-laws of the Company or PCR; (iii) will not constitute a breach of, or Default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or PCR pursuant to
(A) the Company's credit facility with Deutsche Financial Services Corporation,
as lender, and Star Bank, as participant, or (B) to the best knowledge of such
counsel, any other material Existing Instrument; or (iv) to the best knowledge
of such counsel, will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company or PCR.
(xvi) The Company is not, and after receipt of payment for the Common
Shares will not be, an "investment company" within the meaning of Investment
Company Act.
(xvii) To the best knowledge of such counsel, there are no persons
with registration or other similar rights to have any equity or debt securities
registered for sale under the Registration Statement or included in the offering
contemplated by the Underwriting Agreement.
A-3
<PAGE>
(xviii) To the best knowledge of such counsel, the Company is not in
violation of its charter or by-laws or any law, administrative regulation or
administrative or court decree applicable to the Company and is not in Default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any material Existing Instrument, except in each such
case for such violations or Defaults as would not, individually or in the
aggregate, result in a Material Adverse Change.
(xix) Each of the Contribution Agreement, Administrative Services and
Marketing Agreement, Space Sharing Agreement, [Tax Allocation Agreement], Stock
Registration Agreement and Indemnification Agreement, dated January 6, 1999 by
and between the Company and PCR, (i) has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, each of the parties
thereto, enforceable in accordance with its terms, (ii) will not result in any
violation of the charter or by-laws of the Company or PCR or the breach of, or
Default under, or result in the creation of any lien, charge or encumbrance upon
and property or assets of the Company or PCR pursuant to any Material Existing
Instrument or (iii) to the best knowledge of such counsel, will not result in
any violation of any law, administrative regulation or administrative court
decree applicable to the Company or PCR.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included in the Registration Statement or the Prospectus or
any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, or the federal law of the United
States, to the extent they deem proper and specified in such opinion, upon the
opinion (which shall be dated the First Closing Date or the Second Closing Date,
as the case may be, shall be satisfactory in form and substance to the
Underwriters,
A-4
<PAGE>
shall expressly state that the Underwriters may rely on such opinion as if it
were addressed to them and shall be furnished to the Representative) of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters; PROVIDED, HOWEVER, that such
counsel shall further state that they believe that they and the Underwriters are
justified in relying upon such opinion of other counsel, and (B) as to matters
of fact, to the extent they deem proper, on certificates of responsible officers
of the Company and public officials.
A-5
<PAGE>
EXHIBIT B
December _______, 1998
NationsBanc Montgomery Securities LLC
J.C. Bradford & Co., LLC
Wheat First Union, a division of Wheat First Securities, Inc.
As Representatives of the Several Underwriters
c/o NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
RE: POMEROY SELECT INTEGRATION SOLUTIONS, INC. (THE "COMPANY")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of certain
shares of Class A Common Stock or Class B Common Stock of the Company
(collectively, the "Common Stock") or securities convertible into or
exchangeable or exercisable for Class A Common Stock. The Company proposes to
carry out a public offering of Class A Common Stock (the "Offering") for which
you will act as the representatives of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters are
relying on the representations and agreements of the undersigned contained in
this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees
that the undersigned will not, without the prior written consent of NationsBanc
Montgomery Securities LLC (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934, as amended, or otherwise dispose of
any shares of Common Stock, options or warrants to acquire shares of Common
Stock, or securities exchangeable or exercisable for or convertible into shares
of Common Stock currently or hereafter owned either of record or beneficially
(as defined in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by
the undersigned, or publicly announce the undersigned's intention to do any of
the foregoing, for a period commencing on the date hereof and continuing through
the close of trading on the date 180 days after the date of the Prospectus
relating to the Offering. The undersigned also agrees and consents to the entry
of stop transfer instructions with the Company's transfer agent and registrar
against the transfer of shares of Common Stock or
B-1
<PAGE>
securities convertible into or exchangeable or exercisable for Common Stock held
by the undersigned except in compliance with the foregoing restrictions.
With respect to the Offering only, the undersigned waives any
registration rights relating to registration under the Securities Act of any
shares of Common Stock owned either of record or beneficially by the
undersigned, including any rights to receive notice of the Offering.
This agreement is irrevocable and will be binding on the
undersigned and the respective successors, heirs, personal representatives, and
assigns of the undersigned.
-----------------------------------------------
Printed Name of Holder
By:
-------------------------------------------
Signature
-----------------------------------------------
Printed Name of Person Signing
(AND INDICATE CAPACITY OF PERSON SIGNING IF
SIGNING AS CUSTODIAN, TRUSTEE, OR ON BEHALF
OF AN ENTITY)
B-2
<PAGE>
CERTIFICATE OF INCORPORATION
OF
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
FIRST: The name of the Corporation is Pomeroy Select Integration
Solutions, Inc. (hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL"), as the same exists or may hereafter be amended.
FOURTH: A. The total number of shares of stock that the Corporation
shall have authority to issue is Fifty Million (50,000,000) of which (i)
Thirty Million (30,000,000) shares shall be shares of Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"), and Fifteen Million
(15,000,000) shares shall be shares of Class B Common Stock, par value $.01
per share (the "Class B Common Stock") (the Class A Common Stock and the
Class B Common Stock being collectively referred to herein as the "Common
Stock"), and (ii) Five Million (5,000,000) shares shall be shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock").
B. PREFERRED STOCK. The Board of Directors is hereby authorized to
provide for, by resolution or resolutions, the issuance of all or any shares
of the Preferred Stock in one or more series, and to fix from time to time
before issuance the number of shares to be included in any series and the
designation, relative powers, preferences and rights, and the qualifications,
limitations or restrictions of all shares of any such series to the fullest
extent as may now or hereafter be permitted by the GCL. Without limiting the
generality of the foregoing, as to each such series of preferred stock, the
Board of Directors is authorized to fix or to alter the dividend rights,
dividend rate, conversion rights, exchange rights, voting rights (which may
be full, limited or none), rights and terms of redemption (including sinking
fund provisions), the redemption price or prices, the liquidation
preferences, rights to subscribe for or purchase any securities of the
Corporation or any other corporation, and the number of shares constituting
such series, or any or all of them, all as shall be determined from time to
time by the Board of Directors and as shall be stated in a resolution or
resolutions providing for the issuance of such Preferred Stock. The Board of
Directors may increase or decrease the number of shares in any such series
after the issuance of shares of that series, but not below the number of
shares of such series then outstanding. If the number of shares of any such
series is so decreased, the
<PAGE>
shares constituting such decrease, and any shares of Preferred Stock acquired
by the Corporation through purchase, redemption, exchange, conversion or
otherwise, shall resume the status of authorized but unissued unless
otherwise provided by resolution of the Board of Directors.
C. COMMON STOCK. The following is a statement of the relative
powers, preferences and participating, optional or other special rights, and
the qualifications, limitations and restrictions of the Class A Common Stock
and Class B Common Stock of the Corporation:
(1) Except as otherwise set forth below in this Article FOURTH,
the relative powers, preferences and participating, optional or other special
rights, and the qualifications, limitations or restrictions of the Class A
Common Stock and Class B Common Stock shall be identical in al! respects.
(2) Subject to the rights of the holders of Preferred Stock, and
subject to any other provisions of this Certificate of Incorporation, holders
of Class A Common Stock and Class B Common Stock shall be entitled to receive
such dividends and other distributions in cash, stock of any corporation
(other than Common Stock of the Corporation) or property of the Corporation
as may be declared thereon by the Board of Directors from time to time out of
assets or funds of the Corporation legally available therefor and shall share
equally on a per share basis in all such dividends and other distributions.
In the case of dividends or other distributions payable in Common Stock,
including distributions pursuant to stock splits or divisions of Common Stock
of the Corporation, only shares of Class A Common Stock shall be paid or
distributed with respect to Class A Common Stock and only shares of Class B
Common Stock shall be paid or distributed with respect to Class B Common
Stock. The number of shares of Class A Common Stock and Class B Common Stock
so distributed on each share shall be equal in number on a per share basis.
Neither the shares of Class A Common Stock nor the shares of Class B Common
Stock may be reclassified, subdivided or combined unless such
reclassification, subdivision or combination occurs simultaneously and in the
same proportion for each class.
(3) (a) At every meeting of the stockholders of the Corporation
every holder of Class A Common Stock shall be entitled to one vote in person
or by proxy for each share of Class A Common Stock standing in his or her
name on the transfer books of the Corporation, and every holder of Class B
Common Stock shall be entitled to five votes in person or by proxy for each
share of Class B Common Stock standing in his or her name on the transfer
books of the Corporation in connection with the election of directors and all
other matters submitted to a vote of stockholders. Except as may be otherwise
required by law or by this Certificate of Incorporation, the holders of Class
A Common Stock and Class B Common Stock shall vote together as a single class
and their votes shall be counted and totaled together, subject to any voting
rights which may be granted
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<PAGE>
to holders of Preferred Stock, on all matters to a vote of stockholders of
the Corporation. Notwithstanding any other provision of this Certificate of
Incorporation to the contrary, holders of Class A Common Stock shall not be
eligible to vote on any alteration or change in the powers, preferences, or
special rights of the Class B Common Stock that would not adversely affect
the rights of the Class A Common Stock; provided that, for the foregoing
purposes, any provision for the voluntary, mandatory or other conversion or
exchange of the Class B Common Stock into or for Class A Common Stock on a
one for one basis shall be deemed not to adversely affect the rights of the
Class A Common Stock.
(b) Except as otherwise provided by law, and subject to any
rights of the holders of Preferred Stock, the provisions of this Certificate
of Incorporation shall not be modified, revised, altered or amended, repealed
or rescinded in whole or in part, without the approval of a majority of the
votes entitled to be cast by the holders of the Class A Common Stock and the
Class B Common Stock, voting together as a single class (except as otherwise
provided in paragraph (C)(3)(a) above); provided, however, that with respect
to any proposed amendment of this Certificate of Incorporation which would
alter or change the powers, preferences or special rights of the shares of
Class A Common Stock or Class B Common Stock so as to affect them adversely,
the approval of a majority of the votes entitled to be cast by the holders of
the shares affected by the proposed amendment, voting separately as a class,
shall be obtained in addition to the approval of a majority of the votes
entitled to be cast by the holders of the Class A Common Stock and the Class
B Common Stock voting together as a single class as hereinbefore provided.
To the fullest extent permitted by law, any increase in the authorized number
of shares of any class or classes of stock of the Corporation or creation,
authorization or issuance of any securities convertible into, or warrants,
options or similar rights to purchase, acquire or receive, shares of any such
class or classes of stock shall be deemed not to affect adversely the powers,
preferences or special rights of the shares of Class A Common Stock or Class
B Common Stock.
(c) Every reference in this Certificate of Incorporation to a
majority or other proportion of shares of Common Stock, Class A Common Stock
or Class B Common Stock shall refer to such majority or other proportion of
the votes to which such shares of Common Stock, Class A Common Stock or Class
B Common Stock are entitled.
(d) At any meeting of stockholders, the presence in person or
by proxy of the holders of shares entitled to cast a majority of all the
votes which could be cast at such meeting by the holders of all of the
outstanding shares of stock of the Corporation entitled to vote on every
matter that is to be voted on at such meeting shall constitute a quorum.
(4) In the event of any dissolution, liquidation or winding up of
the affairs of the Corporation, whether voluntary or involuntary, after
payment in full of the amounts required to be paid to the holders of
Preferred Stock, the remaining assets and funds of
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<PAGE>
the Corporation shall be distributed pro rata to the holders of Class A
Common Stock and the holders of Class B Common Stock, based on the number of
shares held and not the number of votes per share. For purposes of this
paragraph (C)(4), the voluntary sale, conveyance, lease, exchange or transfer
(for cash, shares of stock, securities or other consideration) of all or
substantially all of the assets of the Corporation or a consolidation or
merger of the Corporation with one or more other corporations (whether or not
the Corporation is the corporation surviving such consolidation or merger)
shall not be deemed to be a liquidation, dissolution or winding up, voluntary
or involuntary.
(5) In case of any reorganization or any consolidation of the
Corporation with one or more other corporations or a merger of the
Corporation with another corporation, each holder of a share of Class A
Common Stock shall be entitled to receive with respect to such share the same
kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reorganization, consolidation or merger
by a holder of a share of Class B Common Stock and each holder of a share of
Class B Common Stock shall be entitled to receive with respect to such share
the same kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reorganization, consolidation or merger
by a holder of a share of Class A Common Stock. In the event that the
holders of Class A Common Stock (or of Class B Common Stock) are granted
rights to elect to receive one of two or more alternative forms of
consideration, the foregoing provision shall be deemed satisfied if holders
of Class A Common Stock and holders of Class B Common Stock are granted
substantially identical election rights.
(6) (a) Prior to the date on which shares of Class B Common Stock
are transferred to stockholders of Pomeroy Computer Resources, Inc. ("PCR")
in a Tax-Free Spin-Off or any other Distribution (each as defined in
paragraph (C)(6)(b) below), each record holder of shares of Class B Common
Stock may convert any or all of such shares into an equal number of shares of
Class A Common Stock by surrendering the certificates for such shares,
accompanied by any payment required for documentary, stamp or similar issue
or transfer taxes and by a written notice by such record holder to the
Corporation stating that such record holder desires to convert such shares of
Class B Common Stock into the same number of shares of Class A Common Stock
including for the purpose of the sale or other disposition of such shares of
Class A Common Stock, and requesting that the Corporation issue all of such
shares of Class A Common Stock to persons named therein, setting forth the
number of shares of Class A Common Stock to be issued to each such person and
the denominations in which the certificates therefor are to be issued. To the
extent permitted by law, such voluntary conversion shall be deemed to have
been effected at the close of business on the date of such surrender.
Following a Tax-Free Spin-Off or any other Distribution, shares of Class B
Common Stock shall no longer be convertible into shares of Class A Common
Stock at the option of the record holder of shares of Class B Common Stock,
but shall be automatically converted into
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<PAGE>
shares of Class A Common Stock in accordance with the provisions of paragraph
(C)(6)(b) below.
(b) Each share of Class B Common Stock shall automatically be
converted into one share of Class A Common Stock upon the transfer of such
share if, after such transfer, such share is not beneficially owned by (i)
PCR, or any subsidiary of PCR, or (ii) as set forth below in this paragraph
(C)(6)(b), a Class B Transferee (as hereinafter defined) or any subsidiary of
a Class B Transferee, or (iii) a PCR stockholder or a Class B Transferee
stockholder who received such shares of Class B Common Stock directly from
PCR or a Class B Transferee, as the case may be, pursuant to a distribution
by PCR or such Class B Transferee of shares of Class B Common Stock pro rata
to all stockholders of record of PCR or such Class B Transferee (a
"Distribution"). Shares of Class B Common Stock shall not convert into
shares of Class A Common Stock in any transfer effected in connection with
the Distribution of Class B Common Stock to stockholders of PCR or to
stockholders of a Class B Transferee. Except as otherwise set forth herein,
any other sale or transfer of Class B Common Stock shall be deemed to be a
"Converting Trade" regardless of the identity of the beneficial owner of such
shares. Upon a Converting Trade, the shares of Class B Common Stock shall
automatically convert to a like number of shares of Class A Common Stock.
For purposes of this paragraph (C)(6), any distribution of the shares of
Class B Common Stock intended to qualify as a tax-free distribution under
Section 355 of the Internal Revenue Code of 1986, as amended, (the "Code"),
or any successor provision shall be defined herein as a "Tax-Free Spin-Off".
A Tax-Free Spin-Off or any other Distribution shall be deemed to have
occurred at the time shares are first transferred to stockholders of PCR or
to stockholders of a Class B Transferee, as the case may be, following
receipt of an affidavit described in clauses (vi) or (vii) of the first
sentence of paragraph (C)(6)(d) below. For purposes of this paragraph
(C)(6), the term "beneficially owned" with respect to shares of Class B
Common Stock means ownership by a person or entity who directly or indirectly
through any contract, arrangement, understanding, relationship or otherwise
controls the voting power (which includes the power to vote or to direct the
voting) of such Class B Common Stock and the term "subsidiary" means as to
any person or entity, all corporations, partnerships, joint ventures,
associations and other entities in which such person or entity beneficially
owns (directly or indirectly) fifty percent (50%) or more of the outstanding
voting stock, voting power, partnership interests or similar voting
interests. Prior to a Tax-Free Spin-Off or any other Distribution, shares of
Class B Common Stock representing more than a fifty percent (50%) economic
interest in the then outstanding Common Stock taken as a whole transferred by
PCR or any of its subsidiaries in a single transaction to one unrelated
person (together with its successors a "Class B Transferee") or any
subsidiary of a Class B Transferee shall not automatically convert to Class A
Common Stock upon the transfer of any such shares. Any shares of Class B
Common Stock retained by PCR or any of its subsidiaries following any such
transfers of shares of Class B Common Stock to the Class B Transferee shall
automatically convert into shares of Class A Common Stock upon such transfer.
For purposes of this paragraph (C)(6), each reference to a "person" shall be
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<PAGE>
deemed to include not only a natural person, but also a corporation,
partnership, joint venture, association, or legal entity of any kind; each
reference to a "natural person" (or to a "record holder" of shares, if a
natural person) shall be deemed to include in his or her representative
capacity, a guardian, committee, executor, administrator or other legal
representative of such natural person or record holder.
Except with respect to Article TENTH hereof, for purposes of this
Certificate of Incorporation:
1. PCR shall mean Pomeroy Computer Resources, Inc., a Delaware
corporation, and all its successors by way of merger,
consolidation or sale of all or substantially all of its assets
(where such assets include the shares of Class B Common Stock of
the Corporation).
Each share of Class B Common Stock shall automatically be converted into
one share of Class A Common Stock if at any time prior to a Tax-Free Spin-Off
or any other Distribution, the number of outstanding shares of Class B Common
Stock owned by PCR or any of its subsidiaries in the aggregate or a Class B
Transferee or any of its subsidiaries in the aggregate, as the case may be,
is less than fifty percent (50%) of the aggregate number of shares of Common
Stock then outstanding.
The Corporation will provide notice of any automatic conversion of all
outstanding shares of Class B Common Stock to holders of record of the Common
Stock as soon as practicable following such conversion; provided, however,
that the Corporation may satisfy such notice requirement by providing such
notice prior to such conversion. Such notice shall be provided by mailing
notice of such conversion first class postage prepaid, to each holder of
record of the Common Stock, at such holder's address as it appears on the
transfer books of the Corporation; provided, however, that no failure to give
such notice nor any defect therein shall affect the validity of the automatic
conversion of any shares of Class B Common Stock. Each such notice shall
state, as appropriate, the following:
(i) the automatic conversion date;
(ii) that all outstanding shares of Class B Common Stock are
automatically converted;
(iii) the place or places where certificates for such shares may be
surrendered in exchange for certificates representing Class A Common Stock; and
(iv) that no dividends will be declared on the shares of Class B
Common Stock converted after such conversion date.
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<PAGE>
Immediately upon such conversion, the rights of the holders of shares of
Class B Common Stock as such shall cease and such holders shall be treated
for all purposes as having become the record owners of the shares of Class A
Common Stock issuable upon such conversion; provided, however, that such
persons shall be entitled to receive when paid any dividends declared on the
Class B Common Stock as of a record date preceding the time of such
conversion and unpaid as of the time of such conversion, subject to paragraph
(C)(6)(g) below.
(c) Prior to a Tax-Free Spin-Off or any other Distribution,
holders of shares of Class B Common Stock may (i) sell or otherwise dispose
of or transfer any or all of such shares held by them, respectively, only in
connection with a transfer which meets the qualifications of paragraph
(C)(6)(d) below, and under no other circumstances, or (ii) convert any or all
of such shares into shares of Class A Common Stock, including for the purpose
of effecting the sale or disposition of such shares of Class A Common Stock
to any person as provided in paragraph (C)(6)(a) above. Prior to a Tax-Free
Spin-Off or any other Distribution, no one other than those persons in whose
names shares of Class B Common Stock become registered on the original stock
ledger of the Corporation by reason of their record ownership of shares of
common stock of the Corporation which are reclassified into shares of Class B
Common Stock, or transferees or successive transferees who receive shares of
Class B Common Stock in connection with a transfer which meets the
qualifications set forth in paragraph (C)(6)(d) below, shall by virtue of the
acquisition of a certificate for shares of Class B Common Stock have the
status of an owner or holder of shares of Class B Common Stock or be
recognized as such by the Corporation or be otherwise entitled to enjoy for
his or her own benefit the special rights and powers of a holder of shares of
Class B Common Stock.
(d) Prior to a Tax-Free Spin-Off or any other Distribution,
shares of Class B Common Stock shall be transferred on the books of the
Corporation and a new certificate therefor issued, upon presentation at the
office of the Secretary of the Corporation (or at such additional place or
places as may from time to time be designated by the Secretary or any
Assistant Secretary of the Corporation) of the certificate for such shares,
in proper form for transfer and accompanied by all requisite stock transfer
tax stamps, only if such certificate when so presented shall also be
accompanied by any one of the following:
(i) an affidavit from PCR stating that such
certificate is being presented to effect a transfer by PCR
of such shares to a subsidiary of PCR; or
(ii) an affidavit from PCR stating that such
certificate is being presented to effect a
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<PAGE>
transfer by any subsidiary of PCR of such shares to PCR or
another subsidiary of PCR; or
(iii) an affidavit from PCR stating that such
certificate is being presented to effect a transfer by PCR
or any of its subsidiaries of such shares to a Class B
Transferee or a subsidiary of a Class B Transferee as
contemplated by paragraph (C)(6)(b); or
(iv) an affidavit from a Class B Transferee stating
that such certificate is being presented to effect the
transfer by a Class B Transferee of such shares to a
subsidiary of a Class B Transferee; or
(v) an affidavit from a Class B Transferee stating
that such certificate is being presented to effect the
transfer by any subsidiary of a Class B Transferee of such
shares to a Class B Transferee or to another subsidiary of a
Class B Transferee; or
(vi) an affidavit from PCR stating that such
certificate is being presented to effect a transfer by PCR
of such shares to the stockholders of PCR in connection with
a Tax-Free Spin- Off or any other Distribution; or
(vii) an affidavit from a Class B Transferee stating
that such certificate is being presented to effect a
transfer by a Class B Transferee of such shares to the
stockholders of a Class B Transferee in connection with a
Tax-Free Spin-Off or any other Distribution.
Each affidavit of a record holder furnished pursuant to this paragraph
(C)(6)(d) shall be verified as of a date not earlier than five days prior to
the date of delivery thereof, and, where such record holder is a corporation
or partnership, shall be verified by an officer of the corporation or by a
general partner of the partnership, as the case may be.
If a record holder of shares of Class B Common Stock shall deliver a
certificate for such shares, endorsed by him or her for transfer or
accompanied by an instrument of transfer signed by him or her, to a person
who receives such shares in connection with a transfer which does not meet
the qualifications set forth in this paragraph (C)(6)(d), then such person or
any successive transferee of such certificate may treat such endorsement or
instrument as authorizing him or her on behalf of such record holder to
convert such shares in the manner above provided for the purpose of the
transfer to himself or herself
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<PAGE>
of the shares of Class A Common Stock issuable upon such conversion, and to
give on behalf of such record holder the written notice of conversion above
required, and may convert such shares of Class B Common Stock accordingly.
If such shares of Class B Common Stock shall improperly have been
registered in the name of a person not meeting the qualifications set forth
in this paragraph (C)(6)(d)(or in the name of any successive transferee of
such certificate) and a new certificate therefor issued, such person or
transferee shall surrender such new certificate for cancellation, accompanied
by the written notice of conversion above required, in which case (A) such
person or transferee shall be deemed to have elected to treat the endorsement
on (or instrument of transfer accompanying) the certificate so delivered by
such former record holder as authorizing such person or transferee on behalf
of such former record holder so to convert such shares and so to give such
notice, (B) the shares of Class B Common Stock registered in the name of such
former record holder shall be deemed to have been surrendered for conversion
for the purpose of the transfer to such person or transferee of the shares of
Class A Common Stock issuable upon conversion, and (C) the appropriate
entries shall be made on the books of the Corporation to reflect such action.
In the event that the Board of Directors of the Corporation (or any
committee of the Board of Directors, or any officer of the Corporation
designated for the purpose by the Board of Directors) shall determine, upon
the basis of facts not disclosed in any affidavit or other document
accompanying the certificate for shares of Class B Common Stock when
presented for transfer, that such shares of Class B Common Stock have been
registered in violation of the provisions of paragraph (C)(6), or shall
determine that a person is enjoying for his or her own benefit the special
rights and powers of shares of Class B Common Stock in violation of such
provisions, then the Corporation shall take such action at law or in equity
as is appropriate under the circumstances. An unforeclosed pledge made to
secure a bona fide obligation shall not be deemed to violate such provisions.
(e) Prior to the occurrence of a Tax-Free Spin-Off or any
other Distribution, every certificate for shares of Class B Common Stock
shall bear a legend on the face thereof reading as follows:
"The shares of Class B Common Stock represented by this certificate
may not be transferred to any person in connection with a transfer
that does not meet the qualifications set forth in paragraph (C)(6)(d)
of Article FOURTH of the Certificate of Incorporation of this
corporation and no person who receives such shares in connection with
a transfer which does not meet the qualifications prescribed by
paragraph (C)(6)(d) of said Article FOURTH is entitled to own or to be
registered as the record holder of such shares of Class B Common
Stock, but the record holder of this certificate may at such time and
in the manner set forth in said Article FOURTH of the Certificate of
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<PAGE>
Incorporation convert such shares of Class B Common Stock into the
same number of shares of Class A Common Stock for purposes of
effecting the sale or other disposition of such shares of Class A
Common Stock to any person. Each holder of this certificate, by
accepting the same, accepts and agrees to all of the foregoing."
Upon and after the transfer of shares in a Tax-Free Spin-Off or any
other Distribution, shares of Class B Common Stock shall no longer bear the
legend set forth in this paragraph (C)(6)(e).
Notwithstanding the foregoing, following a Tax-Free Spin-Off or any
other Distribution, but prior to a Converting Trade, every certificate for
shares of Class B Common Stock shall bear a legend on the face thereof
reading as follows:
"The shares of Class B Common Stock represented by this certificate
automatically convert to a like number of shares of Class A Common
Stock on a distribution or other transfer thereof constituting a
Converting Trade as defined in paragraph (C)(6)(b) of Article FOURTH
of the Certificate of Incorporation of this Corporation."
(f) The outstanding shares of Class B Common Stock converted
into Class A Common Stock shall be converted without any further action by
the holders of such shares and it shall occur whether or not the certificates
representing such shares are surrendered to the Corporation; provided,
however, the Corporation shall not be obligated to issue certificates
evidencing the shares of Class A Common Stock issued upon such conversion
unless certificates evidencing the shares of Class B Common Stock so
converted are either delivered to the Corporation, as hereinafter provided,
or the holder notifies the Corporation that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation
to indemnify the Corporation and the transfer agent from any loss incurred by
them in connection therewith. Upon the conversion of the shares of Class B
Common Stock, the holder of such shares shall surrender the certificates
representing such shares at the offices of the Corporation (or at such other
office or offices, if any, as the Board of Directors of the Corporation may
designate). Thereupon, there shall be issued and delivered to such holder a
certificate or certificates for the number of shares of Class A Common Stock
in which such shares of Class B Common Stock were converted and a certificate
or certificates for any remaining shares of Class B Common Stock not so
converted.
(g) Upon any conversion of shares of Class B Common Stock
into shares of Class A Common Stock pursuant to the provisions of this
paragraph (C)(6), any dividend, for which the record date or payment date
shall be subsequent to such conversion, which may have been declared on the
shares of Class B Common Stock so converted shall be deemed to have been
declared, and shall be payable, with respect to
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the shares of Class A Common Stock into or for which such shares of Class B
Common Stock shall have been so converted, and any such dividend which shall
have been declared on such shares payable in shares of Class B Common Stock
shall be deemed to have been declared, and shall be payable, in shares of
Class A Common Stock.
(h) The Corporation shall not reissue or resell any shares of
Class B Common Stock which shall have been converted into shares of Class A
Common Stock pursuant to or as permitted by the provisions of this paragraph
(C)(6), or any shares of Class B Common Stock which shall have been acquired
by the Corporation in any other manner. The Corporation shall, from time to
time, take such appropriate action as may be necessary to retire such shares
and to reduce the authorized amount of Class B Common Stock accordingly.
Except for issuances of Class B Common Stock to Class B common stockholders
pursuant to ARTICLE FOURTH (C)(2) hereof, there shall be no issuances or
sales of Class B Common Stock by the Corporation.
The Corporation shall at all times reserve and keep available, out of
its authorized but unissued Common Stock, such number of shares of Class A
Common Stock as would become issuable upon the conversion of all shares of
Class B Common Stock then outstanding.
(i) In connection with any transfer or conversion of any
stock of the Corporation pursuant to or as permitted by the provisions of
this paragraph (C)(6), or in connection with the making of any determination
referred to in this paragraph (C)(6):
(i) the Corporation shall be under no obligation to
make any investigation of facts unless an officer, employee
or agent of the Corporation responsible for making such
transfer or determination or issuing Class A Common Stock
pursuant to such conversion has substantial reason to
believe, or unless the Board of Directors (or a committee of
the Board of Directors designated for the purpose)
determines that there is substantial reason to believe, that
any affidavit or other document is incomplete or incorrect
in a material respect or that an investigation would
disclose facts upon which any determination referred to in
paragraph (C)(6)(g) above should be made, in either of which
events the Corporation shall make or cause to be made such
investigation as it may deem necessary or desirable in the
circumstances and have a reasonable time to complete such
investigation; and
(ii) neither the Corporation nor any director,
officer, employee or agent of the Corporation shall be
liable in any manner for any action taken or omitted in good
faith.
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(j) The Corporation will not be required to pay any
documentary, stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of shares of Class A Common Stock on the conversion of
shares of Class B Common Stock pursuant to this paragraph (C)(6), and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(k) All rights to vote and all voting power (including,
without limitation thereto, the right to elect directors) shall be vested
exclusively in the holders of Common Stock, voting together as a single
class, except as otherwise expressly provided in this Certificate of
Incorporation, in a Certificate of Designation with respect to any Preferred
Stock or as otherwise expressly required by the law of the State of Delaware.
(l) No stockholder shall be entitled to exercise any right of
cumulative voting.
FIFTH: COMPUTATION; USE OF TERMS.
(a) In determining the number or the record holders of outstanding
shares of any class of stock of the Corporation for the purpose of computing
or determining the method of computing the vote or determining the right to
vote at any meeting of stockholders or of a class of stockholders, the
original stock ledger of the Corporation as at the close of business on the
record date fixed for such meeting or, if the stock transfer books of the
Corporation shall have been closed for a period immediately preceding the
date of such meeting, then as at the close of business on the date as of
which such stock transfer books were so closed, shall be conclusive for all
purposes, and in determining the number or the record holders of outstanding
shares of any class of stock of the Corporation for any other purpose, the
original stock ledger of the Corporation as at the close of business on the
date as of which the determination is being made, shall be conclusive for all
purposes; all notwithstanding any other provision of this Certificate of
Incorporation.
(b) Wherever a term shall be used in the singular in this
Certificate of Incorporation, it shall be deemed in all appropriate
circumstances to include also the plural, and wherever a term shall be so
used in the plural, it shall similarly be deemed to include also the
singular.
SIXTH: INCORPORATOR. The name and mailing address of the sole
incorporator is James H. Smith III, 312 Walnut Street, Suite 2300,
Cincinnati, Ohio 45202-4091.
SEVENTH: DURATION. The Corporation is to have perpetual existence.
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EIGHTH: POWERS OF THE BOARD OF DIRECTORS.
(a) In furtherance, and not in limitation, of the powers conferred
by statute, the Board of Directors is expressly authorized:
To make, alter or repeal the By-laws of the Corporation; to set
apart out of any funds of the Corporation available for dividends a
reserve or reserves for any proper purpose and to abolish the same in
the manner in which it was created, and to fix and determine and to
vary the amount of the working capital of the Corporation; to
determine the use and disposition of the working capital and of any
surplus or net profits over and above the capital of the Corporation
determined as provided by law, and to fix the times for the
declaration and payment of dividends; to authorize and cause to be
executed mortgages and liens, without limit as to amount, upon the
real and personal property of the Corporation; and to fix and
determine the fees and other compensation to be paid by the
Corporation to its directors;
To determine from time to time whether and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation (other than the stock ledger),
or any of them, shall be open to inspection of the stockholders; and
no stockholder shall have any right to inspect any account, book or
document of the Corporation except as conferred by statute, unless
authorized by a resolution of the stockholders or directors;
To make donations for the public welfare or for charitable,
scientific or educational purposes; and to cause the Corporation to
cooperate with other corporations or with natural persons, or to act
alone, in the creation and maintenance of community funds or
charitable, scientific, or educational instrumentalities, and to make
donations for the public welfare or for charitable, scientific, or
educational purposes; and
To designate, by resolution passed by a majority of the entire
Board of Directors, one or more committees, each committee to consist
of two or more of the directors of the Corporation, which to the
extent provided in the resolution or in the By-laws of the
Corporation, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it.
As used in this Certificate of Incorporation, the term entire Board of
Directors" means the total number of directors which the Corporation would
have if there were no vacancies.
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(b) The Corporation may in its By-laws confer powers upon its
directors in addition to the foregoing, and in addition to the powers and
authorities expressly conferred upon them by the laws of the State of
Delaware.
NINTH: BOARD OF DIRECTORS - NUMBER AND VACANCIES.
(a) The names and addresses of the four persons constituting the
initial Board of Directors are:
David B. Pomeroy II
1020 Petersburg Road
Hebron, Kentucky 41048
Stephen E. Pomeroy
1020 Petersburg Road
Hebron, Kentucky 41048
Kenneth E. Waters
4644 East Indian Bend Road
Paradise Valley, Arizona 85253
Gerald L. Von Deylen
9140 Indian Ridge
Cincinnati, Ohio 45243
(b) Subject to any rights of holders of Preferred Stock to elect
additional directors under specified circumstances, the number of directors
of the Corporation shall be not more than nine (9) nor less than three (3),
with the exact number to be fixed from time to time as provided in the
By-laws of the Corporation.
(c) Subject to any rights of holders of Preferred Stock, and
unless the Corporation's Board of Directors otherwise determines, any vacancy
occurring in the Board of Directors caused by death, resignation, increase in
number of directors or otherwise may be filled by the affirmative vote of a
majority of the remaining members of the Board of Directors, though less than
a quorum, or by a sole remaining director. Except as otherwise provided by
law, any such vacancy may not be filled by the stockholders of the
Corporation.
(d) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at
least 66-2/3% of the total voting power of all classes of outstanding capital
stock, voting together as a single class, shall be required to amend, repeal
or adopt any provision inconsistent with this Article NINTH.
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TENTH: CONDUCT OF CERTAIN AFFAIRS OF THE CORPORATION.
(a) In anticipation that the Corporation will cease to be an
indirect, wholly-owned subsidiary of PCR, but that PCR will remain a
substantial stockholder of the Corporation, and in anticipation that the
Corporation and PCR may engage in the same or similar activities and have an
interest in the same areas of corporate opportunities, and in recognition of
the benefits to be derived by the Corporation through its continued
contractual, corporate and business relations with PCR (including possible
service of officers and directors of PCR as officers and directors of the
Corporation), the provisions of this Article Tenth are set forth to regulate
and define the conduct of certain affairs of the Corporation as they may
involve PCR and its officers and directors, and the powers, rights, duties
and liabilities of the Corporation and its officers, directors and
stockholders in connection therewith.
(b) Except as may otherwise be agreed to in writing by PCR and the
Corporation, or as may otherwise be required by law, whether statutory,
common law or otherwise, PCR shall have no duty to refrain from engaging in
the same or similar activities or lines of business as the Corporation, and
neither PCR nor any officer or director thereof (except as provided in
paragraph (c) below) shall be liable to the Corporation or its stockholders
for breach of any fiduciary duty by reason of any such activities of PCR. In
the event that PCR acquires knowledge of a potential transaction or matter
which may be a corporate opportunity for both PCR and the Corporation, PCR
shall have no duty to communicate or offer such corporate opportunity to the
Corporation and shall not be liable to the Corporation or its stockholders
for breach of any fiduciary duty as a stockholder of the Corporation by
reason of the fact that PCR pursues or acquires such corporate opportunity
for itself, directs such corporate opportunity to another person, or does not
communicate information regarding such corporate opportunity to the
Corporation.
(c) Except as may otherwise be agreed to in writing by PCR and the
Corporation, or as may otherwise be required by law, whether statutory,
common law or otherwise, in the event that a director or officer of the
Corporation who is also a director or officer of PCR acquires knowledge of a
potential transaction or matter which may be a corporate opportunity for both
the Corporation and PCR, such director or officer of the Corporation shall
have fully satisfied and fulfilled the fiduciary duty of such director or
officer to the Corporation and its stockholders with respect to such
corporate opportunity, if such director or officer acts in a manner
consistent with the following policy:
(i) A corporate opportunity offered to any person who is an
officer of the Corporation, and who is also a director but not an officer of
PCR, shall belong to the Corporation;
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(ii) a corporate opportunity offered to any person who is a
director but not an officer of the Corporation, and who is also a director or
officer of PCR shall belong to the Corporation if such opportunity is
expressly offered to such person in writing solely in his or her capacity as
a director of the Corporation, and otherwise shall belong to PCR; and
(iii) a corporate opportunity offered to any person who is an
officer of both the Corporation and PCR shall belong to the Corporation if
such opportunity is expressly offered to such person in writing solely in his
or her capacity as an officer of the Corporation, and otherwise shall belong
to PCR.
(d) Any person purchasing or otherwise acquiring any interest in
shares of the capital stock of the Corporation shall be deemed to have notice
of and to have consented to the provisions of this Article Tenth.
(e) For purposes of this Article Tenth only:
(1) A director of the Corporation who is Chairman of the
Board of Directors of the Corporation or of a committee thereof shall not be
deemed to be an officer of the Corporation by reason of holding such position
(without regard to whether such position is deemed an officer of the
Corporation under the By-laws of the Corporation), unless such person is a
full-time employee of the Corporation; and
(2) (A) The term "Corporation" shall mean the Corporation
and all corporations, partnerships, joint ventures, associations and other
entities in which the Corporation beneficially owns (directly or indirectly)
50% or more of the outstanding voting stock, voting power, partnership
interests or similar voting interests, and (B) the term "PCR" shall mean PCR
and all corporations, partnerships, joint ventures, associations and other
entities (other than the Corporation, defined in accordance with clause (A)
of this paragraph (e)(2)) in which PCR beneficially owns (directly or
indirectly) 50% or more of the outstanding voting stock, voting power,
partnership interests or similar voting interests.
(f) Notwithstanding anything in this Certificate of Incorporation
to the contrary, (i) the foregoing provisions of this Article Tenth shall
expire on the date that PCR ceases to own beneficially Common Stock
representing at least 20% of the total voting power of all classes of
outstanding Common Stock of the Corporation and no person who is a director
or officer of the Corporation is also a director or officer of PCR; and (ii)
in addition to any vote of the stockholders required by this Certificate of
Incorporation, until the time that PCR ceases to own beneficially Common
Stock representing at least 20% of the total voting power of all classes of
outstanding Common Stock of the Corporation, the affirmative vote of the
holders of more than 80% of the total voting power of all classes of
outstanding Common Stock of the Corporation shall be required to alter, amend
or repeal in a manner adverse to the
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interests of PCR, or adopt any provision adverse to the interests of PCR and
inconsistent with, any provision of this Article Tenth. Neither the
alteration, amendment or repeal of this Article Tenth nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
Tenth shall eliminate or reduce the effect of this Article Tenth in respect
of any matter occurring, or any cause of action, suit or claim that, but for
this Article Tenth, would accrue or arise, prior to such alteration,
amendment, repeal or adoption.
ELEVENTH: MEETINGS.
(a) If the By-laws so provide, the stockholders and the directors
may hold their meetings, and the Corporation may have one or more offices,
either inside or outside of the State of Delaware. The books and records of
the Corporation (subject to the provisions of the laws of the State of
Delaware) may be kept either inside or outside of the State of Delaware at
such places as from time to time may be determined by the Board of Directors.
(b) Any corporate action required to be taken at any annual or
special meeting of stockholders of the Corporation, or any corporate action
which may be taken at any annual or special meeting of the stockholders, may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the corporate action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the Corporation by delivery to its
registered office in Delaware (either by hand or by certified or registered
mail, return receipt requested), its principal place of business, or an
officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded; provided, however, that
on and after the date on which neither PCR nor the Class B Transferee
continues to beneficially own 50% or more of the total voting power of all
classes of outstanding Common Stock, any corporate action required to be
taken at any annual or special meeting of the stockholders, or any corporate
action which may be taken at any annual or special meeting of the
stockholders, may be taken only at a duly called annual or special meeting of
stockholders and may not be taken by written consent of the stockholders in
lieu of such meeting.
So long as stockholders are entitled to consent to corporate action in
writing without a meeting in accordance with this paragraph (b), every
written consent shall bear the date of signature of each stockholder who
signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
date the earliest dated consent is delivered to the Corporation, a written
consent or consents signed by a sufficient number of holders to take action
are delivered to the Corporation in the manner prescribed in this paragraph
(b).
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(c) Unless otherwise prescribed by law or this Certificate of
Incorporation, special meetings of stockholders may be held at any time on
call of the Chairman of the Board of Directors, a Vice Chairman of the Board
of Directors, the President or, at the request in writing of a majority of
the Board of Directors, any officer.
(d) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at
least 66-2/3% of the total voting power of all classes of outstanding capital
stock, voting together as a single class, shall be required to amend, repeal
or adopt any provision inconsistent with this Article Eleventh.
TWELFTH: LIMITATION ON LIABILITY OF DIRECTORS.
(a) A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the GCL or
(iv) for any transaction from which the director derived an
improper personal benefit.
(b) If the GCL is amended after approval by the stockholders of
this Article Twelfth to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the GCL, as so amended.
(c) Any repeal or modification of this Article Twelfth by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
THIRTEENTH: INDEMNIFICATION AND INSURANCE.
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(a) Each officer or director of the Corporation who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative, investigative or
otherwise (hereinafter a "proceeding"), by reason of the fact that he or she,
or a person of whom he or she is the legal representative, is or was a
director, officer or employee of the Corporation or is or was serving at the
request of the Corporation as a director, officer or employee of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis
of such proceeding is alleged action in an official capacity as a director,
officer or employee or in any other capacity while serving as a director,
officer or employee, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the GCL, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss (including
penalties, fines, judgments, attorney's fees, amounts paid or to be paid In
settlement and excise taxes or penalties imposed on fiduciaries with respect
to (i) employee benefit plans, (ii) charitable organizations or (iii) similar
matters) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has
ceased to be a director, officer or employee and shall inure to the benefit
of his or her heirs, executors and administrators; provided, however, that
the Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person
(other than pursuant to paragraph (b) of this Article Thirteenth) only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this paragraph (a)
of Article Thirteenth shall be a contract right and shall include the right
to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that if
the GCL requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director
or officer including without limitation, service to an employee benefit plan)
in advance of the final disposition of a proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately
be determined that such director or officer is not entitled to be indemnified
under this paragraph (a) of Article Thirteenth or otherwise.
(b) If a claim which the Corporation is obligated to pay under
paragraph (a) of this Article Thirteenth not paid in full by the Corporation
within 60 days after a written claim has been received by the Corporation,
the claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part
the claimant shall be entitled to be paid also the expense of prosecuting
such claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding
in advance of its final
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disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the GCL for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
GCL, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(c) The provisions of this Article Thirteenth shall cover claims,
actions, suits and proceedings, civil or criminal, whether now pending or
hereafter commenced, and shall be retroactive to cover acts or omissions or
alleged acts or omissions which heretofore have taken place. If any part of
this Article Thirteenth should be found to be invalid or ineffective in any
proceeding, the validity and effect of the remaining provisions shall not be
affected.
(d) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
conferred in this Article Thirteenth shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of this Certificate of Incorporation, By-Law, agreement, vote of
stockholders or disinterred directors or otherwise.
(e) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under the GCL.
(f) The Corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification, and rights
to be paid by the Corporation the expenses incurred in defending any
proceeding in advance of its final disposition, to any agent of the
Corporation to the fullest extent of the provisions of this Article with
respect to the indemnification and advancement of expenses of directors,
officers and employees of the Corporation.
FOURTEENTH: BY-LAWS AMENDMENTS. The By-laws of the Corporation
may be altered, amended or repealed at any meeting of the Board of Directors
or of the stockholders, provided that notice of such alteration, amendment or
repeal be contained in the notice of such meeting of the Board of Directors
or stockholders (subject, in the case
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of meetings of stockholders, to the provisions of Article II of the By-laws),
as the case may be. All such amendments must be approved by the affirmative
vote of the holders of at least 66-2/3% of the total voting power of all
classes of outstanding capital stock, voting together as a single class (if
effected by action of the stockholders), or by the affirmative vote of
directors constituting not less than a majority of the entire Board of
Directors (if effected by action of the Board of Directors).
FIFTEENTH: AMENDMENTS. The Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by the law of the
State of Delaware, and all rights of the stockholders herein are granted
subject to this reservation. Provided, however, the affirmative vote of the
holders of at least 66-2/3% of the total voting power of all classes of
outstanding capital stock, voting together as a single class, shall be
required to amend or repeal this Certificate of Incorporation and By-Laws
provisions with respect to stockholder action by written consent, stockholder
right to call special meetings, advance notice procedures and board
classification and removal provisions.
IN WITNESS WHEREOF, the undersigned, being the sole incorporator
hereinabove named, does hereby execute this Certificate of Incorporation this
____ day of _________, 1998.
By: ________________________________
James H. Smith III
Sole Incorporator
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CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION OF
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
POMEROY SELECT INTEGRATION SOLUTIONS, INC., a Delaware corporation (the
"Corporation") does hereby certify that pursuant to the authority conferred upon
the voting stockholders and the Board of Directors of the Corporation, the
Certificate of Incorporation of the Corporation filed with the Delaware
Secretary of State on December 14, 1998 is hereby amended as follows:
FIRST: Subparagraph (3)(a) of Paragraph C of the Fourth Article of the
Corporation's Certificate of Incorporation is hereby amended to read in its
entirety as follows:
(3) (a) At every meeting of the stockholders of the Corporation
every holder of Class A Common Stock shall be entitled to one vote in
person or by proxy for each share of Class A Common Stock standing in his
or her name on the transfer books of the Corporation, and every holder of
Class B Common Stock shall be entitled to ten votes in person or by proxy
for each share of Class B Common Stock standing in his or her name on the
transfer books of the Corporation in connection with the election of
directors and all other matters submitted to a vote of stockholders.
Except as may be otherwise required by law or by this Certificate of
Incorporation, the holders of Class A Common Stock and Class B Common Stock
shall vote together as a single class and their votes shall be counted and
totaled together, subject to any voting rights which may be granted to
holders of Preferred Stock, on all matters to a vote of stockholders of the
Corporation. Notwithstanding any other provision of this Certificate of
Incorporation to the contrary, holders of Class A Common Stock shall not be
eligible to vote on any alteration or change in the powers, preferences, or
special rights of the Class B Common Stock that would not adversely affect
the rights of the Class A Common Stock; provided that, of the foregoing
purposes, any provision for the voluntary, mandatory or other conversion or
exchange of the Class B Common Stock into or for Class A Common Stock on a
one for one basis shall be deemed not to adversely affect the rights of the
Class A Common Stock.
SECOND: Article Fifteenth of the Corporation's Certificate of
Incorporation is hereby amended to read in its entirety as follows:
FIFTEENTH: AMENDMENTS. The Corporation reserves the right to
amend, alter, change or repeal any provision contained in this
<PAGE>
Certificate of Incorporation, in the manner now or hereafter prescribed by
the law of the State of Delaware, and all rights of the stockholders herein
are granted subject to this reservation. Provided, however, the
affirmative vote of the holders of at least 66-2/3% of the total voting
power of all classes of outstanding capital stock, voting together as a
single class, shall be required to amend or repeal this Certificate of
Incorporation and By-Laws provisions with respect to stockholder action by
written consent, stockholder right to call special meetings, advance notice
procedures and board classification, removal provisions and provisions
relating to limitation of liability of Directors in Article Twelfth herein.
Any amendment, alteration, change or repeal of any provision contained in
this Certificate of Incorporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
amendment, alteration, change or repeal.
IN WITNESS WHEREOF, POMEROY SELECT INTEGRATION SOLUTIONS, INC. has caused
this Certificate of Amendment to be signed by the duly authorized officer as set
forth below on this 14th day of January, 1999.
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
By: /s/ Stephen E. Pomeroy
----------------------------------------
Stephen E. Pomeroy - President
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BYLAWS
OF
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
ARTICLE I
STOCKHOLDERS
Section 1. PLACE OF STOCKHOLDERS' MEETINGS. All meetings of the
stockholders of the Corporation shall be held at such place or places, within
or outside the State of Delaware, as may be fixed by the Board of Directors
from time to time or as shall be specified in the respective notices thereof.
Section 2. DATE, HOUR AND PURPOSE OF ANNUAL MEETINGS OF
STOCKHOLDERS. Annual Meetings of Stockholders shall be held on such day and
at such time as the Directors may determine from time to time by resolution,
at which meeting the stockholders shall elect, by a plurality of the votes
cast at such election, a Board of Directors, and transact such other business
as may properly be brought before the meeting. If for any reason a Board of
Directors shall not be elected at the Annual Meeting of Stockholders, or if
it appears that such Annual Meeting is not held on such date as may be fixed
by the Directors in accordance with the provisions of the Bylaws, then in
either such event the Directors shall cause the election to be held as soon
thereafter as convenient.
Section 3. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the
stockholders, or of any class or series thereof entitled to vote, unless
otherwise provided by law, may be called only by the (i) Chairman, (ii) the
Board of Directors pursuant to a resolution approved by a majority of the
then authorized number of Directors of the Corporation (as determined by
these Bylaws), or (iii) the holders of at least two-thirds of the total
amount of the Corporation's issued and outstanding capital stock which is
regularly entitled to vote at such special meeting of stockholders.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Except as otherwise
expressly required or permitted by the laws of Delaware, not less than ten
days nor more than sixty days before the date of every stockholders' meeting
the Secretary shall give to each stockholder of record entitled to vote at
such meeting written notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. Such notice, if mailed, shall be deemed to be given when
deposited in the United States mail, with postage thereon prepaid, addressed
to the stockholder at the post office address for notices to such stockholder
as it appears on the records of the Corporation.
An Affidavit of the Secretary or an Assistant Secretary or of a transfer
agent of the Corporation that the notice has been given shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
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Section 5. QUORUM OF STOCKHOLDERS.
(a) Unless otherwise provided by the laws of Delaware, at any meeting
of the stockholders the presence in person or by proxy of stockholders
entitled to cast a majority of the votes thereat shall constitute a quorum.
(b) At any meeting of the stockholders at which a quorum shall be
present, a majority of those present in person or by proxy may adjourn the
meeting from time to time without notice other than announcement at the
meeting. In the absence of a quorum, the officer presiding thereat shall
have power to adjourn the meeting from time to time until a quorum shall be
present. Notice of any adjourned meeting other than announcement at the
meeting shall not be required to be given, except as provided in
paragraph (d) below and except where expressly required by law.
(c) At any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting
originally called, but only those stockholders entitled to vote at the
meeting as originally noticed shall be entitled to vote at any adjournment
or adjournments thereof, unless a new record date is fixed by the Board of
Directors.
(d) If an adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the adjourned meeting.
Section 6. CHAIRMAN AND SECRETARY OF MEETING. The Chairman, or in his
absence, the Vice-Chairman, or in his absence, the President, or in his absence,
any Vice-President, shall preside at meetings of the stockholders. The Secretary
shall act as secretary of the meeting, or in his absence an Assistant Secretary
shall act, or if neither is present, then the presiding officer shall appoint a
person to act as secretary of the meeting.
Section 7. VOTING BY STOCKHOLDERS. Except as may be otherwise
provided by the laws of Delaware, the Certificate of Incorporation or by
these Bylaws, at every meeting of the stockholders, each stockholder shall be
entitled to one vote for each share of stock eligible for voting rights
standing in his name on the books of the Corporation on the record date for
the meeting. At any meeting at which a quorum is present, all elections and
questions shall be decided by the vote of a majority in interest of the
stockholders present in person or represented by proxy and entitled to vote
at the meeting, except when a greater proportion is expressly required by the
laws of Delaware, the Certificate of Incorporation or these Bylaws, in which
case such provision shall govern and control the decision of such question.
Written ballots shall not be required for voting on any matter unless ordered
by the chairman of the meeting.
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Section 8. PROXIES. Any stockholder entitled to vote at any meeting
of stockholders may vote either in person or by his attorney-in-fact. Every
proxy shall be in writing, subscribed by the stockholder or his duly
authorized attorney-in-fact, but need not be dated, sealed, witnessed or
acknowledged.
Section 9. LIST OF STOCKHOLDERS.
(a) At least ten days before every meeting of stockholders, the
Secretary shall prepare or cause to be prepared a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical
order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder.
(b) During ordinary business hours, for a period of at least ten days
prior to the meeting, such list shall be open to examination by any
stockholder for any purpose germane to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held.
(c) The list shall also be produced and kept at the time and place
of the meeting during the whole time of the meeting, and it may be
inspected by any stockholder who is present.
(d) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by
this Section or the books of the Corporation, or to vote in person or by
proxy at any meeting of stockholders.
ARTICLE II
DIRECTORS
Section 1. POWERS OF DIRECTORS. The property, business and affairs
of the Corporation shall be managed by its Board of Directors, which may
exercise all the powers of the Corporation except such as are by the laws of
Delaware or the Certificate of Incorporation or these Bylaws required to be
exercised or done by the stockholders.
Section 2. NUMBER OF OFFICE OF DIRECTORS. The number of Directors
which shall constitute the whole Board of Directors shall be such as from
time to time shall be determined by resolution of not less than sixty-six and
two-thirds percent (66-2/3%) of the then authorized number of Directors, but
the number shall not be less than three (3) provided that the tenure of a
Director shall not be affected by any decrease in the number of Directors so
made by the Board.
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Section 3. NOMINATING AND PROPOSAL PROCEDURES. Without limiting any
other notice requirements imposed by law, the Certificate of Incorporation or
these Bylaws, any nomination for election to the Board of Directors or other
proposal to be presented by any stockholder (the "Proponent") at a
stockholders' meeting will be properly presented only if written notice of
the Proponent's intent to make such nomination or proposal has been
personally delivered to and otherwise in fact received by the Secretary of
the Corporation not later than (i) for the annual meeting, at least 150 days
prior to the anniversary date of the prior year's annual meeting, or (ii) for
any special meeting, the close of business on the tenth day after notice of
such meeting is first given to stockholders; provided, however, that nothing
contained herein shall limit or restrict the right of any stockholder to
present at a stockholders' meeting any proposal made by such stockholder in
accordance with Rule 14a-8 promulgated pursuant to the Securities Exchange
Act of 1934, as amended, as it may hereafter be amended, or any successor
rule. Such notice by the Proponent to the Corporation shall set forth in
reasonable detail information concerning the nominee (in the case of a
nomination for election to the Board of Directors) or the substance of the
proposal (in the case of any other stockholder proposal), and shall include:
(a) the name and residence address and business address of the stockholder
who intends to present the nomination or other proposal or of any person who
participates or is expected to participate in making such nomination and of
the person or persons, if any, to be nominated and the principal occupation
or employment and the name, type of business and address of the business,
corporation or other organization in which such employment is carried on of
each such stockholder, participant and nominee; (b) a representation that the
Proponent is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
present the nomination or other proposal specified in the notice; (c) a
description of all arrangements or understandings between the Proponent and
any other person or persons (naming such person or persons) pursuant to which
the nomination or other proposal is to be made by the Proponent; (d) such
other information regarding each proposal and each nominee as would have been
required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had the nomination or other
proposal been made by the Board of Directors; and (e) the consent of each
nominee, if any, to serve as a director of the Corporation if elected.
Within fifteen (15) days following the receipt by the Secretary of a notice
of nomination or proposal pursuant hereto, the Secretary shall advise the
Proponent in writing of any deficiencies in the notice and of any additional
information the Corporation is requiring to determine the eligibility of the
proposed nominee or the substance of the proposal. A Proponent who has been
notified of deficiencies in the notice of nomination or proposal and/or of
the need for additional information shall cure such deficiencies and/or
provide such additional information within fifteen (15) days after receipt of
the notice of such deficiencies and/or the need for additional information.
The presiding officer of a meeting of stockholders may, in his or her sole
discretion, refuse to acknowledge a nomination or other proposal presented by
any person that does not comply with the foregoing procedure and, upon his or
her instructions, all votes cast for such nominee or with respect to such
proposal may be disregarded.
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The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.
Section 4. TERM OF OFFICE OF DIRECTORS. Each Director shall hold
office until his successor is elected and qualified, provided, however, that
a Director may resign at any time.
Section 5. RESIGNATION OF DIRECTORS. A Director may resign at any
time during his term of office, and such resignation shall be deemed to take
effect immediately upon its being received by an incumbent corporate officer
other than an officer who is also the resigning Director, unless there exists
another specified time therein.
Section 6. VACANCIES ON BOARD OF DIRECTORS. Any vacancy or newly
created Directorship resulting from any increase in the authorized number of
Directors may be filled only by vote of a majority of the Directors then in
office, though less than a quorum, and any Director so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which he has been elected expires and until
his successor is duly elected and qualified, or until his earlier resignation
or removal.
Section 7. REMOVAL OF DIRECTORS. Subject to the rights of the
holders of Preferred Stock any director may be removed from office by the
affirmative vote of the holders of at least a majority of the voting power of
all shares of the Corporation entitled to vote generally in the election of
directors, voting together as one (1) class.
Section 8. MEETINGS OF THE BOARD OF DIRECTORS.
(a) The Board of Directors may hold their meetings, both regular and
special either within or outside the State of Delaware.
(b) Regular meetings of the Board of Directors may be held without
notice at such time and place as shall from time to time be determined by
resolution of the Board of Directors.
(c) The first meeting of each newly elected Board of Directors except
the initial Board of Directors shall be held as soon as practicable after
the Annual Meeting of the stockholders for the election of officers and the
transaction of such other business as may come before it.
(d) Special meetings of the Board of Directors shall be held whenever
called by direction of the Chairman or the President or at the request of
Directors
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constituting one-third of the number of Directors then in office, but not
less than two Directors.
(e) The Secretary shall give notice to each Director of any meeting
of the Board of Directors by mailing the same at least two days before the
meeting or by telegraphing or delivering the some not later than the day
before the meeting. Such notice need not include a statement of the
business to be transacted at, or the purpose of, any such meeting. Any and
all business may be transacted at any meeting of the Board of Directors. No
notice of any adjourned meeting need be given. No notice to or waiver by
any Director shall be required with respect to any meeting at which the
Director is present.
Section 9. QUORUM AND ACTION. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business; but if
there shall be less than a quorum at any meeting of the Board, a majority of
those present may adjourn the meeting from time to time. Unless otherwise
provided by the laws of Delaware, the Certificate of Incorporation or these
Bylaws, the act of a majority of the Directors present at any meeting at
which a quorum is present shall be the act of the Board of Directors.
Section 10. PRESIDING OFFICER AND SECRETARY OF MEETING. The
Chairman or, in his absence, the Vice-Chairman or, in his absence, the
President or, in his absence, a member of the Board of Directors selected by
the members present, shall preside at meetings of the Board. The Secretary
shall act as secretary of the meeting, but in his absence the presiding
officers shall appoint a secretary of the meeting.
Section 11. ACTION BY CONSENT WITHOUT MEETING. Any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing and the writing
or writings are filed with the records of the Board or committee.
Section 12. EXECUTIVE COMMITTEE. The Board of Directors may appoint
from among its members and from time to time may fill vacancies in an
Executive Committee to serve during the pleasure of the Board. The Executive
Committee shall consist of three members, or such greater number of members
as the Board of Directors may by resolution from time to time fix. One of
such members shall be the Chairman of the Board and another shall be the
Vice-Chairman of the Board, who shall be the presiding officer of the
Committee. During the intervals between the meetings of the Board, the
Executive Committee shall possess and may exercise all of the powers of the
Board in the management of the business and affairs of the Corporation
conferred by these Bylaws or otherwise. The Committee shall keep a record of
all its proceedings and report the same to the Board. A majority of the
members of the Committee shall constitute a quorum. The act of a majority of
the members of the Committee present at any meeting at which a quorum is
present shall be the act of the Committee.
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Section 13. OTHER COMMITTEES. The Board of Directors may also appoint
from among its members such other committees of two or more Directors as it
may from time to time deem desirable, and may delegate to such committees
such powers of the Board as it may consider appropriate.
Section 14. POWERS OF COMMITTEES. Notwithstanding anything contained
in these Bylaws to the contrary, neither the Executive Committee nor any
other committee of the Board of Directors shall have any power or authority
to amend the Certificate of Incorporation, adopt an agreement of merger or
consolidation, recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property or assets, recommend
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amend the Bylaws of the Corporation. If the resolution
establishing a particular committee so provides, such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. The Board of Directors may (but shall not be obligated to) designate
one (1) member of any committee (including the Executive Committee) as its
chairman. The duties and responsibilities of the members of any committee of
the Board of Directors shall be in addition to those duties set forth for a
member of the Board of Directors of the Corporation.
Section 15. COMPENSATION OF DIRECTORS. Directors shall receive such
reasonable compensation for their service on the Board of Directors or any
committees thereof, whether in the form of salary or a fixed fee for
attendance at meetings, or both, with expenses, if any, as the Board of
Directors may from time to time determine. Nothing herein contained shall be
construed to preclude any Director from serving in any other capacity and
receiving compensation therefor.
ARTICLE III
OFFICERS
Section 1. EXECUTIVE OFFICERS OF THE CORPORATION. The officers of
the Corporation shall be chosen by the Board of Directors and shall be a
President, one or more Vice-Presidents (one or more of whom may be designated
Executive Vice-President or Senior Vice-President), a Secretary and a
Treasurer. The Board of Directors may also choose a Chairman of the Board, a
Vice-Chairman of the Board and one or more Assistant Secretaries and
Assistant Treasurers. A Vice-President may be designated as the Chief
Financial Officer. Any two or more offices may be held by the same person,
unless the Certificate of Incorporation or these Bylaws otherwise provide.
Section 2. CHOOSING OF EXECUTIVE OFFICERS. The Board of Directors
at its first meeting after each annual meeting of stockholders shall choose a
President, one or more Vice-Presidents, a Secretary and a Treasurer.
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Section 3. ADDITIONAL OFFICERS. The Board of Directors may appoint
such other officers and agents as it shall deem necessary, 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.
Section 4. SALARIES. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors.
Section 5. TERM, REMOVAL AND VACANCIES. The officers of the
Corporation shall hold office until their respective successors are chosen
and qualify. Any officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise shall be filled by the Board of Directors.
Removal of any officer shall be without prejudice to the contract rights, if
any, of the person so removed; however, election or appointment of an officer
or agent shall not of itself create contract rights.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
any, shall be the Chief Executive Officer of the Corporation unless the Board
has designated the President as the Chief Executive Officer, shall preside at
all meetings of the stockholders and the Board of Directors, shall have
general and active management of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried
into effect. He shall execute bonds, mortgages and other contracts requiring
a seal, under the seal of the Corporation, except where required or permitted
by law to be otherwise and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to
some other officer or agent of the Corporation.
Section 7. VICE-CHAIRMAN OF THE BOARD. The Vice-Chairman of the
Board, if any, shall have such powers and perform such duties as are provided
in these Bylaws or as may be delegated to him by the Chairman of the Board,
and shall perform such other duties as may from time to time be assigned to
him by the Board of Directors. In the absence or disability of the Chairman
of the Board, the Vice-Chairman of the Board shall preside at all meetings of
the Board of Directors and of the stockholders.
Section 8. PRESIDENT. The President shall have the duties and
responsibilities as assigned by the Chairman of the Board, the Vice-Chairman
of the Board or the Board of Directors. If there is no Chairman of the Board,
the President shall be the Chief Executive Officer of the Corporation and
shall have all of the duties and responsibilities previously enumerated for
the Chairman of the Board. He shall preside at any meetings of the
stockholders and of the Board of Directors if the Chairman of the Board or
the Vice-Chairman of the Board is unavailable. He may sign, with the
Secretary or Treasurer or any other proper officer "hereunto authorized by
the Board of Directors, certificates for shares of the Corporation, any
deeds, mortgages, bonds, contracts or other instruments which the
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Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed;
and in general shall perform all duties incident to the office of the
President and such other duties as may be prescribed by the Board of
Directors from time to time.
Section 9. POWERS AND DUTIES OF VICE-PRESIDENTS. In the absence of
the President or in the event of his inability or refusal to act, the
Vice-President (or in the event there be more than one Vice-President, the
Vice-Presidents in the order designated, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. The Vice-Presidents shall
perform such other duties and have such other powers as the Board of
Directors, the Chairman of the Board, the Vice-Chairman of the Board or the
President may from time to time prescribe.
Section 10. POWERS AND DUTIES OF SECRETARY AND ASSISTANT SECRETARIES.
The Secretary shall attend all meetings of the Board of Directors and all
meetings of the stockholders and record all the proceedings of the meetings
of the Corporation and of the Board of Directors in a book to be kept for
that purpose and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors, the
Chairman of the Board, the Vice-Chairman of the Board or the President, under
whose supervision he shall be. He shall have custody of the corporate seal
and he, or an Assistant Secretary, shall have authority to affix the same to
any instrument requiring it and, when so affixed, it may be attested by his
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the
corporate seal and to attest the affixing by his signature. The Assistant
Secretary, or if there be more than one, the Assistant Secretaries in the
order determined by the Board of Directors (or if there be no such
determination, then in the order of their election), shall, in the absence of
the Secretary or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
Section 11. POWERS AND DUTIES OF TREASURER AND ASSISTANT TREASURERS.
The Treasurer shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors, the Chairman of
the Board, the Vice-Chairman of the Board, the President or the Treasurer. He
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, the Chairman of the Board, the Vice-Chairman of the Board, the
President or the Treasurer, taking proper vouchers for such disbursements,
and shall render to the
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Board of Directors, at its regular meetings, or when the Board of Directors
so requires, an account of all his transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of
Directors, he shall give the Corporation a bond (which shall be renewed every
six years) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession
or under his control belonging to the Corporation. The Assistant Treasurer,
or if there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors (or if there be no such determination,
then in the order of their election), shall, in the absence of the Treasurer
or in the event of his inability or refusal to act, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors, the Chairman of the Board,
the Vice-Chairman of the Board, the President or the Treasurer may from time
to time prescribe.
ARTICLE IV
CAPITAL STOCK
Section 1. STOCK CERTIFICATES.
(a) Every holder of stock in the Corporation shall be entitled to
have a certificate signed in the name of the Corporation by the Chairman
or the President or the Vice-Chairman or a Vice-President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, certifying the number of shares owned by him.
(b) If such a certificate is countersigned by a transfer agent other
than the Corporation or its employee, or by a registrar other than the
Corporation or its employee, the signatures of the officers of the
Corporation may be facsimiles and, if permitted by Delaware law, any other
signature on the certificate may be a facsimile.
(c) In case any officer who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer at the date of issue.
(d) Certificates of stock shall be issued in such form not
inconsistent with the Certificate of Incorporation as shall be approved by
the Board of Directors. They shall be numbered and registered in the
order in which they are issued. No certificate shall be issued until
fully paid.
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Section 2. RECORD OWNERSHIP. A record of the name and address of
the holder of each certificate, the number of shares represented thereby, and
the date of issue thereof shall be made on the Corporation's books. The
Corporation shall be entitled to treat the holder of record of any share of
stock as the holder in fact thereof, and accordingly 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 required by the laws of Delaware.
Section 3. TRANSFER OF RECORD OWNERSHIP. Transfers of stock shall
be made on the books of the Corporation only by direction of the person named
in the certificate or his attorney, lawfully constituted in writing, and only
upon the surrender of the certificate therefor and a written assignment of
the shares evidenced thereby. Whenever any transfer of stock shall be made
for collateral security, and not absolutely, it shall be so expressed in the
entry of the transfer if, when the certificates are presented to the
Corporation for transfer, both the transferor and transferee request the
Corporation to do so.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. Certificates
representing shares of the stock of the Corporation shall be issued in place
of any certificate alleged to have been lost, stolen or destroyed in such
manner and on such terms and conditions as the Board of Directors from time
to time may authorize.
Section 5. TRANSFER AGENT, REGISTRAR, RULES RESPECTING CERTIFICATES.
The Corporation shall maintain one or more transfer offices or agencies
where stock of the Corporation shall be transferable. The Corporation shall
also maintain one or more registry offices where such stock shall be
registered. The Board of Directors may make such rules and regulations as it
may deem expedient concerning the issue, transfer and registration of stock
certificates.
Section 6. FIXING RECORD DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. The Board of Directors may fix in advance a date as the record date
for the purpose of determining the stockholders entitled to notice of, or to
vote at, any meeting of the stockholders or any adjournment thereof, or the
stockholders entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or to
express consent to corporate action in writing without a meeting, or in order
to make a determination of the stockholders for the purpose of any other
lawful action. Such record date in any case shall not be more than sixty days
nor less than ten days before the date of a meeting of the stockholders, nor
more than sixty days prior to any other action requiring such determination
of the stockholders. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
ARTICLE V
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SECURITIES HELD BY THE CORPORATION
Section 1. VOTING. Unless the Board of Directors shall otherwise
order, the Chairman, the Vice-Chairman, the President, any Vice-President,
the Treasurer or the Secretary shall have full power and authority on behalf
of the Corporation to attend, act and vote at any meeting of the stockholders
of any corporation in which the Corporation may hold stock and at such
meeting to exercise any or all rights and powers incident to the ownership of
such stock and to execute on behalf of the Corporation a proxy or proxies
empowering another or others to act as aforesaid. The Board of Directors from
time to time may confer like powers upon any other person or persons.
Section 2. GENERAL AUTHORIZATION TO TRANSFER SECURITIES HELD BY THE
CORPORATION.
(a) Any of the following officers, to-wit: the Chairman, the
President, any Vice-President, the Treasurer or the Secretary of the
Corporation shall be and are hereby authorized and empowered to transfer,
convert, endorse, sell, assign, set over and deliver any and all shares of
stock bonds, debentures, notes, subscription warrants, stock purchase
warrants, evidences of indebtedness, or other securities now or hereafter
standing in the name of or owned by the Corporation, and to make, execute
and deliver under the seal of the Corporation any and all written
instruments of assignment and transfer necessary or proper to effectuate
the authority hereby conferred.
(b) Whenever there shall be annexed to any instrument of assignment
and transfer executed, pursuant to and in accordance with the foregoing
paragraph (a), a certificate of the Secretary or an Assistant Secretary
of the Corporation in office at the date of such certificate setting forth
the provisions hereof and stating that they are in full force and effect
and setting forth the names of persons who are then officers of the
Corporation, then all persons to whom such instrument and annexed
certificate shall thereafter come shall be entitled, without further
inquiry or investigation and regardless of the date of such certificate,
to assume and to act in reliance upon the assumption that the shares of
stock or other securities named in such instrument were theretofore duly
and properly transferred, endorsed, sold, assigned, set over and delivered
by the Corporation, and that with respect to such securities the authority
of these provisions of the Bylaws and of such officers is still in full
force and effect.
ARTICLE VI
DIVIDENDS
Section 1. DECLARATION OF DIVIDENDS. Dividends upon the capital
stock of the Corporation may be declared by the Board of Directors at any
regular or special meeting,
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pursuant to law. Dividends may be paid in cash, in property, or in shares of
the capital stock subject to the provisions of the Certificate of
Incorporation.
Section 2. PAYMENT AND RESERVES. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for such other purpose as the Directors
shall think conducive to the interest of the Corporation, and the directors
may modify or abolish any such reserves in the manner in which they were
created.
Section 3. RECORD DATE. The Board of Directors may, to the extent
provided by law, prescribe a period, in no event in excess of sixty (60)
days, prior to the date for payment of any dividend, as a record date for the
determination of stockholders entitled to receive payment of any such
dividend, and in such case such stockholders and only such stockholders as
shall be stockholders of record on said date so fixed shall be entitled to
receive payment of such dividend, notwithstanding any transfer of any stock
on the books of the Corporation after any such record date fixed as
aforesaid.
ARTICLE VII
GENERAL PROVISIONS
Section 1. SIGNATURES OF OFFICERS. All checks or demands for money
and notes of the Corporation shall be signed by such officer or officers or
such other person or persons as the Board of Directors may from time to time
designate. The signature of any officer upon any of the foregoing instruments
may be a facsimile whenever authorized by the Board.
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 3. SEAL. The Corporation may have a corporate seal which
shall have inscribed thereon the name of the Corporation, the year of its
incorporation and the words "Corporate Seal, Delaware". Said seal may be used
for causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE VIII
WAIVER OF OR DISPENSING WITH NOTICE
Whenever any notice of the time, place or purpose of any meeting of the
stockholders, Directors or a committee is required to be given under the laws
of Delaware, the Certificate of Incorporation or these Bylaws, a waiver
thereof in writing, signed by the
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person or persons entitled to such notice, whether before or after the
holding thereof, or actual attendance at the meeting in person, or in the
case of the stockholders, by his attorney-in-fact, shall be deemed equivalent
to the giving of such notice to such persons. No notice need be given to any
person with whom communication is made unlawful by any law of the United
States or any rule, regulation, proclamation or executive order issued under
any such law.
ARTICLE IX
INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, as amended from time to time, indemnify
any and all persons which it shall have power to indemnify under said section
from and against any and all of the expenses, liabilities or other matters
referred to in or covered by said section.
ARTICLE X
AMENDMENT OF BYLAWS
These Bylaws may be amended, added to, rescinded, or repealed at any
meeting of the Board of Directors or of the stockholders, provided notice of
the proposed change has been given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of these Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class or
series of the stock required by law, the Certificate of Incorporation of the
Corporation, any preferred stock designation or these Bylaws, the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all the then-outstanding shares of stock entitled to cast
votes at the time in the election of Directors, voting together as one (1)
class, shall be required to alter, amend, or repeal Section 3 of ARTICLE I of
these Bylaws, or this sentence of this ARTICLE X of these Bylaws.
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of the _____ day
of _____________, 1999 by and between Pomeroy Computer Resources, Inc., a
Delaware corporation ("PCR"), Global Combined Technologies, Inc., an Oklahoma
corporation ("Global"), Pomeroy Computer Resources, of South Carolina, Inc., a
South Carolina corporation ("PCRSC") and Pomeroy Select Integration Solutions,
Inc, a Delaware corporation ("PSIS").
Background
A. Global and PCRSC are wholly owned subsidiaries of PCR.
B. On December 14, 1998, PCR formed PSIS for the purpose of operating
independently PCR's, Global's and PCRSC's respective portions of their
businesses consisting of the integrated desktop management and network services
business including life cycle services, internetworking services, end-user
support services and such other services as PSIS now or hereafter offers (the
"Business").
C. Prior to the date of this Agreement, the Business had been conducted
by PCR, Global and PCRSC as a part of their respective business operations.
D. PSIS intends to effect an initial public offering of shares of Class A
common stock of PSIS (the "Offering").
E. PCR, Global and PCRSC desire to contribute and transfer to PSIS and
PSIS desires to accept and receive, certain of the assets and assume certain of
the liabilities of PCR, Global and PCRSC that are necessary to enable PSIS to
own and operate the Business (the "Contribution") and to facilitate the
Offering.
F. In consideration for the Contribution, PCR, Global and PCRSC shall
receive ten million (10,000,000) shares of Class B common stock of PSIS in
the following proportions: PCR - 9,300,000, Global - 400,000, and PCRSC -
300,000. It is anticipated that Global and PCRSC shall transfer all of their
respective interests in Class B common shares to PCR prior to or upon the
effectiveness of the Offering.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and covenants contained in this Agreement, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Assigned Contracts" has the meaning ascribed thereto in Section
3 hereof.
<PAGE>
(b) "Business Day" means any calendar day which is not a Saturday,
Sunday or public holiday under the laws of the Commonwealth of Kentucky.
(c) "Contract" means any written or oral contract, agreement,
commitment, lease, license, consulting agreement, supply contract, repair
contract, distribution agreement, purchase order, technology and know-how
agreement, instrument or any other contractual commitment that is binding on any
Person or its property.
(d) "GAAP" means generally accepted accounting principles in effect
in the United States consistently applied throughout the periods involved.
(e) "Governmental Entity" means any nation or government, any state
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including, without limitation, any government authority, agency,
department, board, commission or instrumentality of the United States, any State
of the United States or any political subdivision thereof, and any tribunal or
arbitrator(s) of competent jurisdiction, and any self-regulatory organization.
(f) "Liability" means any direct or indirect liability, loss, damage,
cost, expense, contingent liability, loss contingency, indebtedness, obligation,
responsibility, claim, deficiency (including deferred income tax and other net
tax deficiencies), guaranty or endorsement of or by any person, whether accrued,
absolute, or contingent, known or unknown, fixed or unfixed, liquidated or
unliquidated, secured or unsecured, and any other items which, in accordance
with GAAP, would be classified as a Liability.
(g) "Lien" means any mortgage, pledge, hypothecation, right of
others, claim, security interest, encumbrance, lease, sublease, license,
occupancy agreement, adverse claim or interest, easement, covenant,
encroachment, burden, title defect, right or title retention agreement, voting
trust agreement, interest, equity, option, lien, right of first refusal, charge
or other restrictions or limitations of any nature whatsoever (whether
consensual, statutory or otherwise).
(h) "Person" means an individual, a sole proprietorship, a
corporation, a partnership, a joint venture, an association, a trust, or any
other entity or organization, including a government or a political subdivision,
agency or instrumentality thereof.
(i) "Prospectus" means the form of prospectus contained in PSIS's
Registration Statement on Form S-1 to be filed with the Securities and Exchange
Commission and used in connection with the Offering, a complete draft of which,
dated December 31, 1998, each of the parties acknowledge they have received
prior to the execution hereof.
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(j) "Required Consents" means any and all licenses, waivers, consents
or approvals of or from any Governmental Entity, including the expiration of any
periods of time under statutory and regulatory notice provisions without action
on the part of any Governmental Entity, and any and all approvals, consents or
waivers from other parties to leases, licenses, franchises, permits, indentures,
Contracts and other instruments necessary to consummate the transactions
contemplated hereby.
2. CONTRIBUTIONS OF ASSETS BY PCR, GLOBAL AND PCRSC. Subject to the terms
and conditions contained herein, each of PCR, Global and PCRSC hereby
contribute, transfer and convey to PSIS, free and clear of all Liens (other than
Permitted Liens listed in Schedule B), all of the assets of PCR, Global and
PCRSC which comprise the Business including those listed on Schedule A attached
hereto (including but not limited to any assets relating to PCR's CommTec
Division) (collectively, the "Contributed Assets").
3. ASSIGNMENT OF CONTRACTS AND CONTRACT RIGHTS. PCR, Global and PCRSC
hereby assign, transfer and deliver to PSIS all of their respective rights,
title and interest in and to all, or the portion pertaining to the Business,
of the Contracts and contract rights pertaining to the Business as identified
on Schedule C hereto (the "Assigned Contracts") and PSIS hereby accepts the
Assigned Contracts and agrees to perform and comply with such Assigned
Contracts as if PSIS were the original signatory thereunder.
4. ASSUMPTION OF LIABILITIES. PSIS hereby assumes only those debts,
liabilities and obligations of PCR, Global and PCRSC listed on Schedule D
attached hereto (the "PCR/Global/PCRSC Assumed Liabilities"). Except as set
forth on Schedule D, PSIS does not and will not otherwise acquire, discharge,
assume, or become responsible for any debts, liabilities or obligations of
PCR, Global or PCRSC. PCR, Global and PCRSC agree to pay and satisfy when
due their respective liabilities and obligations not assumed by PSIS, which,
if not paid or satisfied, could result in a liability to PSIS which is not
being expressly assumed by PSIS. To the extent a Contributed Asset is subject
to a Lien that is not a PCR/Global/PCRSC Assumed Liability, each of PCR,
Global and PCRSC, as applicable, expressly acknowledges that it is retaining
such Liability and agrees to pay and discharge such Liability as the same
shall become due.
5. EMPLOYEES. PSIS shall offer employment to those employees listed in
Schedule E (the "PSIS Employees") and, simultaneously with the hiring of PSIS
Employees by PSIS, PCR, Global and PCRSC shall terminate the employment of
their respective PSIS Employees who accept employment with PSIS. PSIS shall
honor the amount of accrued vacation time for each employee who accepts
employment with PSIS. For purposes of employee benefit plans in effect as of
the date of this Agreement, any provisions requiring years of service with PSIS,
vesting or similar provisions shall include in the calculation of such time
periods the time served by the employee for PCR, Global or PCRSC. PCR, Global
and PCRSC each agree to pay to the PSIS Employees the full
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amount of all salaries, bonuses and other employee compensation earned by the
PSIS Employees through January 5, 1999.
6. REPRESENTATIONS AND WARRANTIES.
(a) PCR, Global and PCRSC, as applicable, represent and warrant to
PSIS as follows:
(1) CORPORATE POWER AND AUTHORITY. Each of PCR, Global and PCRSC
has the requisite power and authority to execute, deliver, and perform their
respective obligations under, this Agreement and to contribute, transfer and
convey to PSIS the Contributed Assets. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary action (corporate or otherwise) on
the part of each of PCR, Global and PCRSC. This Agreement constitutes the legal,
valid and binding obligation of each of PCR, Global and PCRSC, enforceable in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws affecting the
enforcement of creditors' rights generally.
(2) VALIDITY OF CONTEMPLATED TRANSACTIONS. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (a) violate, breach or
contravene any of the terms, conditions or provisions of the Certificate or
Articles of Incorporation or Bylaws of PCR, Global or PCRSC, (b) violate, or
constitute a default under, any material Contract by which such entity or its
property is bound (except for the consent of PCR's primary lender, Deutsche
Financial Services Corporation, which consent has been obtained and except as
set forth on Schedule F), or (c) violate any material provision of law.
(3) TITLE TO CONTRIBUTED ASSETS. Each of PCR, Global and PCRSC
is in possession of and has good, valid and marketable title to, or has valid
leasehold interests in or valid rights under contract to use, all of the
Contributed Assets in which it has interest and each of PCR, Global and PCRSC,
has such title, interests or rights to all of the Contributed Assets that are
being contributed by each such entity. All of the Contributed Assets are free
and clear of all Liens, other than Permitted Liens. All tangible personal
property comprising Contributed Assets is in good operating condition (ordinary
wear and tear excepted) and will be usable by PSIS for its intended purposes.
(4) ACCOUNTS RECEIVABLE. The accounts receivable that are
included in the Contributed Assets (the "Accounts Receivable") constitute valid
receivables, have arisen in the ordinary course of business consistent with past
practices, are collectible (net of any bad debt reserve determined in accordance
with GAAP) and are not subject to any setoff or counterclaim. No part of the
Accounts Receivable is contingent upon performance by PCR, Global or PCRSC, as
applicable, or any other party of any obligation, and no agreements for
deductions or discounts have been made with respect to any part of such
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Accounts Receivable. To the knowledge of each of PCR, Global and PCRSC, the
Accounts Receivable are collectible in the ordinary course of business.
(5) VENDOR RECEIVABLES. The vendor receivables that are
included in the Contributed Assets (the "Vendor Receivables") constitute valid
receivables, have arisen in the ordinary course of business consistent with past
practices, are collectible (net of any bad debt reserve determined in accordance
with GAAP) and are not subject to any setoff or counterclaim. No part of the
Vendor Receivables is contingent upon performance by PCR, Global or PCRSC, as
applicable, or any other party of any obligation, and no agreements for
deductions or discounts have been made with respect to any part of such Vendor
Receivables. To the knowledge of each of PCR, Global and PCRSC, the Vendor
Receivables are collectible in the ordinary course of business.
(6) BUSINESS. Upon consummation of this Agreement, PSIS shall
be the sole and exclusive owner of the Business, the Contributed Assets received
by PSIS from PCR, Global and PCRSC are all of the assets necessary to operate
the Business as described in the Prospectus.
(7) FURTHER COVENANTS AND ASSURANCES.
(a) Each of PCR, Global and PCRSC, as applicable, further
agrees that (i) with respect to the contracts listed in Part I of Schedule F, it
will obtain the consents prior to the effective date of the Offering and (ii)
with respect to the contracts listed in Part II of Schedule F, or any other
Contract or contract rights pertaining to the Business which is not assigned to
PSIS for any reason, if one or more of any such Contract or contract rights are
unable to be assigned or transferred to PSIS, it will take all actions necessary
or desirable to ensure that the economic benefits of each of the Contracts and
contract rights will be realized by PSIS. Nothing herein shall be construed to
limit in any way the right of PCR, Global or PCRSC to exhaust any and all
remedies any of them have or may have to enforce their respective rights against
any third party under or relating to the contracts listed in Part II of Schedule
F.
(b) Each of PCR, Global and PCRSC, as applicable, further
agrees that, at any time or from time to time after the effectuation of this
Contribution Agreement, it will, upon the request of PSIS, and at the
contributing party's expense, do, execute, acknowledge and deliver, or will
cause to be done, executed, acknowledged or delivered, all such further
reasonable acts, assignments, transfers, powers of attorney or assurances as may
be required in order to further transfer, assign, grant, assure and confirm to
PSIS, or to aid and assist in the collection or granting of possession by PSIS
of any of the Contributed Assets or to vest in PSIS good and marketable title to
the Contributed Assets.
(8) REQUIRED CONSENTS. All Required Consents have been obtained
unless the failure to obtain one or more Required Consents would not be material
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and except for (i) contracts under which PCR, Global and/or PCRSC has a right
to subcontract without the consent of the other party or parties to the
contract), and (ii) those set forth on Schedule F.
(b) PSIS represents and warrants to PCR, Global and PCRSC as follows:
(1) CORPORATE POWER AND AUTHORITY. PSIS has the requisite power
and authority to execute, deliver and perform this Agreement and to accept
the Contributed Assets. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary action (corporate or otherwise) on the
part of PSIS. This Agreement constitutes the legal, valid and binding
obligation of PSIS, enforceable in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, moratorium
or similar laws affecting the enforcement of creditors' rights generally.
(2) VALIDITY OF CONTEMPLATED TRANSACTIONS. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (a) violate, breach or
contravene any of the terms, conditions or provisions of the Certificate of
Incorporation or Bylaws of PSIS, (b) violate, or constitute a default under, any
material Contract by which such entity or its property is bound, or (c) violate
any material provision of law.
7. COVENANT NOT TO COMPETE. As an inducement for PSIS to enter into this
Contribution Agreement with PCR, Global and PCRSC, each of PCR, Global and
PCRSC covenant and agree that for a period equal to the later of (i) two (2)
years from the closing of this Contribution Agreement or, (ii) one (1) year
after the termination of an Administrative Services and Marketing Agreement
by and between PCR and PSIS, of even date, neither PCR, Global nor PCRSC will
engage in any activities which compete with the Business including, without
limitation, the provision of integrated desktop management or network
services except with respect to specific business opportunities which were
offered to PSIS in accordance with its right of first refusal under the
Administrative Services and Marketing Agreement and were declined by PSIS as
provided therein. PSIS covenants and agrees for such period not to engage
in any activities which compete with the business of marketing and selling a
broad range of microcomputers and related products including equipment
selection, procurement and configuration except with respect to specific
business opportunities which were offered to PCR in accordance with its right
of first refusal under the Administrative Services and Marketing Agreement
and were declined by PCR as provided therein .
8. INDEMNIFICATION.
(a) For a period of three years from the date of this Agreement, each
of PCR, Global and PCRSC, their respective transferees, successors and assigns,
agree to reimburse and indemnify and hold PSIS, its transferees, successors and
assigns, harmless
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against any and all damage, expense (including legal fees), loss, demand, claim,
cost, liability, judgment or deficiency resulting from any misrepresentations,
breach of any of the representations or warranties or nonfulfillment of any
covenant or agreement on the part of any of them to be performed under this
Agreement, or resulting from any liability, damage or expense incurred by PSIS
from any judgment, settlement, cost or expense of defending any lawsuits or
claims against any of them, or resulting from creditors of any of PCR, Global or
PCRSC making claims against PSIS. In addition, for a period of three years
from the date of this Agreement, each of PCR, Global and PCRSC, their respective
transferees, successors and assigns, jointly and severally agree to reimburse
and indemnify and hold PSIS, its transferees, successors and assigns, harmless
against any and all damage, expense (including legal fees), loss, demand, claim,
cost, liability or judgment with respect to any of their respective obligations
or liabilities, contingent or otherwise, not expressly assumed herein by PSIS.
(b) For a period of three years from the date of this Agreement,
PSIS, its transferees, successors and assigns, agree to reimburse and indemnify
and hold each of PCR, Global and PCRSC and their respective transferees,
successors and assigns, harmless against any and all damage, expense (including
legal fees), loss, demand, claim, cost, liability, judgment or deficiency
resulting from any misrepresentations, breach of any of the representations or
warranties or nonfulfillment of any covenant or agreement on the part of PSIS to
be performed under this Agreement, or resulting from any liability, damage or
expense incurred by any of them from any judgment, settlement, cost or expense
of defending any lawsuits or claims against PSIS, or resulting from creditors of
PSIS making claims against any of them. In addition, for a period of three
years from the date of this Agreement, PSIS, its transferees, successors and
assigns, agree to reimburse and indemnify and hold each of PCR, Global and PCRSC
and their respective transferees, successors and assigns, harmless against any
and all damage, expense (including legal fees), loss, demand, claim, cost,
liability or judgment with respect to any of PSIS' obligations or liabilities,
contingent or otherwise, not expressly assumed herein by PCR, Global or PCRSC.
(c) Notwithstanding the foregoing, for a period of their respective
agreements not to compete as provided in Section 7 and one year thereafter, each
of PCR, Global and PCRSC, their respective transferees, successors and assigns,
agree to reimburse and indemnify and hold PSIS harmless against any and all
damage, expense (including legal fees), loss, demand, claim, cost, liability,
judgment or deficiency resulting from any breach of the agreement not to compete
as provided in Section 7 on the part of any of them.
(d) At the time that PSIS shall suffer any loss or damage which is to
be indemnified pursuant to this Section 8, PCR, Global, and PCRSC, upon written
notice from PSIS, shall promptly pay to PSIS the aggregate amount of the loss or
damage. The amount of the loss or damage shall include all amounts paid by PSIS
together with costs and reasonable attorneys' fees and expenses. In the event
that PSIS is not paid by one
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or more of them within thirty days after receipt of written notice, then PSIS
shall also be entitled to collect from any of PCR, Global, or PCRSC all of the
attorneys' fees and costs incurred by PSIS in connection with obtaining payment
of the loss or damage from them, whether or not a suit is filed or other legal
proceeding is initiated by PSIS.
(e) At the time that any of PCR, Global or PCRSC shall suffer any
loss or damage which is to be indemnified pursuant to this Section 8, PSIS, upon
written notice from PCR, Global or PCRSC, shall promptly pay to PCR, Global or
PCRSC, as the case may be, the aggregate amount of the loss or damage. The
amount of the loss or damage shall include all amounts paid by PCR, Global or
PCRSC, as the case may be, together with costs and reasonable attorneys' fees
and expenses. In the event that PCR, Global or PCRSC, as the case may be, is
not paid by PSIS within thirty days after receipt of written notice, then PCR,
Global or PCRSC, as the case may be, shall also be entitled to collect from PSIS
all of the attorneys' fees and costs incurred by PCR, Global or PCRSC, as the
case may be, in connection with obtaining payment of the loss or damage from
PSIS, whether or not a suit is filed or other legal proceeding is initiated by
PCR, Global or PCRSC as the case may be.
9. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned by
either party hereto to any other person without the consent of the other
party hereto.
(b) NO THIRD-PARTY BENEFICIARIES. Nothing expressed or implied in
this Agreement shall be construed to give any person or entity other than the
parties hereto any legal or equitable rights hereunder.
(c) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof.
(d) AMENDMENT. This Agreement may not be amended except by an
instrument signed by the parties hereto.
(e) WAIVERS. Either party hereto may (i) extend the time for the
performance of any of the obligations or other act of the other party or (ii)
waive compliance with any of the agreements contained herein. No waiver of any
term shall be construed as a subsequent waiver of the same term, or a waiver of
any other term, of this Agreement. The failure of any party to assert any of its
rights hereunder will not constitute a waiver of any such rights.
(f) SEVERABILITY. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, such
provision shall be
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deemed severable and all other provisions of this Agreement shall nevertheless
remain in full force and effect.
(g) HEADINGS. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
(h) NOTICES. All notices given in connection with this Agreement
shall be in writing. Service of such notices shall be deemed complete (i) if
hand delivered, on the date of delivery, (ii) if by mail, on the fourth business
day following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid, (iii) if sent by FedEx or
equivalent courier service, on the next business day, or (iv) if by telecopier,
upon receipt by the sender of written confirmation of successful transmission.
Such notices shall be addressed to the parties at the following addresses or at
such other address for a party as shall be specified by like notice (except that
notices of change of address shall be effective upon receipt):
If to PCR, Global or PCRSC:
1020 Petersburg Road
Hebron, Kentucky 41048
Attention: President
Telecopier: (606) 586-4414
If to Pomeroy Select Integration Solutions, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
Attention: President
Telecopier:
(i) GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Kentucky , without giving
effect to the principles of conflict of laws thereof.
(j) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
but one and the same instrument.
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IN WITNESS WHEREOF, the parties to this Contribution Agreement have caused
this Agreement to be duly executed as of the date first written above.
POMEROY COMPUTER RESOURCES, INC.
By:
---------------------------------
Name:
Title:
GLOBAL COMBINED TECHNOLOGIES,
INC.
By:
---------------------------------
Name:
Title:
POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA,
INC.
By:
---------------------------------
Name:
Title:
POMEROY SELECT INTEGRATION
SOLUTIONS, INC.
By:
---------------------------------
Name:
Title:
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LIST OF SCHEDULES
Schedule A Contributed Assets
Annex A-1 Accounts Receivable
Annex A-2 Vendor Receivables
Annex A-3 Other Receivables
Annex A-4 Other Tangible Assets
Annex A-5 Intangible Assets
Schedule B Permitted Liens
Schedule C Assigned Contracts
Schedule D Assumed Liabilities
Schedule E Employees
Schedule F Exceptions to Required Consents
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SPACE SHARING AGREEMENT
This Space Sharing Agreement (the "Agreement") is made as of the 6th day of
January, 1999 by and among Pomeroy Computer Resources, Inc., a Delaware
corporation ("PCR"), Global Combined Technologies, Inc., an Oklahoma
corporation ("Global"), Pomeroy Computer Resources, of South Carolina, Inc.,
a South Carolina corporation ("PCRSC"), and Pomeroy Select Integration
Solutions, Inc., a Delaware corporation ("PSIS").
RECITALS
A. PCR is a party to a lease agreement (the "Hebron, KY Lease") pursuant to
which PCR leases certain office space for its corporate headquarters and a
distribution center (the "Premises").
B. PCR, Global and/or PCRSC are parties to leases and/or subleases for
other facilities (such facilities, together with the Premises, are
collectively referred to herein as the "PCR Facilities") as listed on Exhibit
A hereto.
C. PSIS desires to use a portion of the Premises and portions of the other
PCR Facilities and, subject to the terms and provisions herein (PCR, Global
and PCRSC are collectively referred to hereinafter as the "PCR Companies"),
PCR agrees that PSIS shall be permitted to use a portion of the Premises and
portions of the PCR Facilities.
NOW, THEREFORE, in consideration of the agreements set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. PREMISES. PCR agrees that PSIS shall be permitted to use a portion of
the Premises for the purposes permitted under the Hebron, KY Lease subject to
the terms and conditions set forth in this Agreement. PSIS's right to use a
portion of the Premises (and its obligation to pay consideration therefore as
required pursuant to Section 3 hereof) shall terminate on the earlier of (i)
ninety (90) days after PSIS notifies PCR that PSIS no longer desires to use
any portion of the Premises, (ii) ninety (90) days after PCR notifies PSIS
that PSIS may no longer use any portion of the Premises, or (iii) upon
termination of the lease for the Premises.
2. PCR FACILITIES. The PCR Companies and PSIS acknowledge that as of the
date hereof PSIS is using space at the PCR Facilities. Each of the PCR
Companies agrees that PSIS shall be permitted to continue to use the portion
of the other PCR Facilities described on Exhibit A for the purposes permitted
under the applicable lease and/or sublease agreements (the "PCR Leases"),
subject to the terms and conditions of this Agreement. PSIS's right to use
any PCR Facilities (and its obligation to pay consideration therefore as
required pursuant to Section 3 hereof) shall terminate on the
<PAGE>
earliest of (i) ninety (90) days after PCR notifies PSIS that PSIS may no
longer use such PCR Facility, (ii) ninety (90) days after PSIS notifies PCR
that PSIS no longer desires to use such PCR Facility, or (iii) upon
termination of the applicable PCR Lease.
3. CONSIDERATION. So long as PSIS uses any PCR Facility, PSIS shall
pay to PCR on the first day of each calendar month the amount shown on
Exhibit A with respect to such PCR Facility as the "Monthly Allocable Rent."
The Monthly Allocable Rent set forth on Exhibit A is based upon the ratio of
PSIS's gross profit contribution to the consolidated gross profit of PCR and
its subsidiaries including PSIS. Said gross profit contribution was 35% as
of October 5, 1998, which percentage was used to establish PSIS's monthly
allocable rent for the year ending January 5, 2000. During the term of this
Agreement, the Monthly Allocable Rent will be adjusted annually to reflect
the change in the fiscal year-end gross profit contribution, as defined
above. Such Monthly Allocable Rent shall also be increased, as to any PCR
Facility, by the same percentage as any rent increase (including without
limitation, for rent adjustments based on increases in operating expenses,
common area maintenance charges and similar items) provided under the terms
of the applicable PCR Lease and/or Hebron, KY Lease, such increase to be
effective on the date such increase becomes effective under the applicable
PCR Lease and/or Hebron, KY Lease. Payments for any partial calendar month
shall be prorated on a per diem basis. PCR shall be responsible for
determining the allocation of, and making payment to Global or PCRSC of, any
portion of the Monthly Allocable Rent which relates to a PCR Facility for
which Global or PCRSC is responsible for the rental payment.
4. MODIFICATION AND TERMINATION.
(a) MODIFICATION. If a party desires to increase or decrease the
portion of any PCR Facility used pursuant to this Agreement, then PSIS and
PCR, Global or PCRSC, as the case may be, will negotiate in good faith with
respect to such increase and decrease and the adjustment to the Monthly
Allocable Rent resulting therefrom. Each of the PCR Companies covenants and
agrees to offer to PSIS the opportunity to use a portion of any new or
expanded facilities leased by the PCR Companies.
(b) TERM; TERMINATION RIGHTS. This Agreement shall become
effective on the effective date of that certain Contribution Agreement dated
the date hereof, by and among the parties hereto, and shall terminate as to
any of the PCR Facilities (including the Premises) on the effective date of
the termination contemplated by Section 1 or 2 hereof.
5. COMPLIANCE WITH LEASES. PCR has provided to PSIS a copy of the
Hebron, KY Lease and each other PCR Lease and PSIS acknowledges receipt
thereof. Each of the PCR Companies and PSIS hereby agrees not to take any
action or fail to take any action in connection with its use of a portion of
the Premises and the other PCR Facilities a result of which would be the PCR
Companies' violation of any of the terms and conditions of the Hebron, KY
Lease or such other PCR Lease, the provisions of which are hereby
incorporated by reference. PSIS agrees to comply with the terms and
provisions (other than with respect to payment of monies) of the Hebron, KY
Lease and any other PCR Lease with respect to its use of a portion of the
applicable PCR Facilities or Premises, it being understood, acknowledged and
agreed that PSIS's obligations to make payments on account of rent,
additional rent, or operating expense or common area maintenance surcharges
with respect to any and all PCR Facilities or the Premises shall be governed
-2-
<PAGE>
solely by the terms of this Agreement. Each of the PCR Companies represents
and warrants to PSIS that all landlord consents required to be obtained for
the PCR Companies to allow PSIS to use portions of the Premises and PCR
Facilities, as provided herein, have been obtained except where the failure
to obtain such a consent would not be material.
6. MODIFICATION OF LEASES. PSIS acknowledges and agrees that each of
the PCR Companies has the right to modify or otherwise amend the Hebron, KY
Lease and each other PCR Lease without the consent of PSIS; provided,
however, that in the event such modification results in an increase in the
rent or other amounts payable thereunder or a decrease or diminution of the
services or space provided therein, PSIS's rights and obligations with
respect to such PCR Facility shall nonetheless remain as they were prior to
such modification unless PSIS consents, in writing, to any such
modifications. The PCR Companies will provide PSIS with prior notice of, and
a copy of, any such amendment.
7. INDEMNITY.
(a) BY PSIS. PSIS will indemnify and hold harmless the PCR
Companies and their respective directors, officers, employees and agents
(collectively, the "PCR Indemnitees") from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including without limitation reasonable attorneys' fees and expenses)
imposed upon or incurred by or asserted against any one or more of the PCR
Indemnitees by reason of (a) any accident, injury to or death of persons, (b)
any failure on the part of PSIS to perform or comply with any of the terms of
this Agreement, the Hebron, KY Lease or the PCR Leases or (c) the PCR
Companies being held in default under the terms and provisions of the Hebron,
KY Lease or the PCR Leases, in any such case as a result of any act or
omission on the part of PSIS.
(b) BY PCR. The PCR Companies will indemnify and hold harmless
PSIS and PSIS's directors, officers, employees and agents (collectively, the
"PSIS Indemnitees") from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including without
limitation reasonable attorneys' fees and expenses) imposed upon or incurred
by or asserted against any one or more of the PSIS Indemnitees by reason of
(a) any accident, injury to or death of persons, (b) any failure on the part
of any of the PCR Companies to perform or comply with any of the terms of
this Agreement, the Hebron, KY Lease or the PSIS Leases or (c) PSIS being
held in default under the terms and provisions of the Hebron, KY Lease or the
PSIS Leases, in any such case as a result of any act or omission on the part
of the PCR Companies.
8. INSURANCE. The parties acknowledge that PCR presently maintains
and will continue to maintain, pursuant to the terms of that certain
Administrative Services and Marketing Agreement, of even date herewith,
entered into by and between PCR and PSIS (the "Services Agreement"),
insurance coverage with respect to the PCR Companies' respective leasehold
interests (and following the effective date of this Agreement, PSIS's
-3-
<PAGE>
interests) in any and all of the PCR Facilities and the contents (whether
owned by the PCR Companies or PSIS) of such PCR Facilities until the earlier
to occur of (i) the termination of this Agreement; or (ii) notification in
writing by PSIS that such coverage is no longer required. The PCR Companies
shall continue to maintain in full force and effect (including, without
limitation, the timely payment of premiums therefor) such insurance coverage
in amounts no less than, and for coverages at least as comprehensive as,
those maintained as of the date hereof. Notwithstanding the foregoing, PSIS
shall reimburse PCR with respect to PSIS's allocable share of the premiums
for such insurance coverage in accordance with the terms of the Services
Agreement.
9. NOTICES. All notices given in connection with this Agreement shall
be in writing. Service of such notices shall be deemed complete (i) if hand
delivered, on the date of delivery, (ii) if by mail, on the fourth business
day following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid, (iii) if sent by FedEx or
equivalent courier service, on the next business day, or (iv) if by
telecopier, upon receipt by the sender of written confirmation of successful
transmission. Such notices shall be addressed to the parties at the
following addresses or at such other address for a party as shall be
specified by like notice (except that notices of change of address shall be
effective upon receipt):
If to the PCR Companies:
1020 Petersburg Road
Hebron, Kentucky 41048
Attention: President
Telecopy: (606) 334-5399
If to PSIS:
1020 Petersburg Road
Hebron, Kentucky 41048
Attention: President
Telecopy: (606) 334-5375
10. GOVERNING LAW. This Agreement shall be governed by, and be
construed in accordance with, the substantive laws of the Commonwealth of
Kentucky, without giving effect to the principles of the conflict of laws
thereof.
11. AMENDMENT. This Agreement may be amended or supplemented at any
time provided that any such amendment or supplement shall be made in writing
and signed by each of the parties hereto.
-4-
<PAGE>
12. ASSIGNMENT. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto and their respective successors and
permitted assigns. This Agreement and the rights, duties, obligations and
privileges hereunder may not be assigned by either party without the prior
written consent of the other party.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all which
together will constitute but one agreement.
15. SECTION HEADINGS. The section headings contained herein are for
convenience only and shall not affect in any way the interpretation of any of
the provisions contained herein.
IN WITNESS WHEREOF, the parties hereto have executed this Space Sharing
Agreement as of the date first above written.
POMEROY COMPUTER RESOURCES, INC.
By: /s/ David B. Pomeroy, II
----------------------------------
Name: David B. Pomeroy, II
Title: President
GLOBAL COMBINED TECHNOLOGIES, INC.
By: /s/ Stephen E. Pomeroy
----------------------------------
Name: Stephen E. Pomeroy
Title: President
POMEROY COMPUTER RESOURCES, OF
SOUTH CAROLINA, INC.
By: /s/ David B. Pomeroy, II
----------------------------------
Name: David B. Pomeroy, II
Title: President
POMEROY SELECT INTEGRATION
SOLUTIONS, INC.
By: /s/ Stephen E. Pomeroy
----------------------------------
Name: Stephen E. Pomeroy
Title: President
-5-
<PAGE>
EXHIBIT A
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUAL RENT ANNUAL RENT MONTHLY RENT MONTHLY RENT
LOCATION/BRANCH PAID BY PCR ALLOCATED TO PSIS PAID BY PCR ALLOCATED TO PSIS
------------------- ------------- ------------------- -------------- ===================
<S> <C> <C> <C> <C>
ATLANTA $37,457.04 $13,109.96 $3,121.42 $1,092.50
BIRMINGHAM $57,372.00 $20,080.20 $4,781.00 $1,673.35
CEDAR RAPIDS $20,532.00 $7,186.20 $1,711.00 $598.85
CHARLESTON $31,800.00 $11,130.00 $2,650.00 $927.50
CHARLOTTE $82,610.52 $28,913.68 $6,884.21 $2,409.47
CLEVELAND $42,288.00 $14,800.80 $3,524.00 $1,233.40
COLUMBIA $74,964.96 $26,237.74 $6,247.08 $2,186.48
COLUMBUS $38,535.96 $13,487.59 $3,211.33 $1,123.97
DALLAS $48,862.32 $17,101.81 $4,071.86 $1,425.15
DES MOINES $139,061.88 $48,671.66 $11,588.49 $4,055.97
EVANSVILLE $6,000.00 $2,100.00 $500.00 $175.00
HEADQUARTERS $618,291.12 $216,401.89 $51,524.26 $18,033.49
INDIANAPOLIS $95,040.00 $33,264.00 $7,920.00 $2,772.00
JACKSONVILLE $96,205.56 $33,671.95 $8,017.13 $2,806.00
KNOXVILLE $73,116.00 $25,590.60 $6,093.00 $2,132.55
LEXINGTON $50,661.00 $17,731.35 $4,221.75 $1,477.61
TALLAHASSEE $10,914.00 $3,819.90 $909.50 $318.33
LOUISVILLE $104,400.00 $36,540.00 $8,700.00 $3,045.00
MIAMI $84,148.92 $29,452.12 $7,012.41 $2,454.34
MONTGOMERY $28,050.00 $9,817.50 $2,337.50 $818.13
MORGANTOWN $19,045.92 $6,666.07 $1,587.16 $555.51
NASHVILLE $59,157.00 $20,704.95 $4,929.75 $1,725.41
OKLAHOMA CITY $92,073.72 $32,225.80 $7,672.81 $2,685.48
ORLANDO $5,400.00 $1,890.00 $450.00 $157.50
RALEIGH $43,051.32 $15,067.96 $3,587.61 $1,255.66
RICHMOND $66,000.00 $23,100.00 $5,500.00 $1,925.00
TAMPA $49,691.76 $17,392.12 $4,140.98 $1,449.34
TULSA $79,407.00 $27,792.45 $6,617.25 $2,316.04
HIGH POINT $61,677.72 $21,587.20 $5,139.81 $1,798.93
MEMPHIS $98,294.04 $34,402.91 $8,191.17 $2,866.91
-------------- ------------ ------------ -----------
TOTAL $2,314,109.76 $809,938.42 $192,842.48 $67,494.87
</TABLE>
<PAGE>
STOCK REGISTRATION AGREEMENT
THIS STOCK REGISTRATION AGREEMENT (the "Agreement") is made and entered
into as of _________________, 1999, by and between POMEROY SELECT INTEGRATION
SOLUTIONS, INC., a Delaware corporation (the "Company") and POMEROY COMPUTER
RESOURCES, INC., a Delaware corporation ("PCR"), the parent of the Company (PCR
is sometimes also referred to herein as the "Holder").
RECITALS
A. Upon the completion of the initial public offering (the "Offering") of
shares of Class A common stock, par value $0.01 per share ("Class A Common
Stock"), of the Company, the Company will cease to be a wholly-owned subsidiary
of the Holder. PCR has informed the Company that it has no current plan or
intention other than to hold its shares of Class B Common Stock, par value $.01
per share, ("Class B Common Stock") for the foreseeable future. After the
Offering, PCR may consider other options regarding its interest in the Company
including: (i) whether to sell all or a portion of its shares of Class B Common
Stock to the public in another public offering (in which case the Class B Common
Stock would automatically convert to Class A Common Stock) or to a strategic
investor or (ii) to distribute pro rata to PCR's stockholders its remaining
shares in a tax-free or taxable distribution (the "Distribution").
B. In connection with the Offering, the Company is preparing to file a
registration statement with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "Securities Act") for the sale
of shares of Class A Common Stock.
C. Following the Offering, the Class A Common Stock will be registered
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
D. The Holder may desire to register its shares of Class B Common Stock
under the Securities Act and other applicable securities laws.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. As used in this Agreement, "Restricted
Stock" shall mean all shares of Class B Common Stock owned by the Holder as of
the date of the consummation of the Offering, together with any securities
issued or
<PAGE>
issuable by the Company or any successor thereto with respect to any such Class
B Common Stock by way of stock dividend or in connection with a stock split,
combination of shares, recapitalization, merger, consolidation, reorganization
or otherwise. As to any particular outstanding shares of Restricted Stock, such
securities shall cease to be Restricted Stock when (i) a registration statement
with respect to the offer and sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) such securities shall
have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (iii) such securities shall have been
distributed to the Holder's stockholders in the Distribution, (iv) such
securities shall have otherwise become freely distributable by the Holder
thereof in a public offering or otherwise without the necessity of registration
or qualification of such securities under the Securities Act or any similar
state law then in force or compliance with the volume and manner of sale or
similar limitations under Rule 144 (or any successor provision) under the
Securities Act, (v) such securities shall have ceased to be outstanding, or (vi)
the Holder thereof shall agree in writing that such Restricted Stock shall no
longer be Restricted Stock. The Holder and any permitted assignee of the
Holder's rights hereunder are referred to herein as "Holders" and a Holder
selling or distributing Restricted Stock pursuant hereto is referred to herein
as a "Selling Holder." Subject to the provisions of Section 4 hereof, at any
time and from time to time any Holder or Holders holding in the aggregate 50% or
more of the shares of the Restricted Stock then outstanding may make a written
request for registration under the Securities Act of all or part of its or their
Restricted Stock pursuant to this Section 1 (a "Demand Registration"), provided
that (i) the Restricted Stock shall be converted to Class A Common Stock prior
to or upon the sale of the Restricted Stock pursuant to said registration, and
(ii) the number of shares of Restricted Stock proposed to be sold or distributed
pursuant to such registration shall be equal to 20% or more of the aggregate
number of shares of Restricted Stock then outstanding, but (if fewer than all
outstanding shares of Restricted Stock are proposed to be so sold or
distributed) in no event less than 5% of the initial aggregate number of shares
of Restricted Stock (subject to appropriate adjustment for any stock dividend,
stock split, combination, recapitalization, merger, consolidation,
reorganization or other occurrence affecting the number of shares of Restricted
Stock then outstanding). Such request will specify the aggregate number of
shares of Restricted Stock proposed to be sold or distributed and will also
specify the intended method of disposition thereof. Within 10 business days
after receipt of such request, the Company will give written notice of such
registration request to any other Holders of Restricted Stock and, subject to
Section 1(b), include in such registration all Restricted Stock with respect to
which the Company has received written requests for inclusion therein within 15
business days after the date on which such notice is so given. Each such request
will also specify the number of shares of Restricted Stock to be registered and
the intended method of disposition thereof. No party other than a Holder or the
Company shall be permitted to include securities in any
<PAGE>
Demand Registration unless the Holder or Holders of 66-2/3% of the shares of
Restricted Stock to be included therein shall have consented thereto in
writing.
(b) PRIORITY ON DEMAND REGISTRATION. If the Holders of a majority of
the shares of the Restricted Stock to be included in a Demand Registration so
elect, the offering of such Restricted Stock pursuant to such Demand
Registration shall be in the form of an underwritten offering. In such event, if
the managing underwriter or underwriters of such offering advise the Company and
the Holders in writing that in their opinion the aggregate amount of Restricted
Stock requested to be included in such offering is so large that it will
materially and adversely affect the success of such offering, the Company will
include in such registration the aggregate number of shares of Restricted Stock
which in the opinion of such managing underwriter or underwriters can be sold
without any such material adverse effect, and such number of shares shall be
allocated pro rata among the Holders of Restricted Stock on the basis of the
number of shares of Restricted Stock requested by such Holders to be included in
such registration. To the extent that 10% or more of the Restricted Stock so
requested to be registered is excluded from the registration, then the Holders
of such excluded Restricted Stock shall have the right to one additional Demand
Registration under this Section 1 with respect to such Restricted Stock,
provided that the failure of such Restricted Stock to be registered is through
no fault of such Holders, and provided, further, that such right to one
additional Demand Registration applies only to the first time that shares of
Restricted Stock are so excluded.
(c) SELECTION OF UNDERWRITERS AND COUNSEL. If any Demand Registration
is in the form of an underwritten offering, the Company will select and obtain
the services of the managing underwriter or underwriters that will administer
the offering and the counsel to such managing underwriter or underwriters;
provided that such managing underwriter or underwriters and counsel must be
reasonably satisfactory to the Holders of a majority of the shares of Restricted
Stock to be registered.
2. PIGGYBACK REGISTRATION. If the Company proposes to file a registration
statement under the Securities Act with respect to an offering for its own
account of any class of its equity securities (other than a registration
statement on Form S-8 (or any successor form) or any other registration
statement relating solely to employee benefit plans or filed in connection with
an exchange offer, a transaction to which Rule 145 (or any successor provision)
under the Securities Act applies or an offering of securities solely to the
Company's existing stockholders), then the Company shall in each case give
written notice of such proposed filing to the Holders as soon as practicable
(but no later than 20 business days) before the anticipated filing date, and
such notice shall offer each Holder the opportunity to register such number of
shares of Restricted Stock as such Holder may request. Each Holder desiring to
have Restricted Stock included in such registration statement shall so advise
the Company in writing within 10 business
<PAGE>
days after the date on which the Company's notice is so given, setting forth the
number of shares of Restricted Stock for which registration is requested. If the
Company's offering is to be an underwritten offering, the Company shall, subject
to the further provisions of this Agreement, use its reasonable best efforts to
cause the managing underwriter or underwriters to permit the Holders of the
Restricted Stock requested to be included in the registration for such offering
to include such Restricted Stock in such offering on the same terms and
conditions as any similar securities of the Company included therein. The right
of each Holder to registration pursuant to this Section 2 in connection with an
underwritten offering by the Company shall, unless the Company otherwise
assents, be conditioned upon such Holder's participation as a seller in such
underwritten offering and its execution of an underwriting agreement with the
managing underwriter or underwriters selected by the Company. Notwithstanding
the foregoing, if the managing underwriter or underwriters of such offering
deliver a written opinion to the Company that either because of (a) the kind of
securities that the Company, the Holders and any other persons or entities
intend to include in such offering or (b) the size of the offering that the
Company, the Holders and any other persons or entities intend to make, the
success of the offering would be materially and adversely affected by inclusion
of the Restricted Stock requested to be included, then (i) in the event that the
size of the offering is the basis of such managing underwriter's opinion, the
number of shares of Restricted Stock to be registered and offered for the
accounts of Holders shall be reduced pro rata on the basis of the number of
securities requested by such Holders to be registered and offered to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter or underwriters
(provided that if securities are being registered and offered for the account of
other persons or entities in addition to the Company, such reduction shall not
be proportionally greater than any similar reductions imposed on such other
persons or entities) and (ii) in the event that the combination of securities to
be offered is the basis of such managing underwriter's opinion, (x) the
Restricted Stock to be included in such registration and offering shall be
reduced as described in clause (i) above or (y) if such actions would, in the
judgment of the managing underwriter, be insufficient to substantially eliminate
the adverse effect that inclusion of the Restricted Stock requested to be
included would have on such offering, such Restricted Stock will be excluded
entirely from such registration and offering. Any Restricted Stock excluded from
an underwriting shall, if applicable, be withdrawn from registration and shall
not, without the consent of the Company, be transferred in a public distribution
prior to the earlier of 90 days (or such other shorter period of time as the
managing underwriter may require) after the effective date of the registration
statement or 150 days after the date the Holders of such Restricted Stock are
notified of such exclusion.
3. REGISTRATION PROCEDURES. Whenever, pursuant to Section 1 or 2 hereof,
Holders of Restricted Stock have requested that any Restricted Stock be
registered, the
<PAGE>
Company shall, subject to the provisions of Section 4 hereof, use its reasonable
best efforts to effect the registration and the sale or distribution of such
Restricted Stock in accordance with the intended method of disposition thereof
as promptly as practicable, and in connection with any such request, the Company
shall:
(a) in connection with a request pursuant to Section 1 hereof,
prepare and file with the SEC, not later than 60 days after receipt of such a
request, a registration statement on any form for which the Company then
qualifies and which counsel for the Company shall deem appropriate and which
form shall be available for the sale or distribution of such Restricted Stock in
accordance with the intended method of distribution thereof, and use its
reasonable best efforts to cause such registration statement to become
effective; provided that, if the Company shall furnish to the Holders making
such a request a certificate signed by either the Chief Executive Officer or the
Chief Financial Officer of the Company stating that in his or her good faith
judgment it would be significantly disadvantageous to the Company for such a
registration statement to be filed on or before the date filing would otherwise
be required hereunder and explaining the reasons therefor, the Company shall
have an additional period of not more than 90 days within which to file such
registration statement; and, provided further, that (i) before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to one counsel selected by the Holders of a majority of
the shares of Restricted Stock covered by such registration statement copies of
all such documents proposed to be filed, which documents will be subject to the
review and comment of such counsel and (ii) after the filing of the registration
statement, the Company shall promptly notify each Selling Holder of Restricted
Stock of any stop order issued or, to the knowledge of the Company, threatened
by the SEC and take all reasonable actions to prevent the entry of such stop
order or to remove it if entered;
(b) in connection with a request pursuant to Section 1 hereof,
prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 90 days or such shorter period as shall terminate when the distribution of
all Restricted Stock covered by such registration statement shall have
terminated (but not before the expiration of the 90-day period referred to in
Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable) and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Selling Holders
thereof set forth in such registration statement;
(c) as soon as reasonably practicable, furnish to each Selling
Holder, prior to filing a registration statement, copies of such registration
statement as proposed
<PAGE>
to be filed and thereafter furnish to such Selling Holder such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such Selling Holder may reasonably
request in order to facilitate the disposition of the Restricted Stock owned by
such Selling Holder;
(d) use its reasonable best efforts to register or qualify such
Restricted Stock under such other securities or blue sky laws of such
jurisdictions within the United States and Canada as any Selling Holder
reasonably (in light of such Selling Holder's intended plan of distribution)
requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Selling Holder to consummate the
disposition in such jurisdictions of the Restricted Stock owned by such Selling
Holder; provided that the Company shall not be required to (i) qualify generally
to do business or file a general consent to service of process in any
jurisdiction or (ii) take any action that would subject itself to taxation in
any such jurisdiction;
(e) promptly notify each Selling Holder of such Restricted Stock, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the occurrence of any event known to the Company
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers or recipients of such Restricted
Stock, such prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and promptly make available to each
Selling Holder any such supplement or amendment;
(f) in connection with a request pursuant to Section 1 hereof, enter
into an underwriting agreement in customary form, the form and substance of such
underwriting agreement being subject to the reasonable satisfaction of the
Company and a majority in interest of the Selling Holders;
(g) make available for inspection by any Selling Holder, any
underwriter participating in any sale or distribution pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such Selling Holder or underwriter (collectively, the "Inspectors") all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records") as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the Company's
officers and employees to supply all information reasonably requested for such
purpose by any such Inspector in connection with such registration statement)
provided that the Company shall have no obligation to permit such access to the
Records or its officers or employees in a manner that would unreasonably disrupt
the normal conduct of its business operations. Each such Selling Holder and
Inspector that actually reviews Records supplied by the Company that
<PAGE>
include information that the Company identifies, in good faith, as being
confidential or proprietary ("Confidential Information") shall be required at
the Company's option, prior to any such review, to execute an agreement with the
Company providing that such Inspector shall not publicly disclose any
Confidential Information unless such disclosure is required by applicable law or
legal process and shall not use such information for any purpose other than the
limited purpose contemplated by this subsection (g). Each such Selling Holder
and Inspector shall be required further to agree that it shall, upon learning
that disclosure of Confidential Information is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of the Confidential
Information;
(h) in the event such sale is pursuant to an underwritten offering,
use its reasonable best efforts to obtain a comfort letter or letters from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by comfort letters as the managing
underwriter reasonably requests; and
(i) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC and make available to its security
holders, as soon as reasonably practicable, an earnings statement complying with
the provisions of Section 11(a) of the Securities Act (including, at the option
of the Company, pursuant to Rule 158 (or any successor provision) under the
Securities Act).
Upon receipt of any notice from the Company of the occurrence of any event
of the kind described in subsection (e) hereof, such Selling Holder shall
forthwith discontinue all offerings, sales and other dispositions of Restricted
Stock pursuant to the registration statement covering such Restricted Stock
until such Selling Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by subsection (e) hereof. In the event the Company shall
give any such notice, the Company shall extend the period during which such
registration statement shall be maintained effective pursuant to this Agreement
(including the period referred to in subsection (b) hereof) by the number of
days during the period from and including the date of the giving of such notice
pursuant to subsection (b) hereof to and including the first date on which each
Selling Holder of Restricted Stock covered by such registration statement shall
have received the copies of the supplemented or amended prospectus contemplated
by subsection (e) hereof. Each Selling Holder shall notify the Company if any
event relating to such Selling Holder occurs which would require the preparation
of a supplement or amendment to the prospectus so that such prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
4. CONDITIONS AND LIMITATIONS.
<PAGE>
(a) The Company's obligations under Section 1 hereof shall be subject
to the following limitations:
(i) the Holder's (or Holders', if more than one) rights to
registration hereunder shall not become effective until the end of the 180 day
period immediately following the closing of the Offering and shall expire on the
tenth anniversary of the date of such closing; (ii) the Company need not file a
registration statement either (x) during the period starting with the date 60
days prior to the Company's estimated date of filing of, and ending 90 days
after the effective date of, any registration statement pertaining to securities
of the Company (other than a registration of securities on Form S-4 (or any
successor form) with respect to a transaction to which Rule 145 (or any
successor provision) under the Securities Act applies, or in an exchange offer,
or on Form S-8 (or any successor form) with respect to any employee benefit plan
or dividend reinvestment plan); provided that if such Company registration
statement is not filed within 90 days after the first date on which the Company
notifies a Holder of Restricted Stock that it will delay a Demand Registration
pursuant to this clause (x), the Company may not further postpone such Demand
Registration pursuant to this clause (x), or (y) during the period specified in
the first proviso of subparagraph (a) of Section 3 hereof;
(ii) except as provided in Section 1(b) hereof, the Company
shall not be required to cause to become effective more than three Demand
Registrations in total, and no more than two Demand Registration Statements
within any one year period; and
(iii) the Company shall have received the information and
documents specified in Section 5 hereof and each Selling Holder shall have
observed or performed its other covenants contained in Sections 5 and 7 hereof.
(b) The Company's obligation under Section 2 hereof shall be subject
to the limitations and conditions specified in such section and in clause (iii)
of subsection (a) of this Section 4, and to the condition that the Company may
at any time terminate its proposal to register equity securities for its own
account and discontinue its efforts to cause a registration statement to become
or remain effective as to any and all shares of Restricted Stock that would
otherwise have been eligible for inclusion in such registration.
5. INFORMATION FROM AND CERTAIN COVENANTS OF HOLDERS OF RESTRICTED STOCK.
Notices and requests delivered to the Company by Holders for whom Restricted
Stock is to be registered pursuant to this Agreement shall contain such
information regarding the Restricted Stock to be so registered, the Holder and
the intended method of disposition of such Restricted Stock as shall reasonably
be required in connection with the actions contemplated to be taken pursuant to
this Agreement. Any Holder whose
<PAGE>
Restricted Stock is included in a registration statement pursuant to this
Agreement shall execute all consents, powers of attorney, registration
statements and other documents reasonably required to be executed by it in order
to cause such registration statement to became effective. Each Selling Holder
covenants that, in disposing of such Holder's shares, such Holder will comply
with Rule 10b-5 (or any successor rule) under the Exchange Act and all other
requirements of applicable law. Each Selling Holder agrees to enter into a
reasonable lockup agreement if requested by the managing underwriter.
6. REGISTRATION EXPENSES.
(a) All Registration Expenses (as defined herein) will be borne by
the Company. Underwriting discounts and commissions applicable to the sale of
Restricted Stock shall be borne by the Holder of the Restricted Stock to which
such discount or commission relates, and each Selling Holder shall be
responsible for the fees and expenses of any legal counsel, accountants or other
agents retained by such Selling Holder and all other out-of-pocket expenses
incurred by such Selling Holder in connection with any registration under this
Agreement.
(b) As used herein, the term Registration Expenses means all expenses
incident to the Company's performance of or compliance with this Agreement
(whether or not the registration in connection with which such expenses are
incurred ultimately becomes effective), including without limitation all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications of the Restricted Stock), rating agency
fees, printing expenses, the fees and expenses incurred in connection with the
listing or admission for quotation of the securities to be registered on any
securities exchange or quotation system and fees and disbursements of counsel
for the Company and its independent certified public accountants (including the
expenses of any special audit or comfort letters required by or incident to such
performance), securities act liability insurance (if the Company elects to
obtain such insurance), the reasonable fees and expenses of any special expert
retained by the Company in connection with such registration and the fees and
expenses of other persons retained by the Company.
7. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. In connection with any offering
of Restricted Stock pursuant to this Agreement, the Company shall indemnify and
hold harmless each Selling Holder, its officers, directors and agents and each
person, if any, who controls such Selling Holder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable fees and
<PAGE>
disbursements of counsel) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to Restricted Stock or in any amendment or
supplement thereto or in any preliminary prospectus relating to Restricted Stock
or arising out of or based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made, except insofar as such losses, claims, damages, liabilities or
expenses arise out of, or are based upon, any such untrue statement or alleged
untrue statement or omission or alleged omission based upon information
furnished in writing to the Company by such Selling Holder or on such Selling
Holder's behalf expressly for use therein. In connection with any underwritten
offering of Restricted Stock registered pursuant to this Agreement, the Company
shall cause to be included in any underwriting agreement with the underwriters
of such offering provisions indemnifying and providing for contribution to such
underwriters and their officers and directors and each person who controls such
underwriters on substantially the same basis as the provisions of this Section 7
indemnifying and providing for contribution to the Selling Holders.
(b) INDEMNIFICATION BY HOLDERS OF RESTRICTED STOCK. In connection
with any offering of Restricted Stock pursuant to this Agreement, each Selling
Holder, severally and not jointly, shall indemnify and hold harmless the
Company, its officers, directors and agents and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, and, in accordance with industry
practice, in the case of any offering of Restricted Stock pursuant to this
Agreement, each underwriter of such Restricted Stock if requested by such
underwriter, from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable fees and disbursements of counsel) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
Restricted Stock or in any amendment or supplement thereto or in any preliminary
prospectus relating to Restricted Stock, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, provided that (i) such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished in writing to the Company by
such Selling Holder or on such Selling Holder's behalf expressly for use therein
and (ii) no Selling Holder shall be liable for any indemnification under this
Section 7 in an aggregate amount which exceeds the total net proceeds received
by such Selling Holder from such offering. In connection with any underwritten
offering of Restricted Stock registered pursuant to this Agreement, each Selling
Holder shall cause to be included in any underwriting agreement with the
underwriters of such offering
<PAGE>
provisions indemnifying and providing for contribution to such underwriters,
their officers and directors and each person who controls such underwriters on
substantially the same basis as the provisions of this Section 7 indemnifying
and providing for contribution to the Company.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any indemnified party hereunder in respect of which
indemnity may be sought from an indemnifying party hereunder, such
indemnifying party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to such indemnified party, and shall
assume the payment of all expenses. Such indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expenses of such indemnified party unless (i) the indemnifying party has
agreed to pay such fees and expenses, (ii) the indemnifying party shall have
failed to assume the defense of such action or proceeding and employ counsel
reasonably satisfactory to such indemnified party, or (iii) the named parties
to any such action or proceeding (including any impleaded parties) include
both such indemnified party and such indemnifying party, and such indemnified
party shall have been advised by counsel that there may be one or more legal
defenses available to such indemnified party which are different from or
additional to those available to the indemnifying party (in which case, if
such indemnified party notifies the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party,
the indemnifying party shall not have the right to assume the defense of such
action or proceeding on behalf of such indemnified party; it being
understood, however, that the indemnifying party shall not, in connection
with any one such action or proceeding or separate but substantially similar
or related actions or proceedings in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for such indemnified party, which firm
shall be designated in writing by such indemnified party and reasonably
satisfactory to the indemnifying party). The indemnifying party shall not be
liable for any settlement of any such action or proceeding erected without
its written consent, but if settled with its written consent, or if there is
a final judgment for the plaintiff in any such action or proceeding, the
indemnifying party shall indemnify and hold harmless the indemnified party
from and against any loss or liability (to the extent stated above) by reason
of such settlement or judgment.
(d) CONTRIBUTION. If the indemnification provided for in this Section
7 is unavailable to the Company or the Selling Holders in respect of any losses,
claims, damages, liabilities or judgments referred to herein, then each such
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages,
<PAGE>
liabilities and judgments in such proportion as is appropriate to reflect the
relative fault of each such party in connection with such statements or
omissions or alleged statements or omissions, as well as any other relevant
equitable considerations. The relative fault of each such party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Selling Holders agree
that it would not be just and equitable if contribution pursuant to this Section
7(d) were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding sentences. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding sentences shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claims. Notwithstanding the provisions of this
Section 7(d), no Selling Holder shall be required to contribute an amount in
excess of the amount by which the total price at which the Restricted Stock of
such Selling Holder was offered to the public exceeds the amount of any fee
which such Selling Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
8. MISCELLANEOUS.
(a) EFFECTIVENESS. This Agreement shall become effective on the date
on which the purchase and sale of shares of Common Stock pursuant to the
Offering first occurs.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties hereto and their respective successors and permitted assigns and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned by either party hereto to
any other person without the prior written consent of the other party, except
that either party may assign this Agreement to any of its affiliates.
(c) NO THIRD-PARTY BENEFICIARIES. Nothing expressed or implied in
this Agreement shall be construed to give any person or entity other than the
parties hereto any legal or equitable rights hereunder.
<PAGE>
(d) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof.
(e) AMENDMENT. This Agreement may not be amended except by an
instrument signed by the parties hereto.
(f) WAIVERS. Either party hereto may (i) extend the time for the
performance of any of the obligations or other act of the other party, (ii)
waive any inaccuracies in the representations and warranties contained herein,
or (iii) waive compliance with any of the agreements contained herein. No waiver
of any term shall be construed as a waiver of the same term, or a waiver of any
other term, of this Agreement. The failure of any party to assert any of its
rights hereunder will not constitute a waiver of any such rights.
(g) SEVERABILITY. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, such
provision shall be deemed severable and all other provisions of this Agreement
shall nevertheless remain in full force and effect.
(h) HEADINGS. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
(i) NOTICES. All notices given in connection with this Agreement
shall be in writing. Service of such notices shall be deemed complete (i) if
hand delivered, on the date of delivery, (ii) if by mail, on the fourth business
day following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid, (iii) if sent by Federal Express
or equivalent courier service, on the next business day, or (iv) if sent by
telecopier facsimile, on the date of the confirmation of delivery. Such notices
shall be addressed to the parties at the following addresses or at such other
address for a party as shall be specified by like notice (except that notices of
change of address shall be effective upon receipt):
<PAGE>
If to Holder: Pomeroy Computer Resources, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
Attn: President
Telecopy No.: (606) 586-4414
If to the Company: Pomeroy Select Integration Solutions, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
Attn: President
Telecopy No.: (606) 586-4414
(j) GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without giving
effect to the principles of conflict of laws of such State.
(k) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, the Company and the Holder have caused this
Agreement to be executed on the date first above written.
POMEROY SELECT INTEGRATION
SOLUTIONS, INC.
By:
-----------------------------
Name:
Title: President
POMEROY COMPUTER RESOURCES, INC.
By:
-----------------------------
Name:
Title: President
<PAGE>
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of January ____, 1999,
by and between Pomeroy Select Integration Solutions, Inc., a Delaware
corporation (the "Company"), and [
] ("Indemnitee").
WHEREAS, Indemnitee is an officer and/or director of the Company and
performs a valuable service in such capacity for the Company;
WHEREAS, the Company and Indemnitee recognize the substantial increase in
corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance may be limited;
WHEREAS, the Company and Indemnitee further recognize the difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
and
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company as an
officer and/or director, the Company wishes to provide for the indemnification
and advancing of expenses to Indemnitee to the maximum extent permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company, or any subsidiary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction
<PAGE>
on the part of Indemnitee while serving in such capacity (hereinafter an
"Indemnifiable Event") against any and all expenses (including attorneys' fees
and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in, any such
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim and any federal,
state, local or foreign taxes imposed on the Indemnitee as a result of the
actual or deemed receipt of any payments under this Agreement (collectively,
hereinafter "Expenses"), including all interest, assessments and other charges
paid or payable in connection with or in respect of such Expenses. Such payment
of Expenses shall be made by the Company as soon as practicable but in any event
no later than thirty (30) days after written demand by Indemnitee therefor is
presented to the Company.
(b) REVIEWING PARTY. Notwithstanding the foregoing, (i) the
obligations of the Company under Section l(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section l(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) CHANGE IN CONTROL. The Company agrees that if there is a Change
in Control of the Company (other than a Change in Control which has been
approved by a majority of the
<PAGE>
Company's Board of Directors who were directors immediately prior to such Change
in Control) then with respect to all matters thereafter arising concerning the
rights of Indemnitee to payments of Expenses and Expense Advances under this
Agreement or any other agreement or under the Company's Certificate of
Incorporation or By-Laws as now or hereafter in effect, the Company shall seek
legal advice only from Independent Legal Counsel (as defined in Section 10(d)
hereof) selected by Indemnitee and approved by the Company (which approval shall
not be unreasonably withheld). Such counsel, among other things, shall render
its written opinion to the Company and Indemnitee as to whether and to what
extent Indemnitee would be permitted to be indemnified under applicable law.
The Company agrees to pay the reasonable fees of the Independent Legal Counsel
referred to above and to fully indemnify such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
(d) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section 1(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
(5) days after written demand by Indemnitee therefor to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the President
and Chief Executive Officer of the Company at the address shown on the signature
page of this Agreement (or such other address as the Company shall designate in
writing to Indemnitee). In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any claim, action, suit or proceeding, by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of NOLO CONTENDERE, or its equivalent, shall not
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law. In addition, neither the
failure of the Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by the Reviewing Party that Indemnitee has
not met such standard of conduct or did not have such belief, prior to the
commencement of legal proceedings by Indemnitee to secure
<PAGE>
a judicial determination that Indemnitee should be indemnified under applicable
law, shall be a defense to Indemnitee's claim or create a presumption that
Indemnitee has not met any particular standard of conduct or did not have any
particular belief. In connection with any determination by the Reviewing Party
or otherwise as to whether the Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in such policy or policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) ASSUMPTION OF DEFENSE; SELECTION OF COUNSEL. In the event the
Company shall be obligated hereunder to pay the Expenses of any action, suit,
proceeding, inquiry or investigation, the Company, if appropriate, shall be
entitled to assume the defense of such action, suit, proceeding, inquiry or
investigation with counsel approved by Indemnitee (which approval shall not be
unreasonably withheld), upon the delivery to Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same action, suit,
proceeding, inquiry or investigation; provided that, (i) Indemnitee shall have
the right to employ Indemnitee's counsel in any such action, suit, proceeding,
inquiry or investigation at Indemnitee's expense and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company or (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense.
Notwithstanding the foregoing, in the event the Company shall not continue to
retain such counsel to defend such action, suit, proceeding, inquiry or
investigation, then the fees and expenses of Indemnitee's counsel shall be at
the expense of the Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify the Indemnitee to
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's By-Laws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied
<PAGE>
to this Agreement, shall have no effect on this Agreement or the parties' rights
and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its By-Laws, any agreement, any vote of
shareholders or disinterested directors, the Delaware General Corporation Law,
or otherwise. The indemnification provided under this Agreement shall continue
as to Indemnitee for any action taken or not taken while serving in an
indemnified capacity even though Indemnitee may have ceased to serve in such
capacity.
4. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any action, suit,
proceeding, inquiry or investigation made against Indemnitee to the extent
Indemnitee has otherwise actually received payment (under any insurance policy,
Certificate of Incorporation, By-Laws or otherwise) of the amounts otherwise
indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses in the investigation, defense, appeal or settlement of any
civil or criminal action, suit, proceeding, inquiry or investigation, but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion of such Expenses to which Indemnitee is
entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for acts,
omissions or transactions from which Indemnitee may not be relieved of liability
under applicable law.
<PAGE>
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (i) with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or By-Laws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such suit, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; PROVIDED, HOWEVER, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee, agent or fiduciary of the Company
which imposes duties on, or involves services by, such director, officer,
employee, agent or fiduciary with
<PAGE>
respect to an employee benefit plan, its participants or its beneficiaries; and
if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed
to the best interests of the Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the shareholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, is or becomes the "beneficial owner" (as determined in
accordance with Rule 13d-3 under such Act), directly or indirectly, of
securities of the Company representing more than 20% of the total voting power
represented by the Company's then outstanding Voting Securities, (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
shareholders was approved by a vote of at least two thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the shareholders
of the Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the
Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee is
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns,
<PAGE>
including any direct or indirect successor by purchase, merger, consolidation or
otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs, and personal and legal representatives. The Company
shall require and cause any successor (whether direct or indirect by purchase,
merger, consolidation or otherwise) to all, substantially all, or a substantial
part, of the business and/or assets of the Company, by written agreement in form
and substance satisfactory to Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place.
This Agreement shall continue in effect regardless of whether Indemnitee
continues to serve as a director of the Company or of any other enterprise at
the Company's request.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action the
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action were not made
in good faith or were frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee's counterclaims and cross-claims made in
such action), and shall be entitled to the advancement Expenses with respect to
such action, unless as a part of such action the court having jurisdiction over
such action determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for [ ] County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself
<PAGE>
invalid, void or unenforceable) shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or unenforceable.
17. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
18. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
************
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
POMEROY SELECT INTEGRATION
SOLUTIONS, INC.
By:
----------------------------------------
Stephen E. Pomeroy
President and Chief Executive Officer
1020 Petersburg Road
Hebron, Kentucky 41048
AGREED TO AND ACCEPTED:
INDEMNITEE:
- ---------------------------------
(signature)
- ---------------------------------
(name of Indemnitee)
- ---------------------------------
- ---------------------------------
(address)
<PAGE>
1999 STOCK PLAN
OF
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
1. PURPOSE OF THE PLAN. This 1999 Non-Qualified and Incentive Stock
Option Plan of Pomeroy Select Integration Solutions, Inc. is adopted on this
5th day of January, 1999, is intended to encourage Employees, non-Employee
members of the Board and Consultants of the Company and its Subsidiaries to
acquire or increase their ownership of Class A Common Stock of the Company on
reasonable terms. The opportunity so provided is intended to foster in
participants a strong incentive to put forth maximum effort for the continued
success and growth of the Company and its Subsidiaries, to aid in retaining
individuals who put forth such efforts, and to assist in attracting the best
available individuals to the Company and its Subsidiaries in the future.
Options granted under the Plan may be incentive stock options (as defined
under Section 422 of the Code) or non-statutory stock options, as determined
by the Administrator at the time of grant of an option and subject to the
applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be
granted under the Plan.
2. DEFINITIONS. When used herein, the following terms shall have the
meaning set forth below:
2.1 "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
2.2 "Award" means an Option.
2.3 "Award Agreement" means a written agreement in such form as
may be, from time to time, hereafter approved by the Committee, which
shall be duly executed by the Company and the Employee, non-Employee
members of the Board and/or Consultants, as applicable, and which sets
forth the terms and conditions of an Award under the Plan.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Class A Common Stock" means the Class A Common Stock, par value
.01 per share of the Company.
2.6 "Code" means the Internal Revenue Code of 1986, as amended.
2.7 "Committee" means the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
2.8 "Company" means Pomeroy Select Integration Solutions, Inc.
<PAGE>
2.9 "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services
and is compensated for such services, any director of the Company,
whether compensated for such services or not.
2.10 "Continuous Status as an Employee" means the absence of any
interruption or termination of employment relationship by the Company or
any Subsidiary. Continuous Status as an Employee shall not be
considered interrupted in the case of: (i) sick leave; (ii) military
leave; (iii) any other leave of absence approved by the Board, provided
that such leave is for a period of not more than ninety (90) days,
unless reemployment upon the expiration of such leave is guaranteed by
contract or statute, or unless provided otherwise pursuant to Company
policy adopted from time to time; or (iv) transfers between locations of
the Company or between the Company, it Subsidiaries or its successor.
2.11 "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
2.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.13 "Fair Market Value" means, as of any date, the value of the Class
A Common Stock determined as follows:
(i) If the Class A Common Stock is listed on any
established stock exchange or a national market system, including
without limitation the Nasdaq National Market, its Fair Market Value
shall be the closing sales price for such stock (or the closing bid, if
no sales were reported) as quoted on such system or exchange for the
last market trading day prior to the time of determination as reported
in the Wall Street Journal or such other source as the Administrator
deems reliable; or
(ii) If the Class A Common Stock is quoted on Nasdaq (but
not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its
Fair Market Value shall be the mean between the high and low asked
prices for the Common Stock; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith
by the Administrator.
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<PAGE>
2.14 "Incentive Stock Option" means an Option meeting the
requirements and containing the limitations and restrictions set forth
in Section 422 of the Code.
2.15 "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option
2.16 "Option" means a stock option granted pursuant to the Plan.
2.17 "Optioned Stock" means the Class A Common Stock subject to an
Option.
2.18 "Optionee" means an Employee or Consultant who receives an
Option.
2.19 "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
2.20 "Plan" means the 1999 Stock Plan.
2.21 "Restricted Stock" means shares of Class A Common Stock acquired
pursuant to a grant of stock purchase rights under Section 11 below.
2.22 "Share" means a share of Class A Common Stock, as adjusted in
accordance with Section 13 of this Plan.
2.23 "Subsidiary" means a corporation, at least fifty percent (50%) or
more of the voting power of which is owned, directly or indirectly, by the
Company.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of shares of which may be optioned
and sold under the Plan is 3,000,000 shares of Class A Common Stock. The
Class A Common Stock may be authorized, but unissued, or reacquired Class A
Common Stock.
If an Option would expire or become unexercisable for any reason
without having been exercised in full, the unpurchased shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS.
With respect to grants of Options or stock purchase rights to Employees who
are also
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<PAGE>
officers or directors of the Company, the Plan shall be administered by
(A) the Board if the Board may administer the Plan in compliance with Rule
16b-3 promulgated under the Exchange Act or any successor thereto ("Rule
16b-3") or (B) a Committee designated by the Board to administer the Plan,
which Committee shall be constituted in such a manner as to permit the Plan
to comply with Rule 16b-3. Once appointed, such Committee shall continue
to serve in its designated capacity until otherwise directed by the Board.
From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies, however
caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by Rule 16b-3 with respect
to a plan intended to qualify thereunder. For purposes of any award
granted under the Plan by the Committee that is intended to be exempt from
the restrictions of Section 16(b) of the Exchange Act, the Committee shall
consist only of Directors who qualify as "non-Employee Directors," as
defined in Rule 16b-3 under the Act. For purposes of any Award granted
under the Plan by the Committee that is intended to qualify for the
performance-based compensation exemption to the $1 million deductibility
limit under Code Section 162(m), the Committee shall consist only of
directors who qualify as "outside directors," as defined in Code
Section 162(m) and the related regulations. A majority of the members of
the Committee shall constitute a quorum for the transaction of business,
and the vote of the majority of those members present at any meeting shall
decide any question brought before that meeting. In addition, the
Committee may take any action otherwise proper under the Plan by the
unanimous written consent of its Members.
(ii) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors
nor officers.
(iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER
EMPLOYEES. With respect to grants of Options or stock purchase rights
to Employees who are neither directors nor officers of the Company or to
Consultants, the Plan shall be administered by (A) the Board, if the
Board may administer the Plan in compliance with Rule 16b-3, or (B) a
Committee designated by the Board, which Committee shall be constituted
in such a manner as to satisfy the legal requirements relating to the
administration of incentive stock option plans, if any, of Delaware
corporate law and applicable securities laws and of the Code (the
"Applicable Laws"). Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board.
From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without
cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the
-4-
<PAGE>
Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by
the Board to such Committee, the Administrator shall have the authority,
in its discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2.13 of the Plan;
(ii) to select the officers, Consultants and Employees to
whom Options and stock purchase rights may from time to time be granted
hereunder;
(iii) to determine whether and to what extent Options and
stock purchase rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Award granted hereunder (including,
but not limited to, the share price and any restriction or limitation or
waiver or forfeiture restrictions regarding any Option or other award
and/or the shares of Common Stock relating thereto, based in each case
on such factors as the Administrator shall determine, it its sole
discretion);
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Class A
Common Stock;
(viii) to determine whether, to what extent and under what
circumstances Class A Common Stock and other amounts payable with
respect to an Award under this Plan shall be deferred either
automatically or at the election of the participant (including providing
for and determining the amount, if any, of any deemed earnings on any
deferred amount during any deferral period);
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted; and
(x) to determine the terms and restrictions applicable to
stock purchase rights and the Restricted Stock purchased by exercising
such stock purchase rights.
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<PAGE>
(c) EFFECT OF COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final
and binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees.
An Employee or Consultant who has been granted an Option may, if he is
otherwise eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the Award Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for the first time
by any Optionee during any calendar year (under all plans of the Company
or any Parent or Subsidiary) exceeds $100,000, such excess Options shall
be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with
the Company, nor shall it interfere in any way with his right or the
Company's right to terminate his employment or consulting relationship
at any time, with or without cause.
6. TERM OF THE PLAN. The Plan shall become effective on January 6,
1999, provided the Plan has been previously adopted by the Board of Directors
and approved by the shareholders of the Company as described in Section 19 of
the Plan. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 15 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated
in the Option Agreement; provided, however, that in the case of an Incentive
Stock Option, the term shall be no more than ten (10) years from the date of
grant thereof or such shorter term as may be provided in the Option
Agreement. However, in the case of an Option granted to an Optionee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Option shall be five (5) years from the
date of the grant thereof or such shorter term as may be provided in the
Option Agreement.
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<PAGE>
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all class of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall
be no less than 110% of the Fair Market Value per share on the date of
the grant.
(B) granted to any Employee, the per Share price shall
be no less than 100% of the Fair Market Value per Share on the date of
the grant.
(ii) in the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant
of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 100% of
the Fair Market Value per Share on the date of the grant.
(B) granted to any person, the Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date
of the grant.
(b) The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and
may consist entirely of (1) cash, (2) check, (3) promissory note, (4)
other Shares which (x) in the case of Shares acquired upon exercise of
an Option either have been owned by the Optionee for more than six
months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised, (5) authorization from the
Company to retain from the total number of Shares as to which the Option
is exercised that number of Shares having a Fair Market Value on the
date of exercise equal to the exercise price for the total number of
Shares as to which the option is exercised, (6) delivery of a properly
executed notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) by delivering an irrevocable
subscription agreement for the Shares which irrevocably obligates
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the option holder to take and pay for the Shares not more than twelve
months after the date of delivery of the subscription agreement, (8) any
combination of the foregoing methods of payment or (9) such other
consideration and method of payment for the issuance of Shares to the
extent permitted under all applicable laws. In making its determination
as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected
to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including the performance
criteria with respect to the Company and/or the Optionee, and as shall
be permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and
full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment may, as
authorized by the Administrator, consist of any consideration and method
of payment allowable under Section 8(b) of the Plan. Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date
the stock certificate is issued, except as provided in Section 11 of the
Plan.
Exercise of an Option in any manner will result in a decrease
in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
(b) TERMINATION OF EMPLOYMENT. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee
with the Company (as the case may be), such Optionee may, but only
within ninety (90) days (or such other period of time as is determined
by the Board, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option and not exceeding
ninety (90) days) after the date of such
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<PAGE>
termination (but in no event later than the expiration date of the term
of such Option as set forth in the Option Agreement), exercise his
Option to the extent that Optionee was entitled to exercise it at the
date of such termination. To the extent that Optionee was not entitled
to exercise the Option at the date of such termination, or if Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's
consulting relationship or Continuous Status as an Employee as a result
of his total and permanent disability (as defined in Section 22(e)(3) of
the Code), Optionee may, but only within twelve (12) months from the
date of such termination (but in no event later than the expiration date
of the term of such Option as set forth in the Option Agreement),
exercise the Option to the extent otherwise entitled to exercise it at
the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if
Optionee does not exercise such Option to the extent so entitled within
the time specified herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee,
the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement),
by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent
the Optionee was entitled to exercise the Option at the date of death.
To the extent that Optionee was not entitled to exercise the Option at
the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) RULE 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain
such additional conditions or restrictions as may be required thereunder
to qualify for the maximum exemption from Section 16 of the Exchange Act
with respect to Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish
and communicate to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. The
terms of the Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
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11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock purchase rights may be issued
alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer stock purchase rights under
the Plan, it will advise the offeree in writing of the terms, conditions
and restrictions related to the offer, including the number of Shares
that such person shall be entitled to purchase, the price to be paid
(which price shall not be less than 50% of the Fair Market Value of the
Shares as of the date of the offer), and the time within which such
person must accept such offer, which shall in no event exceed thirty
(30) days from the date upon which the Administrator made the
determination to grant the stock purchase right. The offer shall be
accepted by execution of a Restricted Stock purchase agreement in the
form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the
Company a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's employment with the Company
for any reason (including death or Disability). The purchase price for
Shares repurchased pursuant to the Restricted Stock purchase agreement
shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The
repurchase option shall lapse at such rate as the Committee may
determine.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in
its sole discretion. In addition, the provisions of Restricted Stock
purchase agreements need not be the same with respect to each purchaser.
(d) RIGHTS OF A SHAREHOLDER. Once the stock purchase right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is
entered upon the records of the duly authorized transfer agent of the
Company. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock purchase right is
exercised, except as provided in Section 13 of the Plan.
12. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
discretion of the Administrator, Optionees may satisfy withholding
obligations as provided in this paragraph. When an Optionee incurs tax
liability in connection with an Option or stock purchase right, which tax
liability is subject to tax withholding under applicable laws, the Optionee
is obligated to pay the Company an amount required to be withheld under
applicable tax laws, the Optionee may satisfy the withholding tax obligation
by electing to have the Company withhold from the Shares to be issued upon
exercise of the Option, or
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the Shares to be issued in connection with the stock purchase right, if any,
that number of Shares having a Fair Market Value equal to the amount required
to be withheld. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this
purpose shall be made in writing in a form acceptable to the Administrator
and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or stock purchase
right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
any required action by the shareholders of the Company, the number of shares
of Class A Common Stock covered by each outstanding Option, and the number of
shares of Class A Common Stock which have been authorized for issuance under
the Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per share of Class A Common Stock covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Class A Common Stock resulting from a stock split,
reverse split, stock dividend, combination ro reclassification of the Class A
Common Stock, or any other increase or decrease in the number of issued
shares of Class A Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt for
consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares
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of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Class A Common Stock subject to
an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior
to such proposed action. To the extent it has not been previously exercised,
the Option will terminate immediately prior to the consummation of such
proposed action. In the event of a merger or consolidation of the Company
with or into another corporation or the sale of substantially all of the
Company's assets (hereinafter, a "merger"), the Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation. In the event that such
successor corporation does not agree to assume the Option or to substitute an
equivalent option, the Board shall, in lieu of such assumption or
substitution, provide for the Optionee to have the right to exercise the
Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise the exercisable. If the Board makes an Option
fully exercisable in lieu of assumption or substitution in the event of a
merger, the Board shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice
and the Option will terminate upon the expiration of such period. For
purposes of this paragraph, the Option shall be considered assumed if,
following the merger, the Option or right confers the right to purchase, for
each Share of stock subject to the Option immediately prior to the merger,
the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Class A Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger was not solely common stock of the
successor corporation or its parent, the Board may, with the consent of the
successor corporation and the participant, provide for the consideration to
be received upon the exercise of the Option, for each Share of stock subject
to the Option, to be solely common stock of the successor corporation or its
Parent equal to the Fair Market Value to the per share consideration received
by holders of Class A Common Stock in the merger or sale of assets.
14. TIME OF GRANTING OPTIONS. The date of grant of an Option shall,
for all purposes, be the date on which the Administrator makes the
determination granting such Option, or such other date as is determined by
the Board. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is to be granted within a reasonable time after
the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alternation,
suspension or discontinuation shall be made which would impair the
rights of any Optionee
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<PAGE>
under any grant theretofore made, without his or her consent. In addition,
to the extent necessary and desirable to comply with Rule 16b-3 under the
Exchange Act or with Section 422 of the Code (or any other applicable law
or regulation, including the requirements of the NASD or an established
stock exchange), the Company shall obtain shareholder approval of any Plan
amendment in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and
such Options shall remain in full force and effect as if this Plan had
not been amended or terminated, unless mutually agreed otherwise between
the Optionee and the Board, which agreement must be in writing and
signed by the Optionee and the Company.
16. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such representation is
required by any of the aforementioned relevant provisions of law.
17 RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, shall relieve the Company of any liability in respect of
the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. AGREEMENTS. Options and stock purchase rights shall be evidenced
by written agreements in such form as the Board shall approve from time to
time.
19. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such shareholder approval shall be
obtained in the degree and manner required under applicable state and federal
law.
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20 INFORMATION TO OPTIONEES. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be
required to provide such information if the issuance of Options under the
Plan is limited to key employees whose duties in connection with the Company
assure their access to equivalent information.
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$20,000,000
BUSINESS CREDIT AND SECURITY AGREEMENT
Dated as of January 6, 1999
BETWEEN
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
AND
DEUTSCHE FINANCIAL SERVICES CORPORATION
<PAGE>
BUSINESS CREDIT AND SECURITY AGREEMENT
BETWEEN: DEUTSCHE FINANCIAL SERVICES CORPORATION, a Nevada corporation ("DFS")
AND: POMEROY SELECT INTEGRATION SOLUTIONS, INC., a Delaware corporation
("BORROWER")
EFFECTIVE DATE: January 6, 1999
1. RECITALS
Borrower has requested that DFS provide Borrower with a credit
facility for working capital purposes.
2. DEFINITIONS
Terms defined in this Agreement shall have initial capital letters.
Those terms are defined below, in this SECTION 2, and elsewhere in this
Agreement. All financial and accounting terms used herein and not otherwise
defined, shall be defined in accordance with GAAP.
"AAA" shall have the meaning set forth in SECTION 14.2.
"ACCOUNT DEBTOR" shall mean any Person who is or who may become obligated
to Borrower under, with respect to, or on account of an Account, general
intangible or other Collateral.
"ACCOUNTS" shall have the meaning given to that term in the UCC, and, to
the extent not included therein, shall also mean all accounts, leases, contract
rights, chattel paper, general intangibles, choses in action and instruments,
including any Lien or other security interest that secures or may secure any of
the foregoing, plus all books, invoices, documents and other records in any form
evidencing or relating to any of the foregoing, now owned or hereafter acquired
by Borrower.
"ADDITIONAL MONTHLY REPORT" shall have the meaning set forth in SECTION
3.12(a).
"AFFILIATES" shall mean: (i) any individual who is an officer or director
of a Person; and (ii) any Person who directly or indirectly controls, is
controlled by, or is under common control or ownership with, another Person.
For the purposes of this definition, the term "control" shall mean the ownership
of or the ability to direct or control 10% or more of the beneficial interest in
the applicable entity.
"AGREEMENT" shall mean this Business Credit and Security Agreement, and
any amendments hereto.
"BORROWING BASE" shall mean, as of any date of determination, an amount
equal to the Eligible Account Availability minus the amount of any overdrafts
under Borrower's cash management facilities with Star Bank, N.A.
"BORROWING BASE CERTIFICATE" shall have the meaning set forth in SECTION
3.3(a).
"BUSINESS" shall mean the providing of integrated desktop management and
network services, including but not limited to, life cycle services,
internetworking services and end-user support services.
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<PAGE>
"BUSINESS DAY" shall mean any day other than Saturdays, Sundays, legal
holidays designated by Federal law, and any other day on which DFS' office is
closed.
"CAPITAL EXPENDITURES" means, for any period, expenditures made by the
Borrower or any Subsidiary of Borrower to acquire or construct fixed assets,
plant and equipment (including renewals, improvements and replacements during
such period in the aggregate amount of items leased or acquired under
Capitalized Lease Obligations at the cost of the item, but excluding capital
expenditures made with insurance proceeds to the extent used to replace or
repair damaged fixed assets, plant and equipment) computed in accordance with
GAAP.
"CAPITALIZED LEASE OBLIGATIONS" means that portion of any obligation of
the Borrower or any Subsidiary of the Borrower as lessee under a lease which at
the time are recorded as capitalized lease obligations on the balance sheet of
the Borrower or such Subsidiary prepared in accordance with GAAP.
"COLLATERAL" shall mean all items described in SECTION 6.1.
"CORPORATE GUARANTOR" shall mean a corporate guarantor of any of the
Obligations.
"CREDIT FACILITY" shall have the meaning set forth in SECTION 3.1(a).
"DAILY CONTRACT BALANCE" shall have the meaning set forth in SECTION 3.6.
"DAILY RATE" shall have the meaning set forth in SECTION 3.6.
"DEBT" shall have the meaning set forth in SECTION 9.3.
"DEFAULT" shall have the meaning set forth in SECTION 10.
"DEFAULT INTEREST RATE" shall have the meaning set forth in SECTION 3.9.
"DFS COMPANIES" shall have the meaning set forth in SECTION 14.1.
"DISPUTES" shall have the meaning set forth in SECTION 14.1.
"EFFECTIVE DATE" shall mean the date set forth in the heading on page 1 of
this Agreement.
"ELECTRONIC TRANSFERS" shall have the meaning set forth in SECTION
3.6(b)(II).
"ELIGIBLE ACCOUNT AVAILABILITY" shall have the meaning set forth in
SECTION 3.3(a).
"ELIGIBLE ACCOUNTS" shall mean all Accounts that are not Ineligible
Accounts and all Eligible Vendor Accounts and Eligible Unbilled Accounts.
"ELIGIBLE UNBILLED ACCOUNTS" shall mean Accounts which are otherwise
Eligible Accounts except that such Accounts represent the right to payment for
goods sold or services rendered within the preceding sixty (60) days for which
Borrower is entitled to submit, but has not yet submitted, an invoice to the
Account Debtor; provided, however, no such Account shall be considered an
Eligible Unbilled Account hereunder unless Borrower has given written notice
thereof to DFS.
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<PAGE>
"ELIGIBLE VENDOR ACCOUNTS" shall mean Accounts which are otherwise
Eligible Accounts but which represent amounts due and owing to Borrower from its
vendors, manufacturers and/or distributors in connection with rebates, discounts
or other incentive payments, and for which DFS has received an executed
agreement from such vendor, in form and substance acceptable to DFS, in which
such vendor waives it right to offset or otherwise deduct from its obligations
under such Account, any amounts owing to such vendor.
"ENVIRONMENTAL LAWS" shall mean the Resource Conservation and Recovery
Act, as amended, the Toxic Substances Control Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Solid
Waste Disposal Act, as amended, the Water Pollution Control Act, as amended, the
Clean Air Act, as amended, the Clean Water Act, as amended, and any successor or
comparable federal or state statutes, now existing or later enacted, or any
regulation promulgated under any of such federal or state statutes relating to
the protection of the environment.
"ENVIRONMENTAL LIEN" shall mean a Lien in favor of any governmental entity
for (a) any liability under any Environmental Law, or (b) damages arising from
or costs incurred by such governmental entity in response to a spillage,
disposal, or release into the environment of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance.
"EQUIPMENT" shall have the meaning as given to that term in the UCC, and,
to the extent not included therein, shall also mean all equipment, machinery,
trade fixtures, furnishings, furniture, supplies, materials, tools, machine
tools, office equipment, appliances, apparatus, parts and all attachments,
replacements, substitutions, accessions, additions and improvements to any of
the foregoing.
"EXCESS ADVANCES" shall have the meaning given in SECTION 5.2.
"FAA" shall have the meaning set forth in SECTION 14.5.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"GLOBAL" shall mean Global Combined Technologies, Inc., an Oklahoma
corporation.
"GOVERNMENTAL ACCOUNT DEBTOR" shall have the meaning given in the
definition of Ineligible Accounts.
"HAZARDOUS MATERIAL" shall mean any and all hazardous or toxic substances,
materials or wastes as defined or listed under the Environmental Laws.
"INDEBTEDNESS" shall mean any sum for borrowed money owed by Borrower or
any Subsidiary to a Person and shall include any debt guaranteed by Borrower or
any Subsidiary, any debt as to which the Borrower has granted or permitted to
exist a Lien on any asset even if non-recourse, letter of credit reimbursement
obligations, and capitalized lease obligations.
"INDEMNIFIED LIABILITIES" shall have the meaning set forth in SECTION
12.1.
"INDEMNITEES" shall have the meaning set forth in SECTION 12.1.
"INELIGIBLE ACCOUNTS" shall mean: (a) Accounts created from the sale of
goods and services on non-standard terms and/or that allow for payment to be
made more than thirty (30) days from date of sale; (b) Accounts unpaid: (i) more
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<PAGE>
than one-hundred twenty (120) days from date of invoice if the Account Debtor is
the United States of America, any state, or any local government, or any
department, agency, instrumentality or subdivision thereof (herein, a
"GOVERNMENTAL ACCOUNT DEBTOR"), or (ii) more than ninety (90) days from date of
invoice if the Account Debtor is not a Governmental Account Debtor; (c) all
Accounts of any Account Debtor if fifty percent (50%) or more of the outstanding
balance of such Accounts are unpaid: (i) more than one hundred twenty (120) days
from the date of invoice if such Account Debtor is a Governmental Account
Debtor, or (ii) more than ninety (90) days from the date of invoice if such
Account Debtor is not a Governmental Account Debtor; (d) Accounts for which the
Account Debtor is an officer, director, shareholder (which is not publicly
traded on a recognized exchange), partner, member, owner, employee, agent,
parent, Subsidiary or Affiliate of, or is related to, Borrower or has common
shareholders, officers, directors, owners, partners or members with Borrower;
(e) Accounts arising from any bill-and-hold sale, guaranteed sale, sale and
return, sale on approval, consignment sale, or any sale on a repurchase or
return basis; (f) Accounts for which the payment is or may be conditional; (g)
Accounts for which the Account Debtor is not a commercial or institutional
entity or is not a resident of the United States or Canada; (h) Accounts with
respect to which any warranty or representation provided in SECTION 8.19 is not
true and correct; (i) Accounts which represent goods or services purchased for a
personal, family or household purpose; (j) Accounts which represent goods used
for demonstration purposes or loaned by Borrower to another party; (k) Accounts
which are progress payment, barter, or contra accounts; and (l) any and all
other Accounts which DFS deems to be ineligible, in its reasonable credit
judgment.
"INTANGIBLES" shall have the meaning set forth in SECTION 9.3.
"INVENTORY" shall have the meaning given to that term in the UCC, and, to
the extent not included therein, shall also mean all of Borrower's merchandise,
materials, finished goods, work-in-process, component materials, packaging,
shipping materials, parts and other tangible personal property, now owned or
hereafter acquired and held for sale or which contribute to the finished
products or the sale, promotion, storage and shipment thereof, whether located
at facilities owned or leased by Borrower, or in the course of transport to or
from facilities owned or leased by Borrower.
"LIEN" shall mean any security interest, mortgage, pledge, lien,
hypothecation, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including, without
limitation, the interest of lessors under capitalized leases and the interest of
a vendor under any conditional sale or other title retention agreement),
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting any of Borrower's property.
"LOAN" shall mean any advance made to or for the benefit of Borrower
pursuant to this Agreement, including but not limited to any Working Capital
Loan.
"LOAN DOCUMENTS" shall mean all documents executed by Borrower pursuant to
any financial accommodation between Borrower and DFS and all documents entered
into in connection with the transaction herein contemplated. The term "Loan
Documents" includes, but is not limited to, this Agreement, all financing
statements, all pledges, mortgages, deeds of trust, leasehold mortgages,
security agreements, guaranties, assignments, subordination agreements, and any
future or additional documents or writings executed under the terms of this
Agreement or any amendments or modifications hereto.
"MATERIAL ADVERSE EFFECT" means any act or circumstance or event that (a)
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<PAGE>
could reasonably be expected to be material or adverse to the Business,
financial condition, results of operations, or business prospects of any Person,
or (b) in any manner whatsoever does or could reasonably be expected to
materially and adversely affect the validity or enforceability of any Loan
Document.
"MONTHLY REPORTS" shall have the meaning given in SECTION 3.12(b).
"OBLIGATIONS" shall mean all liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Borrower
(and/or any of its Subsidiaries and Affiliates, excluding, however, Global and
Pomeroy) to DFS, whether primary or secondary, joint or several, direct,
contingent, fixed or otherwise, secured or unsecured, or whether arising under
this Agreement, any other Loan Document or any other agreement now or hereafter
executed by Borrower (or any of its Subsidiaries or Affiliates, excluding,
however, Global and Pomeroy) and delivered to DFS. Obligations will include,
without limitation, any third party claims against Borrower (or any of its
Subsidiaries or Affiliates, excluding, however, Global and Pomeroy) satisfied or
acquired by DFS. Obligations will also include all obligations of Borrower to
pay to DFS: (a) any and all sums reasonably advanced by DFS to preserve or
protect the Collateral or the value of the Collateral or to preserve, protect,
or perfect DFS' security interests in the Collateral; (b) in the event of any
proceeding to enforce the collection of the Obligations after a Default, the
reasonable expenses of retaking, holding, preparing for sale, selling or
otherwise disposing of or realizing on the Collateral, or expenses of any
exercise by DFS of its rights, together with reasonable attorneys' fees,
expenses of collection and court costs, as provided in the Loan Documents; and
(c) any other indebtedness or liability of Borrower to DFS, whether direct or
indirect, absolute or contingent, now or hereafter arising.
"OPERATING LEASE" means any lease, as defined in the Financial Accounting
Standard Board Statement of Financial Accounting Standards No. 13, dated
November, 1976 or otherwise in accordance with GAAP.
"OSHA LAW" shall mean the Occupational Safety and Health Act of 1970, any
successor thereto, and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning employee health and/or
safety.
"OTHER REPORTS" shall have the meaning set forth in SECTION 3.12(c).
"PARTICIPANT" shall mean a Person or Persons, including but not limited to
Star Bank, National Association, a national banking association, who may from
time to time purchase an undivided economic participation in some or all of the
Loans, on terms acceptable to DFS.
"PARTICIPATION AGREEMENT" shall mean that certain Participation Agreement
of even date between DFS and Participant, as amended from time to time, pursuant
to which Participant, shall purchase an undivided economic participation in that
portion of the Working Capital Loans which exceed $10,000,000.
"PERMITTED LIENS" shall mean: (a) Liens for taxes, assessments or other
governmental charges or levies not yet delinquent or which are being contested
in good faith by appropriate action and as to which adequate reserves shall have
been set aside in conformity with GAAP and which are, in addition, satisfactory
to DFS in its reasonable discretion; (b) Liens of mechanics, materialmen,
landlords, warehousemen, carriers and similar Liens arising in the future in the
ordinary course of business for sums not yet delinquent, or being contested in
good faith if a reserve or other appropriate provision in accordance with GAAP
shall have been made therefor and which are, in addition, satisfactory to DFS in
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its reasonable discretion; (c) statutory Liens incurred in the ordinary course
of business in connection with workers' compensation, unemployment insurance,
social security, and similar items for sums not yet delinquent or being
contested in good faith, if a reserve or other appropriate provision in
accordance with GAAP shall have been made therefor and which are, in addition,
satisfactory to DFS in its reasonable discretion; (d) lessor's Liens arising
from operating leases entered into in the ordinary course of business; (e) Liens
arising from legal proceedings, so long as such proceedings are being contested
in good faith by appropriate proceedings, appropriate reserves have been
established therefor in accordance with GAAP and which are, in addition,
satisfactory to DFS in its reasonable discretion, and so long as execution is
stayed and bonded on appeal on all judgments resulting from any such
proceedings; (f) Liens in favor of DFS granted hereunder; and (g) Purchase
Money Liens securing Permitted Purchase Money Indebtedness which is not incurred
in violation of SECTION 9.2.11.
"PERMITTED PURCHASE MONEY INDEBTEDNESS" shall mean Purchase Money
Indebtedness of Borrower incurred in compliance with SECTION 9.2.11 which is
secured by a Purchase Money Lien and which, when aggregated with the principal
amount of all other such Indebtedness (excluding, however, Capitalized Lease
Obligations) of Borrower at the time outstanding, does not exceed $1,000,000.
For the purposes of this definition, the principal amount of any Purchase Money
Indebtedness consisting of capitalized leases shall be computed as a Capitalized
Lease Obligation.
"PERSON" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization, and a government or any department or agency thereof.
"POMEROY" shall mean Pomeroy Computer Resources, Inc., a Delaware
corporation (the parent corporation of Borrower).
"POMEROY BCSA" shall mean the Business Credit and Security Agreement of
Pomeroy and Global with DFS dated as of July 14, 1998, as amended from time to
time.
"PRIME RATE" shall mean a fluctuating interest rate per annum equal to the
prime rate of interest announced publicly from time to time (whether or not
charged in each instance) by The Chase Manhattan Bank (or any successor thereof)
as such bank's prime rate. Each change in the Prime Rate shall become effective
on the day such bank announces a change in its prime or reference rate. If the
bank listed above discontinues the practice of announcing or publishing a prime,
base or reference rate during the term of this Agreement, then DFS may, in its
reasonable judgment, designate a comparable bank and/or publicly announced rate
to be thereafter used as a basis for determining Prime Rate. Borrower
acknowledges that the bank listed above may extend credit at rates of interest
less than its announced prime, base or reference rate.
"PURCHASE MONEY INDEBTEDNESS" shall mean and include:
(i) Indebtedness for the payment of all or any part of the
purchase price of any assets,
(ii) any Indebtedness incurred at the time of or within ten (10)
days prior to or after the acquisition of any assets for the purpose of
financing all or any part of the purchase price thereof, and
(iii) any renewals, extensions or refinancings thereof, but not any
increases beyond the original principal amounts thereof outstanding at the time.
"PURCHASE MONEY LIEN" shall mean a Lien upon assets which secures Purchase
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Money Indebtedness, but only if such Lien shall at all times be confined solely
to the assets the purchase price of which was financed through the incurrence of
such Purchase Money Indebtedness.
"SUBORDINATED DEBT" shall have the meaning set forth in SECTION 9.3.
"SUBSIDIARIES" shall mean any corporation in which a Person owns or
controls greater than 50% of the voting securities, or any partnership, joint
venture or limited liability company in which a Person owns or controls greater
than 50% of the aggregate equitable interest. The term "Subsidiary" means any
one of the Subsidiaries.
"TANGIBLE NET WORTH" shall have the meaning set forth in SECTION 9.3.
"TOTAL CREDIT LIMIT" shall have the meaning set forth in SECTION 3.1(a).
"TOTAL WORKING CAPITAL CREDIT LIMIT" shall have the meaning set forth in
SECTION 3.3.
"UCC" shall mean the Uniform Commercial Code as in effect in the State of
Kentucky and any successor statute, together with any regulations thereunder, in
each case as in effect from time to time. References to sections of the UCC
shall be construed to also refer to any successor sections.
"UNMATURED DEFAULT" shall mean any event which, but for the passage of
time or notice, or both, would be a Default.
"WORKING CAPITAL LOAN" shall have the meaning set forth in SECTION 3.3.
3. CREDIT FACILITY
3.1 TOTAL CREDIT FACILITY.
(a) In consideration of Borrower's payment and performance of its
Obligations and subject to the terms and conditions contained in this Agreement,
DFS agrees to provide, and Borrower agrees to accept, an aggregate credit
facility (the "CREDIT FACILITy") of up to Twenty Million Dollars ($20,000,000)
(the "TOTAL CREDIT LIMIT"), BUT ONLY TO THE EXTENT that DFS has received and
continues to have in full force and effect, upon terms acceptable to DFS, in its
sole discretion, a Participation Agreement in which the "Participant Commitment"
(as defined in the Participation Agreement) is at least Ten Million Dollars
($10,000,000). The Credit Facility shall be available in the form of Working
Capital Loans. No Loans need be made by DFS if Borrower is in Default or if
there exists any Unmatured Default. This is an agreement regarding the
extension of credit, and not the provision of goods or services.
(b) In furtherance of the foregoing, anything in this Agreement to
the contrary notwithstanding, DFS shall have no obligation to make any Loan
hereunder if the "PARTICIPANT COMMITMENT" (as defined in the Participation
Agreement) is less than Ten Million Dollars ($10,000,000), or if there exists a
default under or termination of a Participation Agreement. DFS may exercise its
rights as described herein ninety (90) days after having given written notice to
Borrower, and thereupon the aggregate maximum amount available for Working
Capital Loans will be reduced by the amount of the terminated or nonperforming
Participation Agreement(s), as the case may be; provided, however, DFS shall
have no such notice obligation, and the resulting reduction shall be automatic
if at such time Borrower is in Default. DFS represents and warrants to Borrower
that concurrently with the execution of this Agreement, it shall enter into a
Participation Agreement with Star Bank, National Association.
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3.2 [RESERVED]
3.3 WORKING CAPITAL LOANS. Subject to the terms of this
Agreement, DFS agrees, for so long as no Default exists, to provide to Borrower,
and Borrower agrees to accept, working capital financing (each advance being a
"WORKING CAPITAL LOAN") on Eligible Accounts in the maximum aggregate unpaid
principal amount at any time equal to the lesser of (i) the Borrowing Base and
(ii) Twenty Million Dollars ($20,000,000) ("TOTAL WORKING CAPITAL CREDIT
LIMIT"), subject in all events to the terms of SECTION 3.1(b) hereof. A request
for a Working Capital Loan shall be made, or shall be deemed to be made, as
provided in SECTION 5.1 hereof.
(a) ELIGIBLE ACCOUNTS. On receipt of each Borrowing Base
Certificate initially in the form set forth on EXHIBIT 3.3, and, thereafter, in
such form as DFS may require from time to time, together with such supporting
information as DFS may require from time to time (the "BORROWING BASE
CERTIFICATE"), DFS will credit Borrower with ninety percent (90%) of the net
amount of the Eligible Accounts which are, absent error or other discrepancy,
listed in such Borrowing Base Certificate, subject to the Total Working Capital
Credit Limit (the "ELIGIBLE ACCOUNT AVAILABILITY"). For purposes hereof, the
net amount of Eligible Accounts at any time shall be the face amount of such
Eligible Accounts LESS any and all returns, discounts (which may, at DFS'
option, be calculated on shortest terms), credits, rebates, allowances, or
excise taxes of any nature at any time issued, owing, claimed by Account
Debtors, granted, outstanding, or payable in connection with such Accounts at
such time.
3.4 [RESERVED]
3.5 MANDATORY PREPAYMENT. If at any time and for any reason the
aggregate amount of outstanding Working Capital Loans exceeds the Borrowing
Base, after application of the reserve contemplated by the last clause of the
definition of "Borrowing Base" in the Pomeroy BCSA, Borrower will, immediately
upon demand, repay an amount of the Working Capital Loans made to it by DFS
hereunder equal to such excess. In addition, Borrower shall immediately pay DFS
whatever sums may be necessary from time to time to remain in compliance with
the Total Credit Limit and the Total Working Capital Credit Limit, as such
limits may change from time to time, including, without limitation, as a result
of any Collateral no longer being deemed eligible, or as a result of any change
in the amount of any Eligible Account.
3.6 INTEREST; CALCULATION OF CHARGES; FEES.
(a) [RESERVED]
(b) WORKING CAPITAL LOANS.
(i) INTEREST; CALCULATION. Borrower will pay DFS finance
charges on the Daily Contract Balance (as defined below) at a rate equal to the
Prime Rate minus one and one-quarter of one percent (1.25%) per annum; PROVIDED,
HOWEVER, that if at any time the aggregate monthly volume under the
"Distribution Finance Facility" of Pomeroy and Global (as that term is defined
in the Pomeroy BCSA), is less than Twenty Million Dollars ($20,000,000.00) per
month for a three-month consecutive period, then for the following month and for
every month thereafter until the month after such aggregate volume again exceeds
Twenty Million Dollars ($20,000,000.00) per month for a three-month consecutive
period, Borrower agrees to pay interest to DFS, on the Daily Contract Balance,
at a rate equal to the Prime Rate minus one-half of one percent (.50%) per
annum. The finance charges attributable to such rate will: (i) be computed
based on a 360 day year; (ii) be calculated with respect to each day by
multiplying the Daily Rate (as defined below) by the Daily Contract Balance; and
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(iii) accrue from the date DFS authorizes any Electronic Transfer (as defined in
SECTION 3.6(b)(II) below) or otherwise advances a Working Capital Loan to or for
the benefit of Borrower, until DFS receives full payment of the principal debt
Borrower owes DFS in good funds in accordance with DFS' payment recognition
policy and DFS applies such payment to Borrower's principal debt in accordance
with the terms of this Agreement.
(ii) METHOD OF TRANSFER. Working Capital Loans will be made
by DFS, at Borrower's direction, by paper check, electronic transfer by
Automated Clearing House ("ACH"), Fed Wire Funds Transfer ("FED WIRE") or such
other electronic means as DFS may announce from time to time (ACH, Fed Wire and
such other electronic transfer are collectively referred to as "ELECTRONIC
TRANSFERS"). If Borrower does not request a Working Capital Loan be made in a
specific method of transfer, DFS may determine from time to time in its sole
discretion what method of transfer to use.
(c) DEFINITIONS. The "DAILY RATE" is the quotient of the
applicable annual rate provided herein divided by 360. The "DAILY CONTRACT
BALANCE" is the amount of outstanding principal debt which Borrower owes DFS on
the Working Capital Loans at the end of each day (including the amount of all
Electronic Transfers authorized) after DFS has credited payments which it has
received on the Working Capital Loans.
(d) CERTAIN CHARGES. Borrower will (i) reimburse DFS for all
charges made by banks, including charges for collection of checks and other
items of payment and (ii) pay DFS all fees and charges in effect from time to
time for transfers of funds to or from the Borrower.
3.7 BILLING STATEMENT. DFS will send Borrower a monthly billing
statement identifying all charges due on Borrower's account with DFS. The
charges specified on each billing statement will be: (a) due and payable in full
immediately on receipt; and (b) an account stated, absent manifest error. DFS
may adjust the billing statement at any time to conform to applicable law and
this Agreement.
3.8 LOAN PROCEEDS. The parties intend that all indebtedness
incurred hereunder shall be governed exclusively by the terms of this
Agreement and the other Loan Documents, and shall not, unless requested by
DFS, be evidenced by notes or other evidences of indebtedness. Upon any such
request, Borrower will immediately execute and deliver any such note or other
evidence reasonably requested by DFS. Any fees, charges or expenses charged
to DFS by any bank for payments made by DFS at Borrower's request shall be
immediately payable by Borrower. All advances and other obligations of
Borrower made hereunder will constitute a single obligation.
3.9 DEFAULT INTEREST RATE. If a Default occurs, and unless and
until cured, DFS may without prior demand, raise the rate of interest accruing
on the disbursed unpaid principal balance of any Loan by three percentage points
(3%) above the rate of interest otherwise applicable (the "DEFAULT INTEREST
RATE"), whether or not DFS elects to accelerate the unpaid principal balances as
a result of a Default. DFS will notify Borrower in writing before imposing the
Default Interest Rate permitted by this Section.
3.10 INTEREST RATE AFTER CERTAIN EVENTS. If a judgment is entered
against Borrower for sums due under any of the Obligations, as applicable, the
amount of the judgment entered (which may include principal, interest,
reasonable attorneys' fees and costs) shall bear interest at the judgment rate
as permitted under applicable law as of the date of entry of the judgment. All
Obligations of Borrower described in clauses (a) and (b) of the definition
thereof shall bear interest at the Default Interest Rate.
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3.11 VERIFICATION RIGHTS OF DFS. DFS may, without notice to
Borrower and at any time or times hereafter verify the validity, amount or any
other matter relating to any Account by mail, telephone or other means, in the
name of Borrower or DFS.
3.12 REPORTS.
(a) ADDITIONAL MONTHLY REPORTS. Borrower agrees to provide
DFS with a report by the 25th day of each month, or more frequently if requested
by DFS, in each case as of the 15th day of such month, which shall be in such
form as is satisfactory to DFS, including supporting information regarding, but
not limited to (i) a Borrowing Base Certificate; and (ii) an aging of Accounts
(the "ADDITIONAL MONTHLY REPORT").
(b) MONTHLY REPORTS. Borrower agrees to provide to DFS by
the 15th day of each month, or more frequently if requested by DFS, in each case
as of the last day of the immediately prior month, each of the following: (i)
aging of Accounts; (ii) an updated EXHIBIT 8.17; and (iii) aging of Borrower's
accounts payable (the "MONTHLY REPORTS").
(c) OTHER REPORTS. Borrower agrees to provide DFS within
five (5) Business Days after each request by DFS any other report or information
requested by DFS (the "OTHER REPORTS").
(d) ACCURACY OF REPORTS. The Additional Monthly Report,
Monthly Reports and the Other Reports will be true and correct in all material
respects. Borrower acknowledges DFS' reliance on the truthfulness and accuracy
in all material respects of each Additional Monthly Report, Monthly Report and
the Other Reports.
3.13 ESTABLISHMENT OF RESERVES. Notwithstanding the foregoing
provisions of SECTION 3.3, DFS shall have the right to establish reserves in
such amounts, and with respect to such matters, as DFS shall deem necessary or
appropriate, against the amount of Working Capital Loans which Borrower may
otherwise request under SECTION 3.3, including, without limitation, with respect
to (a) price adjustments, damages, unearned discounts, returned products or
other matters for which credit memoranda are issued in the ordinary course of
Borrower's business; (b) shrinkage, spoilage and obsolescence of Inventory; (c)
slow moving Inventory; (d) other sums chargeable against Borrower as Working
Capital Loans under any section of this Agreement; (e) a material increase in
Dealer's dilution percentage, as determined by DFS; and (f) such other matters,
events, conditions or contingencies as to which DFS, in its sole reasonable
credit judgment determines reserves should be established from time to time
hereunder. DFS will notify Borrower in writing before establishing any reserve
described herein; PROVIDED, HOWEVER, that DFS shall have no obligation to
provide such prior notice to Borrower upon the occurrence and during the
continuance of a Default.
3.14 CAPITAL ADEQUACY.
(a) In the event that DFS shall have determined that the
adoption of any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof or compliance by
DFS with any request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or governmental authority, does
or shall have the effect of reducing the rate of return on DFS' capital as a
consequence of its obligations hereunder to a level below that which DFS could
have achieved but for such adoption, change or compliance (taking into
consideration DFS' policies with respect to capital adequacy) by an amount
deemed by DFS, in its sole discretion, to be material, then from time to time,
after submission by DFS to Borrower of a written demand therefor, Borrower shall
pay to DFS such additional
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amount or amounts as will compensate DFS for such reduction.
(b) A certificate of DFS claiming entitlement to payment as
set forth in SECTION 3.14(a) above shall be conclusive in the absence of
manifest error. Such certificate shall set forth the nature of the occurrence
giving rise to such payment, the additional amount or amounts to be paid to DFS,
and the method by which such amounts were determined. In determining such
amount, DFS may use any reasonable averaging and attribution method.
3.15 COLLECTIONS. Unless otherwise directed by DFS, to expedite
collection of Accounts for the benefit of DFS, Borrower shall notify all of its
Account Debtors to make payment of the Accounts to one or more lock-boxes under
the sole control of DFS. The lock-box, and all accounts into which the proceeds
of any such lock-box(es) are deposited, shall be established at banks selected
by the Borrower and satisfactory to DFS. Borrower shall issue to any such banks
an irrevocable letter of instruction, in form and substance acceptable to DFS,
directing such banks to deposit all payments or other remittances received in
the lock-box to such account or accounts as DFS shall direct, for application
against the outstanding balance of the Obligations. Until all Obligations have
been satisfied in full, all funds deposited in the lock-box or any such account
immediately shall become the property of DFS, and any disbursements of the
proceeds in the lock-box or any such account will only be made to DFS. Borrower
shall obtain the agreement of such banks to waive any offset rights against the
funds so deposited. DFS assumes no responsibility for such lock-box
arrangement, including, without limitation, any claim of accord and satisfaction
or release with respect to deposits which any banks accept thereunder. All
remittances which Borrower receives in payment of any Accounts, and the proceeds
of any of the other Collateral, shall be: (i) kept separate and apart from
Borrower's own funds so that they are capable of identification as DFS'
property; (ii) held by Borrower as trustee of an express trust for DFS' benefit;
and (iii) shall be immediately deposited in such accounts designated by DFS.
All proceeds received or collected by DFS with respect to Accounts, and reserves
and other property of Borrower in possession of DFS at any time or times
hereafter, may be held by DFS without interest to Borrower until all Obligations
are paid in full or applied by DFS on account of the Obligations. DFS may
release to Borrower such portions of such reserves and proceeds as DFS may
determine. Upon the occurrence and during the continuance of a Default, DFS may
notify the Account Debtors that the Accounts have been assigned to DFS, collect
the Accounts directly in its own name and charge the collection costs and
expenses, including reasonable attorneys' fees, to Borrower. DFS has no duty to
protect, insure, collect or realize upon the Accounts to preserve rights in
them.
3.16 ADVANCEMENTS. If Borrower fails to (a) perform any of the
affirmative covenants contained herein, (b) protect or preserve the Collateral
or (c) protect or preserve the status and priority of the Liens and security
interest of DFS in the Collateral, DFS may make advances to perform those
obligations. DFS will use reasonable efforts to attempt to give Borrower notice
prior to making such advancement. All sums so advanced will be due and payable
upon demand and will immediately upon advancement become secured by the security
interests created by this Agreement and will be subject to the terms and
provisions of this Agreement and all of the Loan Documents. DFS may add all
sums so advanced, plus any expenses or costs incurred by DFS, including
reasonable attorney's fees, as outstanding Loans as DFS may designate in its
sole discretion. The provisions of this Section will not be construed to
prevent the institution of rights and remedies of DFS upon the occurrence of a
Default. Any provisions in this Agreement to the contrary notwithstanding, the
authorizations contained in this Section will impose no duty or obligation on
DFS to perform any action or make any advancement on behalf of Borrower and are
for the sole benefit and protection of DFS.
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3.17 CONTINUING REQUIREMENTS - ACCOUNTS. Borrower will: (a) if
from time to time required by DFS, immediately upon their creation, deliver to
DFS copies of all invoices, delivery evidences and other such documents relating
to each Account; (b) without DFS' consent not permit or agree to any extension,
compromise or settlement or make any change to any Account; (c) affix
appropriate endorsements or assignments upon all such items of payment and
proceeds so that the same may be properly deposited by DFS to DFS' account; (d)
immediately notify DFS in writing which Accounts may be deemed Ineligible
Accounts; and (e) mark all chattel paper and instruments now owned or hereafter
acquired by it to show that the same are subject to DFS' security interest and
immediately thereafter deliver such chattel paper and instruments to DFS with
appropriate endorsements and assignments to DFS.
4. TERM OF AGREEMENT
4.1 TERMINATION. Either party may terminate this Agreement at
any time by written notice received by the other party. If DFS terminates this
Agreement, Borrower agrees that if: (a) there exists no Default, 30 days prior
notice of termination is reasonable and sufficient (although this provision
shall not be construed to mean that shorter periods may not, in particular
circumstances, also be reasonable and sufficient); or (b) there exists a
Default, no prior notice of termination is required. If such notice of
termination is given by Borrower to DFS, such notice will be ineffective unless
Borrower pays to DFS all Obligations on or before the termination date. Any
such written notice of termination delivered by Borrower to DFS shall be
irrevocable. Any termination of this Agreement by Borrower or DFS will have the
effect of accelerating the maturity of all Obligations not then otherwise due.
It is understood that Borrower may elect to terminate this Agreement in its
entirety only, no section or lending facility may be terminated singly.
4.2 EFFECT OF TERMINATION. Borrower will not be relieved from any
Obligations to DFS arising out of DFS' advances or commitments made before the
effective termination date of this Agreement. DFS will retain all of its
rights, interests and remedies hereunder until Borrower has paid all of
Borrower's Obligations to DFS. All waivers set forth within this Agreement will
survive any termination of this Agreement.
5. BORROWING AND REPAYMENT PROCEDURES
5.1. BORROWING PROCEDURES.
(a) GENERALLY. A request for a Working Capital Loan shall be made,
or shall be deemed to be made, in the following manner: (i) Borrower may give
DFS written notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date;
(ii) upon the occurrence and during the continuance of a Default, the becoming
due of any amount required to be paid under this Agreement as interest shall be
deemed irrevocably to be a request for a Working Capital Loan on the due date in
the amount required to pay such interest; and (iii) upon the occurrence and
during the continuance of a Default, the becoming due of any other Obligations
shall be deemed irrevocably to be a request for a Working Capital Loan on the
due date in the amount then so due.
For purposes of subpart (i) above, Borrower agrees that DFS may rely and act
upon any request for a Working Capital Loan from any individual listed by
Borrower on EXHIBIT 5.1(a), attached hereto.
(b) CONDITIONS PRECEDENT TO EACH WORKING CAPITAL LOAN. Without
limiting the applicability of the conditions precedent set forth in SECTION 7
below to DFS' obligation to make any Working Capital Loan, the obligation of DFS
to make any Working Capital Loan shall be subject to the further conditions
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precedent that, on the date of each such Working Capital Loan:
(i) The following statements shall be true: (A) the
representations and warranties contained in SECTION 8 hereof are correct in all
material respects on and as of the date of such Working Capital Loan as though
made on and as of such date, and (B) there exists no Default or Unmatured
Default, nor would any Default or any Unmatured Default result from the making
of the Working Capital Loan requested by Borrower;
(ii) Borrower shall have signed and sent to DFS, if DFS so
requests, a request for advance, setting forth in writing the amount of the
Working Capital Loan requested; PROVIDED, HOWEVER, that the foregoing condition
precedent shall not prevent DFS, if it so elects in its sole discretion, from
making a Working Capital Loan pursuant to Borrower's non-written request
therefor;
(iii) DFS shall have received a completed Borrowing Base
Certificate, signed by the Borrower, and dated not more than sixteen (16) days
prior to the date of Borrower's request for such Working Capital Loan; and
(iv) DFS shall have received such other approvals, opinions or
documents as it may reasonably request.
Borrower agrees that the making of a request by Borrower for a Working Capital
Loan, shall constitute a certification by Borrower and the Person(s) executing
or giving the same that all representations and warranties of Borrower herein
are true in all material respects as of the date thereof and that all required
conditions to the making of the Working Capital Loan have been met.
5.2 EXCESS ADVANCES. DFS, in its sole and absolute discretion,
may elect to permit the total unpaid balance of Loans to exceed the Total Credit
Limit (the "EXCESS ADVANCES"), and no such event or occurrence shall cause or
constitute a waiver by DFS of its right to demand payment of all or any part of
the Loans at any time within the terms of this Agreement or to refuse, in its
sole and absolute discretion, to make such further Loans. Any such Excess
Advances shall be payable immediately upon demand therefor, unless otherwise
specifically agreed to by DFS, and shall bear interest at the Default Interest
Rate.
5.3 ALL LOANS ONE OBLIGATION. All Obligations of Borrower to DFS
under this Agreement and all other agreements between Borrower and DFS shall
constitute one obligation to DFS secured by the security interest granted in
this Agreement, and by all other Liens heretofore, now, or at any time or
times hereafter granted by Borrower. All of the rights of DFS set forth in this
Agreement shall apply to any modification of or supplement to this Agreement, or
Exhibits hereto, unless otherwise agreed in writing.
5.4 PAYMENTS OF PRINCIPAL AND INTEREST. Without waiving any other
rights Borrower may otherwise have, all payments and amounts due hereunder by
Borrower shall be made or be payable without set-off or counterclaim and shall
be made to DFS on the date due at its office(s) responsible for Borrower's
account, or at such other place which DFS may designate to Borrower in writing.
Any payments received after such time shall be deemed received on the next
Business Day. Whenever any payment to be made hereunder shall be stated to be
due on a date other than a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall be included in the
computation of payment of interest or any fees.
5.5 COLLECTION DAYS. All payments and all amounts received
hereunder will be credited by DFS to Borrower's account one (1) Business Day
after good funds have been deposited into DFS' general operating account.
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6. SECURITY FOR THE OBLIGATIONS
6.1 GRANT OF SECURITY INTEREST. To secure payment of all of
Borrower's current and future Obligations and to secure Borrower's performance
of all of the provisions under this Agreement and the other Loan Documents,
Borrower grants DFS a security interest in all of Borrower's Inventory,
equipment, fixtures, accounts, contract rights, chattel paper, security
agreements, instruments, deposit accounts, reserves, documents and general
intangibles; and all judgments, claims, insurance policies, and payments owed or
made to Borrower thereon; all whether now owned or hereafter acquired, all
attachments, accessories, accessions, returns, repossessions, exchanges,
substitutions and replacements thereto, and all proceeds thereof. All such
assets are collectively referred to herein as the "COLLATERAL." All such terms
for which meanings are provided in the Uniform Commercial Code are used herein
with such meanings. All Collateral financed by DFS, and all proceeds thereof,
will be held in trust by Borrower for DFS, with such proceeds being payable in
accordance with this Agreement. Borrower covenants with DFS that DFS may
realize upon all or part of any Collateral in any order it desires and any
realization by any means upon any Collateral will not bar realization upon any
other Collateral. Borrower's liability under this Agreement is direct and
unconditional and will not be affected by the release or nonperfection of any
security interest granted hereunder.
6.2 FUTURE ADVANCES. DFS' security interests shall secure all
current and all future advances to Borrower made by DFS under the Loan
Documents.
6.3 FINANCING STATEMENTS. Borrower shall execute and deliver to
DFS for the benefit of DFS such financing statements, certificates of title and
original documents as may be required by DFS with respect to DFS' security
interests.
6.4 GUARANTIES. Borrower shall cause any and all Subsidiaries,
whether now existing or hereafter acquired, Pomeroy and Global to execute and
deliver guaranties of the Obligations secured by a first priority, perfected
security interest in substantially all of the assets of each such Person.
6.5 FURTHER ASSURANCES. Borrower will execute and deliver to DFS,
at such time or times as DFS may request, all financing statements, security
agreements, assignments, certificates, affidavits, reports, schedules, and other
documents and instruments that DFS may deem necessary to perfect and maintain
perfected DFS' security interests in the Collateral and to fully consummate the
transactions contemplated under all Loan Documents. All filing, recording or
registration fees shall be payable by Borrower.
6.6 INTELLECTUAL PROPERTY. Borrower shall execute and deliver a
collateral assignment of patents, copyrights and trademarks in form and
substance reasonably acceptable to DFS granting DFS a first priority security
interest in and to the items listed in EXHIBIT 8.21 in form acceptable for
recordation.
7. CONDITIONS PRECEDENT
All duties and obligations of DFS under the Loan Documents on the
Effective Date, and at all times during the term of this Agreement, are
specifically subject to the full and continued satisfaction by Borrower of the
conditions precedent set forth below.
7.1 CONDITIONS PRECEDENT. The following conditions must be
satisfied as of the Effective Date:
(a) DFS' COUNSEL. DFS' counsel must approve of all matters pertaining
to
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(i) title to the Collateral; (ii) the form, substance and due execution
of all Loan Documents; (iii) Borrower's organizational documents; and (iv)
all other legal matters, including the application of any laws relating to
usury.
(b) MATERIAL CHANGE. There must not have been any change, between
October 5, 1998 and the Effective Date, which would have a Material
Adverse Effect on the condition of Borrower, the condition of the
Business, the value and condition of the Collateral, the structure of
Borrower other than as contemplated herein, or in the financial
information, audits and the like obtained by DFS.
(c) PERFECTED LIENS. DFS shall have a perfected first priority Lien and
security interest in the Collateral, subject only to the Permitted Liens.
(d) INSURANCE. Borrower shall provide DFS with certificates of
insurance evidencing that Borrower and each Corporate Guarantor has
obtained the insurance as required in SECTION 9.1.2.
(e) LAWS. Borrower and its Subsidiaries shall be in compliance with all
applicable laws and governmental regulations, including, but not limited
to, all Environmental Laws, the failure to comply with which would have a
Material Adverse Effect on Borrower, its Subsidiaries or the Business.
(f) CERTIFICATE OF GOOD STANDING. A certificate of good standing for
Borrower (or other similar certificate) must be delivered to DFS, from the
appropriate governmental authority of Borrower's and each Corporate
Guarantor's state of incorporation and other jurisdictions in which
Borrower and each such Corporate Guarantor does business, dated not
earlier than 30 days prior to the Effective Date.
(g) OPINION OF BORROWER'S COUNSEL. DFS must receive a written opinion
from counsel for Borrower and each Corporate Guarantor, dated the
Effective Date, and addressed to and for the benefit of DFS, in form and
substance satisfactory to DFS.
(h) UCC SEARCHES. DFS must receive a certificate from a provider of
financing statement searches acceptable to DFS which identifies all
financing statements of public record not more than 30 days before the
Effective Date, that pertain to the Collateral and the collateral of each
Corporate Guarantor.
(i) OTHER DOCUMENTS. Such other documents, certificates, submissions,
insurance policies and other matters as reasonably requested by DFS
relating to the transaction herein contemplated, including but not limited
to (A) Collateralized Guarantees from each of the Borrower's Subsidiaries,
Pomeroy and Global, along with such other documents as are necessary to
provide DFS with a first priority, fully perfected security interest in
all of the assets of each such Person, and (B) the Participation
Agreement.
(j) PRESIDENT'S CERTIFICATE (OR CHIEF EXECUTIVE OFFICER'S CERTIFICATE,
FOR GLOBAL). In the form attached hereto as EXHIBIT 7.1(j) compliance
with all of the terms and conditions in the Loan Documents.
(k) ARTICLES OF INCORPORATION. A certified copy of the Articles of
Incorporation, By-Laws and the resolutions of the directors of Borrower
authorizing the transactions contemplated by this Agreement.
(l) SECRETARY'S CERTIFICATE OF RESOLUTION AND INCUMBENCY. In the form
attached hereto as EXHIBIT 7.1(l).
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(m) PAYOFF LETTER. A lien release and payoff letter executed by any and
all lienholders on any of the Collateral, other than with respect to the
Permitted Liens.
8. REPRESENTATIONS AND WARRANTIES
To induce DFS to enter into this Agreement, Borrower makes the
representations and warranties set forth below, all of which will remain true in
all material respects during the term of this Agreement. Borrower acknowledges
DFS' justifiable right to rely upon the representations and warranties set forth
below.
8.1 FINANCIAL STATEMENTS. Pomeroy's audited consolidated
financial statements as of January 5, 1998, Pomeroy's unaudited consolidated
financial statements as of October 5, 1998, and Borrower's pro forma
financial statements for the same periods as the aforementioned financial
statements, copies of which have been previously submitted to DFS, have been
prepared in conformity with GAAP (except for the absence of footnotes and non
year-end adjustments on the unaudited financial statements) and present
fairly the financial condition of Borrower and its consolidated Subsidiaries
as at such dates and the results of their operations for the periods then
ended. Borrower warrants and represents to DFS that all financial statements
and information relating to Borrower or any Corporate Guarantor which have
been or may hereafter be delivered by Borrower or any Corporate Guarantor are
true and correct in all material respects and have been and will be prepared
in accordance with GAAP and, with respect to such previously delivered
statements or information, there has been no change which would have a
Material Adverse Effect on the financial or business condition of Borrower or
any Corporate Guarantor since the submission to DFS, either as of the date of
delivery, or, if different, the date specified therein, and Borrower
acknowledges DFS' reliance thereon.
8.2 NON-EXISTENCE OF DEFAULTS. Neither Borrower nor any of its
Subsidiaries is in default with respect to any material amount of its existing
Indebtedness. The making and performance of this Agreement and all other Loan
Documents, will not immediately, or with the passage of time, the giving of
notice, or both: (a) violate the provisions of the bylaws or any other
corporate document of Borrower; (b) violate any laws to the best of Borrower's
knowledge after reasonable inquiry, except where the failure to so comply could
not reasonably be expected to have a Material Adverse Effect upon Borrower, the
Business or Borrower's operations or financial condition; (c) result in a
material default under any contract, agreement, or instrument to which Borrower
is a party or by which Borrower or its properties are bound; or (d) result in
the creation or imposition of any security interest in, or Lien or encumbrance
upon, any of the Collateral except the Permitted Liens.
8.3 LITIGATION. Set forth on EXHIBIT 8.3 is a list of all
actions, suits, investigations or proceedings pending or, to the knowledge of
Borrower, threatened against Borrower or any of its Subsidiaries, as of the date
hereof in which there is a reasonable probability of an adverse decision which
would Material and Adverse Effect upon Borrower, the Business, or the
Collateral.
8.4 MATERIAL ADVERSE EFFECT. Borrower does not know of or expect
any change which would have a Material Adverse Effect on the Business, or on
Borrower's or any of the Subsidiaries' assets, liabilities, properties, or
condition, financial or otherwise, including changes in Borrower's financial
condition from October 5, 1998 through the Effective Date.
8.5 TITLE TO COLLATERAL. Except as set forth on EXHIBIT 8.5,
Borrower has good and marketable title to all of the Collateral, free and clear
of any and all Liens, claims and encumbrances, other than the Permitted Liens.
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8.6 CORPORATE STATUS. Borrower and each of the Subsidiaries is a
corporation duly organized and validly existing, in good standing, with
perpetual corporate existence, under the laws of their respective jurisdictions
of formation. Borrower and its Subsidiaries have the corporate power and
authority to own their properties and to transact the Business in which they are
engaged and presently propose to engage. Borrower and each Subsidiary is duly
qualified as a foreign corporation and in good standing in all states where the
nature of their Business or the ownership or use of their property requires such
qualification, and where failure to so qualify would have a Material Adverse
Effect on its Business, operations or financial condition.
8.7 SUBSIDIARIES. EXHIBIT 8.7 hereto lists the Subsidiaries as of
the Effective Date.
8.8 POWER AND AUTHORITY. Borrower has the corporate power to
borrow and to execute, deliver and carry out the terms and provisions of the
Loan Documents. Borrower has taken or caused to be taken all necessary
corporate action to authorize the execution, delivery and performance of this
Agreement and all other Loan Documents and the borrowing thereunder.
8.9 PLACE OF BUSINESS. Borrower's chief executive office and the
principal place of business is located at 1020 Petersburg Road, Hebron, KY
41048. Borrower's records concerning the Collateral are kept at such chief
executive office, or will be kept at such other place that Borrower informs DFS
of not less than 30 days in advance of relocation.
8.10 ENFORCEABILITY OF THE LOAN DOCUMENTS. The Loan Documents
executed by Borrower are the valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their terms, except as limited
by bankruptcy, insolvency, or other laws of general application relating to the
enforcement of creditors' rights.
8.11 TAXES. Borrower's federal tax identification number is
61-1337096. Borrower has: (a) filed all federal, state and local tax returns
and other reports that it is required by law to file the failure of which
would have a Material Adverse Effect on the Business or Borrower's or any
Subsidiary's assets, (b) paid or caused to be paid all taxes, assessments and
other governmental charges that are due and payable, the failure of which to
pay would have a Material Adverse Effect on the Business, except those
contested in good faith and in accordance with accepted procedures, and for
which adequate reserves have been established in accordance with GAAP, and
(c) made adequate provision for the payment of such taxes, assessments or
other charges accruing but not yet payable. Borrower has no knowledge of any
deficiency or additional assessment in a material amount in connection with
any taxes, assessments or charges.
8.12 COMPLIANCE WITH LAWS. Borrower, to the best of its knowledge
after reasonable inquiry, has complied, and shall cause each Subsidiary to
comply, in all material respects with all applicable laws, including any
Environmental Laws and any zoning laws, the failure to comply with which would
have a Material Adverse Effect on Borrower individually, or Borrower and its
Subsidiaries on a consolidated basis.
8.13 CONSENTS. Borrower and the Subsidiaries have obtained all
material consents, permits, licenses, approvals or authorization of, or effected
the filing, registration or qualification with, any governmental entity which is
required to be obtained or effected by Borrower and the Subsidiaries in
connection with the Business or the execution and delivery of this Agreement and
the other Loan Documents the failure of which to obtain or effect would have a
Material Adverse Effect on Borrower individually, or on Borrower and its
Subsidiaries on a consolidated basis.
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8.14 PURPOSE. Borrower will use the advances which DFS makes under
the Credit Facility solely for lawful purposes and as described in SECTION 3
hereof.
8.15 CONDITION OF THE BUSINESS. All material assets used in the
conduct of the Business are in good operating condition and repair and are fully
usable in the ordinary course thereof, reasonable wear and tear excepted.
8.16 CAPITAL. All issued shares and all outstanding shares in the
Subsidiaries as reflected in Borrower's financial statements are validly issued
pursuant to proper authorization of the board of directors of such Subsidiary,
and are fully paid, and non-assessable. Except for those stock option plans and
Shareholders Right Plan described on EXHIBIT 8.16, which plans shall not be
materially amended without notice to DFS, there are no outstanding
subscriptions, warrants, options, calls or commitments, obligations or
securities convertible or exchangeable for shares of any stock of Borrower or
the Subsidiaries. Borrower and the Subsidiaries shall give DFS thirty days (30)
prior written notice before entering any agreement to register its equity or
debt securities under the Securities Act of 1933, as amended, or any state
securities law. All Borrower's and Subsidiary's issued shares and outstanding
capital stock are fully paid and non-assessable, and each such Person's capital
structure is as set forth on EXHIBIT 8.16.
8.17 LOCATION OF COLLATERAL. EXHIBIT 8.17 describes the locations
where any of the Collateral is located or stored as of the date hereof.
8.18 REAL PROPERTY. Neither Borrower nor any Subsidiary own or
lease any real property, except as set forth on EXHIBIT 8.18 attached hereto.
8.19 WARRANTIES AND REPRESENTATIONS-ACCOUNTS. For each Account
listed by Borrower on any Borrowing Base Certificate, Borrower warrants and
represents to DFS that at all times: (a) such Account is genuine; (b) such
Account is not evidenced by a judgment or promissory note or similar instrument
or agreement; (c) it represents an undisputed bona fide transaction completed in
accordance with the terms of the invoices and purchase orders relating thereto;
(d) the goods sold or services rendered which resulted in the creation of such
Account have been delivered or rendered to and accepted by the Account Debtor;
(e) the amounts shown on the Borrowing Base Certificate, Borrower's books and
records and all invoices and statements delivered to DFS with respect thereto
are owing to Borrower and are not contingent; (f) no payments have been or will
be made thereon except payments turned over to DFS pursuant to the terms of this
Agreement; (g) there are no offsets, counterclaims or disputes existing or
asserted with respect thereto and Borrower has not made any agreement with the
Account Debtor for any deduction or discount of the sum payable thereunder
except regular discounts allowed by Borrower in the ordinary course of its
business for prompt payment; (h) there are no facts or events which in any way
impair the validity or enforceability thereof or reduce the amount payable
thereunder from the amount shown on the Borrowing Base Certificate, Borrower's
books and records and the invoices and statements delivered to DFS with respect
thereto; (i) to the best of Borrower's knowledge, all persons acting on behalf
of the Account Debtor thereon have the authority to bind the Account Debtor; (j)
the goods sold or transferred giving rise thereto are not subject to any Lien,
claim, encumbrance or security interest which is superior to that of DFS other
than a Permitted Lien; (k) such Account is subject to DFS' perfected, first
priority security interest and no other Lien other than a Permitted Lien; and
(l) there are no proceedings or actions known to Borrower or which to Brrower's
knowledge are threatened or pending against the Account Debtor thereon which
might have a Material Adverse Effect on such Account Debtor's financial
condition.
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8.20 ENVIRONMENTAL, HEALTH AND SAFETY MATTERS. Except as disclosed
on EXHIBIT 8.20, to the best of Borrower's knowledge, after reasonable inquiry:
(a) the operations of Borrower and each of the Subsidiaries complies in all
respects with (i) all applicable Environmental Laws, and (ii) all applicable
OSHA Laws; (b) none of the operations of Borrower or any Subsidiary are subject
to any judicial or administrative proceeding alleging the Violation of any
Environmental Law or OSHA Law; (c) none of the operations of Borrower or any
Subsidiary is the subject of federal or state investigation evaluating whether
any remedial action is needed to respond to (i) a spillage, disposal or release
into the environment of any Hazardous Material or other hazardous, toxic or
dangerous waste, substance or constituent, or other substance, or (ii) any
unsafe or unhealthful condition at any premises of Borrower or any Subsidiary;
(d) neither Borrower nor any Subsidiary has filed any notice under any
Environmental Law or OSHA Law indicating or reporting (i) any past or present
spillage, disposal or release into the environment of, or treatment, storage or
disposal of, any Hazardous Material or other hazardous, toxic or dangerous
waste, substance or constituent, or other substance or (ii) any unsafe or
unhealthful condition at any premises of Borrower or any Subsidiary; and (e)
neither Borrower nor any Subsidiary has any known contingent liability in
connection with (i) any spillage, disposal or release into the environment of,
or otherwise with respect to, any Hazardous Material or other hazardous, toxic
or dangerous waste, substance or constituent, or other substance or (ii) any
unsafe or unhealthful condition at any premises of Borrower or any Subsidiary.
8.21 PATENTS, COPYRIGHTS, TRADEMARKS, ETC. The Borrower and each
of the Subsidiaries possesses or has the right to use all of the patents,
trademarks, trade names, service marks and copyrights, and applications
therefor, and all technology, know-how, processes, methods and designs used in
or necessary for the conduct of its business, without known conflict with the
rights of others, except to the extent that the failure to so obtain or apply
could be expected not to have a Material Adverse Effect on the Borrower, any
Subsidiary or the Collateral. All such licenses, patents, trademarks, trade
names, service marks and copyrights, and applications therefor existing on the
date hereof are listed on EXHIBIT 8.21.
8.22 SOLVENCY. The Borrower and each of the Subsidiaries now has
capital sufficient to carry on its respective business and transactions and all
business and transactions in which it is about to engage and is now solvent and
able to pay its respective debts as they mature, and Borrower and each of the
Subsidiaries now owns property having a value, greater than the amount required
to pay Borrower's or such Subsidiary's debts.
8.23 LEASES. EXHIBIT 8.23(a) attached hereto is a complete listing
of all capitalized leases of Borrower and EXHIBIT 8.23(b) attached hereto is a
complete listing of all Operating Leases of Borrower.
8.24 LABOR RELATIONS. Except as described on EXHIBIT 8.24 attached
hereto and made a part hereof, neither Borrower nor any of its Subsidiaries is a
party to any collective bargaining agreement, and there are no material
grievances, disputes or controversies with any union or any other organization
of Borrower's employees, or threats of strikes, work stoppages or any asserted
pending demands for collective bargaining by any union or organization.
8.25 BUSINESS LOCATIONS; AGENT FOR PROCESS. During the preceding
six (6) year period, Borrower has had no office, place of business or agent for
service of process located in any state or county other than as shown on
EXHIBIT 8.17.
8.26 WARRANTIES AND REPRESENTATIONS-INVENTORY. Borrower covenants,
warrants and represents to DFS that at all times: (a) Inventory will be kept
only at the locations indicated on EXHIBIT 8.17; (b) no Inventory is or will be
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produced in violation of the Federal Fair Labor Standards Act; (c) Borrower now
keeps and will keep correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, Borrower's cost therefor and the
selling price thereof, the daily withdrawals therefrom and the additions
thereto; (d) Inventory is not and will not be stored with a bailee, repairman,
warehouseman or similar party without DFS' prior written consent, and Borrower
will, concurrently with delivery to such party, cause any such party to issue
and deliver to DFS, in form acceptable to DFS, warehouse receipts, in DFS' name
evidencing the storage of such Inventory, and waivers of warehouseman's liens in
favor of DFS; (e) Borrower will pay all of its taxes, rents, business taxes, and
the like on the premises where the Inventory is located; and (f) Borrower will
not rent, lease, lend, demonstrate, pledge, consign, transfer or secrete any of
the Inventory or use any of the Inventory for any purpose other than exhibition
and sale to buyers in the ordinary course of business, without DFS' prior
written consent.
8.27 REAFFIRMATION. Each request for a Loan made by Borrower
pursuant to this Agreement or any of the other Loan Documents shall constitute
(a) an automatic representation and warranty by Borrower to DFS that there does
not then exist any Default or any Unmatured Default, and (b) a reaffirmation as
of the date of said request of all of the representations and warranties of
Borrower contained in this Agreement and the other Loan Documents, except to the
extent (i) previously fulfilled in accordance with the terms hereof or (ii)
previously waived in writing by DFS with respect to any particular factual
circumstance.
8.28 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower
covenants, warrants and represents to DFS that all representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall be true at the time of Borrower's execution of this Agreement
and the other Loan Documents, and shall survive the execution, delivery and
acceptance thereof by DFS and the parties thereto and the closing of the
transactions described therein or related thereto.
9. BORROWER'S COVENANTS
9.1 AFFIRMATIVE COVENANTS. During the term of this Agreement and
thereafter for so long as any Obligations are outstanding and unpaid, Borrower
covenants that unless otherwise consented to by DFS in writing, it shall perform
all the acts and promises required by this Agreement and all the acts and
promises set forth below.
9.1.1 PAYMENT AND PERFORMANCE. Borrower will pay and perform
all Obligations in full when and as due hereunder.
9.1.2 INSURANCE.
(a) TYPE OF INSURANCE. Borrower will at all times
cause the Business and the Collateral to be insured by
insurers of reasonable financial soundness and having an
A. M. Best rating of A or better, with such policies,
against such risks and in such amounts as are
appropriate for reasonably prudent businesses in
Borrower's industry and of Borrower's size and financial
strength.
(b) REQUIREMENTS AS TO INSURANCE POLICIES. The
policies of insurance which Borrower is required to
carry shall comply with the requirements listed below:
(i) Each such policy shall provide that it may not be
canceled or allowed to lapse at the end of a policy
period
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without at least 30 days' prior written notice to DFS;
(ii) Each liability and hazard insurance policy shall
name DFS as an additional insured; and
(iii) Each property insurance policy required hereunder
shall contain a standard lender's loss payable clause in
favor of DFS. Such insurance policies shall also
contain lender's loss payable endorsements satisfactory
to DFS providing, among other things, that any loss
shall be payable in accordance with the terms of such
policy notwithstanding any act of Borrower which might
otherwise result in forfeiture of such insurance;
(c) COLLECTION OF CLAIMS. Borrower will promptly
advise DFS of any insured casualty in excess of $500,000
and Borrower agrees that DFS may direct all insurance
proceeds therefrom to be paid directly to DFS to the
extent that such loss is not adequately insured under an
insurance policy which names DFS as a loss payee, and
hereby appoints DFS its attorney-in-fact for such
purpose.
(d) BLANKET POLICIES. Any insurance required hereunder
may be supplied by means of a blanket or umbrella
insurance policy.
(e) DELIVERY OF POLICIES OR CERTIFICATES OF INSURANCE.
Borrower shall deliver to DFS certificates of insurance
issued by insurers to evidence that the insurance
maintained by Borrower complies with the requirements
hereunder.
9.1.3 COLLECTION OF RECEIVABLES; SALE OF INVENTORY. Borrower
will collect its Accounts and sell its Inventory only in the ordinary course of
business, unless written permission to the contrary is obtained from DFS.
9.1.4 NOTICE OF LITIGATION AND PROCEEDINGS. Borrower will
give prompt notice to DFS of: (a) any litigation or proceeding (including fines
and penalties of any public authority) in which it, or any of the Subsidiaries
is a party in which there is a reasonable probability of an adverse decision
which would require it or any of the Subsidiaries to pay money or deliver
assets, whether or not the claim is considered to be covered by insurance that
might have a Material Adverse Effect upon Borrower's or any of its Subsidiary's
operations, financial condition, property or business; (b) any class action
litigation against it, regardless of size, that might have a Material Adverse
Effect upon Borrower's or any of its Subsidiary's operations, financial
condition, property or business; and (c) the institution of any other suit or
proceeding that might have a Material Adversely Effect on its or any of its
Subsidiary's operations, financial condition, property or the Business.
9.1.5 PAYMENT OF INDEBTEDNESS TO THIRD PERSONS. Borrower
will, and will cause each Subsidiary to, pay, when due, all Indebtedness and any
other liability due third persons, except when the amount thereof is being
contested in good faith by appropriate proceedings and with adequate reserves
therefor satisfactory to DFS in accordance with GAAP being set aside by Borrower
or such Subsidiary. DFS will use reasonable efforts to attempt to give Borrower
notice before DFS requires Borrower to set aside additional reserves.
9.1.6 NOTICE OF CHANGE OF BUSINESS LOCATION. Borrower will
notify DFS 30 days in advance of: (a) any change in or discontinuation of any
warehouse location of Borrower or any Subsidiary, any other location of a
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material amount of the Collateral, Borrower's principal place of business, or
any of the Subsidiaries' existing offices or places of business, (b) the
establishment of any new places of business relating to the Business, and (c)
any change in or addition to the locations where Borrower's Inventory or records
are kept.
9.1.7 PAYMENT OF TAXES. Borrower will, and will cause each
Subsidiary to, pay or cause to be paid, when and as due, all taxes, assessments
and charges or levies imposed upon it or on any of its property or that it is
required to withhold and pay over to the taxing authority or that it must pay on
its income, the failure of which to pay would have a Material Adverse Effect on
Borrower individually, or on Borrower and the Subsidiaries on a consolidated
basis, except where contested in good faith by appropriate proceedings with
adequate reserves therefor satisfactory to DFS, in accordance with GAAP, having
been set aside by Borrower or such Subsidiary. DFS will use reasonable efforts
to attempt to give Borrower notice before DFS requires additional reserves.
However, Borrower will and will cause each Subsidiary to, pay or cause to be
paid all such taxes, assessments, charges or levies immediately whenever
foreclosure of any Lien that attaches on the Collateral appears imminent.
9.1.8 FURTHER ASSURANCES. Borrower agrees to, and will cause
each Subsidiary to, execute such other and further documents, including, without
limitation, deeds of trust, promissory notes, security agreements, financing
statements, continuation statements, certificates of title, and the like as may
from time to time in the reasonable opinion of DFS be necessary to perfect,
confirm, establish, re-establish, continue, or complete the security interests,
collateral assignments and Liens in the Collateral, and the purposes and
intentions of this Agreement.
9.1.9 MAINTENANCE OF STATUS. Borrower will take all
necessary steps to (a) preserve its, and each Subsidiary's, existence as a
corporation, (b) preserve Borrower's and the Subsidiaries' franchises and
permits, and (c) comply with all present and future material agreements to which
Borrower, or any of the Subsidiaries, is subject, and (d) maintain, and cause
each Subsidiary to maintain, its qualification and good standing in all states
in which such qualification is necessary or in which the failure to be so
qualified might have a Material Adverse Effect on the financial condition or
properties of Borrower or the Business. Borrower will not change the nature of
the Business during the term of this Agreement.
9.1.10 FINANCIAL STATEMENTS; REPORTING REQUIREMENTS;
CERTIFICATION AS TO EVENTS OF DEFAULTS. During the term of this Agreement,
Borrower will furnish one copy of the following to DFS, upon DFS' request
therefore:
(a) within 120 days after the end of each fiscal year, annual
financial statements for Pomeroy and its Subsidiaries as of
the end of such fiscal year, consisting of a consolidated and
consolidating balance sheet, consolidated and consolidating
statement of operations, consolidated and consolidating
statements of cash flows and consolidated and consolidating
statement of stockholder's equity, in comparative form,
together with a narrative description of the financial
condition and results of operations and the liquidity and
capital resources of Borrower and setting forth in comparative
form the corresponding figures for the corresponding period of
the prior fiscal year and the corresponding figures from the
most recent financial projections of Borrower, discussing the
reasons for any significant variations. The statements and
balance sheet will be audited by an independent firm of
certified public
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accountants selected by Borrower, and certified by that firm
of certified public accountants to have been prepared in
accordance with GAAP. The certified public accountants will
render an unqualified opinion as to such statements and
balance sheets. DFS will have the absolute and irrevocable
right, from time to time, to discuss the affairs of Borrower
directly with the independent certified public accountant
after prior notice to Borrower and the reasonable opportunity
of Borrower to be present at any such discussions;
(b) by the 45th day of each quarter, a certificate of the
President, or Chief Financial Officer, in the form of
EXHIBIT 9.1.10(b) attached hereto, of Borrower stating that
such Person has reviewed the provisions of the Loan
Documents and that a review of the activities of Borrower
during such quarter has been made by or under such Person's
supervision with a view to determining whether Borrower has
observed and performed all of Borrower's obligations under
the Loan Documents, and that, to the best of such Person's
knowledge, information and belief, Borrower has observed
and performed each and every undertaking contained in the
Loan Documents and is not at the time in default in the
observance or performance of any of the terms and
conditions thereof or, if Borrower will be so in default,
specifying all of such defaults and events of which such
Person may have knowledge;
(c) within 60 days after the end of each fiscal year, an
annual budget and income statement with cash flow projections
for the current fiscal year;
(d) promptly upon receipt thereof, copies of all final
reports and final management letters submitted to Borrower or
any of the Borrower's Subsidiaries by independent accountants
in connection with any annual or interim audit of the books of
Borrower or such Subsidiaries made by such accountants;
(e) copies of any and all reports, filings and other
documentation delivered to the Securities and Exchange
Commission by or on behalf of Borrower promptly after the
delivery thereof, if applicable; and
(f) any other statements, reports and other information as
DFS may reasonably request concerning the financial condition
or operations of Borrower and its properties.
9.1.11 NOTICE OF EXISTENCE OF DEFAULT. Borrower will, and
will cause its Subsidiaries to, promptly notify DFS of: (a) the existence of
any known condition or event, which constitutes a Default or an Unmatured
Default and (b) the actual or threatened termination, suspension, lapse or
relinquishment of any material license, authorization, permit or other right
granted Borrower or for Borrower's benefit and used in the Business, or granted
to any of its Subsidiaries or for any such Subsidiaries' benefit, by any
governmental agency material to the Business.
9.1.12 COMPLIANCE WITH LAWS. Borrower will, and will cause
its Subsidiaries to, comply in all material respects with all applicable laws,
rules, regulations and orders the failure to comply with which would have a
Material Adverse Effect on Borrower individually, or Borrower and its
Subsidiaries on a consolidated basis.
9.1.13 MAINTENANCE OF COLLATERAL. Borrower will maintain all
material Collateral and every part thereof in good condition and repair.
Borrower will not permit the value of the Collateral to be materially impaired.
Borrower will defend the Collateral against all claims and legal proceedings by
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persons other than DFS. Borrower will not transfer the Collateral from the
premises where now located (other than Inventory sold in the ordinary course of
business and other Collateral transferred in the ordinary course of business),
or permit the Collateral to become a fixture or accession (unless so affixed on
the Effective Date) to any goods which are not items of Collateral, without the
prior written approval of DFS. Borrower will not permit the Collateral to be
used in violation of any applicable law, regulations, or any policy of
insurance. As to Collateral consisting of instruments and chattel paper,
Borrower will preserve rights in it against prior parties.
9.1.14 COLLATERAL RECORDS AND STATEMENTS. Borrower will keep
such accurate and complete books and records pertaining to the Collateral in
such detail and form as DFS reasonably requires, including, but not limited to:
schedules of Inventory; original orders; invoices; shipping documents; billing
settlements and receivables; sold receivables; Inventory listing containing
model, serial number (if available) and location. Other reporting will be
available upon request by DFS, including, but not be limited to, accounts
payable agings in such form as DFS reasonably requires. The statements will be
in the form and will contain the information as is prescribed by DFS.
9.1.15 INSPECTION OF COLLATERAL. DFS and any third party
appraiser selected by DFS may examine the Collateral at any time, and from time
to time during normal business hours. DFS and any third party appraiser
selected by DFS will have full access to, and the right to: (a) review, inspect
and make abstracts and copies from Borrower's books and records pertaining to
the Collateral, and (b) inspect and examine Inventory and check and test the
same as to quality, quantity, value and condition, wherever located, at any time
during reasonable business hours, and from time to time. Borrower will assist
DFS and any third party appraiser selected by DFS in so doing.
9.1.16 LANDLORD'S AGREEMENTS. Borrower will provide or cause
to be provided, on the Effective Date, landlord waivers and agreements in a form
acceptable to DFS with respect to leased real property and with respect to any
future leases, prior to entering into them.
9.2 NEGATIVE COVENANTS. During the term of this Agreement and
thereafter, for so long as any Obligations are outstanding and unpaid, Borrower
covenants that unless otherwise consented to in writing by DFS, Borrower shall
not perform or cause or permit to be performed the following acts:
9.2.1 CHANGE OF NAME, ETC. Borrower and the Subsidiaries
will not change their name, or begin to trade under any assumed names or trade
names without thirty (30) days prior written notice to DFS. Borrower will not,
and will not permit any Subsidiary to, change its manner of organization, enter
into any mergers, consolidations, reorganizations or recapitalizations without
DFS' prior written consent which shall not be unreasonably withheld, other than
as contemplated herein.
9.2.2 SALE OR TRANSFER OF ASSETS. Except in the ordinary
course of business, except for other asset sales not exceeding $100,000 in
the aggregate during any fiscal year, or except as consented to in writing by
DFS, Borrower and the Subsidiaries will not sell, transfer, lease (including
sale-leaseback) or otherwise dispose of all or any substantial part of their
assets. This provision will not apply to any sale if the proceeds of such
sale pay the Obligations in full.
9.2.3 ENCUMBRANCE OF ASSETS. Borrower will not, and will not
permit a Subsidiary to, mortgage, pledge, grant or permit to exist a security
interest in or Lien upon any of the Collateral, now owned or hereafter acquired
except for the Permitted Liens.
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9.2.4 ACQUISITION OF STOCK OR ASSETS; NEW SUBSIDIARIES.
Borrower and the Subsidiaries will not, without at least thirty (30) days prior
written notice to DFS, acquire, or enter into any agreement, to acquire, all or
substantially all the assets of, equity interest or stock in, another business,
nor will the Borrower hereafter create any new Subsidiaries. Borrower and the
Subsidiaries shall give DFS prompt written notice of entering into any
commitment letter or letter of intent to acquire all or substantially all of the
assets of, equity interest or stock in another business.
9.2.5 FALSE CERTIFICATES OR DOCUMENTS. Borrower has not and
will not, and will not permit any Subsidiary to, furnish DFS with any
certificate or other document that contains any untrue statement of material
fact or that omits to state a material fact necessary to make it not misleading
in light of the circumstances under which it was furnished.
9.2.6 ASSIGNMENT. Borrower will not assign or attempt to
assign the Loan Documents or any of its interests under the Loan Documents,
except in favor of DFS.
9.2.7 TRANSACTIONS WITH AFFILIATES. Borrower will not
enter into any contracts, leases, sales or other transactions with any
Affiliate on terms less favorable than could be obtained generally by
Borrower from a non-Affiliate.
9.2.8 DIVIDENDS. Borrower will not declare or pay any
dividends (other than a stock dividend) upon its capital stock in any given
fiscal year in amount in excess of fifty percent (50%) of Borrower's net profits
for such fiscal year, without DFS' prior written consent.
9.2.9 LOANS BY BORROWER. Borrower will not, and will not
permit any Subsidiary to, make any loan to any Person which exceed in the
aggregate at any time One Million Dollars ($1,000,000), except for loans in
anticipation of reasonable and normally reimbursable business expenses and trade
credit extended in the ordinary course of Business.
9.2.10 FISCAL YEAR. Borrower will not change its fiscal
year-end without sixty (60) days prior written notice to DFS.
9.2.11 TOTAL INDEBTEDNESS. Borrower shall not create, incur,
assume, or suffer to exist, or permit any Subsidiary to create, incur or suffer
to exist, any Indebtedness, except:
(a) the Obligations;
(b) Subordinated Debt;
(c) Indebtedness of any Subsidiary to Borrower;
(d) Accounts payable to trade creditors and current operating
expenses (other than for money borrowed) incurred in the
ordinary course of business which are aged not more than
thirty (30) days past due, unless actively contested in good
faith and by appropriate and lawful proceedings and for which
adequate reserves have been established in accordance with
GAAP;
(e) Permitted Purchase Money Indebtedness;
(f) Capitalized Lease Obligations not to exceed $250,000
outstanding at any time;
(g) [RESERVED];
(h) [RESERVED]; and
(i) Obligations under Operating Leases permitted by SECTION
9.2.16.
9.2.12 ADVERSE TRANSACTIONS. Borrower will not enter into
any transaction, or permit any Subsidiary to enter into any transaction, which
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materially and adversely affects or may materially and adversely affect the
Collateral or Borrower's ability to repay the Obligations or permit or agree to
any material extension, compromise or settlement or make any change or
modification of any kind or nature with respect to any Account, including any of
the terms relating thereto, other than discounts and allowances in the ordinary
course of business, all of which shall be reflected in the Borrowing Base
Certificate submitted to DFS pursuant to SECTION 3.3 of this Agreement.
9.2.13 GUARANTIES. Borrower will not guarantee, assume,
endorse or otherwise, in any way, become directly or contingently liable with
respect to the Indebtedness of any Person, except by endorsement of instruments
or items of payment for deposit or collection.
9.2.14 MARGIN SECURITIES. Borrower will not own, purchase or
acquire, or permit any Subsidiary to own, purchase or acquire, (or enter, or
permit any Subsidiary to enter, into any contract to purchase or acquire) any
"margin security" as defined by any regulation of the Federal Reserve Board as
now in effect or as the same may hereafter be in effect unless, prior to any
such purchase or acquisition or entering into any such contract, DFS shall have
received an opinion of counsel satisfactory to DFS to the effect that such
purchase or acquisition will not cause this Agreement to violate Regulations G
or U or any other regulation of the Federal Reserve Board then in effect.
9.2.15 TAX CONSOLIDATION. Borrower will not file or consent
to the filing of any consolidated income tax return with any Person other than a
Subsidiary.
9.2.16 OPERATING LEASES. The Borrower shall not, and shall
not permit any Subsidiary of the Borrower to, enter into any Operating Leases
except for Operating Leases entered into in the ordinary course of business in
the manner and to the extent consistent with past practice; provided, however,
that the total rent per annum for all Operating Leases of the Borrower and its
Subsidiaries shall not exceed $1,000,000 in the aggregate, for any fiscal year.
9.3 FINANCIAL COVENANTS.
9.3.1 AMOUNTS. Borrower agrees that it will cause Pomeroy to
at all times maintain the following:
(a) a Tangible Net Worth plus Subordinated Debt in the combined
amount of not less than Fifty Million Dollars ($50,000,000);
(b) a ratio of Debt minus Subordinated Debt to Tangible Net Worth
plus Subordinated Debt of not more than Four to One (4.0:1.0); and
(c) a ratio of Current Tangible Assets to current liabilities of not
less than One and Twenty One-Hundredths to One (1.20:1.0).
For purposes of this paragraph: (i) "TANGIBLE NET WORTH" means the
book value of Borrower's assets less liabilities (including as
liabilities all reserves for contingencies and other potential
liabilities), excluding from such assets all Intangibles; (ii)
"INTANGIBLES" means and includes general intangibles (as that term
is defined in the Uniform Commercial Code); accounts receivable and
advances due from officers, directors, member, owner, employees,
stockholders and affiliates; leasehold improvements net of
depreciation; licenses; good will; prepaid expenses; escrow
deposits; covenants not to compete; the excess of cost over book
value of acquired assets; franchise fees; organizational costs;
finance reserves held for recourse obligations; capitalized research
and development costs; and such other similar items as DFS may from
time to time
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determine in DFS' sole discretion; (iii) "DEBT" means all of
Borrower's liabilities and indebtedness for borrowed money of
any kind and nature whatsoever, whether direct or indirect, absolute
or contingent, and including obligations under capitalized leases,
guaranties or with respect to which Borrower has pledged assets to
secure performance, whether or not direct recourse liability has
been assumed by Borrower; (iv) "SUBORDINATED DEBT" means all of
Borrower's Debt which is subordinated to the payment of Borrower's
liabilities to DFS by an agreement in form and substance
satisfactory to DFS; and (v) "CURRENT TANGIBLE ASSETS" means
Borrower's current assets less, to the extent otherwise included
therein, all Intangibles. The foregoing terms will be determined
in accordance with GAAP, and on a consolidated basis at Pomeroy's
level ("FINANCIAL COVENANTS").
9.3.2 COVENANT COMPLIANCE CERTIFICATE. The President or
Chief Financial Officer of Borrower will certify to DFS by the 45th day of each
quarter, or more often if requested by DFS, that Borrower is in compliance with
the Financial Covenants as set forth in a form acceptable to DFS in its sole
discretion.
10. DEFAULT/REMEDIES
Borrower will be in default under this Agreement (each, a "DEFAULT")
if:
(a) Borrower breaches any terms, covenants, warranties or
representations contained herein, or in any other Loan Document;
(b) any Corporate Guarantor breaches any terms, covenants,
warranties or representations contained in any guaranty or other agreement
between such Corporate Guarantor and DFS, revokes or attempts to revoke any such
guaranty agreement, or repudiates such Corporate Guarantor's liability
thereunder;
(c) any representation, statement, report or certificate made or
delivered by Borrower or any Corporate Guarantor to DFS is not accurate when
made and such breach is not cured to DFS' satisfaction within five (5) days
after the sooner to occur of Borrower's receipt of notice of such breach from
DFS or the date on which such breach becomes known to any officer of Borrower;
(d) Borrower fails to pay any portion of Borrower's debts to DFS
when due and payable hereunder or under any other agreement between DFS and
Borrower;
(e) Borrower abandons any material amount of the Collateral;
(f) Borrower or any Corporate Guarantor is or becomes in default of
any obligation owed to any third party which exceeds at any time the aggregate
amount of $1,000,000;
(g) money judgment(s) are issued against Borrower or any Corporate
Guarantor which are not dismissed, satisfied or discharged within 30 days and
which exceed at any time the aggregate amount of $1,000,000;
(h) an attachment, sale or seizure issues or is executed against any
assets of Borrower or against any assets of any Corporate Guarantor which is not
satisfied or released within ten (10) days;
(i) [RESERVED];
(j) Borrower or any Corporate Guarantor ceases existence as a
corporation unless such Corporate Guarantor ceases existence pursuant to a
merger with and into Borrower;
(k) (i) Borrower ceases or suspends business, or (ii) any Corporate
Guarantor ceases or suspends business outside the ordinary course of its
business; provided, however, that the cessation or suspension of the business of
any Corporate Guarantor for any reason whatsoever shall be a Default if such
event occurs without prior notice thereof to DFS;
(l) Borrower or any Corporate Guarantor makes a general assignment
for the benefit of creditors;
(m) Borrower or any Corporate Guarantor becomes insolvent or
voluntarily or involuntarily becomes subject to the Federal Bankruptcy Code, any
state insolvency law or any similar law;
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(n) any receiver is appointed for any of Borrower's or any Corporate
Guarantor's assets;
(o) any guaranty of Borrower's debts to DFS is terminated or
notification of Corporate Guarantor's intent to so terminate is given to DFS;
(p) Borrower loses any franchise, permission, license or right to
sell or deal in any Collateral which would have a Material Adverse Effect upon
Borrower;
(q) Borrower or any Corporate Guarantor misrepresents Borrower's or
such Corporate Guarantor's financial condition or organizational structure;
(r) any of the Collateral becomes subject to any Lien, claim,
encumbrance or security interest other than a Permitted Lien and other than any
other Liens, not to exceed $100,000 in the aggregate at any time;
(s) Borrower shall be enjoined, restrained or in any way prevented
by court, governmental or administrative order from conducting all or any
material part of its Business; or any material lease or agreement pursuant to
which Borrower leases, uses or occupies any property shall be canceled or
terminated prior to the expiration of its stated term, or any material part of
the Collateral shall be taken through condemnation or the value thereof shall be
impaired through condemnation;
(t) [RESERVED];
(u) there shall occur a change which has a Material Adverse Effect
on the financial or other condition or business prospects of Borrower or any
Corporate Guarantor;
(v) [RESERVED];
(w) there exists any default under the terms of a Participation
Agreement, including but not limited to, Participant's failure to fund its share
of any Working Capital Loan or to provide at least $10,000,000 of participations
in the Working Capital Loans;
(x) the Participation Agreement is terminated for any reason; or
(y) DFS determines in good faith that it is insecure with respect to
any of the Collateral or the payment of any part of Borrower's Obligations.
In the event of a Default:
(i) DFS may at any time at DFS' election, with notice or demand to
Borrower, do any one or more of the following: cease making further
Loans and declare all or any of the Obligations immediately due and
payable, together with all costs and expenses of DFS' collection
activity, including, without limitation, all reasonable attorneys'
fees; exercise any or all rights under applicable law (including,
without limitation, the right to possess, transfer and dispose of
the Collateral); and/or cease extending any additional credit to
Borrower.
(ii) Borrower will segregate and keep the Collateral in trust for DFS,
and in good order and repair, and will not sell, rent, lease,
consign, otherwise dispose of or use any Collateral, nor further
encumber any Collateral.
(iii) Upon DFS' oral or written demand, Borrower will immediately deliver
the Collateral to DFS, in good order and repair, at a place
specified by DFS, together with all related documents; or DFS may,
in DFS' sole discretion and without notice or demand to Borrower,
take immediate possession of the Collateral together with all
related documents.
(iv) DFS may, without notice, apply the Default Interest Rate.
(v) DFS may, without notice to Borrower and at any time or times,
enforce payment and collect, by legal proceedings or otherwise,
Accounts in the name of Borrower or DFS; and take control of any
cash or non-cash items of payment or proceeds of Accounts and of any
rejected, returned, repossessed or stopped in transit goods relating
to Accounts. DFS may at its sole election and without demand enter,
with or without process of law, any premises where Collateral might
be and, without charge or liability to DFS therefor do one or more
of the following: (i) take possession of the Collateral and use or
store it
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in said premises or remove it to such other place or places
as DFS may deem convenient; (ii) take possession of all or part of
such premises and the Collateral and place a custodian in the
exclusive control thereof until completion of enforcement of DFS'
security interest in the Collateral or until DFS' removal of the
Collateral and, (iii) remain on such premises and use the same,
together with Borrower's materials, supplies, books and records,
for the purpose of liquidating or collecting such Collateral and
conducting and preparing for disposition of such Collateral.
(vi) Upon the occurrence of a Default under SECTIONS 10.1 (l), (m), OR
(n), all Obligations shall automatically be accelerated and due and
payable and the Default Interest Rate shall automatically apply as
of the date of the first occurrence of such Default, without any
prior notice, demand or action of any type on the part of DFS.
All of DFS' rights and remedies are cumulative. DFS' failure to exercise
any of DFS' rights or remedies hereunder will not waive any of DFS' rights
or remedies as to any past, current or future Default.
11. SALE OF COLLATERAL
Borrower agrees that if DFS conducts a private sale of any
Collateral by requesting bids from 10 or more dealers or distributors in that
type of Collateral, any sale by DFS of such Collateral in bulk or in parcels
within 120 days of: (a) DFS' taking possession and control of such Collateral;
or (b) when DFS is otherwise authorized to sell such Collateral; whichever
occurs last, to the bidder submitting the highest cash bid therefor, is a
commercially reasonable sale of such Collateral under the Uniform Commercial
Code. Borrower agrees that the purchase of any Collateral by a vendor, as
provided in any agreement between DFS and the vendor, if any, is a commercially
reasonable disposition and private sale of such Collateral under the Uniform
Commercial Code, and no request for bids shall be required. Borrower further
agrees that 7 or more days prior written notice will be commercially reasonable
notice of any public or private sale (including any sale to a vendor). Borrower
irrevocably waives any requirement that DFS retain possession and not dispose of
any Collateral until after an arbitration hearing, arbitration award,
confirmation, trial or final judgment. If DFS disposes of any such Collateral
other than as herein contemplated, the commercial reasonableness of such
disposition will be determined in accordance with the laws of the state
governing this Agreement.
12. INDEMNIFICATIONS
12.1 GENERAL INDEMNITY. In addition to the payment of expenses and
attorneys' fees, if applicable, whether or not the transactions contemplated
hereby shall be consummated, Borrower agrees to indemnify, pay and hold DFS and
the officers, directors, employees, agents, and affiliates of DFS (collectively
called the "INDEMNITEES") harmless from and against, any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for any of such Indemnitees in connection with any investigative, administrative
or judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto), that may be imposed on,
incurred by, or asserted against the Indemnitees, in any manner relating to or
arising out of the Loan Documents, the statements contained in any commitment
letters delivered by DFS, DFS' agreement to make the Loans or any other payment
hereunder, or the use or intended use of the proceeds of any of the Loans
hereunder (the "INDEMNIFIED LIABILITIES"); PROVIDED, HOWEVER, that Borrower
shall have no obligation to an Indemnitee hereunder with respect to Indemnified
Liabilities arising from the gross negligence or willful misconduct of an
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Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, Borrower shall contribute the maximum
portion that it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees or any of them. The provisions of the undertakings and
indemnification set out in this SECTION 12.1 shall survive satisfaction and
payment of the Obligations and termination of this Agreement.
12.2 ENVIRONMENTAL AND SAFETY AND HEALTH INDEMNITY. Borrower
hereby indemnifies the Indemnitees and agrees to hold the Indemnitees harmless
from and against any and all losses, liabilities, damages, injuries, costs,
expenses and claims of any and every kind whatsoever (including, without
limitation, court costs and attorneys' fees) which at any time or from time to
time may be paid, incurred or suffered by, or asserted against, an Indemnitee
for, with respect to, or as a direct or indirect result of the violation by
Borrower or any Subsidiary, of any Environmental Law or OSHA Law; or with
respect to, or as a direct or indirect result of (a) the presence on or under,
or the escape, seepage, leakage, spillage, disposal, discharge, emission or
release from, properties utilized by Borrower and/or any Subsidiary in the
conduct of its business into or upon any land, the atmosphere, or any
watercourse, body of water or wetland, of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance (including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under the Environmental
Laws) or (b) the existence of any unsafe or unhealthful condition on or at any
premises utilized by Borrower and/or any Subsidiary in the conduct of its
business. The provision of and undertakings and indemnification set out in this
SECTION 12.2 shall survive satisfaction and payment of the Obligations and
termination of this Agreement.
13. OTHER TERMS
13.1 AMENDMENT, CHANGES AND MODIFICATION. The Loan Documents may
be amended, changed or modified only as may be agreed upon in writing by
Borrower and DFS from time to time.
13.2 BINDING EFFECT. The Loan Documents will be binding upon the
parties, their successors and assigns, provided, however, that Borrower shall
not assign or attempt to assign this Agreement, any other Loan Document or any
of its interests under the Loan Documents, without the prior written consent of
DFS.
13.3 BROKER FEE. Neither party is obligated to pay any premium or
other charge, brokerage fee or commission in connection with the agreements set
forth herein. Each party will indemnify the other and hold it harmless from any
such claim arising out of such party's acts or those of its representatives.
13.4 ENTIRE AGREEMENT. The Loan Documents embody the entire
agreement of the parties relating to the Credit Facility. There are no
promises, terms, conditions, obligations or warranties other than those
contained in the Loan Documents. The Loan Documents supersede all prior
communications, representations or agreements, verbal or written, between the
parties relating to the Credit Facility.
13.5 HEADINGS. The headings to the sections of this Agreement are
included only for the convenience of the parties and will not have the effect of
defining, diminishing or enlarging the rights of the parties or affecting the
construction or interpretation of any portion of this Agreement.
13.6 INCORPORATION BY REFERENCE. All other Loan Documents are
incorporated herein by this reference and are made a part of this Agreement as
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if fully set forth herein. This Agreement, prior to such incorporation,
controls in the event of any conflict with the terms of any other Loan
Documents.
13.7 INTERPRETATION. For the purpose of construing this Agreement,
unless the context otherwise requires, words in the singular will be deemed to
include words in the plural, and vice versa.
13.8 NOTICES. Any notice under the Loan Documents, will be in
writing. Any notice to be given or document to be delivered under the Loan
Documents will be deemed to have been duly given upon delivery, if delivered in
person or by any expedited delivery service which provides proof of delivery,
upon tested telex or facsimile transmission, or on the fifth Business Day after
mailing, if mailed by certified mail, return receipt requested, postage prepaid
mail, addressed to DFS or Borrower at the appropriate addresses. DFS will use
reasonable efforts to deliver any notice DFS is required to give to Borrower;
provided, however, that failure by DFS to actually give any such notice will not
be deemed to be a waiver of any rights or remedies of DFS and will not give rise
to any claims, defenses or damages by Borrower. The addresses for notices are
those set forth below or such other addresses as may be hereafter specified by
written notice by the parties:
to DFS: Deutsche Financial Services Corporation
1630 Des Peres Road, Suite 240
St. Louis, MO 63131
Attention: Regional Vice President
Facsimile No.: (314) 821-7751
with a copy to: Deutsche Financial Services Corporation
655 Maryville Centre Drive
St. Louis, MO 63141-5832
Attention: General Counsel
Facsimile No.: (314) 523-3228
to Borrower: Pomeroy Select Integration Solutions, Inc.
1020 Petersburg Road
Hebron, KY 41048
Attention: Stephen E. Pomeroy, Chief Financial Officer
Facsimile No.: (606) 334-5399
with a copy to: Lindhorst & Dreidame Co., L.P.A.
Suite 2300
312 Walnut Street
Cincinnati, OH 45201-4091
Attention: James H. Smith, III, Esq.
Facsimile No.: (513) 421-0212
13.9 NO THIRD PARTY BENEFICIARY RIGHTS AND RELIANCE. No Person not
a party to this Agreement will have any benefit under this Agreement nor have
third-party beneficiary rights as a result of any of the Loan Documents, nor
will any party be entitled to rely on any actions or inactions of DFS or its
agents, all of which are done for the sole benefit and protection of DFS.
13.10 PROTECTION OR PRESERVATION OF COLLATERAL. DFS will not have
any contractual duty to protect, insure, collect or realize upon the Collateral
or preserve rights in it against prior parties. DFS will not be responsible or
liable for any shortage, discrepancy, damage, loss or destruction of any part of
the Collateral regardless of the cause, excepting those arising directly from
DFS' gross negligence or willful misconduct.
13.11 RELATIONSHIP OF THE PARTIES. Neither DFS on the one hand nor
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<PAGE>
Borrower on the other hand will be deemed a partner, joint venturer or related
entity of the other by reason of the Loan Documents.
13.12 REVERSAL OF PAYMENTS. To the extent that Borrower makes a
payment or payments to DFS, which payment or payments or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law, or equitable cause,
then to the extent of such payment or proceeds received, the Credit Facility
will be revived and continue in full force and effect, as if such payment or
proceeds had not been received by DFS.
13.13 SEVERABILITY. If any provision of this Agreement (either
generally, or as to a specific application to a set of facts) will be held to be
invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement (either
in its entirety, or as to or the application of such provision to any other set
of facts), but this Agreement will be construed as if such invalid, illegal or
unenforceable provision never had been included in this Agreement.
13.14 MAXIMUM INTEREST. Borrower acknowledges that DFS intends to
strictly conform to the applicable usury laws governing this Agreement.
Regardless of any provision contained herein or in any other document executed
or delivered in connection herewith or therewith, DFS shall never be deemed to
have contracted for, charged or be entitled to receive, collect or apply as
interest on this Agreement (whether termed interest herein or deemed to be
interest by judicial determination or operation of law), any amount in excess of
the maximum amount allowed by applicable law, and, if DFS ever receives,
collects or applies as interest any such excess, such amount which would be
excessive interest will be applied first to the reduction of the unpaid
principal balances of advances under this Agreement, and, second, any remaining
excess will be paid to Borrower. In determining whether or not the interest
paid or payable under any specific contingency exceeds the highest lawful rate,
Borrower and DFS shall, to the maximum extent permitted under applicable law:
(a) characterize any non-principal payment (other than payments which are
expressly designated as interest payments hereunder) as an expense or fee rather
than as interest; (b) exclude voluntary pre-payments and the effect thereof; and
(c) spread the total amount of interest throughout the entire term of this
Agreement so that the interest rate is uniform throughout such term.
13.15 WAIVERS BY DFS. DFS may at any time or from time to time
waive all or any rights under any of the Loan Documents, but any waiver or
indulgence at any time or from time to time will not constitute, unless
specifically so expressed by DFS in writing, a future waiver by DFS of
performance by Borrower.
13.16 SURVIVAL. The grant of security interest herein to secure all
Obligations, and all provisions relating to the Collateral will survive
termination of this Agreement and will remain in full force and effect until all
Obligations have been paid in full and this Agreement has been terminated. The
Agreement to arbitrate all Disputes will survive termination of this Agreement.
13.17 PARTICIPATIONS; ASSIGNMENTS. DFS may, without the consent of
Borrower, grant participations in or assign, at any time and from time to time
hereafter, its interest in this Agreement or any Loan Document, or of any
portion thereof.
13.18 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
33
<PAGE>
13.19 INFORMATION. DFS may provide to any third party any credit
information on Borrower that DFS may from time to time possess.
13.20 RELEASE. Borrower releases DFS from all claims and causes of
action which Borrower may now or hereafter have for any loss or damage to it
claimed to be caused by or arising from: (a) any failure of DFS to protect,
enforce or collect, in whole or in part, any Account; (b) DFS' notification to
any Account Debtors thereon of DFS' security interest in any of the Accounts;
(c) DFS' directing any Account Debtor to pay any sum owing to Borrower directly
to DFS; and (d) any other act or omission to act on the part of DFS, its
officers, agents or employees, except for willful misconduct or gross
negligence. DFS will have no obligation to preserve rights to Accounts against
prior parties.
13.21 MISCELLANEOUS. Time is of the essence regarding Borrower's
performance of its obligations to DFS notwithstanding any course of dealing or
custom on DFS' part to grant extensions of time. Borrower's liability under
this Agreement is direct and unconditional and will not be affected by the
release or nonperfection of any security interest granted hereunder. DFS will
have the right to refrain from or postpone enforcement of this Agreement or any
other Loan Documents without prejudice and the failure to strictly enforce the
Loan Documents will not be construed as having created a course of dealing
between DFS and Borrower contrary to the specific terms of the Loan Documents or
as having modified, released or waived the same. The express terms of this
Agreement and the other Loan Documents will not be modified by any course of
dealing, usage of trade, or custom of trade which may deviate from the terms
hereof. If Borrower fails to pay any taxes, fees or other obligations which may
impair DFS' interest in the Collateral, or fails to keep the Collateral insured,
DFS may, but shall not be required to, pay such taxes, fees or obligations and
pay the cost to insure the Collateral, and the amounts paid will be: (a) an
additional debt owed by Borrower to DFS, which shall be subject to finance
charges as provided herein; and (b) due and payable immediately in full.
Borrower agrees to pay all of DFS' reasonable attorneys' fees and expenses
incurred by DFS in enforcing DFS' rights hereunder.
13.22 WAIVERS BY BORROWER. Borrower irrevocably waives notice of:
DFS' acceptance of this Agreement, presentment, demand, protest, nonpayment,
nonperformance, and dishonor. Borrower and DFS irrevocably waive all rights to
claim any punitive and/or exemplary damages. Borrower waives all rights of
offset Borrower may have against DFS. Borrower waives all notices of default
and non-payment at maturity of any or all of the Accounts.
13.23 NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LEND
MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU,
(BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH
IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS
WE MAY LATER AGREE IN WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS
BETWEEN THE PARTIES. DFS may, from time to time, announce in writing to
Borrower its policies and procedures regarding its administration of this
facility including, without limit, DFS' fees and/or charges for transfers of
funds to or from Borrower, including Electronic Transfers; any subsequent use by
Borrower of this facility following any such announcement shall constitute
Borrower's acceptance of such revised policies and procedures.
13.24 SUPPLEMENT. If Borrower and DFS have heretofore executed
other agreements in connection with all or any part of the Collateral, this
Agreement shall supplement each and every other agreement previously executed by
and between Borrower and DFS, and in that event, this Agreement shall neither be
deemed a novation nor a termination of such previously executed agreement nor
34
<PAGE>
shall execution of this Agreement be deemed a satisfaction of any obligation
secured by such previously executed agreement.
13.25 USE OF COUNSEL AND RECEIPT OF AGREEMENT. Borrower
acknowledges that it has received a true and complete copy of this Agreement.
Borrower acknowledges that it has (a) had representation of counsel during
negotiation of this Agreement, and (b) read and understood this Agreement.
13.26 FACSIMILES, ETC. Notwithstanding anything herein to the
contrary: (a) DFS may rely on any facsimile copy, electronic data transmission
or electronic data storage of any statement, financial statements or other
reports, and (b) such facsimile copy, electronic data transmission or electronic
data storage will be deemed an original, and the best evidence thereof for all
purposes, including, without limitation, under this Agreement or any other Loan
Documents, and for all evidentiary purposes before any arbitrator, court or
other adjudicatory authority.
13.27 POWER OF ATTORNEY. Borrower irrevocably appoints DFS (and any
Person designated by it) as Borrower's true and lawful Attorney with full power
to at any time, in the discretion of DFS (whether or not Default has occurred)
to: (a) endorse the name of Borrower upon any of the items of payment of
proceeds of the Collateral and deposit the same in the account of DFS for
application to the Obligations; (b) sign the name of Borrower to verify the
accuracy of the Accounts; (c) sign the name of Borrower on any document or
instrument that DFS shall deem necessary or appropriate to perfect and maintain
perfected the security interests in the Collateral under this Agreement and
other Loan Documents; (d) initiate and settle any insurance claim and endorse
Borrower's name on any check, instrument or other item of payment; (e) endorse
the name of Borrower upon financing statements, instruments, Certificates of
Title and Statements of Origin pertaining to the Collateral; (f) supply omitted
information and correct errors in any documents between DFS and Borrower; and
(g) do anything to preserve and protect the Collateral and DFS' rights and
interest therein. In the event of a Default, Borrower irrevocably appoints DFS
(and any Person designated by it) as Borrower's true and lawful Attorney with
full power to at any time, in the discretion of DFS to: (i) demand payment,
enforce payment and otherwise exercise all of Borrower's rights, and remedies
with respect to the collection of any Accounts; (ii) settle, adjust, compromise,
extend or renew any Accounts; (iii) settle, adjust or compromise any legal
proceedings brought to collect any Accounts; (iv) sell or assign any Accounts
upon such terms, for such amounts and at such time or times as DFS may deem
advisable; (v) discharge and release any Accounts; (vi) prepare, file and sign
Borrower's name on any Proof of Claim in Bankruptcy or similar document against
any Account Debtor; (vii) endorse the name of Borrower upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading o similar document
or agreement relating to any Account or goods pertaining thereto; and (viii)
take control in any manner of any item of payments or proceeds and for such
purpose to notify the Postal Authorities to change the address for delivery of
mail addressed to Borrower to such address as DFS may designate. This power of
attorney is for value and coupled with an interest and is irrevocable so long as
any Obligations remain outstanding and by DFS exercising such right, DFS shall
not waive any right against Borrower until the Obligations are paid in full.
13.28 EXPENSES. Borrower agrees, whether or not any Loan is made
hereunder, to pay DFS upon demand for all reasonable expenses, including
reasonable fees of attorneys for DFS (who may be employees of DFS), incurred by
DFS in connection with the enforcement of the Borrower's obligations hereunder
or under any other Loan Document. Borrower also agrees to (i) indemnify and
hold DFS harmless from any loss or expense which may arise or be created by the
acceptance of telephonic or other instructions for making Loans, except for any
loss or expense arising from DFS' gross negligence or willful misconduct
(provided, however, that reliance alone upon telephonic or other instructions
35
<PAGE>
shall not itself be deemed to constitute gross negligence or willful
misconduct), and (ii) to pay and save DFS harmless from all liability for, any
stamp or other taxes which may be payable with respect to the execution or
delivery of this Agreement or any of the other Loan Documents. Borrower's
obligations under this SECTION 13.28 shall survive any termination of this
Agreement.
14. BINDING ARBITRATION.
14.1 ARBITRABLE CLAIMS. Except as otherwise specified below, all
actions, disputes, claims and controversies under common law, statutory law or
in equity of any type or nature whatsoever (including, without limitation, all
torts, whether regarding negligence, breach of fiduciary duty, restraint of
trade, fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, usury or any other tort, all contract
actions, whether regarding express or implied terms, such as implied covenants
of good faith, fair dealing, and the commercial reasonableness of any Collateral
disposition, or any other contract claim, all claims of deceptive trade
practices or lender liability, and all claims questioning the reasonableness or
lawfulness of any act), whether arising before or after the date of this
Agreement, and whether directly or indirectly relating to: (a) this Agreement
and/or any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (b) any previous or subsequent agreement between DFS and
Borrower; (c) any act committed by DFS or by any parent company, subsidiary or
affiliated company of DFS (the "DFS COMPANIES"), or by any employee, agent,
officer or director of a DFS Company whether or not arising within the scope and
course of employment or other contractual representation of the DFS Companies
provided that such act arises under a relationship, transaction or dealing
between DFS and Borrower; and/or (d) any other relationship, transaction or
dealing between DFS and Borrower (collectively the "DISPUTES"), will be subject
to and resolved by binding arbitration.
14.2 ADMINISTRATIVE BODY. All arbitration hereunder will be conducted by
the American Arbitration Association ("AAA"). If the AAA is dissolved,
disbanded or becomes subject to any state or federal bankruptcy or insolvency
proceeding, the parties will remain subject to binding arbitration which will be
conducted by a mutually agreeable arbitral forum. The parties agree that all
arbitrator(s) selected will be attorneys with at least five (5) years secured
transactions experience. The arbitrator(s) will decide if any inconsistency
exists between the rules of any applicable arbitral forum and the arbitration
provisions contained herein. If such inconsistency exists, the arbitration
provisions contained herein will control and supersede such rules. The site of
all arbitration proceedings will be in the Division of the Federal Judicial
District in which AAA maintains a regional office that is closest to Borrower.
14.3 DISCOVERY. Discovery permitted in any arbitration proceeding
commenced hereunder is limited as follows. No later than thirty (30) days after
the filing of a claim for arbitration, the parties will exchange detailed
statements setting forth the facts supporting the claim(s) and all defenses to
be raised during the arbitration, and a list of all exhibits and witnesses. No
later than twenty-one (21) days prior to the arbitration hearing, the parties
will exchange a final list of all exhibits and all witnesses, including any
designation of any expert witness(es) together with a summary of their
testimony; a copy of all documents and a detailed description of any property to
be introduced at the hearing. Under no circumstances will the use of
interrogatories, requests for admission, requests for the production of
documents or the taking of depositions be permitted. However, in the event of
the designation of any expert witness(es), the following will occur: (a) all
information and documents relied upon by the expert witness(es) will be
delivered to the opposing party, (b) the opposing party will be permitted to
depose the expert witness(es), (c) the opposing party will be permitted to
36
<PAGE>
designate rebuttal expert witness(es), and (d) the arbitration hearing will be
continued to the earliest possible date that enables the foregoing limited
discovery to be accomplished.
14.4 EXEMPLARY OR PUNITIVE DAMAGES. The Arbitrator(s) will not have the
authority to award exemplary or punitive damages and each party hereby
irrevocably waives any right to claim any exemplary or punitive damages.
14.5 CONFIDENTIALITY OF AWARDS. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential (except to the
extent disclosure is required by law or by any governmental agency), although
any award or order rendered by the arbitrator(s) pursuant to the terms of this
Agreement may be entered as a judgment or order in any state or federal court
and may be confirmed within the federal judicial district which includes the
residence of the party against whom such award or order was entered. This
Agreement concerns transactions involving commerce among the several states. The
Federal Arbitration Act, Title 9 U.S.C. Sections 1 et seq., as amended ("FAA")
will govern all arbitration(s) and confirmation proceedings hereunder.
14.6 PREJUDGMENT AND PROVISIONAL REMEDIES. Nothing herein will be
construed to prevent DFS' or Borrower's use of bankruptcy, receivership,
injunction, repossession, replevin, claim and delivery, sequestration, seizure,
attachment, foreclosure, dation and/or any other prejudgment or provisional
action or remedy relating to any Collateral for any current or future debt owed
by either party to the other. Any such action or remedy will not waive DFS' or
Borrower's right to compel arbitration of any Dispute.
14.7 ATTORNEYS' FEES. If either Borrower or DFS brings any other action
for judicial relief with respect to any Dispute (other than those set forth in
SECTION 14.6) the party bringing such action will be liable for and immediately
pay all of the other party's costs and expenses (including attorneys' fees)
incurred to stay or dismiss such action and remove or refer such Dispute to
arbitration. If either Borrower or DFS brings or appeals an action to vacate or
modify an arbitration award and such party does not prevail, such party will pay
all costs and expenses, including attorneys' fees, incurred by the other party
in defending such action. Additionally, if one party sues the other party or
institutes any arbitration claim or counterclaim against the other party in
which the other party prevails, the first party will pay all costs and expenses
(including attorneys' fees) incurred by the prevailing party in the course of
defending such action or proceeding.
14.8 LIMITATIONS. Any arbitration proceeding must be instituted: (a)
with respect to any Dispute for the collection of any debt owed by either party
to the other, within two (2) years after the date the last payment was received
by the instituting party; and (b) with respect to any other Dispute, within two
(2) years after the date the incident giving rise thereto occurred, whether or
not any damage was sustained or capable of ascertainment or either party knew of
such incident. Failure to institute an arbitration proceeding within such
period will constitute an absolute bar and waiver to the institution of any
proceeding, whether arbitration or a court proceeding, with respect to such
Dispute.
14.9 SURVIVAL AFTER TERMINATION. The agreement to arbitrate will survive
the termination of this Agreement.
15. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS
AGREEMENT IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH
RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE WITHOUT A JURY. BORROWER AND DFS WAIVE ANY RIGHT TO A JURY TRIAL IN ANY
SUCH PROCEEDING.
37
<PAGE>
16. GOVERNING LAW. Borrower acknowledges and agrees that this and all
other agreements between Borrower and DFS have been substantially negotiated,
and will be substantially performed, in the state of Missouri. Accordingly,
Borrower agrees that all Disputes will be governed by, and construed in
accordance with, the laws of such state, except to the extent inconsistent with
the provisions of the FAA which shall control and govern all arbitration
proceedings hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
38
<PAGE>
IN WITNESS WHEREOF, the parties have, by their duly authorized
officers, executed this Agreement as of the Effective Date.
THIS AGREEMENT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS
ATTEST: POMEROY SELECT INTEGRATION SOLUTIONS, INC.
By:________________________ By:
Secretary Print Name: _______________________________
Title:
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:
Print Name: Michael Scott
Title: Regional Vice President
1
<PAGE>
INDEX OF EXHIBITS
EXHIBIT 3.3 BORROWING BASE CERTIFICATE
EXHIBIT 5.1(a) AUTHORIZED BORROWING OFFICERS
EXHIBIT 7.1(j) PRESIDENT'S CERTIFICATE
EXHIBIT 7.1(l) SECRETARY'S CERTIFICATE OF RESOLUTION
AND INCUMBENCY
EXHIBIT 8.3 LITIGATION
EXHIBIT 8.5 LIENS
EXHIBIT 8.7 SUBSIDIARIES
EXHIBIT 8.16 CAPITAL STRUCTURE/OPTION PLANS
EXHIBIT 8.17 COLLATERAL LOCATIONS
EXHIBIT 8.18 REAL PROPERTY OWNED OR LEASED
EXHIBIT 8.20 ENVIRONMENTAL, HEALTH AND
SAFETY MATTERS
EXHIBIT 8.21 PATENTS, COPYRIGHTS, TRADEMARKS
EXHIBIT 8.23(a) CAPITALIZED LEASES
EXHIBIT 8.23(b) OPERATING LEASES
EXHIBIT 8.24 LABOR RELATIONS
EXHIBIT 9.1.10(b) BUSINESS CREDIT AND SECURITY
AGREEMENT CERTIFICATIONS
2
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We have issued our (dual dated) report dated December 9, 1998 and January 6,
1999 accompanying the financial statements of Pomeroy Select Integration
Solutions, Inc. contained in this Registration Statement and Prospectus. We
consent to the use of the aforementioned reports in the Registration Statement
and prospectus, and to the use of our name as it appears under the caption
"Experts."
GRANT THORNTON LLP
/s/ GRANT THORNTON LLP
Cincinnati, Ohio
January 14, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND THE STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JAN-05-1998 JAN-05-1999
<PERIOD-START> JAN-06-1997 JAN-06-1998
<PERIOD-END> JAN-05-1998 OCT-05-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 13,230 21,586
<ALLOWANCES> 380 306
<INVENTORY> 5,246 6,037
<CURRENT-ASSETS> 19,071 28,512
<PP&E> 2,426 2,758
<DEPRECIATION> 678 1,047
<TOTAL-ASSETS> 24,702 37,185
<CURRENT-LIABILITIES> 16,574 24,366
<BONDS> 115 207
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 8,013 12,612
<TOTAL-LIABILITY-AND-EQUITY> 24,702 37,185
<SALES> 0 0
<TOTAL-REVENUES> 45,209 51,401
<CGS> 0 0
<TOTAL-COSTS> 27,137 30,633
<OTHER-EXPENSES> 12,039 13,176
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 94 339
<INCOME-PRETAX> 5,923 7,300
<INCOME-TAX> 2,180 2,701
<INCOME-CONTINUING> 3,743 4,599
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,743 4,599
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
