<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1996
REGISTRATION NO. 333-05149
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
POMEROY COMPUTER RESOURCES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 31-1227808
(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) 282-7111
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
DAVID B. POMEROY, II
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
POMEROY COMPUTER RESOURCES, INC.
1020 PETERSBURG ROAD
HEBRON, KENTUCKY 41048
(606) 282-7111
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
William G. Kohlhepp, Esq. Stephen A. Opler, Esq.
Elizabeth A. Horwitz, Esq. Michael R. McAlevey, Esq.
Cors & Bassett Alston & Bird
1200 Carew Tower One Atlantic Center
441 Vine Street 1201 West Peachtree Street
Cincinnati, Ohio 45202 Atlanta, Georgia 30309-3424
(513) 852-8200 (404) 881-7000
</TABLE>
--------------------------
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, please 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 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
AMOUNT TO PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PER UNIT (2) PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share............ 1,552,500 shares $15.625 $24,257,813 $8,365
<FN>
(1) Includes 202,500 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee.
</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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF S-1
<TABLE>
<CAPTION>
ITEM OF FORM S-1 PROSPECTUS CAPTION OR LOCATION
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors; Not Applicable
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Outside Front Cover Page; Principal and Selling
Stockholders
8. Plan of Distribution................................. Underwriting
9. Description of Securities to be Registered........... Description of Capital Stock
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Outside Front Cover Page; Prospectus Summary; Risk
Factors; Use of Proceeds; Price Range of Common
Stock and Dividend Policy; Capitalization; Selected
Consolidated Financial and Operating Data; Selected
Pro Forma Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management; Certain
Transactions; Principal and Selling Stockholders;
Description of Capital Stock; Experts
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 11, 1996
PROSPECTUS
1,350,000 Shares
[LOGO]
Common Stock
Of the 1,350,000 shares of $.01 par value common stock (the "Common Stock"),
offered hereby, 1,200,000 shares are being sold by Pomeroy Computer Resources,
Inc. ("Pomeroy Computer Resources" or the "Company") and 150,000 shares are
being sold by a certain stockholder of the Company (the "Selling Stockholder").
See "Principal and Selling Stockholders." The Company will not receive any of
the proceeds from the sale of shares of Common Stock by the Selling Stockholder.
The Company's Common Stock is traded on the Nasdaq Stock Market's National
Market (the "Nasdaq National Market") under the symbol "PMRY." On June 7, 1996,
the last reported sale price for the Common Stock on the Nasdaq National Market
was $14.00 per share.
See "Risk Factors" appearing on pages 6 through 10 for certain factors that
should be considered by prospective investors.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Proceeds to
Underwriting Proceeds to Selling
Price to Public Discount (1) Company (2) Stockholder (2)
<S> <C> <C> <C> <C>
Per Share...... $ $ $ $
Total (3)...... $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $500,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 202,500 additional shares of Common Stock to cover over-allotments, if
any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discount, Proceeds to Company and Proceeds to
Selling Stockholder will be $ , $ , $ and $ ,
respectively.
------------------
The shares of Common Stock are offered subject to receipt and acceptance by
the several Underwriters, to prior sale and to the Underwriters' right to reject
any order in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that certificates for the shares will be
available for delivery on or about , 1996.
------------------
J.C.Bradford &Co. Tucker Anthony
Incorporated
, 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
1. Photo of Compaq computer box with bar code sticker affixed. A hand with an
infrared scanner is shown scanning the sticker.
2. Photo of technicians in configuration room performing configuration and
packaging activity.
-- Text below photos number 1 and 2: "Product Procurement and Distribution"
3. Photo of man walking with brief case into an office setting.
-- Text below the photo: "On-Site Services"
4. Photo of two computers with monitors on top. Monitors display cable cords
facing each other.
-- Text below the photo: "Integration Technology Services"
5. Photo of disassembled computer with hand inside depicting maintenance or
repair.
-- Text below the photo: "Maintenance and Repair Services"
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMPANY'S COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING NOTES THERETO CONTAINED
ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD ALSO REVIEW CAREFULLY
THE INFORMATION SET FORTH UNDER "RISK FACTORS." UNLESS OTHERWISE INDICATED, THE
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN OF THE FACTORS SET FORTH UNDER "RISK FACTORS"
AND ELSEWHERE IN THIS PROSPECTUS. A GLOSSARY OF NAMES AND CERTAIN TECHNICAL
TERMS IS LOCATED AFTER THE FINANCIAL STATEMENTS IN THIS PROSPECTUS BEGINNING AT
PAGE G-1.
THE COMPANY
Pomeroy Computer Resources, Inc. ("Pomeroy Computer Resources" or the
"Company") sells a broad range of microcomputers and related products and
provides professional services ranging from basic equipment selection and
procurement to complex network design, integration and system support. The
Company provides its products and services to a wide variety of commercial,
health care, governmental and educational customers. The Company's operating
strategy is to provide its customers with cost-efficient comprehensive solutions
that satisfy their computing needs. To achieve this objective, the Company uses
its (i) relationships with leading computer hardware manufacturers, software
developers and computer product distributors and service providers to deliver
and support quality products at competitive prices, (ii) distribution skills to
promptly and efficiently manage inventory and deliver products, and (iii)
technical expertise to provide a broad range of complementary value-added
services.
The Company offers microcomputer products from an array of manufacturers
including Compaq, Hewlett-Packard, IBM, Lexmark, NEC and Toshiba. The Company
sells these products together with a broad selection of networking, integration
and software products from manufacturers including 3Com, Bay Networks, Intel,
Microsoft and Novell. Services provided by the Company allow customers to
outsource the selection, installation, integration and maintenance of their
microcomputer systems. The Company's services include custom configuration of PC
systems, LAN and WAN design, comprehensive project management, installation and
integration services including cabling and wiring, user support, on-site network
management services, computer repair and on-site staffing.
The Company, headquartered in northern Kentucky near Cincinnati, Ohio,
services and supports its customers through its 181 direct sales and sales
support representatives located in 11 regional offices in Kentucky, Iowa,
Tennessee, Ohio, Florida, Alabama and Indiana. Pomeroy Computer Resources has
more than 12,000 customers, the largest of which include Barnett Bank, Columbia
HCA, Commonwealth of Kentucky, General Electric, Principal Insurance and
Providian. As of June 7, 1996, the Company had approximately 1,550 service
contracts in effect and employed approximately 300 service and technical
personnel.
The continuous technological changes occurring in the computer industry,
combined with significant structural changes in the information technology
requirements of large companies, have facilitated the Company's growth. Factors
that influence organizations to seek the professional expertise of the Company
include: the need for information regarding technological advances in
microcomputer systems; the reduced price and increased power of PCs; the
emergence of open, distributed client/ server systems (LANs and WANs) as a
viable alternative to mainframe systems; the increased use of software products
for such networks; the increased need to access information from, and equip
personnel at, remote sites; and the continued effort by organizations to reduce
costs by outsourcing their management information system needs.
3
<PAGE>
As part of its strategy to expand its geographic locations, add new
customers and increase its product and service offerings, the Company seeks
acquisition candidates that would complement its ongoing operations. Such
acquisition candidates include resellers, value-added resellers, service and
support companies and related businesses. In December 1992, the Company entered
the Florida and Tennessee markets by acquiring C&N Corp., a computer reseller,
and in October 1995, the Company acquired Cabling Unlimited, a provider of
communication cable installation services located in Indianapolis, Indiana. See
"Business -- Operating and Growth Strategy."
In March 1996, the Company acquired the assets of The Computer Supply Store,
Inc. ("TCSS"), a corporate reseller of microcomputer systems based in Des
Moines, Iowa. TCSS provides the Company with expanded geographic coverage in the
Midwest, new customers and additional sales and service personnel. In calendar
1995, TCSS reported revenues of $60.5 million and pre-tax income of $2.0
million. The product offerings and types of customer of TCSS are similar to
those of the Company and the principals of TCSS have become employees of the
Company and will continue to manage the Des Moines branch on an ongoing basis.
See "Business -- Acquisition of TCSS."
The Company is a Delaware corporation with its principal executive office
located at 1020 Petersburg Road, Hebron, KY 41048; its telephone number is (606)
282-7111.
THE OFFERING
<TABLE>
<CAPTION>
Common Stock offered by the Company..................... 1,200,000 shares
<S> <C>
Common Stock offered by the Selling Stockholder......... 150,000 shares
Common Stock to be outstanding after the Offering....... 3,952,643 shares (1)
Use of proceeds by the Company.......................... To reduce indebtedness; increase
available credit for general
business purposes and
acquisitions. See "Use of
Proceeds."
Nasdaq National Market symbol........................... PMRY
</TABLE>
- ------------------------
(1) Excludes 258,990 shares subject to outstanding options at June 7, 1996 at a
weighted average exercise price of $9.35 per share. See Note 15 of the Notes
to Consolidated Financial Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR (1) THREE MONTHS ENDED APRIL 5,
-------------------------------------------------- ---------------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995 (2) 1995 1996 1996 (2)
----------- ----------- ----------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales and revenues........ $ 112,178 $ 144,575 $ 230,710 $ 291,209 $ 47,990 $ 63,224 $ 75,041
Gross profit.................. 18,027 23,674 33,536 41,531 7,753 9,600 11,075
Income from operations........ 4,053 5,557 9,285 10,735 1,988 2,457 2,898
Net income (loss)............. 1,900 2,727 4,367 4,794 906 (1,355)(4) (1,101)(4)
Net income (loss) per share
(3).......................... $ 0.78 $ 1.12 $ 1.64 $ 1.73 $ 0.36 $ (0.49)(4) $ (0.39)(4)
Weighted average shares
outstanding (5).............. 2,434 2,430 2,670 2,770 2,534 2,745 2,821
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 5, 1996
-------------------------
ACTUAL AS ADJUSTED(6)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................................... $ 4,666 $ 19,158
Total assets.......................................................................... 82,403 82,403
Total debt (7)........................................................................ 25,091 9,849
Stockholders' equity.................................................................. 18,950 34,192
</TABLE>
- ------------------------
(1) The Company's fiscal year ends on January 5th of the following year.
(2) The pro forma statement of income data is based on the historical financial
information of the Company and TCSS and includes pro forma adjustments to
reflect pro forma results of operations as if the acquisition of TCSS had
occurred on January 6, 1995. See "Selected Pro Forma Consolidated Financial
Data" and "Business -- Acquisition of TCSS."
(3) Fully diluted earnings per share for fiscal years 1993, 1994, 1995, pro
forma 1995, the first three months of 1995, the first three months of 1996
and pro forma 1996, were $0.78, $1.12, $1.62, $1.71, $0.35, $(0.49) and
$(0.39), respectively.
(4) The first three months of 1996 actual and pro forma results reflect the
Vanstar litigation settlement and related costs of $4,392. Without this
charge, net income would have been $1,258 and $1,511 for the first three
months of 1996 actual and pro forma, respectively, and net income per share
would have been $0.46 and $0.54 actual and pro forma, respectively.
(5) Reflects a 10% stock dividend effective on May 22, 1995.
(6) Adjusted to reflect the sale by the Company of 1,200,000 shares of Common
Stock offered hereby at an assumed public offering price of $14.00 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
(7) Total debt excludes floor plan financing, which is classified as accounts
payable. See Note 6 of the Notes to Consolidated Financial Statements.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF THE COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
OF THE FACTORS SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS.
DEPENDENCE ON MAJOR CUSTOMERS
For fiscal years 1993, 1994 and 1995, and the first three months of fiscal
1996, approximately 46%, 44%, 42% and 47% of the Company's total net sales and
revenues, respectively, were derived from its top 10 customers and three of the
Company's top 10 customers were the same during each of those periods. The
composition of the Company's top customers changes from year to year as a result
of large roll-outs of equipment which are not recurring on an annual basis.
Sales in those periods to the single largest customer of each period comprised
approximately 13%, 9%, 19%, and 15% of the Company's total net sales and
revenues, respectively. In addition, for fiscal years 1994 and 1995, and the
first three months of fiscal 1996, approximately 55%, 57%, and 47% of TCSS'
total revenue, respectively, was derived from its top 10 customers, seven of
which were the same in each of those periods. Sales in those periods to the
single largest customer comprised approximately 29%, 18% and 17% of TCSS' total
revenue, respectively. A loss of one or more of the Company's major customers
could have a material adverse effect on the Company's operations and financial
results. There can be no assurance that the Company will be able to retain its
major customers. In addition, there is no assurance that the Company will
continue to attract customers with roll-out projects. See "Business -- Marketing
and Customers."
During the third quarter of 1995, P&G, one of the Company's largest
customers, discontinued using the Company as its primary computer equipment
supplier as part of P&G's program to select a single world-wide supplier. For
fiscal years 1993, 1994 and 1995, the Company's total sales to all divisions of
P&G were $14.5 million, $16.0 million and $16.1 million, respectively. The
Company continues to provide minimal equipment to P&G and certain outsourcing
services pursuant to an arrangement with the new world-wide supplier, ISSC, a
division of IBM. The total net sales and revenues to P&G (including ISSC) were
approximately $241,750 in the first three months of fiscal 1996.
PRODUCT SUPPLY
The increasing demand for microcomputers has resulted in significant product
supply shortages from time to time because manufacturers have been unable to
produce sufficient quantities of certain products to meet actual demand. There
can be no assurance that manufacturers will be able to maintain an adequate
supply of products in order for the Company to fulfill all of its customers'
orders in a timely manner. Failure to obtain adequate product supplies could
have a material adverse effect on the Company's operations and financial
results. In addition, the Company purchases products directly from certain
manufacturers including Compaq and IBM. If a manufacturer who sells directly to
the Company discontinued direct sales of its products to the Company, the
Company would be required to purchase the product from a distributor. This could
materially and adversely affect the Company's ability to obtain constrained
products or to obtain products at competitive prices. The Company's
profitability has been affected by its ability to obtain volume discounts for
large customer orders directly from manufacturers and through aggregators and
distributors. Any change in the volume discount schedules or other marketing
programs offered by manufacturers that results in the reduction or elimination
of discounts currently received by the Company could have a material adverse
effect on the Company's operations and financial results. See "Business --
Products."
DEPENDENCE ON KEY MANUFACTURERS' AUTHORIZATIONS
Authorization is required before the Company may sell certain manufacturers'
products. The Company is an authorized reseller for 35 manufacturers, and offers
the products of over 1,000
6
<PAGE>
manufacturers. Sales of products manufactured by Compaq, Hewlett-Packard and IBM
during fiscal years 1993, 1994 and 1995 and the first three months of fiscal
1996, collectively comprised approximately 50%, 74%, 68% and 55% respectively,
of the Company's total sales of equipment and supplies. The loss of a
significant manufacturer's authorization or the deterioration of the Company's
relationship with a significant manufacturer could have a material adverse
effect on the Company's operations and financial results. There can be no
assurance that the Company will continue as an authorized reseller for any
manufacturer or that the current terms offered by any manufacturer, including
pricing terms, will not adversely change in the future. Substantially all of the
Company's agreements may be terminated by the manufacturer without cause upon 30
to 90 days' notice or immediately upon the occurrence of certain events. See
"Business -- Products."
RAPID TECHNOLOGICAL CHANGE
The microcomputer products market is characterized by rapidly changing
technology and frequent introductions of new products and product enhancements.
The Company's continued success will depend on its ability to keep pace with
technological developments of new products and services and its ability to
fulfill increasingly sophisticated customer requirements. There can be no
assurance that the Company's current manufacturers, suppliers and technical
employees will be able to provide the products and support necessary to remain
competitive. In addition, there can be no assurance that the Company will be
able to obtain authorizations from new manufacturers or for new products that
gain market acceptance. If the Company were to incur delays in sourcing and
developing new services and product and service enhancements, or delays in
obtaining new products, such delays could have a material adverse effect on the
Company's operations and financial results. See "Business -- Industry Trends"
and "-- Products."
DEPENDENCE ON KEY PERSONNEL
The success of the Company is dependent on the services of David B. Pomeroy,
II, its Chairman of the Board, President and Chief Executive Officer and other
key personnel. The loss of the services of Mr. Pomeroy or other key personnel
could have a material adverse effect on the Company's business. The Company has
entered into employment agreements with certain of its key personnel, including
Mr. Pomeroy. The Company's success and plans for future growth will also depend
on its ability to attract and retain highly skilled personnel in all areas of
its business. See "Management."
MANUFACTURER MARKET DEVELOPMENT FUNDS
Several manufacturers offer market development funds, cooperative
advertising and other promotional programs to computer resellers. These funds
(which, together with vendor rebates that reduce cost of goods sold, are
collectively referred to on the Company's Consolidated Balance Sheets and
related Notes as Vendor Incentive Rebates) are accounted for as a reduction in
selling, general and administrative expenses, thereby increasing net income.
While such programs have been available to the Company in the past, there is no
assurance that these programs will be continued. Although the dollar amount of
funds awarded to the Company for fiscal years 1993, 1994 and 1995, and the first
three months of fiscal 1996, has increased over the prior year's comparable
period, these benefits as a percentage of sales have generally been stable since
1993 representing 1.1%, 1.3%, 1.3% and 1.3% of total net sales and revenues,
respectively. Any discontinuance or material reduction of these programs could
have a material adverse effect on the Company's operations and financial
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General."
RETENTION OF TECHNICAL EMPLOYEES
The success of the Company's services business, in particular its network
and integration services, depends in large part upon the Company's ability to
attract and retain highly skilled technical employees in a competitive labor
market. As part of its efforts to attract and retain such employees, the Company
typically requires each technical employee to enter into an employment agreement
with a term ranging from one to three years, often including bonuses tied to
length of service. There can be no assurance that the Company will be able to
attract and retain sufficient numbers of skilled
7
<PAGE>
technical employees. The loss of a significant number of the Company's existing
technical personnel or difficulty in hiring or retaining additional technical
personnel could have a material adverse effect on the Company's operations and
financial results. See "Business -- Services" and "-- Employees."
RAPID GROWTH
The Company has experienced rapid growth both internally and, to a lesser
extent, through acquisitions, and the Company intends to continue to pursue both
types of growth opportunities as part of its business strategy. There can be no
assurance that the Company will be successful in maintaining its rapid growth in
the future. The Company expects that more of its future growth will result from
acquisitions. The Company recently completed its acquisition of TCSS and
regularly evaluates expansion and acquisition opportunities that would
complement its ongoing operations. There can be no assurance that the Company
will be able to identify, acquire or profitably manage additional companies or
successfully integrate such additional companies into the Company without
substantial costs, delays or other problems. In addition, there can be no
assurance that companies acquired in the future will be profitable at the time
of their acquisition or will achieve levels of profitability that justify the
investment therein. Acquisitions may involve a number of special risks,
including, but not limited to, adverse short-term effects on the Company's
reported operating results, diversion of management's attention, dependence on
retaining, hiring and training key personnel, risks associated with
unanticipated problems or legal liabilities and amortization of acquired
intangible assets, some or all of which could have a material adverse effect on
the Company's operations and financial results. See "Business -- Operating and
Growth Strategy."
INTEGRATION OF TCSS
While the Company has made other acquisitions, the Company has not
previously made an acquisition as large as TCSS. The Company expects that the
business operations of TCSS will initially continue in substantially the same
manner as in the past. However, the long-term successful integration of TCSS'
operations may depend on a number of factors including: (i) the retention of key
personnel in order to maintain relationships with significant customers; (ii)
the Company's ability to increase the proportion of service revenues of the TCSS
operations, as compared to product sales; and (iii) the Company's ability to
realize cost savings from the acquisition. Although the Company believes that
TCSS has contributed, and will continue to contribute, to the growth and
profitability of the Company without full integration, there can be no assurance
that the Company will be able to fully and successfully integrate TCSS'
operations or that TCSS' operations will not adversely affect the profitability
of the Company. See "Business -- Acquisition of TCSS."
CURRENT INDUSTRY CONDITIONS
Distributors and resellers in the microcomputer industry currently face a
number of potentially adverse business conditions, including pricing pressures,
evolving distribution channels, market consolidation and a potential decline in
the rate of growth in sales of microcomputers. Heightened price competition
among various hardware manufacturers has resulted in reduced per unit revenue
and declining gross profit margins for many microcomputer resellers. As a result
of the intense price competition within the industry, the Company has
experienced increasing pressure on its gross profit and operating margins. The
Company's inability to compete successfully on the pricing of products sold, or
the continuing decline in its gross margins due to competition, could have a
material adverse effect on the Company's operations and financial results. See
"Business -- General" and "-- Competition."
INVENTORY MANAGEMENT
The PC industry is characterized by rapid product improvement and
technological change resulting in relatively short product life cycles and rapid
product obsolescence. While most of the inventory stocked by the Company is for
specific customer orders, inventory devaluation or obsolescence could have a
material adverse effect on the Company's operations and financial results.
Current industry practice among manufacturers is to provide price protection
intended to reduce the risk of inventory devaluation, although such policies are
subject to change at any time and there can be no assurance
8
<PAGE>
that such price protection will be available to the Company in the future. The
Company currently also has the option of returning inventory to certain
manufacturers and distributors, subject to certain limitations. The amount of
inventory that can be returned to manufacturers without a restocking fee varies
under the Company's agreements and such return policies may provide only limited
protection against excess inventory. There can be no assurance that new product
developments will not have a material adverse effect on the value of the
Company's inventory or that the Company will successfully manage its existing
and future inventory. In addition, the Company stocks parts inventory for its
services business. Parts inventory is more likely to experience a decrease in
valuation as a result of technological change and obsolescence and there are no
price protection practices offered by manufacturers with respect to parts.
COMPETITION
The microcomputer market is highly competitive with respect to performance,
quality and price. The Company directly competes with local, regional and
national distributors and mail order providers of microcomputer products and
services, including network integrators and corporate divisions of superstores.
While the Company's competitors vary depending upon the particular market, some
of the national and regional competitors of the Company include Ameridata,
CompuCom, Dataflex, Entex, InaCom and Sarcom as to product sales and Ameridata,
Andersen Consulting, EDS, ISSC, TFN and Vanstar as to services. Also, the
computer industry has recently experienced a significant amount of consolidation
through mergers and acquisitions. In the future, the Company may face further
competition from new market entrants and possible alliances between existing
competitors. Certain computer superstores have expanded their marketing efforts
to target segments of the Company's customer base, which could have a material
adverse impact on the Company's operations and financial results. Some of the
Company's competitors have, or may have, greater financial, marketing and other
resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements,
benefit from greater purchasing economies, offer more aggressive hardware and
service pricing to their customers, or devote greater resources to the promotion
of their products and services. There can be no assurance that the Company will
be able to compete successfully in the future with such competitors.
The Company also competes with microcomputer manufacturers which market
through direct sales forces and distributors. More aggressive competition by the
Company's principal manufacturers of microcomputer products such as offering a
full range of services in addition to products, could have a material adverse
effect on the Company's operations and financial results. See "Business --
Competition."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
Quarterly results may fluctuate as a result of a number of factors
including: the timing of large roll-out projects; increased competition; changes
in pricing policy by the Company, its competitors or manufacturers; the timing
of new product introductions by manufacturers; and general economic conditions.
Revenues from the sales of product are recognized upon shipment to the customer.
The results for a particular quarter could vary significantly due to the timing
of large roll-out projects, since such projects are frequently subject to delays
associated with large capital expenditures and authorization procedures within
large companies and governmental entities. In addition, operating results are
sensitive to changes in the mix of revenues derived from the sale of products as
compared to service revenues which typically have higher gross margins than
product sales. The Company's inability to obtain rebates, other favorable
pricing terms, or market development funds could have a material adverse effect
on the Company's gross profit margins or operating profit margins. Such
fluctuations in quarterly results could cause volatility in the price of the
Company's common stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
MANAGEMENT INFORMATION SYSTEM
The Company relies upon the accuracy and proper utilization of its
management information system to provide timely distribution services and to
track properly its financial information. The
9
<PAGE>
Company began implementation of a new, integrated management information system
in July 1994 and continues to integrate additional functions. The Company
anticipates that it will continually need to refine and modify its management
information system as the Company grows and the needs of its business change.
The occurence of a significant system failure could have a material adverse
effect on the Company's operations and financial results. See "Business --
Management Information System."
CONTROL BY PRINCIPAL STOCKHOLDER
Based on the number of shares of Common Stock that will be outstanding upon
completion of this offering, David B. Pomeroy, II, will beneficially own 28.9%
of the outstanding Common Stock (approximately 27.6% if the Underwriters'
over-allotment option is exercised in full). As a result, Mr. Pomeroy will
retain for all practical purposes the voting power to prevent the approval of
certain matters requiring approval by at least 66 2/3% of all stockholders, and
will continue to have significant influence over the affairs of the Company. See
"Description of Capital Stock" and "Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following the Offering could materially and adversely affect the market price of
the Common Stock. Upon completion of the Offering, the Company will have
3,952,643 shares of Common Stock outstanding (4,155,143 shares if the
Underwriters' over-allotment option is exercised in full). Of these shares,
1,350,000 shares offered hereby will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the "Act"),
except for any shares purchased by "affiliates" of the Company, as that term is
defined in Rule 144, promulgated under the Act. Of the remaining 2,602,643
shares, 1,201,388 shares of Common Stock are "restricted securities" as defined
in Rule 144, and an additional 24,692 shares which are not restricted securities
are held by affiliates, all of which are subject to volume, manner of sale,
notice and information requirements of Rule 144. As of June 7, 1996, the Company
had outstanding unexercised options to purchase 258,990 shares of Common Stock,
240,490 of which were immediately exercisable, under its stock option plans. The
Company has registered the issuance of the Common Stock in connection with the
exercise of options and, consequently, such shares are available for sale in the
public market without restriction to the extent they are not held by
"affiliates", as that term is defined under Rule 144. The 1,081,564 shares held
by executive officers, directors and certain others are subject to lock-up
agreements with the Underwriters and may not be sold for a period of 180 days
after the date of this Prospectus, without prior written consent of the
Underwriters. See "Shares Eligible for Future Sale" and "Underwriting."
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation (the "Certificate") authorizes
the issuance of one or more series of Preferred Stock, the terms of which may be
fixed by the Board of Directors. Additionally, the Certificate limits the
ability of shareholders to call special meetings or to amend the Company's
Certificate or Bylaws. Each of these provisions, as well as the Delaware
business combination statute to which the Company is subject, could have the
effect of delaying or preventing a change in control of the Company. See
"Description of Capital Stock -- Certain Certificate and Bylaw Provisions."
10
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 1,200,000 shares of Common Stock
offered by the Company hereby, after deducting the underwriting discount and
estimated offering expenses payable by the Company, are estimated to be
approximately $15.2 million (approximately $17.9 million if the Underwriters'
over-allotment option is exercised in full). The Company currently intends to
use net proceeds to repay $1.0 million of a $2.7 million subordinated note
issued in connection with the acquisition of TCSS (the "Subordinated Note") and
to use the remaining proceeds of approximately $14.2 million (approximately
$16.9 million if the Underwriters' over-allotment option is exercised in full)
to reduce indebtedness under the Company's revolving credit facility (the
"Credit Facility"). The Subordinated Note, which matures in March 2000, bears an
interest rate equal to Star Bank's prime rate plus 0.50%, subject to minimum and
maximum rates. As of June 7, 1996, an aggregate of $25.0 million was outstanding
under the Company's Credit Facility. The Credit Facility carries an interest
rate of 0.25% below Star Bank's prime rate, subject to reduction under certain
conditions, and expires in April 1997. The Company utilizes the Credit Facility
primarily for working capital; however, approximately $4.5 million was borrowed
in March 1996 to finance a portion of the purchase price for the Company's
acquisition of TCSS and $1.65 million was borrowed in April 1996 to finance the
initial settlement payment to Vanstar. See "Business -- Legal Proceedings" and
"-- Acquisition of TCSS." The reduction in indebtedness will increase the
availability of bank credit for general business purposes and possible future
acquisitions. No portion of the proceeds of this Offering has been allocated to
any specific acquisition, nor has the Company entered into any agreements or
letters of intent with respect to any future acquisitions, although the Company
continually seeks to identify and evaluate potential acquisition candidates. See
"Business -- Operating and Growth Strategy." The Company will not receive any of
the proceeds from the sale of the 150,000 shares of Common Stock by the Selling
Stockholder. See "Principal and Selling Stockholders."
CAPITALIZATION
The following table sets forth the short-term debt, long-term debt and total
capitalization of the Company at April 5, 1996 and as adjusted to give effect to
the receipt of the net proceeds from the sale of 1,200,000 Shares of Common
Stock offered by the Company hereby at an assumed offering price of $14.00 per
share. This table should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
APRIL 5, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (1).................................................. $ 22,851 $ 8,359
--------- -----------
--------- -----------
Long-term debt....................................................... 2,240 1,490
Stockholders' equity:
Preferred stock: 2,000,000 shares authorized; none issued.......... -- --
Common stock: 10,000,000 shares authorized: 2,748,643 shares issued
and outstanding; and 3,948,643 shares issued and outstanding, as
adjusted (2)...................................................... 27 39
Additional paid-in capital........................................... 14,384 29,614
Retained earnings.................................................... 4,743 4,743
Less treasury stock, at cost (20,900 shares at April 5, 1996)........ (204) (204)
--------- -----------
Total stockholders' equity........................................... 18,950 34,192
--------- -----------
Total capitalization (3)............................................. $ 44,041 $ 44,041
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Short-term debt excludes floor plan financing which is classified as
accounts payable. See Note 6 of the Notes to Consolidated Financial
Statements.
(2) Excludes 421,010 shares reserved for additional option grants under the
Company's stock option plans and excludes 253,990 shares subject to
outstanding options at April 5, 1996. See Note 15 of the Notes to
Consolidated Financial Statements.
(3) Consists of short-term debt, long-term debt and total stockholders' equity.
11
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The following table sets forth, for the periods indicated, the high and low
sale prices for the Common Stock for the quarters indicated as reported on the
Nasdaq National Market. The following prices have been adjusted to reflect the
10% stock dividend effective on May 22, 1995.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1994
First Quarter.......................................................... $ 12.50 $ 8.86
Second Quarter......................................................... 10.45 8.18
Third Quarter.......................................................... 9.32 6.82
Fourth Quarter......................................................... 10.68 7.27
FISCAL 1995
First Quarter.......................................................... $ 13.86 $ 8.41
Second Quarter......................................................... 19.00 11.82
Third Quarter.......................................................... 20.75 15.75
Fourth Quarter......................................................... 18.50 11.25
FISCAL 1996
First Quarter.......................................................... $ 15.75 $ 12.00
Second Quarter (through June 7, 1996).................................. 16.75 13.50
</TABLE>
On June 7, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $14.00. As of June 7, 1996, there were approximately
200 holders of record of the Common Stock.
Since its initial public offering of Common Stock on April 3, 1992, the
Company has not paid any cash dividends on the Common Stock. The Company
currently intends to retain earnings for use in the operation and expansion of
its business and therefore does not anticipate paying cash dividends in the
foreseeable future. In addition, the Company's Credit Facility prohibits the
payment of cash dividends.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes certain selected consolidated financial
information for each of the last five fiscal years derived from the Consolidated
Financial Statements of the Company. The selected consolidated financial
information for the three months ended April 5, 1995 and 1996 are derived from
the unaudited financial statements of the Company. In the opinion of management,
the unaudited results of operations for the three months ended April 5, 1995 and
1996 include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such information. The unaudited results of
operations for the three months ended April 5, 1995 and 1996 are not necessarily
indicative of the results that may be expected for the full fiscal year. The
information set forth below should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS (1)
-----------------------------------------------------
1991 1992 (2) 1993 1994 (3) 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales and revenues:
Equipment and supplies.......................................... $ 43,492 $ 53,752 $ 102,442 $ 130,270 $ 211,150
Services and other.............................................. 6,464 7,637 9,736 14,305 19,560
--------- --------- --------- --------- ---------
Total net sales and revenues.................................. 49,956 61,389 112,178 144,575 230,710
Cost of equipment and supplies.................................... 36,217 46,839 92,358 117,594 192,839
Cost of services and other........................................ 1,371 1,337 1,793 3,307 4,335
--------- --------- --------- --------- ---------
Total cost of sales and revenues.............................. 37,588 48,176 94,151 120,901 197,174
--------- --------- --------- --------- ---------
Gross profit...................................................... 12,368 13,213 18,027 23,674 33,536
Operating expenses:
Selling, general and administrative............................. 8,653 9,225 12,969 17,231 23,247
Royalty expense................................................. 1,485 1,732 605 -- --
Depreciation and amortization................................... 149 203 400 886 1,004
--------- --------- --------- --------- ---------
Total operating expenses...................................... 10,287 11,160 13,974 18,117 24,251
--------- --------- --------- --------- ---------
Income from operations............................................ 2,081 2,053 4,053 5,557 9,285
Other expenses (income):
Interest expense................................................ 754 604 850 1,031 1,999
Litigation settlement and related costs......................... -- -- -- -- --
Miscellaneous................................................... 26 (54) (57) (57) (64)
--------- --------- --------- --------- ---------
Total other expenses.......................................... 780 550 793 974 1,935
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before income taxes...... 1,301 1,503 3,260 4,583 7,350
Income tax expense................................................ 40 523 1,360 1,856 2,983
--------- --------- --------- --------- ---------
Net income (loss) from continuing operations...................... $ 1,261 $ 980 $ 1,900 $ 2,727 $ 4,367
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) from continuing operations per share (6)........ $ 0.85 $ 0.47 $ 0.78 $ 1.12 $ 1.64
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma income (loss) from continuing operations (7).......... $ 702 $ 917 $ 1,900 $ 2,727 $ 4,367
Pro forma net income (loss) (7)................................. 684 702 1,900 2,727 4,367
Pro forma net income (loss) per share (6)(7).................... $ 0.46 $ 0.33 $ 0.78 $ 1.12 $ 1.64
<CAPTION>
THREE MONTHS ENDED
APRIL 5,
-----------------------
1995 1996 (4)
--------- ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales and revenues:
Equipment and supplies.......................................... $ 43,570 $ 57,305
Services and other.............................................. 4,420 5,919
--------- ------------
Total net sales and revenues.................................. 47,990 63,224
Cost of equipment and supplies.................................... 39,174 52,160
Cost of services and other........................................ 1,063 1,464
--------- ------------
Total cost of sales and revenues.............................. 40,237 53,624
--------- ------------
Gross profit...................................................... 7,753 9,600
Operating expenses:
Selling, general and administrative............................. 5,572 6,727
Royalty expense................................................. -- --
Depreciation and amortization................................... 193 416
--------- ------------
Total operating expenses...................................... 5,765 7,143
--------- ------------
Income from operations............................................ 1,988 2,457
Other expenses (income):
Interest expense................................................ 490 435
Litigation settlement and related costs......................... -- 4,392 (5)
Miscellaneous................................................... (8) (93)
--------- ------------
Total other expenses.......................................... 482 4,734
--------- ------------
Income (loss) from continuing operations before income taxes...... 1,506 (2,277 )
Income tax expense................................................ 600 (922 )
--------- ------------
Net income (loss) from continuing operations...................... $ 906 $ (1,355 )(5)
--------- ------------
--------- ------------
Net income (loss) from continuing operations per share (6)........ $ 0.36 $ (0.49 )(5)
--------- ------------
--------- ------------
Pro forma income (loss) from continuing operations (7).......... $ 906 $ (1,355 )(5)
Pro forma net income (loss) (7)................................. $ 906 $ (1,355 )(5)
Pro forma net income (loss) per share (6)(7).................... $ 0.36 $ (0.49 )(5)
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF FISCAL YEAR END APRIL 5,
----------------------------------------------------- ---------
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 301 $ 5,768 $ 6,522 $ 6,556 $ 10,340 $ 7,794
Total assets........................................... 18,852 26,813 34,086 57,061 63,985 56,377
Total debt (8)......................................... 6,729 7,053 9,124 16,031 17,386 14,086
Stockholders' equity................................... 2,766 8,616 10,594 13,130 19,200 14,071
<CAPTION>
1996
---------
<S> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 4,666
Total assets........................................... 82,403
Total debt (8)......................................... 25,091
Stockholders' equity................................... 18,950
</TABLE>
- ----------------------------------
(1) On December 30, 1992, the Company changed its fiscal year from a 52 or
53-week period ending on the first Saturday following December 31 to a
12-month period ending January 5.
(2) During fiscal 1992, the Company acquired the outstanding stock of C&N Corp.
and discontinued the Company's retail operations.
(3) During fiscal 1994, the Company acquired the outstanding stock of Xenas. See
Note 12 of Notes to Consolidated Financial Statements.
(4) In March 1996, the Company acquired the assets of TCSS. See Note 18 of Notes
to Consolidated Financial Statements.
(5) The first three months of 1996 reflect the Vanstar litigation settlement and
related costs of $4,392. Without this charge, net income would have been
$1,258 and net income per share would have been $0.46 for the first three
months of 1996.
(6) Net income per share from continuing operations and pro forma per share
amounts are calculated using pro forma weighted average shares outstanding
adjusted for the 10% stock dividend effective May 22, 1995.
(7) The pro forma data compares the net operating results of the Company for
fiscal years 1991 and 1992 with the comparable results for fiscal years 1993
through 1995 as if the Company had been taxed as a C Corporation on all
income in fiscal 1991 and 1992 at an effective rate of 39%. The net
operating results for 1991 do not include a charge for compensation of the
Company's principal stockholder.
(8) Total debt excludes floor plan financing which is classified as accounts
payable. See Note 6 of the Notes to Consolidated Financial Statements.
13
<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected pro forma consolidated financial data presented below are
derived from the Company's Consolidated Financial Statements and related Notes
included elsewhere in this Prospectus, as adjusted to give effect to the
acquisition of TCSS. See "Business -- Acquisition of TCSS." The selected pro
forma statement of income data give effect to the acquisition of TCSS as if it
had occurred on January 6, 1995. The pro forma adjustments are based upon
available information and certain assumptions that the Company believes are
reasonable. The pro forma financial data do not purport to represent what the
Company's results of operations or financial position would actually have been
had the acquisition of TCSS in fact occurred at or on such dates, or to project
the Company's results of operations for any future period. The selected pro
forma consolidated financial data should be read in conjunction with "Risk
Factors -- Integration of TCSS," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Acquisition of
TCSS," the Company's Consolidated Financial Statements and related Notes
appearing elsewhere in this Prospectus, the separate financial statements and
related notes of TCSS appearing elsewhere in this Prospectus and the Pro Forma
Consolidated Condensed Statement of Income.
<TABLE>
<CAPTION>
PRO FORMA
----------------------------
THREE MONTHS
YEAR ENDED ENDED
JANUARY 5, APRIL 5,
1996 1996
-------------- ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales and revenues:
Equipment and supplies.................................................................. $ 270,532 $ 68,882
Services and other...................................................................... 20,677 6,159
-------------- ------------
Total net sales and revenues.......................................................... 291,209 75,041
Cost of equipment and supplies............................................................ 245,068 62,455
Cost of services and other................................................................ 4,610 1,511
-------------- ------------
Total cost of sales and revenues...................................................... 249,678 63,966
-------------- ------------
Gross profit................................................................................ 41,531 11,075
Operating expenses:
Selling, general and administrative....................................................... 29,050 7,608
Royalty expense........................................................................... -- --
Depreciation and amortization............................................................. 1,746 569
-------------- ------------
Total operating expenses.............................................................. 30,796 8,177
-------------- ------------
Income from operations...................................................................... 10,735 2,898
Other expenses (income):
Interest expense.......................................................................... 2,724 450
Litigation settlement and related costs................................................... -- 4,392
Miscellaneous............................................................................. (59) (91)
-------------- ------------
Total other expenses.................................................................. 2,665 4,751
-------------- ------------
Income (loss) from continuing operations before income taxes................................ 8,070 (1,853 )
Income tax expense (benefit)................................................................ 3,276 (752 )
-------------- ------------
Net income (loss) from continuing operations................................................ $ 4,794 $ (1,101 )(1)
-------------- ------------
-------------- ------------
Net income (loss) from continuing operations per share...................................... $ 1.73 $ (0.39 )(1)
-------------- ------------
-------------- ------------
</TABLE>
- ------------------------
(1) The first three months of 1996 pro forma results reflect the Vanstar
litigation settlement and related costs of $4,392. Without this charge, pro
forma net income would have been $1,511 and pro forma net income per share
would have been $0.54.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has experienced significant growth in recent years as total net
sales and revenues have increased to $230.7 million in fiscal 1995 from $112.2
million in fiscal 1993, a compound annual growth rate of 43.4%. During the same
period, net income increased to $4.4 million from $1.9 million, a compound
annual growth rate of 51.6%. During the first three months of 1996, total net
sales and revenues were $63.2 million, which represents an increase of $15.2
million, or 31.7%, over total net sales and revenues from the same period in
1995. During the first three months of 1996, the Company incurred a net loss of
$1.4 million which represents a decrease of $2.3 million from net income of $0.9
million in the same period in 1995. Excluding the effect of the Vanstar
litigation settlement in the first quarter of 1996, net income would have been
$1.3 million which represents an increase of $0.4 million or 39.0% over the same
period in 1995. The Company has been able to increase its total net sales and
revenues by expanding its base of commercial, health care, governmental and
educational customers, acquiring and opening new branches and taking advantage
of the increased use of and demand for microcomputers.
The Company offers a wide range of microcomputer products and related
services. Typically, equipment and supplies sales carry relatively lower gross
profit margins while service revenues carry significantly higher gross profit
margins. For fiscal years 1993, 1994 and 1995, and the first three months of
fiscal 1996, the gross profit margin on equipment and supplies sales was 9.8%,
9.7%, 8.7% and 9.0%, respectively, while the gross profit margin on service
revenues was 81.6%, 76.9%, 77.8% and 75.3%, respectively.
In fiscal 1995 and 1994, total net sales and revenue growth benefitted from
roll-out projects with major customers (including hardware, software and
services), which are typically not recurring on an annual basis. Such projects,
as well as other high-volume equipment sales, typically have a lower than
average gross profit margin on the sale of hardware but are often accompanied by
service revenues which have a higher than average gross profit margin. However,
the overall gross profit margin contributed by such projects is lower than the
Company's average gross profit margin on total net sales and revenues. Because
of the magnitude of these projects, they can cause substantial short-term
variability in both sales and service revenues and gross profit margins.
Roll-out customers in fiscal 1995 and 1994 included GE, KFC, Kroger, Long John
Silvers', Providian, Square D and Western-Southern.
Another major component of revenue growth has been the opening of new
branches by either internal expansion or acquisition. Since 1993, the Company
has opened two new branches, accounting for $5.5 million and $50.6 million of
net sales and revenues in fiscal 1994 and 1995, respectively, and has made two
acquisitions, contributing $0.3 million and $2.1 million to total net sales and
revenues for the same periods. In 1996, the Company acquired TCSS, contributing
$8.0 million to total net sales and revenues for the first quarter of 1996.
Gross profit margins can vary significantly on a quarterly basis and are
affected by a number of factors including the proportion of equipment and
supplies sales to service revenues, manufacturers' pricing policies and rebate
programs, the availability of product, the number of roll-out projects,
competition within the industry and competition within specific markets. The
Company obtains rebates (which, together with the market development funds are
collectively referred to on the Company's Consolidated Balance Sheets and
related Notes as Vendor Incentive Rebates) and other favorable pricing terms
from certain manufacturers which are accounted for as a reduction in the cost of
goods sold. In addition, the Company's operating profit margins are favorably
affected by the receipt of market development funds from a number of its
manufacturers since such funds are accounted for as a reduction in selling,
general and administrative expenses.
15
<PAGE>
In March 1996, the Company acquired TCSS, a computer reseller based in Des
Moines, Iowa. TCSS has also experienced substantial growth in recent years as
total revenues increased $12.4 million, or 25.8%, to $60.5 million in fiscal
1995 from $48.1 million in fiscal 1994. During the same period, pre-tax income
increased $0.3 million, or 14.0%, to $2.0 million in fiscal 1995 from $1.7
million in fiscal 1994. Total sales of equipment were $59.4 million in fiscal
1995, compared to $47.6 million in fiscal 1994, while total service revenues
were $1.1 million compared to $0.5 million, for the same periods. The gross
profit margin on equipment sales was 12.0% and 12.9%, respectively, for fiscal
1995 and 1994, while the gross profit margin on service revenues was 75.4% and
74.7%, respectively. Total gross margin was 13.2% in 1995, compared to 13.5% in
1994. In the first three months of fiscal 1996, TCSS posted total revenue of
$20.0 million which was a 44.7% increase over the same period in 1995. Total
gross margin was 14.0% in the first three months of 1996, compared to 13.1% for
the same period in 1995. See the Financial Statements of TCSS and Notes thereto
and Pro Forma Financial Statements of the Company appearing elsewhere in this
Prospectus.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of
the Company's statement of income as a percentage of total net sales and
revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS APRIL 5,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales and revenues:
Equipment and supplies............................................. 91.3% 90.1% 91.5% 90.8% 90.6%
Services and other................................................. 8.7 9.9 8.5 9.2 9.4
--------- --------- --------- --------- ---------
Total net sales and revenues..................................... 100.0 100.0 100.0 100.0 100.0
Cost of equipment and supplies....................................... 82.3 81.3 83.6 81.6 82.5
Cost of services and other......................................... 1.6 2.3 1.9 2.2 2.3
--------- --------- --------- --------- ---------
Total cost of sales and revenues................................. 83.9 83.6 85.5 83.8 84.8
--------- --------- --------- --------- ---------
Gross profit....................................................... 16.1 16.4 14.5 16.2 15.2
Operating expenses:
Selling, general and administrative................................ 11.6 11.9 10.1 11.6 10.6
Royalty expense.................................................... 0.5 0.0 0.0 0.0 0.0
Depreciation and amortization...................................... 0.4 0.6 0.4 0.4 0.7
--------- --------- --------- --------- ---------
Total operating expenses......................................... 12.5 12.5 10.5 12.0 11.3
--------- --------- --------- --------- ---------
Income from operations............................................... 3.6 3.9 4.0 4.2 3.9
Other expense (income):
Interest expense................................................... 0.8 0.7 0.8 1.0 0.7
Litigation settlement and related costs............................ -- -- -- -- 6.9
Miscellaneous...................................................... (0.1) 0.0 0.0 0.0 (0.1)
Total other expense.............................................. 0.7 0.7 0.8 1.0 7.5
--------- --------- --------- --------- ---------
Income (loss) before income tax...................................... 2.9 3.2 3.2 3.2 (3.6)
Income tax expense (benefit)......................................... 1.2 1.3 1.3 1.3 (1.5)
--------- --------- --------- --------- ---------
Net income (loss).................................................... 1.7% 1.9% 1.9% 1.9% (2.1)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
THREE MONTHS ENDED APRIL 5, 1996 COMPARED TO THREE MONTHS ENDED APRIL 5, 1995
TOTAL NET SALES AND REVENUES. Total net sales and revenues increased $15.2
million, or 31.7%, to $63.2 million in the first quarter of 1996 from $48.0
million in the first quarter of 1995. Of the increase, approximately $8.0
million resulted from the acquisition of TCSS in March 1996, and approximately
$7.2 million resulted from sales to existing customers. Sales of equipment and
supplies
16
<PAGE>
increased $13.7 million, or 31.5%, to $57.3 million in the first quarter of 1996
from $43.6 million in the first quarter of 1995. Of the increase, approximately
$7.9 million was a result of the acquisition of TCSS and approximately $5.8
million resulted from internal growth. Service revenues increased $1.4 million,
or 33.3%, to $5.4 million in the first quarter of 1996 from $4.0 million in the
first quarter of 1995. This increase relates primarily to internal growth.
GROSS PROFIT. Gross profit margin was 15.2% in the first quarter of 1996
compared to 16.2% in the first quarter of 1995. This decrease was primarily
attributable to continued price competition. However, the gross profit margin
for this quarter as well as the fourth quarter of 1995 improved relative to the
second and third quarter results of 1995 when gross profit margins were
approximately 13.5%. This improvement in margin in the two most recent quarters
is the result of purchasing through lower cost sources, the closing of the
Kingsport branch and the limited number of lower margin large roll-outs or other
large equipment sales which were prevalent during the second and third quarters
of 1995.
OPERATING EXPENSES. Selling, general and administrative expenses (also
including rent expense and provision for doubtful accounts) expressed as a
percentage of total net sales and revenues declined to 10.6% in the first
quarter of 1996 from 11.6% in the first quarter of 1995, as the increase in
these costs was slower than the increase in total net sales and revenues. Total
operating expenses expressed as a percentage of sales declined to 11.3% in the
first quarter of 1996 from 12.0% in the first quarter of 1995 as the increase in
these costs was slower than the increase in total net sales and revenues.
INCOME FROM OPERATIONS. Income from operations increased $0.5 million, or
23.6%, to $2.5 million in the first quarter of 1996 from $2.0 million in the
first quarter of 1995. The Company's operating margin declined to 3.9% in the
first quarter of 1996 from 4.2% in the first quarter of 1995 because the decline
in gross margin was not offset fully by a decline in operating expenses as a
percentage of net sales and revenues.
INTEREST EXPENSE. Interest expense was $0.4 million in the first quarter of
1996 compared with $0.5 million in the first quarter of 1995. The average levels
of debt increased during the first quarter of 1996 compared to the first quarter
of 1995 in order to support increased levels of accounts receivable and
inventory. However, the effective interest rate for the bank revolving credit
agreement decreased as the bank's prime rate dropped during the first quarter of
1996.
INCOME TAXES. The Company's effective tax rate was 40.5% in the first
quarter of 1996 compared to 39.8% in the first quarter of 1995.
LITIGATION SETTLEMENT AND RELATED COSTS. On April 29, 1996, the Company
agreed to a settlement of the litigation with Vanstar. The settlement of $3.3
million consisted of a payment made by the Company to Vanstar of $1.65 million
in cash and a $1.65 million note that is due August 27, 1996 and bears interest
at 8.0% per annum. The settlement agreement also provides for mutual forgiveness
of any and all claims or obligations of the parties, resulting in a charge-off
of $0.5 million of receivables from Vanstar and additional expense of $0.5
million for costs related to the litigation. See "Business -- Legal
Proceedings."
NET INCOME (LOSS). The Company incurred a net loss of $1.4 million, a
decrease of $2.3 million in the first quarter of 1996, from net income of $0.9
million in the first quarter of 1995 due to the factors described above.
Excluding the impact of the Vanstar settlement, net income would have been $1.3
million.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
TOTAL NET SALES AND REVENUES. Total net sales and revenues increased $86.1
million, or 59.6%, to $230.7 million in fiscal 1995 from $144.6 million in
fiscal 1994. Of the increase, approximately $82.3 million resulted from
increased sales to existing customers, including $35.6 million from one customer
17
<PAGE>
and $18.4 million from two roll-out projects. The remainder of the increase,
approximately $3.8 million, was attributable to the opening of a new branch
office in Birmingham, Alabama in January 1995 and the acquisition of Xenas in
November 1994.
Sales of equipment and supplies increased $80.9 million, or 62.1%, to $211.2
million in fiscal 1995 from $130.3 million in fiscal 1994. Of the increase,
approximately $77.5 million resulted from internal growth and approximately $3.4
million was attributable to the opening of the Birmingham branch and Xenas
acquisition described above. Total services revenue increased $4.5 million, or
33.8%, to $17.9 million in fiscal 1995 from $13.4 million in fiscal 1994. Of
this increase, approximately $0.2 million resulted from the opening of the
Birmingham branch, with the remainder due to internal growth. As part of an
overall strategy to gain market share in 1995, the Company increased its
hardware sales by more aggressively bidding on large volume projects which
resulted in an increase in the proportion of equipment and supplies sales to
total net sales and revenues in 1995 as compared to 1994.
During the third quarter of 1995, the Company experienced a decline in its
sales of equipment to P&G. P&G discontinued using the Company as its primary
computer equipment supplier as part of P&G's program to select a single
world-wide supplier. See "Risk Factors -- Dependence on Major Customers."
Additionally, the Company closed its Kingsport, Tennessee branch in an effort to
focus on more profitable business opportunities.
GROSS PROFIT. Gross profit margin was 14.5% in fiscal 1995 compared to
16.4% in fiscal 1994. This decrease was attributable to a combination of strong
price competition and large volume equipment roll-outs which increased the
proportion of total net sales and revenues derived from relatively lower gross
margin sales of products as compared to relatively higher gross margin revenues
derived from services.
OPERATING EXPENSES. Selling, general and administrative expenses (also
including rent expense and provision for doubtful accounts) expressed as a
percentage of total net sales and revenues declined to 10.1% in fiscal 1995 from
11.9% for fiscal 1994. This was attributable to the large volume increase in
sales in 1995 and continued emphasis on expense control. Another contributing
factor was the implementation of a new management information system which has
allowed the Company to reduce overhead costs as a percentage of sales. Total
operating expenses expressed as a percentage of total net sales and revenues
declined to 10.5% in fiscal 1995 from 12.5% in fiscal 1994 as the increase in
these costs slowed relative to the growth in total net sales and revenues.
INCOME FROM OPERATIONS. Income from operations increased $3.7 million, or
67.1%, to $9.3 million in fiscal 1995 from $5.6 million in fiscal 1994. The
Company's operating margin was essentially unchanged in 1995 as compared to 1994
as the decline in gross margin was offset by a decline in total operating
expenses as a percentage of total net sales and revenues.
INTEREST EXPENSE. Total interest expense was $2.0 million in fiscal 1995
compared with $1.0 million in fiscal 1994. The increase was attributable to
higher average levels of debt outstanding on the bank line of credit and the
floor plan financing arrangements during fiscal 1995 as compared to fiscal 1994.
At January 5, 1996, the amounts outstanding on the bank line of credit and floor
plan lines of credit were $16.9 million and $17.7 million, respectively. The
additional levels of financing were necessary primarily to support the increased
levels of accounts receivable and inventory needed to finance the higher total
net sales and revenues. In addition, the weighted average interest rate on bank
borrowings increased to 8.7% in fiscal 1995 compared with 7.1% in fiscal 1994,
because of higher interest rates in the first quarter of 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
INCOME TAXES. The Company's effective tax rate was 40.6% in fiscal 1995
compared to 40.5% in fiscal 1994.
NET INCOME. Net income increased $1.6 million, or 59.3%, to $4.4 million in
fiscal 1995 from $2.7 million in fiscal 1994. The increase was a result of the
factors described above.
18
<PAGE>
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
TOTAL NET SALES AND REVENUES. Total net sales and revenues increased $32.4
million, or 28.9%, to $144.6 million in fiscal 1994 from $112.2 million in
fiscal 1993. Of the increase, approximately $23.4 million resulted from internal
growth, $8.7 million was attributable to the opening of branch offices in
Nashville and Kingsport, Tennessee and $0.3 million was attributable to the
acquisition of Xenas.
Sales of equipment and supplies increased $27.9 million, or 27.2%, to $130.3
million in fiscal 1994 from $102.4 million in fiscal 1993. Of this increase,
approximately $19.7 million resulted from internal growth including $9.7 million
from a major roll-out to a single customer, $7.8 million from the opening of
branch offices in Nashville and Kingsport, Tennessee and $0.3 million from the
acquisition of Xenas. Service revenues increased approximately $4.2 million, or
46.1%, to $13.4 million in fiscal 1994 from $9.2 million in fiscal 1993. Of this
increase, approximately $1.1 million resulted from an increase in revenues
derived from the Company's cabling division which completed a large cabling
installation for a multi-site customer, $0.9 million resulted from the opening
of the Nashville and Kingsport, Tennessee branch offices with the remainder due
to internal growth.
GROSS PROFIT. Gross profit margin was 16.4% in fiscal 1994 and 16.1% in
fiscal 1993. The Company was able to maintain its gross profit margins despite a
major equipment roll-out in 1994 at a lower than average gross profit margin
primarily by increasing service revenues, which contribute a higher gross profit
margin, and by using multiple sources for product to achieve lower equipment
costs.
OPERATING EXPENSES. Selling, general and administrative expenses (also
including rent expense and provision for doubtful accounts) expressed as a
percentage of total net sales and revenues increased to 11.9% for fiscal 1994
from 11.6% for fiscal 1993. This increase was attributable to the start-up
expenses of the new Nashville and Kingsport, Tennessee branches. Total operating
expenses expressed as a percentage of total net sales and revenues remained
constant at 12.5% for fiscal 1994 and 1993.
INCOME FROM OPERATIONS. Income from operations increased $1.5 million, or
37.1%, to $5.6 million in fiscal 1994 from $4.1 million in fiscal 1993. The
Company's operating margin was essentially unchanged in 1994 as compared to 1993
as the decline in gross margin was offset by a decline in total operating
expenses as a percentage of total net sales and revenues.
INTEREST EXPENSE. Interest expense was $1.0 million in fiscal 1994 compared
with $0.9 million in fiscal 1993. The increase was attributable to higher
average levels of debt outstanding on the bank line of credit and the floor plan
financing arrangements during fiscal 1994 as compared to fiscal 1993. The
additional levels of financing were necessary primarily to support increased
accounts receivable and inventory needed to support the higher total net sales
and revenues and to a lesser degree to finance the start-up of the two new
branches in Tennessee and the acquisition of Xenas.
INCOME TAXES. The Company's effective tax rate was 40.5% in fiscal 1994
compared to 41.7% in fiscal 1993.
NET INCOME. Net income increased $0.8 million, or 43.5%, to $2.7 million in
fiscal 1994 from $1.9 million in fiscal 1993. The increase was a result of the
factors described above.
19
<PAGE>
QUARTERLY RESULTS
The following table presents unaudited consolidated quarterly operating data
for each of the Company's last nine fiscal quarters. This information has been
prepared by the Company on a basis consistent with the Company's audited
consolidated financial statements, including all adjustments, consisting of
normal recurring accruals, that the Company considers necessary for a fair
presentation of the data. Such quarterly results are not necessarily indicative
of future results of operations. This information should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------------------ ------------------------------------------ ---------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND MARGIN DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales and revenues....... $ 28,013 $ 30,566 $ 41,905 $ 44,101 $ 47,990 $ 58,487 $ 64,982 $ 59,252 $ 63,224
Gross profit................. 4,587 5,492 6,033 7,562 7,753 7,882 8,765 9,137 9,600
Income from operations....... 897 1,281 1,403 1,976 1,988 2,277 2,332 2,688 2,457
Net income................... 422 634 716 955 906 1,055 1,088 1,319 (1,355)
Earnings per share........... $ 0.17 $ 0.26 $ 0.30 $ 0.39 $ 0.36 $ 0.40 $ 0.40 $ 0.48 $ (0.49)
Gross profit margin.......... 16.4% 18.0% 14.4% 17.1% 16.2% 13.5% 13.5% 15.4% 15.2%
Operating margin............. 3.2 4.2 3.3 4.5 4.1 3.9 3.6 4.5 3.9
Net income margin............ 1.5 2.1 1.7 2.2 1.9 1.8 1.7 2.2 (2.1)
</TABLE>
The Company's quarterly results have varied in the past and are expected to
vary in the future primarily as a result of the timing of roll-out projects or
major service projects since the gross profit margins on the sales of product
are substantially lower than the gross profit margins on the sales of services.
In addition to the effect of roll-out projects, the gross profit margins for the
second and third quarters of fiscal 1995 were also adversely affected by strong
price competition in the marketplace and the Company's strategic decision to
aggressively bid for certain large volume equipment projects. The first quarter
of 1996 includes the effect of the Vanstar litigation settlement and related
costs of $4.4 million. Without this charge, net income would have been $1.3
million, net income per share would have been $0.46 and net income margin would
have been 2.0%.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $4.7 million in the first quarter
of 1996. Cash used in investing activities included $4.5 million for the
acquisition of TCSS and $1.0 million for capital expenditures. Cash provided by
financing activities included $2.5 million of net proceeds from bank notes
payable less $1.1 million of repayments on various notes payable and $0.3
million for the redemption of warrants. The Company's litigation with Vanstar
Corporation was settled on April 29, 1996 resulting in an initial payment of
$1.65 million in early May 1996, which the Company borrowed under the Credit
Facility. The Company anticipates that the final settlement payment of $1.65
million, due August 27, 1996, will be financed with internally generated funds
or available credit under its existing lending arrangements.
Cash used in operating activities was $0.4 million in fiscal 1995. Cash used
in investing activities included $1.1 million for capital expenditures including
furniture, office equipment and leasehold improvements and $0.4 million for two
small acquisitions. Cash provided by financing activities included $1.6 million
from the exercise of stock options and $1.4 million of net proceeds from bank
notes payable less $0.3 million of repayments on various notes payable.
A significant part of the Company's inventories are financed by floor plan
arrangements with third parties. At June 7, 1996, these lines of credit totaled
$32.5 million, including $7.5 million with IBM Credit Corporation ("ICC") and
$25.0 million with Deutsche Financial Services ("DFS"). Borrowings are made on
sixty day notes, with one-half of the note amount due in thirty days. All such
borrowings are secured by the related inventory. Interest on these arrangements,
which are sponsored by certain manufacturers, is a 0.4% flat charge for both DFS
and ICC, which approximates an annual interest rate of 3.2%. The Company
classifies amounts outstanding under the floor plan arrangements as accounts
payable.
20
<PAGE>
The Company's financing of receivables is provided through its Credit
Facility, which permits the Company to borrow up to the lesser of $25.0 million
(which amount decreases to $19.0 million as of July 1, 1996) or an amount based
upon a formula of eligible trade receivables. The Credit Facility carries an
interest rate of 0.25% less than Star Bank's prime rate. At June 7, 1996, the
amount outstanding was $25.0 million and the interest rate charged was 8.0%. The
Company's Credit Facility expires in April 1997 and is collateralized by
substantially all of the assets of the Company, except those assets that
collateralize certain other financing arrangements. Under the terms of the
Credit Facility, the Company is prohibited from paying any cash dividends and is
subject to various restrictive covenants. The Company is currently negotiating
with Star Bank to increase the amount available under the Credit Facility. Star
Bank has also agreed to modify certain terms of the Credit Facility for the
purpose of reflecting the effects of the settlement of the Vanstar litigation on
certain financial covenants.
The Company believes that the net proceeds of this Offering, together with
anticipated cash flow from operations and current financing arrangements, will
be sufficient to satisfy the Company's capital requirements for the next twelve
months. Historically, the Company has financed acquisitions using a combination
of cash, shares of its Common Stock and seller financing. The Company
anticipates that any future acquisitions will be financed in a similar manner.
However, if an acquisition included a significant cash payment, the Company may
have to renegotiate its Credit Facility or seek alternative financing. See "Use
of Proceeds."
On March 14, 1996, the Company executed the Subordinated Note in connection
with the acquisition of TCSS. The principal amount of the Subordinated Note is
$2.7 million and bears interest at an annual rate equal to the prime rate of
Star Bank plus 0.5%, provided that the interest rate may not increase or
decrease by more than 0.75% during the term of the Subordinated Note. Interest
is due and payable quarterly and principal is payable in four equal installments
of $675,000 on each of the first, second, third and fourth anniversary dates of
the Subordinated Note. The note is subordinated to the indebtedness of the
Company to Star Bank. The Subordinated Note further requires the Company to
repay $1.0 million of principal to TCSS concurrently with the closing of this
Offering, in which case repayment of the remaining principal balance will be
pro-rated over the term of the Subordinated Note. See "Business -- Acquisition
of TCSS."
On April 29, 1996, in connection with the settlement of the Vanstar
litigation, the Company executed a promissory note in the principal amount of
$1.65 million. The note bears interest at 8.0% per annum and is due and payable
on August 27, 1996.
The Company recently moved to its new headquarters facility and a new
distribution facility in Hebron, Kentucky. The Company has executed a ten year
lease agreement with Pomeroy Investments, LLC. See "Management -- Compensation
Committee Interlocks and Insider Participation." The Company estimates that of
the approximately $1.2 million in total leasehold improvements, approximately
$0.4 million has not been expended. In addition, the Company expects that most
of the approximately $1.0 million in equipment for the new facilities is, or
will be, leased. In conjunction with the new facility, the Company has been
approved for state tax credits by the Kentucky Economic Development Finance
Authority. See "Business -- Properties."
In October 1995, the Company acquired the assets of Cabling Unlimited, a
provider of computer cable installation services located in Indianapolis,
Indiana with annual revenues of approximately $1.0 million and in March 1996,
the Company acquired the assets of TCSS. The Company regularly evaluates
expansion and acquisition opportunities including the acquisition of resellers
or related businesses in growing market areas and service and support companies
that complement its ongoing operations. See "Risk Factors -- Rapid Growth" and
"Business -- Operating and Growth Strategy."
There are various legal actions arising in the normal course of business
that have been brought against the Company. Management believes that the matters
currently subject to litigation will not have a material adverse effect on the
Company's operations and financial results. However, because of the inherent
uncertainties associated with any litigation, including attorneys' fees and
other costs, should any of the pending matters proceed to trial, the results of
operations for an individual quarter could be materially and adversely affected.
See "Business -- Legal Proceedings."
21
<PAGE>
BUSINESS
GENERAL
Pomeroy Computer Resources sells a broad range of microcomputers and related
products and provides professional services ranging from basic equipment
selection and procurement to complex network design, integration and system
support. The Company provides products and services to a wide variety of
commercial, health care, governmental and educational customers. The Company's
operating strategy is to provide its customers with cost-efficient comprehensive
solutions that satisfy their computing needs. To achieve this objective, the
Company uses its (i) relationships with leading computer hardware manufacturers,
software developers and computer product distributors and service providers to
deliver and support quality products at competitive prices, (ii) distribution
skills to promptly and efficiently manage inventory and deliver products, and
(iii) technical expertise to provide a broad range of complementary value-added
services.
The Company offers microcomputer products from an array of manufacturers
including Compaq, Hewlett-Packard, IBM, Lexmark, NEC and Toshiba. The Company
sells these products together with a broad selection of networking, integration
and software products from manufacturers including 3Com, Bay Networks, Intel,
Microsoft, and Novell. Services provided by the Company allow customers to
outsource the selection, installation, integration and maintenance of their
microcomputer systems. The Company's services include custom configuration of PC
systems, LAN and WAN design, comprehensive project management, installation and
integration services including cabling and wiring, user support, on-site network
management services, computer repair, and on-site staffing.
INDUSTRY TRENDS
In recent years, the ease of use and relatively low cost of PCs in
conjunction with the development of personal productivity software has led to
rapid growth in the number of PCs used by organizations. These organizations, or
individual departments within these organizations, have increasingly sought to
interconnect their PCs into LANs in order to share files, data and printers.
Separate LANs within a single facility or in geographically dispersed locations
may be interconnected through a WAN. Through LANs and WANs, computing capability
is distributed through interconnected PCs using a client/server design. The
typical client/server installation consists of a LAN with multiple centralized
PCs operating as "servers" dedicated to performing specific functions, such as
file storage, communications routing and print queing for multiple "client" PCs
connected to the LANs. These configurations are powerful information management
tools and are considered important and necessary corporate assets.
Historically, large mainframe computer systems possessed greater speed and
capacity than PCs. Over time, PCs have evolved into more powerful tools while
decreasing in price. PCs are now able to perform, on a stand-alone basis, tasks
for which mainframes were historically required. Larger companies are augmenting
or replacing their mainframe computers with LANs and WANs, while medium and
smaller companies are becoming computerized with installations of LANs and WANs.
Furthermore, many companies that already have LANs and WANs are upgrading their
systems.
The advent of LANs, WANs and open systems has changed the manner in which
computer products are distributed in the market place by increasing the demand
for technical services offered together with hardware and software. The Company
believes that the growing need for increasingly complex microcomputer systems
has increased outsourcing of significant levels of sophisticated support
services by commercial and institutional customers. Outsourcing provides the
customer with state-of-the-art technical expertise on a cost-effective basis.
Through outsourcing, a customer contracts for services, including technical
support, that traditionally had been provided in-house by the customer.
The increased performance characteristics and networking capabilities of PCs
allow for customized solutions to a wide variety of customer needs. However,
networks frequently contain products from numerous manufacturers. As a result,
providers of microcomputer systems and services are
22
<PAGE>
increasingly being required to offer products from many manufacturers and have
the service expertise to help companies plan for and implement new technologies,
select and obtain PCs and software at competitive prices, and coordinate the
multiple PCs, peripheral products and network communication devices into
integrated systems.
OPERATING AND GROWTH STRATEGY
The Company's objective is to provide a single source, cost-effective
solution to its customers' information management needs. To achieve its
objective, the Company's strategy is to:
PROVIDE COMPREHENSIVE, COST-EFFICIENT PRODUCT SELECTION. Cost and breadth
of product offerings are significant considerations in a customer's selection of
a computer provider. The Company intends to meet or exceed customers'
expectations on a cost-effective basis by providing a wide range of advanced
microcomputer products from over 1,000 manufacturers. The Company uses its
sophisticated management information system to (i) facilitate timely delivery of
a wide range of products, (ii) give sales people access to up-to-date product
availability and pricing information and (iii) tightly control inventory and
accounts receivable.
PROVIDE COMPLEMENTARY PROFESSIONAL SERVICES. In addition to cost and
selection, customers demand a full range of professional computer services from
a single source. The Company seeks to form broad-based relationships with its
customers by providing a comprehensive range of services that allows a customer
to outsource effectively its microcomputer purchasing, installation and
maintenance functions to the Company. The Company provides a broad range of
network and integration services including on-site staffing, product
configuration, design and installation of voice and data cabling systems,
service and support contracts and network and technology consulting and related
training. As of June 7, 1996, the Company employed approximately 300 service and
technical personnel.
PURSUE ACQUISITION AND EXPANSION OPPORTUNITIES. Acquisitions allow the
Company to service existing customers in new geographic locations and to add new
customers as well as expand its product and service offerings and obtain more
competitive pricing as a result of increased purchasing volumes of particular
products. The Company focuses on value-added resellers located in growing market
areas and service and support companies that complement its existing operations.
In March 1996, the Company expanded its geographic coverage in the Midwest
through its acquisition of TCSS. In 1995, the Company acquired Cabling
Unlimited, a provider of communications cabling installation services in
Indianapolis, Indiana.
PRODUCTS
The Company has access to a wide variety of microcomputer product lines,
networking and interconnectivity application tools and software. The Company is
an authorized reseller for 35 manufacturers and offers the products of over
1,000 manufacturers, including:
<TABLE>
<S> <C> <C>
Apple Genicom Microsoft
AST Hewlett-Packard NEC
Bay Networks IBM Novell
Canon Intel 3Com
Compaq Lexmark Toshiba
Epson Lotus
</TABLE>
For the fiscal years 1993, 1994 and 1995, and the first three months of
fiscal 1996, sales by the Company of products manufactured by Compaq,
Hewlett-Packard and IBM, accounted for approximately 50%, 74%, 68%, and 55%
respectively, of the Company's total sales of equipment and supplies. The total
dollar volume of products purchased directly from manufacturers was $18.6
million, $69.6 million, $69.4 million and $17.2 million for fiscal years 1993,
1994 and 1995, and the first three months of fiscal 1996, respectively, and as a
percentage of total purchases was 20%, 54%, 35% and 39%, respectively.
23
<PAGE>
As new hardware and software products are introduced by manufacturers, the
utility of particular products may change substantially. Concern over these
changes in product utility may result in confusion by customers as to which
product is best suited to the customer's needs which, in turn, can result in
volatility of demand for products. The Company attempts to address this
confusion and volatility by being "platform neutral" in its marketing and
offering a variety of hardware solutions, software packages and support services
that address virtually all applicable industry standards.
For the fiscal years 1993, 1994 and 1995, and the first three months of
fiscal 1996, inventories as a percentage of total assets were 29.2%, 30.4%,
29.7%, and 22.7%, respectively. In general, most of the inventory stocked by the
Company (other than parts/service inventory) is for specific customer orders
and, consequently, these inventories do not remain at the Company for an
extended period of time. A significant part of the Company's inventories are
financed by floor plan arrangements with third parties. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SERVICES
The Company provides expertise in (i) selecting and evaluating new equipment
and technologies, (ii) technical and project management for implementation and
ongoing support, (iii) advanced network/connectivity problem diagnosis and (iv)
training.
NETWORKING. The Company provides network design and consulting services
related to LANs and WANs. Technical expertise provided by the Company's system
engineers ("SEs") includes consultation regarding microcomputer communications
requirements, configuring proposed solutions, system integration, installation,
training and ongoing technical support of customers. Each of the markets served
by the Company has SEs available for technical support. Since 1993, the number
of the Company's SEs has increased from 19 to 66 to support the growth in this
aspect of the Company's business.
ON-SITE STAFFING AND OUTSOURCING. A growing part of the Company's business
is to provide on-site staffing services to commercial, health care, governmental
and educational customers. The Company's on-site staffing and outsourcing
capabilities include project management, hardware and facilities management,
network consulting, manufacturer negotiations and support and training. The
Company believes that the demand for on-site services is being driven, in part,
by the increasing complexity of microcomputer systems and networks. As of June
7, 1996, approximately 10% of the Company's employees were engaged in on-site
assignments. The Company currently provides on-site services to a variety of
customers including Barnett Bank, Belcan Engineering, Blue Cross and Blue Shield
of Kentucky, Champion, Jergens, Ohio National Life, University of Alabama at
Birmingham and University of Kentucky.
HARDWARE MAINTENANCE AND MANAGEMENT. The Company offers customers on-site
repair and warranty service as well as centralized off-site repair service from
the Company's depot repair center. Hardware service agreements sold by the
Company generally have terms of one or more years and have various coverage
options ranging from all encompassing on-site coverage to less expensive, less
comprehensive programs. The Company also offers time and material service
coverage for those customers who do not purchase a service agreement.
At its depot repair center, the Company provides repairs including component
level repairs, upgrades, refurbishment and redeployment services that can
minimize computer-related downtime for customers who have geographically
dispersed field personnel. Customers may deliver their hardware to the Company's
depot repair center or arrange scheduled or as-required pick-ups of their
hardware. The depot repair center currently has the capability to process more
than 75,000 desktop and laptop PCs, monitors and printers annually.
The Company also offers warehousing for customers' products not currently in
use and hardware management services, which include asset tagging, identifying
and tracking inventory. In addition, the Company provides software support
agreements that typically provide for "blocks of time" during
24
<PAGE>
which the Company's SEs may be called upon by customers for installation of
additional equipment, training and problem resolution. As of June 7, 1996, the
Company had approximately 1,550 service contracts in effect.
INTEGRATED MEDIA AND COMMUNICATION TECHNOLOGIES. The Company's Xenas
subsidiary provides services including integrated multimedia solutions,
videoconferencing, and satellite communication technology. Xenas also sells and
rents high-end presentation equipment. The Company's cabling division
specializes in the design and installation of cabling and wiring systems for
LANs and WANs. The Company offers customers assistance with data, voice, video,
security and multimedia cabling systems including service and maintenance
contracts and also has expertise in fiber optic and copper cabling.
MARKETING AND CUSTOMERS
The Company focuses its marketing efforts on large and medium sized
commercial, health care, governmental and educational customers. The Company's
sales are generated primarily by its 181 person direct sales force and sales
support personnel located in 11 regional offices in Kentucky, Iowa, Tennessee,
Ohio, Florida, Alabama and Indiana. The Company's marketing representatives
typically have college degrees and three or more years of sales experience in
the microcomputer and related services industry. Territory assignments are based
on skill, experience, and demonstrated sales results. Compensation programs for
marketing representatives include salary, commission and Company stock option
awards. Commissions are based on volume, gross profit, service content and
strategic importance of the sale. The Company provides additional incentives in
the form of contests to encourage the representatives to sell various products.
The Company currently has more than 12,000 customers. In fiscal 1995, the
largest customers of TCSS included Pioneer HiBred and Principal Insurance, and
the largest customers of Pomeroy Computer Resources included:
<TABLE>
<S> <C>
Alliant National Pen
Bank of Mississippi P&G
Barnett Bank Providian
Champion Regis
Columbia/HCA Saint Thomas Hospital
Commonwealth of Kentucky Square D
GE Star Bank
Great Financial Sun Trust Bank
Kroger Western-Southern
Lexmark University of Tennessee
Milacron
</TABLE>
In recent years the Company has handled large roll-out projects with major
customers. Typically, roll-out projects involve large volumes of similar
equipment with standard configurations which are to be delivered on a specific
time table over a relatively short period of time. Roll-out projects include
support capabilities such as project management, product scheduling, central
receiving, software loading and testing, coordination of shipments to multiple
sites and overall quality control. Roll-out projects, which frequently utilize
highly complex and sophisticated hardware and software configurations, are often
accompanied by other services offered by the Company.
The Company has a return policy for customers which generally allows
customers to return hardware and unopened software, without restocking charges,
within 30 days of the original invoice date subject to advance approval and
certain other conditions.
The Company grants credit to certain well-established major customers which
meet specified criteria. The Company maintains a centralized credit department
that reviews credit applications.
25
<PAGE>
Accounts are regularly monitored for collectibility and appropriate action is
taken upon indication of risk. The Company also offers leasing arrangements
tailored to the customer's needs. See "Business -- Leasing."
LEASING
As part of its full service approach, the Company offers flexible equipment
leasing arrangements to customers. As leased equipment is returned at the end of
the lease term, the Company is ensured a dependable source of used equipment for
resale.
The principal leasing company used by the Company has been Information
Leasing Corporation ("ILC"). Pursuant to a Remarketing and Agency Agreement (the
"Agency Agreement") with ILC, the Company obtains rights to 50% of the proceeds
from the re-lease or resale of used equipment for services rendered in
connection with remarketing the used equipment at the end of the original term
of the lease. The Company also invests in certain leases of equipment which do
not involve the sale of equipment and related support services by the Company to
ILC. ILC has a right of first refusal with respect to all proposed equipment
lease financings for the Company's customers. During fiscal years 1993, 1994 and
1995, and the first three months of fiscal 1996, the Company sold equipment and
related support services to ILC, for lease to ILC's customers, in the amounts of
$3.0 million, $4.2 million, $23.7 million and $1.6 million, respectively.
The Company has established a wholly-owned subsidiary to directly provide
its customers with leasing alternatives. The Company will continue to utilize
ILC through the term of the Agency Agreement (May 1, 1997) for leases which ILC
elects to finance. Depending on its ability to finance leases, the Company may
elect to utilize its subsidiary for leases which ILC elects not to finance.
After May 1997, the Company anticipates that its leasing subsidiary will finance
a greater proportion of leases for its customers.
ACQUISITION OF TCSS
In March 1996, the Company acquired the assets of TCSS, a computer reseller
based in Des Moines, Iowa, whose primary geographic market area is central Iowa.
The operations acquired from TCSS now constitute the Company's Des Moines branch
office. The Des Moines branch provides a broad range of microcomputer products
and related professional services to a variety of businesses and other
organizations. The purchase price consisted of approximately $4.5 million in
cash, $2.7 million in subordinated notes, the assumption of certain liabilities
and 100,000 unregistered shares of Common Stock. In addition, the Company has
entered into 5-year employment agreements with key employees of TCSS.
For its fiscal year ended December 31, 1995 and the first three months of
fiscal 1996, TCSS had total revenues of $60.5 million and $20.0 million,
respectively. TCSS' service revenues have historically accounted for a smaller
percentage of total revenues (1.8% in 1995) than the percentage of service
revenues of the Company. As of June 7, 1996, the Des Moines branch had
approximately 130 service contracts in effect.
As of June 7, 1996, the Des Moines branch had more than 5,300 customers, the
largest of which included Principal Insurance, Pioneer HiBred, Norwest Mortgage,
Iowa Medical Center, AMCO (formerly Allied Mutual) and Blue Cross and Blue
Shield of Iowa. As of that date, this branch had 136 total full-time employees
of which 52 were service and technical personnel including 8 systems engineers;
26 direct sales and sales support representatives; 5 management personnel; and
53 administrative and distribution personnel.
Consistent with the Company's operating strategy, the Des Moines branch
offers its customers quality products at low prices along with a wide range of
value-added services to provide cost-efficient comprehensive solutions to meet
their computing needs. As part of its growth strategy, the Company intends to
expand its presence to the entire state of Iowa. To this end, the Company has
hired marketing representatives in Cedar Rapids, Iowa, signed a lease for office
space and plans to open a regional office in the third quarter of 1996.
26
<PAGE>
MANAGEMENT INFORMATION SYSTEM
The Company relies upon the accuracy and proper utilization of its
management information system. The nature of the Company's business requires a
management information system that adjusts to the changing price, availability,
and source of the Company's products as well as provides timely data
transmission to and from major customers in order for the Company to manage its
inventory, receivables and collections. This integrated information system is a
real-time, on-line repository which enables instantaneous access and processing
regardless of geographic location or business function. The Company began
implementation of this system in July 1994 and continues to integrate additional
functions. The Company anticipates that it will continually need to refine and
modify its management information system as the Company grows and the needs of
its business change. The Company has also established Electronic Data
Interchange ("EDI") trading partnerships with a number of its major suppliers
and key customers. When fully utilized, EDI allows the Company to automatically
receive customer purchase orders, send purchase orders to its suppliers, send
invoices and asset management data to customers and receive price and
availability data from its suppliers.
COMPETITION
The microcomputer products and services market is highly competitive.
Distribution has evolved from manufacturers selling through direct sales forces
to sales by manufacturers to aggregators (wholesalers), resellers and
value-added resellers. Competition, in particular the pressure on pricing, has
resulted in industry consolidation. In response to continuing competitive
pressures, including specific price pressure from the direct telemarketing and
mail order distribution channels, the microcomputer distribution channel is
currently undergoing segmentation into value-added resellers who emphasize
advanced systems together with service and support for business networks, as
compared to computer "superstores," who offer retail purchasers a relatively low
cost, low service alternative and direct-mail suppliers which offer low cost and
limited service. Certain superstores have expanded their marketing efforts to
target segments of the Company's customer base, which could have a material
adverse impact on the Company's operations and financial results.
While price is an important competitive factor in the Company's business,
the Company believes that its sales are principally dependent upon its service,
technical expertise, reputation and experience. The Company's principal
competitive strengths include: (i) quality assurance; (ii) service and technical
support; (iii) lower pricing of products through alternative distribution
sources; (iv) prompt delivery of products to customers; and (v) creative
financing alternatives.
The Company competes for product sales directly with local and national
distributors and resellers such as Ameridata, CompuCom, Dataflex, Entex, InaCom
and Sarcom. In addition, the Company competes with microcomputer manufacturers
that sell their products through their own direct sales forces and to
distributors. Although the Company believes its prices and delivery terms are
competitive, certain competitors offer more aggressive hardware pricing to their
customers. The Company's services and outsourcing business competes with
Ameridata, Andersen Consulting, EDS, ISSC, TFN and Vanstar, among others. See
"Risk Factors -- Competition."
EMPLOYEES
As of June 7, 1996, the Company had 691 full-time employees consisting of
the following: 300 service and technical personnel including 66 systems
engineers; 181 direct sales and sales support representatives; 50 management
personnel; and 160 administrative and distribution personnel. The Company has no
collective bargaining agreements and believes its relations with its employees
are good.
PATENTS AND TRADEMARKS
The Company owns no trademarks or patents. 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
27
<PAGE>
the products of those manufacturers and to use their trademarks and tradenames
for marketing purposes. The Company considers the use of these trademarks and
trade names in its marketing efforts to be important to its business.
PROPERTIES
The Company leases its branch offices located in Kentucky, Iowa, Tennessee,
Ohio, Florida, Alabama and Indiana. In early 1996, the Company moved into a new
distribution center in Hebron, Kentucky. In May 1996, the Company moved into the
new headquarters facility on the same site. The new facilities will allow the
Company to consolidate all of its greater Cincinnati operations, including
distribution, sales, multimedia, order desk and related headquarters functions.
The new headquarters is owned by a limited liability company controlled by David
B. Pomeroy, II and leased to the Company. See "Management -- Compensation
Committee Interlocks and Insider Participation." The Company believes that its
facilities are well maintained and are adequate for the its present
requirements.
28
<PAGE>
The following table identifies the Company's principal leased facilities,
some of which are directly leased by subsidiaries of the Company. The Company
does not own any real property.
<TABLE>
<CAPTION>
EXPIRATION DATE
APPROXIMATE (INCLUDING
FACILITY LOCATION DATE OPENED SQUARE FOOTAGE RENEWALS)
- ------------------------ ---------------------------------------- ----------- --------------- -------------------
<S> <C> <C> <C> <C>
Corporate 1020 Petersburg Road 5/96 36,000 5/2016
Headquarters Hebron, KY
Distribution 1050 Elijah Creek Rd. 1/96 91,417 5/2016
Facility Hebron, KY
Lexington Branch 2041 Creative Dr. 10/95 8,867 10/2004
Suite 400
Lexington, KY
Louisville Branch 908 Dupont Cir. 9/90 10,000 7/2000
Louisville, KY
Louisville Branch 115 Willshire Ave. 10/95 1,500 month-to-month
Cabling Unlimited Louisville, KY
Des Moines Branch 1408 Locust Street 3/96 32,000 3/2011
TCSS Des Moines, IA
Des Moines Branch 1310-12-14 Locust St. 3/96 40,800 6/1999
TCSS Des Moines, IA
Knoxville Branch Crosspark Drive 4/96 7,500 3/2006
Knoxville, TN
Nashville Branch 717 Airpark Center Dr. 5/94 6,000 4/1999
Nashville, TN
Cincinnati Branch 1045 W. 8th St. 9/90 16,000 8/1997
Cincinnati, OH
Jacksonville Branch 3740 St. Johns Bluff Rd. 12/92 4,800 11/1998
Jacksonville, FL
Birmingham Branch 1208 3rd Avenue South 12/94 2,200 month-to-month
Birmingham, AL
Indiana Branch 8770 Commerce Park Pl. 10/95 2,401 month-to-month
Cabling Unlimited Indianapolis, IN
</TABLE>
The Company's former corporate headquarters in Erlanger, Kentucky was
occupied until May 1996. The Company's former distribution facility which was
occupied as a distribution facility until January 1996 continues to be used as a
depot repair center. The Company is actively seeking a tenant to sublet the
former headquarters for its remaining lease term. The Company has sublet the
Xenas branch office to ILC.
The following table identifies the former facilities.
<TABLE>
<CAPTION>
EXPIRATION DATE
APPROXIMATE (EXCLUDING
FACILITY LOCATION DATE OPENED SQUARE FOOTAGE RENEWALS)
- ------------------------- -------------------- ----------- --------------- -------------------
<S> <C> <C> <C> <C>
Corporate 1840 Airport 1/93 7,800 1/1998
Headquarters Exchange Blvd.
Erlanger, KY
Distribution Facility/ 1850 Airport 11/92 40,000 11/1997
Temporary Depot Repair Exchange Blvd.
Erlanger, KY
Xenas 1021 W 8th St. 8/90 8,000 7/1997
Cincinnati, OH
</TABLE>
29
<PAGE>
HISTORY
The Company was organized in February 1992 to consolidate and reorganize
(the "Reorganization") the Company's predecessor businesses (the "Pomeroy
Companies"). The Pomeroy Companies, all of which were controlled by David B.
Pomeroy, II, the Company's Chairman of the Board, President, Chief Executive
Officer and principal stockholder, first began operations in 1981. In April
1992, the Company made the initial public offering of its Common Stock. The
Company moved to a new headquarters facility in Hebron, KY in May 1996.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings that are incidental to
the conduct of its business. These proceedings are not, in the opinion of
management, material.
On April 29, 1996, the Company and David B. and Catherine Pomeroy entered
into a Settlement Agreement with Vanstar Corporation ("Vanstar"), Merisel, Inc.
and Merisel FAB, Inc. Vanstar (f/k/a ComputerLand) was the Company's franchisor
from 1981 to 1993, when the Company changed from a franchisee to a "Datago"
purchaser under the terms of a purchase agreement (the "Datago Agreement"). In
December 1994, Vanstar filed a complaint against the Company alleging that the
Company failed to comply with the terms of the Datago Agreement. In January
1995, the Company filed a cross-complaint against Vanstar alleging numerous
breaches of the Datago Agreement. In September 1995, Vanstar amended its
complaint to add Mr. and Mrs. Pomeroy as co-defendants because they had
guaranteed the Company's obligations under the Datago Agreement. The Settlement
Agreement settles any and all claims between Vanstar, the Company and Mr. and
Mrs. Pomeroy that were raised or could have been raised in Vanstar's lawsuit
against the Company and Mr. and Mrs. Pomeroy and includes a mutual release among
all parties.
The Company has agreed to pay to Vanstar $3.3 million consisting of $1.65
million in cash and a promissory note in the amount of $1.65 million. The note
is due August 27, 1996 and bears interest at 8.0% per annum. The note is secured
by 100,000 shares of common stock of the Company owned by Mr. Pomeroy. All
agreements between the Company and Vanstar were terminated as of the effective
date of the Agreement. See "Management -- Compensation Committee Interlocks and
Insider Participation."
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to each
person who is a director or executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------------------------
<S> <C> <C>
David B. Pomeroy, II (1)(2)............... 46 Chairman of the Board, President and Chief Executive Officer
Edwin S. Weinstein........................ 49 Director, Chief Financial Officer, Treasurer and Secretary
Richard C. Mills.......................... 40 Vice President of Operations
Carol Teufel Weinstein.................... 43 Vice President of Finance and Administration
James C. Eck.............................. 47 Vice President of Sales and Services
James H. Smith, III (1)(2)(3)............. 46 Director
Dr. David W. Rosenthal (3)................ 44 Director
Michael E. Rohrkemper (1)(2)(3)........... 49 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Stock Option Committee.
Executive officers serve at the discretion of the Company's Board of
Directors and are appointed on an annual basis.
DAVID B. POMEROY, II was a founder of the first of the Pomeroy Companies in
1981. Mr. Pomeroy controlled the Pomeroy Companies until their reorganization
into Pomeroy Computer Resources in 1992 and has served as Chairman of the Board,
President and Chief Executive Officer since 1992.
EDWIN S. WEINSTEIN has been with the Pomeroy Companies in substantially his
present capacity since January 1983. Mr. Weinstein became a Director and Chief
Financial Officer of the Company when it was organized in February 1992.
RICHARD C. MILLS joined the Company in January 1993 and has been Vice
President of Operations since July 1993. Prior to that time, Mr. Mills was the
founder and president of The Computer Store of Kentucky, Inc., a
Louisville-based retailer of computer products.
CAROL TEUFEL WEINSTEIN has been Vice President of Finance and Administration
since January 1993. Prior to that time, Mrs. Weinstein was Vice President of
Operations of the Company from October 1992 to July 1993 and Controller from
March 1987 to February 1992.
JAMES C. ECK joined the Company in September 1995 and was made Vice
President of Sales and Services effective February 1996. From 1983 until 1995,
Mr. Eck was employed by Canon USA Incorporated, a New York-based manufacturer of
digital and analog office equipment, and served as the director and general
manager of the National Accounts Division Office Equipment Group for Canon since
1991.
JAMES H. SMITH, III has been a Director of the Company since April 1992. Mr.
Smith is a shareholder in the law firm of Lindhorst & Dreidame Co., L.P.A.,
Cincinnati, Ohio, where he has practiced law since 1979. Lindhorst & Dreidame
acts as outside general counsel to the Company.
DR. DAVID W. ROSENTHAL has been a Director of the Company since April 1992.
Dr. Rosenthal is a Professor of Marketing at Miami University, Oxford, Ohio, a
position he has held for sixteen years. Dr. Rosenthal has also served as a
consultant with Stratvertise, a marketing research and strategic consulting firm
since 1975.
31
<PAGE>
MICHAEL E. ROHRKEMPER has been a Director of the Company since July 1993.
Mr. Rohrkemper is a certified public accountant and has been a partner in the
accounting firm of Rohrkemper and Ossege Ltd. since January 1991.
Edwin S. Weinstein and Carol Teufel Weinstein are husband and wife. There
are no other family relationships among the Company's directors and executive
officers.
BOARD OF DIRECTORS
COMMITTEES OF THE BOARD OF DIRECTORS. The Company has a standing audit
committee composed of two non-employee directors, Messrs. Smith and Rohrkemper,
and Mr. Pomeroy, Chairman of the Board, President and Chief Executive Officer.
The audit committee consults with the independent auditors regarding their
examination of the financial statements of the Company and regarding the
adequacy of internal controls. It reports to the Board of Directors on these
matters and recommends the independent auditors to be designated for the ensuing
year.
The Company has a standing compensation committee composed of Mr. Pomeroy
and two non-employee directors, Messrs. Rohrkemper and Smith. This committee
reviews the compensation paid by the Company and makes recommendations on these
matters to the Board of Directors.
The Company has a standing stock option committee consisting of Messrs.
Rosenthal, Rohrkemper and Smith. This committee administers the 1992
Non-Qualified and Incentive Stock Option Plan.
COMPENSATION OF THE BOARD OF DIRECTORS. Each Director who is not an
employee of the Company, except for Mr. Smith, receives a quarterly retainer of
$2,000 plus $500 for each Board of Directors meeting attended (including as part
of each such meeting any committee meetings held on the same date), and $500 for
any committee meetings attended which were not held on the same date as a Board
of Directors meeting. Since the fourth quarter of fiscal 1993, the Company has
automatically deposited the amount earned by such Directors, on a quarterly
basis, into an account at PaineWebber established for each such Director unless
the Director requests receipt of the cash instead. A broker at PaineWebber is
directed to utilize the funds deposited for each Director to purchase shares of
Common Stock of the Company on the open market. Mr. Smith's law firm, Lindhorst
& Dreidame Co., L.P.A. is compensated for Mr. Smith's time in attendance at
Board of Directors' meetings based on the hourly rate charged for his
professional services.
The Company's Outside Directors' Stock Option Plan provides outside
directors of the Company with options to purchase Common Stock of the Company at
an exercise price equal to the fair value of the shares at the date of grant.
Under the plan, 75,000 shares of Common Stock of the Company are reserved for
issuance. The plan will terminate ten years from the date of adoption. Pursuant
to the plan, an option to purchase 10,000 shares of Common Stock automatically
is granted on the first day of the initial term of a director. An option for an
additional 2,500 shares of Common Stock automatically is granted to an eligible
director upon the first day of each consecutive year of service on the board.
Options may be exercised after one year from the date of grant for not more than
one-third of the shares subject to the option and an additional one-third of the
shares subject to the option may be exercised for each of the next two years
thereafter. To the extent not exercised, options expire five years after the
date of grant.
EXECUTIVE COMPENSATION
The following table is a summary for fiscal years 1993, 1994 and 1995 of
certain information concerning the compensation paid or accrued by the Company
to the Chief Executive Officer and to each person who was at any time during
1995 an executive officer of the Company and whose aggregate total salary and
bonus exceeded $100,000 (collectively, the "Named Executive Officers").
32
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------------
ANNUAL COMPENSATION NUMBER OF
--------------------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS COMPENSATION AWARDS (2) OPTIONS
- ------------------------------------ --------- ----------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
David B. Pomeroy, II ............... 1995 $ 350,000 $ 329,812 -- -- 27,500
Chairman of the Board, President 1994 300,000 274,000 $ 55,540(3) -- --
and Chief Executive Officer 1993 225,000 79,002 154,113(4) -- --
Edwin S. Weinstein ................. 1995 109,500 25,000 21,500(5) $ 20,000 --
Chief Financial Officer, Treasurer 1994 98,000 4,000 -- 20,000 --
and Secretary 1993 91,300 -- -- 20,000 --
1995 144,500 81,496 20,000 --
Frank D. Friedersdorf .............. 1994 157,450 -- -- 20,000 --
Vice President of Sales 1993 132,000 5,000 -- 20,000 --
1995 137,875 62,205 -- -- --
Richard C. Mills ................... 1994 129,000 -- -- -- --
Vice President of Operations 1993 106,303 10,000 -- -- 47,665(6)
</TABLE>
- ------------------------
(1) Includes amounts deferred at the direction of the executive officer pursuant
to the Company's 401(k) Retirement Plan.
(2) At January 5, 1996 a total of 15,534 restricted shares were held with an
aggregate value of approximately $186,000.
(3) Includes $25,000 for personal guarantee of the Datago Agreement with Vanstar
and $14,787 for reimbursement of automobile expenses. Other amounts
individually were less than 25% of the total perquisites and other benefits
reported for Mr. Pomeroy.
(4) Includes $50,000 for signing new employment agreement and $75,000 for
personal guarantee of the Datago Agreement with Vanstar. Other amounts
individually were less than 25% of the total perquisites and other benefits
reported for Mr. Pomeroy.
(5) Represents reimbursement for taxes related to stock awards incurred because
the stock awards resulted in immediate taxation.
(6) Adjusted for the 10% stock dividend effective May 22, 1995. Of this total,
options for 45,832 shares are presently vested.
OPTION GRANTS
The following table sets forth certain information concerning the grant of
options to purchase Common Stock to David B. Pomeroy, II. No grant of options to
purchase Common Stock was made to any other Named Executive Officer during
fiscal year 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POTENTIAL REALIZABLE
SHARES OF TOTAL VALUE AT ASSUMED ANNUAL
COMMON OPTIONS RATES OF STOCK PRICE
STOCK GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE OR TERM
OPTIONS IN FISCAL BASE PRICE EXPIRATION ------------------------
NAME AND PRINCIPAL POSITION GRANTED (1) YEAR ($/SH) DATE 5% 10%
- --------------------------------------- ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
David B. Pomeroy, II .................. 27,500 52.6% $ 8.98 1/6/2000 $ 72,124 $ 155,682
Chairman of the Board,
President and Chief
Executive Officer
</TABLE>
- ------------------------
(1) The number of shares underlying the options was adjusted for the 10% stock
dividend effective May 22, 1995.
33
<PAGE>
FISCAL YEAR-END VALUE OF STOCK OPTIONS
The following table sets forth information concerning aggregated option
exercises in fiscal year 1995 and the number and value of unexercised options
held by each of the Named Executive Officers at January 5, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END STOCK OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR IN- THE-MONEY OPTIONS
ACQUIRED ON VALUE END EXERCISABLE/ AT FISCAL YEAR END
NAME EXERCISE REALIZED UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------ ----------- ----------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
David B. Pomeroy, II................ -- -- 27,500/0 $83,050/0
Edwin S. Weinstein.................. 10,175 $ 175,450 3,575/0 $16,910/0
Frank D. Friedersdorf............... -- -- 13,750/0 $65,037/0
Richard C. Mills.................... -- -- 45,832/1,833 $230,093/4,088
</TABLE>
EMPLOYMENT AGREEMENTS
Mr. Pomeroy has an employment agreement with the Company for a term of three
years, which is extended on a daily basis resulting in a perpetual three year
term.
The Board of Directors amended Mr. Pomeroy's employment agreement, effective
January 6, 1996, to provide an annual base salary of $395,000 during 1996 and
for each subsequent year unless modified by the Compensation Committee. The
amended employment agreement provides for annual bonuses, based on the
applicable percentage of the Company's income from operations in the following
categories:
<TABLE>
<CAPTION>
INCOME FROM OPERATIONS BONUS PERCENTAGE MAXIMUM
- ----------------------------------------------------- ------------------- -----------
<S> <C> <C>
$2 million to $4 million............................. 10% $ 200,000
$4 million to $8 million............................. 5% $ 200,000
</TABLE>
Mr. Pomeroy may also be paid a discretionary bonus under any compensation,
benefit or management incentive plan. Fifty percent of any discretionary bonus,
will be paid in cash and fifty percent will be treated as incentive deferred
compensation. The amended employment agreement also provides for a supplemental
compensation agreement to provide supplemental income of up to $50,000 per year,
subject to a seven year vesting schedule, for a period of ten years commencing
on the earliest to occur of the following events: (i) death, (ii) disability,
(iii) retirement, or (iv) the expiration of seven years from the effective date
of the agreement.
Pursuant to his employment agreement, Mr. Pomeroy was granted an option to
purchase 25,000 shares of Common Stock, effective January 6, 1996, at the fair
market value of the Common Stock on January 5, 1996. Upon the occurrence of a
change in control, Mr. Pomeroy is entitled to receive (a) through the date of
termination of his employment and thereafter for the balance of the three year
term of the agreement, his full base salary, bonus and all other amounts under
any compensation plan or program of the Company (other than the amounts referred
to in (b) below) at the time such payments are due and to continue participation
in all medical, life and other employee welfare benefit plans in which Mr.
Pomeroy was entitled to participate immediately prior to the date of termination
(or substantially similar benefits if a continued participation is not possible
under such plans and programs) and (b) a lump sum payment equal to the present
value of his benefits under the supplemental compensation agreement based upon a
100% vesting percentage. For purposes of Mr. Pomeroy's employment agreement, a
change in control occurs: (i) upon the sale or other disposition to a person,
entity or a group (as such term is used in Rule 13d-5 promulgated under the
Securities and Exchange Act of 1934, as amended) of 50% or more of the
consolidated assets of the Company taken as a whole; or (ii) in the event shares
representing a majority of the voting power of the Company are acquired by a
person or a group (as such term is used in Rule 13d-5) of persons other than
holders of shares of Common Stock on March 1, 1992.
34
<PAGE>
Mr. Weinstein has an employment agreement with the Company effective
February 13, 1992. The initial term of Mr. Weinstein's agreement continued until
December 31, 1994, but the agreement is extended annually for additional
one-year periods unless either party gives 60 days written notice of
termination. The agreement provides for a stated base salary of $103,000 and a
discretionary bonus to be determined by the Board of Directors. The parties have
mutually agreed to adjust Mr. Weinstein's stated base salary from time to time.
For fiscal 1996, the parties have agreed that Mr. Weinstein's base salary will
be $110,000. In addition, the Company agreed to issue, on an annual basis,
shares of Common Stock having a fair market value as of such date equal to
$20,000, commencing on January 15, 1993 and terminating after the distribution
on January 15, 1997. Generally, these payments of shares of Common Stock are due
to Mr. Weinstein whether he remains employed by the Company, dies or becomes
disabled, unless his termination of employment is by him without cause or by the
Company with cause.
Mr. Mills has an employment agreement with the Company effective January 1,
1993. The term of Mr. Mills' agreement is three years and is extended annually
for additional one-year periods unless either party gives 60 days written notice
of termination. The agreement provides for a stated base salary of between
$100,000 and $138,000, based on the financial performance of the Company, and an
incentive bonus based on the Company achieving certain financial performance
goals. The parties have mutually agreed to adjust Mr. Mills' base salary from
time to time. For fiscal 1996, the parties have agreed that Mr. Mills' base
salary will be $160,000. The agreement also provides that Mr. Mills is to
receive an option to purchase 20,000 shares on the closing date of the Offering
described herein.
Mr. Eck has an employment agreement with the Company extending from
September 18, 1995 to January 5, 1999, which is extended annually for successive
one-year periods unless either party gives 30 days written notice of
termination. Mr. Eck's compensation under the agreement consists of a base
salary of $150,000 for fiscal 1996, annual and quarterly bonuses, monthly
commissions based on gross sales, and stock options. Mr. Eck's base salary is
subject to percentage increases in subsequent fiscal years if certain profit
goals are attained. The amount of any annual bonuses are determined on the basis
of attainment of certain economic goals, and are to be paid 50% in cash and 50%
as incentive deferred compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1995, the Compensation Committee consisted of David B. Pomeroy,
II, James H. Smith, III and Michael E. Rohrkemper. Mr. Pomeroy is the Chairman
of the Board, President and Chief Executive Officer of the Company.
On September 15, 1992, the Company loaned $100,000 to David B. Pomeroy, II,
the Company's Chairman of the Board, President and Chief Executive Officer, to
pay income taxes on distributions he received in connection with the
Reorganization. See "Business -- History." In connection with the loan, Mr.
Pomeroy executed a promissory note which provided for interest at a rate of 1.0%
above the prime rate. In addition, the Company from time to time has advanced
Mr. Pomeroy additional sums. The largest amount due the Company at any time
during fiscal 1995 as a result of such advances was $106,000. Pomeroy
Investments, LLC (an entity controlled by David B. Pomeroy, II, as described
below) has agreed to purchase the $100,000 note from the Company at its face
value and repay the advances in full.
Mr. Pomeroy and his spouse personally guaranteed the Company's obligations
under the Datago Agreement. The Company entered into an agreement, dated October
14, 1993, with Mr. Pomeroy to compensate him and his spouse for the economic
risk of such guarantee. The sum of $75,000 was paid on the effective date of the
agreement. On the first day of each year thereafter that their guarantee
remained in effect, the Company was required to pay the sum of $25,000. The
Company made only one such $25,000 payment. The Company and Mr. and Mrs. Pomeroy
have terminated the annual payments.
35
<PAGE>
In connection with the settlement of the Vanstar litigation and the
Company's payment of $3.3 million to the plaintiffs, Mr. Pomeroy secured the
Company's payment obligations to Vanstar by pledging 100,000 shares of Common
Stock owned by him. Further, as partial consideration for the settlement
payments, the Company obtained the release of any liability of Mr. and Mrs.
Pomeroy under their personal guarantee of the Company's obligations under the
Datago Agreement. In consideration of his pledge, the Company has agreed to
indemnify Mr. Pomeroy against any loss, including attorneys' fees, as a result
of the pledge of his shares. Also in connection with the settlement, the Company
has expensed approximately $0.4 million for legal fees, which included the
defense of the Company and the Pomeroys. See "Business -- Legal Proceedings."
In September 1995, Pomeroy Investments, LLC ("Pomeroy Investments"), a
Kentucky limited liability company controlled by David B. Pomeroy, II, acquired
from Paul Hemmer & Associates, III (the "Seller") approximately 11.5 acres of
property at AirPark International in Boone County, Kentucky, and contracted with
Paul Hemmer Construction Company, an affiliate of the Seller, for the
construction of a new headquarters and distribution facility on the site. In
addition, under the purchase agreement with the Seller, Pomeroy Investments was
granted an option to purchase the contiguous 15.5 acres of land during the three
(3) years following completion of the construction project, subject to certain
extensions and related rights. Pomeroy Investments has entered into a ten year
triple-net lease with the Company (subject to an option to extend the term for
two consecutive five year periods) for the new headquarters and distribution
facility for an initial annual base rent of $7.50 per square foot for
approximately 36,000 square feet of office use, $3.50 per square foot for
approximately 88,084 square feet of service, sales and distribution use, and
$1.50 per square foot for approximately 3,333 square feet of storage (calculated
on a weighted average basis). The total base rent to be paid by the Company
under the lease for all types of uses is $583,294 per year (plus pass-through
costs such as taxes and insurance). These terms were determined on the basis of
an independent fair market rental opinion commissioned by the Company. In
addition, in connection with the construction of the new facilities, Pomeroy
Investments advanced approximately $0.4 million to the Company for leasehold
improvements that are to be paid for by the Company under the terms of the
lease. No interest has been charged on the advanced funds, which will be paid by
the Company on or before June 30, 1996.
Stephen E. Pomeroy, the son of David B. Pomeroy, II, is employed by the
Company as Director of New Market Development. His annual compensation for
fiscal year 1995 was $117,442.
James H. Smith, a director of the Company, is a stockholder in the law firm
of Lindhorst & Dreidame Co., L.P.A. Lindhorst & Dreidame Co. serves as general
counsel to the Company. The legal services provided by Lindhorst & Dreidame Co.
to the Company constituted less than 5% of the firm's business and less than 20%
of Mr. Smith's personal practice in 1995.
INDEMNIFICATION AND LIMITATION OF LIABILITY FOR DIRECTORS AND OFFICERS
INDEMNIFICATION. The Company's Certificate of Incorporation and Bylaws
provide for indemnification of directors and officers to the fullest extent
authorized under the Delaware General Corporation Law ("DGCL"). 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 directed against directors and officers of publicly held
corporations. The Company's Certificate of Incorporation provides that the
Company shall indemnify, to the fullest extent authorized under the DGCL, each
person who was or is made a party to, or is threatened to be made a party to, or
is involved in, any action, suit or proceeding by reason of the fact such person
is or was a director or officer of the Company or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation or enterprise, including service with respect to employee benefit
plans, against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes and penalties and amounts paid in
settlement) reasonably incurred by such person in connection therewith provided
that the applicable standards of conduct under the DGCL are satisfied. These
standards are, with respect to civil proceedings, that such person acted in good
faith and in a manner such person
36
<PAGE>
reasonably believed to be in or not opposed to the best interests of the Company
or its stockholders and, with respect to criminal proceedings, such person had
no reasonable cause to believe his or her conduct was unlawful. Such
indemnification is in addition to any other rights to which those indemnified
may be entitled under any law, bylaw, agreement, vote of stockholders or
otherwise.
LIMITATIONS OF DIRECTOR LIABILITY. The DGCL permits Delaware corporations
to limit the personal liability of directors for a breach of their fiduciary
duty. The Company's Certificate of Incorporation limits liability to the maximum
extent permitted by the DGCL. The Company's Certificate of Incorporation
provides that a director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of the director's
fiduciary duty except for liability (1) for a breach of the director's duty of
loyalty to the Company or its stockholders (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law (3)
for liability in respect of certain unlawful dividends, distributions,
redemptions and stock repurchases and (4) for a transaction from which the
director derives an improper personal benefit. As a result of the inclusion of
such a provision, stockholders of the Company may be unable to recover monetary
damages against directors for actions taken by them which constitute negligence
or gross negligence or which are in violation of their fiduciary duties,
although it may be possible to obtain injunctive or other equitable relief with
respect to such actions. If equitable remedies are found not to be available to
stockholders in any particular case, stockholders may not have any effective
remedy against the challenged conduct.
CERTAIN TRANSACTIONS
James H. Smith, a director of the Company, is a stockholder in the law firm
of Lindhorst & Dreidame Co., L.P.A. Lindhorst & Dreidame Co. serves as general
counsel to the Company. See "Management -- Compensation Committee Interlocks and
Insider Participation."
David B. Pomeroy, II, the Chairman of the Board, President and Chief
Executive Officer of the Company, engaged in certain transactions with the
Company in the last fiscal year. See "Management -- Compensation Committee
Interlocks and Insider Participation."
Addie W. Rosenthal, the spouse of David W. Rosenthal, a director of the
Company, has been employed by the Company as Director of Marketing and Investor
Relations since May 1993. From January 1992 until May 1993, she was retained by
the Company to provide consulting services. Ms. Rosenthal's annual compensation
for fiscal year 1995 was $97,241.
Since the initial public offering of the Company, the policy of the Company
has been that proposed transactions with affiliates of the Company must have the
prior approval of a majority of the disinterested members of the Board of
Directors and such transactions will be made on terms no less favorable to the
Company than can be obtained from unaffiliated third parties.
37
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information, provided by the persons
indicated, with respect to the beneficial ownership of the Company's Common
Stock as of June 7, 1996, and as adjusted to reflect the sale of the Common
Stock offered hereby, by: (i) each person or entity known to the Company to be
the beneficial owner of more than 5% of the Common Stock; (ii) each of the
Company's directors and the executive officers; and (iii) all directors and
officers as a group. Except as otherwise indicated in the footnotes to the
table, the individual named has sole voting and investment power over the shares
indicated.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO BENEFICIAL OWNERSHIP AFTER
OFFERING NUMBER OF OFFERING
----------------------------- SHARES -----------------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------------- ---------------- ----------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
David B. Pomeroy, II......................... 1,309,266(1) 46.7% 150,000 1,159,266 28.9%
Edwin S. Weinstein........................... 63,059(2) 2.3 -- 63,059 1.6
Frank D. Friedersdorf........................ 27,140(3) 1.0 -- 27,140 *
Richard C. Mills............................. 49,903(4) 1.8 -- 69,903(4) 1.7
Carol Teufel Weinstein....................... 63,059(5) 2.3 -- 63,059 1.6
James C. Eck................................. 1,000 * -- 1,000 *
James H. Smith............................... 11,050(6) * -- 11,050 *
Dr. David W. Rosenthal....................... 5,864(7) * -- 5,864 *
Michael E. Rohrkemper........................ 11,972(8) * -- 11,972 *
Pomeroy Computer Resources, ESOP............. 41,487(9) 1.5 -- 41,487 1.0
All directors and executive officers as a
group (9 persons)........................... 1,437,313(10) 49.7% 150,000 1,307,313(10) 31.8%
</TABLE>
- ------------------------
* Less than one percent
(1) Includes 10,061 shares of Common Stock owned by his spouse and 1,650 shares
of Common Stock owned by his adult daughter and 3,630 shares of Common Stock
owned by his adult son, as to which Mr. Pomeroy disclaims beneficial
ownership. Also includes 52,500 shares of Common Stock issuable upon
exercise of stock options and 41,487 shares owned by the ESOP. See Note (9)
below. Of the 41,487 shares owned by the ESOP, Mr. Pomeroy disclaims
beneficial ownership except as to the 16,561 shares allocated to the account
of Mr. Pomeroy which shares he has the right to vote under the Plan.
Beneficial ownership after the Offering excludes the 150,000 shares of
Common Stock to be sold in this Offering. Mr. Pomeroy's address is 1020
Petersburg Road, Hebron, KY 41048.
(2) Includes 7,575 shares of Common Stock issuable upon exercise of stock
options, 41,487 shares owned by the ESOP, and 4,691 shares owned by his
spouse as to which he disclaims beneficial ownership. See Note (9) below. Of
the 41,487 shares owned by the ESOP, Mr. Weinstein disclaims beneficial
ownership except as to the 2,175 shares allocated to Mr. Weinstein which
shares he has the right to vote under the Plan.
(3) Includes 84 shares held by the ESOP allocated to the account of Mr.
Friedersdorf which shares he has the right to vote under the Plan.
(4) Includes 49,832 shares of Common Stock issuable upon exercise of stock
options prior to the Offering and 71 shares held by the ESOP allocated to
the account of Mr. Mills, which shares he has the right to vote under the
Plan. Beneficial ownership after the Offering also includes 20,000 shares of
Common Stock issuable upon exercise of stock options awardable upon
completion of the Offering.
(5) Includes 58,368 shares owned by her spouse as to which she disclaims
beneficial ownership, 2,000 shares of Common Stock issuable upon exercise of
stock options and 281 shares held by the ESOP allocated to the account of
Mrs. Weinstein which shares she has the right to vote under the Plan.
(6) Includes 10,500 shares of Common Stock issuable upon exercise of stock
options.
38
<PAGE>
(7) Includes 103 shares of Common Stock owned by his spouse, and 18 shares held
by the ESOP allocated to the account of his spouse (which shares she has the
right to vote under the Plan), as to which Dr. Rosenthal disclaims
beneficial ownership and 3,900 shares of Common Stock issuable upon exercise
of stock options.
(8) Includes 66 of the 110 shares of Common Stock held by Rohrkemper & Ossege
Ltd., a partnership in which Mr. Rohrkemper has a 60% interest and 10,833
shares of Common Stock issuable upon exercise of stock options.
(9) David B. Pomeroy, II and Edwin S. Weinstein, both officers of the Company,
are trustees of the ESOP and may have voting control over the 41,487 shares
of Common Stock held in the ESOP in certain situations.
(10) Includes all of the shares owned by Pomeroy Computer Resources ESOP.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary is a description of certain provisions of the
Company's Certificate of Incorporation and Bylaws. Such summary does not purport
to be complete and is subject to, and qualified in its entirety by, all of the
provisions of the Company's Certificate of Incorporation and Bylaws.
The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock, $.01 par value per share, of which 3,952,643 shares will be
outstanding upon completion of this Offering, and 2,000,000 shares of Preferred
Stock, $.01 par value per share ("Preferred Stock"), none of which have been
issued.
COMMON STOCK
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor. See
"Price Range of Common Stock and Dividend Policy." Upon dissolution or
liquidation, holders of Common Stock are entitled to share ratably in the net
assets of the Company remaining after payment to creditors and senior equity
holders, if any. All outstanding shares of Common Stock are, and the Common
Stock offered hereby will be, duly authorized, validly issued, fully paid and
nonassessable. Holders of Common Stock are entitled to one vote per share for
the election of directors and on all other matters submitted to a vote of
stockholders. Holders of Common Stock are not entitled to preemptive rights or
any conversion or sinking fund rights or provisions.
CERTAIN CERTIFICATE AND BYLAW PROVISIONS
The Company's Certificate of Incorporation provides that the affirmative
vote of not less than 66 2/3% of the outstanding shares of voting stock of the
Company, voting as a class, is required to remove any director (and then only
for cause) or to amend or repeal certain provisions in the Bylaws relating to
calling special meetings of stockholders, nomination procedures for election of
directors, removal of directors and amendment of the Bylaws. The affirmative
vote of at least 66 2/3% of the outstanding shares of voting stock is also
required to amend or repeal these provisions in the Certificate of
Incorporation.
The Bylaws of the Company provide that special meetings of stockholders may
only be called by the Chairman of the Board pursuant to a resolution of a
majority of the then authorized number of directors except as otherwise provided
by law. The Bylaws further provide that the number of directors that shall
constitute the whole Board of Directors shall be determined from time to time by
not less than 66 2/3% of the then authorized number of directors, but shall not
be less than three. The Bylaws also set forth required procedures for the
nomination of directors, and give the Chairman of the Board (who shall also be
the Chief Executive Officer) the authority to determine that a nomination
39
<PAGE>
was not made in accordance with these procedures. These provisions of the Bylaws
may not be amended or repealed without the affirmative vote of at least 66 2/3%
of the voting stock of the Company voting together as a single class.
The foregoing provisions of the Company's Certificate of Incorporation and
Bylaws may have the effect of delaying, deferring or preventing a change in
control of the Company.
PREFERRED STOCK
The Board of Directors has the authority, without prior stockholder
approval, to issue Preferred Stock in one or more series and to determine the
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations and restrictions of Preferred Stock,
including voting powers, dividend and redemption rights, dividend rates,
dissolution and liquidation preferences, conversion and exchange privileges, and
sinking fund provisions. The issuance of Preferred Stock by the Board of
Directors could affect the rights of holders of shares of Common Stock. For
example, the issuance of Preferred Stock could result in a class of securities
outstanding that would have certain preferences as to dividends and in
liquidation over the Common Stock, and would enjoy certain voting rights,
contingent or otherwise, in addition to that of the Common Stock, and such
issuance would result in the dilution of voting rights, net income per share and
net book value per share of the Common Stock. Shares of Preferred Stock issued
by the Board of Directors could be utilized, under certain circumstances, to
render more difficult or to discourage a merger, tender offer or proxy contest
or removal of incumbent management. As of the date of this Prospectus, the Board
of Directors has not authorized the issuance of any series of Preferred Stock,
and there are no agreements or understandings for the issuance of any shares of
such stock.
VOTING FOR DIRECTORS
The Board of Directors consists of five directors. Stockholders do not have
cumulative voting rights in the election of directors. Mr. Pomeroy will own
28.9% of the Common Stock after completion of the Offering described herein,
including shares owned by his family members (approximately 27.6% if the
Underwriters' over-allotment option is exercised) and, therefore, will for all
practical purposes be able to substantially influence the election of the
Company's Board of Directors and to prevent the approval of all matters
requiring stockholder approval of at least 66 2/3% of the outstanding voting
stock of the Company.
DELAWARE BUSINESS COMBINATION STATUTE
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. Section 203 provides that a corporation shall not engage in any Business
Combination (as defined) with any interested stockholder (as defined) for a
period of three years following the date that such stockholder became an
interested stockholder, unless (a) 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, or (b)
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 the transaction
commenced (excluding for purposes of determining the number of shares
outstanding those shares owned (i) by persons who are directors and also
officers and (ii) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer), or (c) on or subsequent to
such date the Business Combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding stock of
the corporation which is not owned by the interested stockholder.
An "interested stockholder" is defined in Section 203 as any person (other
than the corporation and any direct or indirect majority-owned subsidiary of the
corporation) that (a) is the owner of 15% or more of the outstanding voting
stock of the corporation or (b) 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
40
<PAGE>
any time within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested stockholder, and
the affiliates and associates of such person.
The restrictions contained in Section 203 of the DGCL do not apply if, among
other things, (a) the corporation's original certificate of incorporation
contains provisions expressly electing not to be governed by Section 203, (b)
the corporation, by action of its board of directors, adopts an amendment to its
bylaws within 90 days of the effective date of February 2, 1988, expressly
electing not to be governed by Section 203, (c) the corporation, by action of
its stockholders, adopts an amendment to its certificate of incorporation or
bylaws expressly electing not to be governed by Section 203, or (d) the
corporation does not have a class of voting stock that is listed on a national
securities exchange, authorized for quotation on the Nasdaq Stock Market or held
of record by more than 2,000 stockholders, unless any of the foregoing results
from action taken, directly or indirectly, by an interested stockholder or from
a transaction in which a person becomes an interested stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Fifth Third
Bank, Cincinnati, Ohio.
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 3,952,643
outstanding shares of Common Stock (4,155,143 shares if the Underwriter's
over-allotment option is exercised in full). Of these shares, approximately
2,754,305 shares, including the 1,350,000 shares sold in the Offering, plus any
of the 202,500 shares sold upon the exercise of the Underwriters' over-allotment
option, will be freely tradeable without restriction or registration under the
Act, except for any shares held by "affiliates" of the Company, as that term is
defined in Rule 144 under the Act. The remaining 1,201,388 shares are restricted
securities.
The 1,081,564 shares held by executive officers, directors and certain
others are subject to lock-up agreements with the Underwriters and may not be
sold for a period of 180 days after the date of this Prospectus, without prior
written consent of the Underwriters. Following the expiration of the 180-day
period, these shares will be eligible for sale in the public market, subject to
the conditions and restrictions of Rule 144 under the Securities Act, as
described below.
Any shares held by affiliates of the Company will be subject to certain
resale limitations of Rule 144. As currently in effect, Rule 144 permits the
public sale in ordinary trading transactions of "restricted securities" and of
securities owned by "affiliates" subject to certain conditions. Restricted
securities are securities acquired directly or indirectly from an issuer or an
affiliate in a transaction not involving a public offering. In general, under
Rule 144, a person who has beneficially owned restricted securities for at least
two years, or any person who may be deemed an affiliate of the Company may,
subject to certain conditions, sell within any three-month period a number of
shares which does not exceed the greater of 1% of the Company's then outstanding
shares of Common Stock, or the average weekly trading volume in shares of Common
Stock for the four calendar week period preceding each such sale. Sales under
Rule 144 are also subject to certain manner-of-sale provisions and requirements
as to notice and the availability of current public information about the
Company. A person who is not and has not been an affiliate of the Company at any
time during the three months preceding the sale of the restricted securities,
and who has beneficially owned the securities for at least three years, is
entitled to sell such securities under Rule 144 without regard to the volume
limitations, manner-of-sale provisions and notice and public information
requirements of Rule 144. As of June 7, 1996, the Company had outstanding
unexercised options to purchase 258,990 shares of Common Stock, 240,490 of which
were immediately exercisable, under its stock option plans. The Company has
registered the issuance of the Common Stock in connection with the exercise of
options and, consequently, such shares are available for sale in the public
market without restriction to the extent they are not held by affiliates as that
term is defined under Rule 144.
TCSS was granted both "demand" and "piggyback" registration rights with
respect to its 100,000 shares of Common Stock pursuant to a Registration Rights
Agreement (the "Rights Agreement") between the Company and TCSS. The Rights
Agreement was entered into in connection with the Company's acquisition of
substantially all of TCSS' assets. TCSS may exercise its demand registration
rights with respect to 33,333 shares on each of the first, second and third
anniversary dates of the closing of the acquisition, provided that if the
Company does not complete a public offering within six months of the closing,
TCSS may exercise its demand registration rights with respect to 50,000 shares
immediately thereafter. Rights with respect to the remaining 50,000 shares may
be exercised in equal amounts on each of the first and second anniversary of the
closing. TCSS has piggyback registration rights if at any time during the
four-year period after the closing, the Company proposes to conduct an offering
of its Common Stock; however, the Company will not be required to register fewer
than the lesser of (i) shares with a market value of less than $250,000 or (ii)
the aggregate number of shares still held by TCSS unless the inclusion of such
remaining unregistered shares would have a material adverse impact on the
offering in the opinion of the managing underwriter of such offering. The
Company is required to pay the expenses of the registration except for TCSS'
fees of legal counsel and accountants and underwriting commissions and
discounts. See "Business -- Acquisition of TCSS."
42
<PAGE>
UNDERWRITING
Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, the Underwriters named below, acting through J.C. Bradford &
Co. and Tucker Anthony Incorporated, as representatives of the several
underwriters (the "Representatives"), have agreed severally, to purchase from
the Company and the Selling Stockholder the number of shares of Common Stock set
forth below opposite their respective names.
<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITERS OF SHARES
- ------------------------------------------------------------------------------------------- -----------
<S> <C>
J.C. Bradford & Co.........................................................................
Tucker Anthony Incorporated................................................................
-----------
Total.................................................................................. 1,350,000
-----------
-----------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions contained therein, to purchase all the shares of Common
Stock offered hereby if any of such shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such a price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After this Offering, the price to public and
such concessions may be changed.
The offering of the Common Stock is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares.
The Company has granted the Underwriters an option, exercisable not later
than 30 days from the date of this Prospectus, to purchase up to 202,500
additional shares of Common Stock to cover over-allotments. To the extent the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the table above
bears to 1,350,000, and the Company will be obligated, pursuant to the option,
to sell such shares to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of shares
of Common Stock offered hereby. If purchased, the Underwriters will sell such
additional shares on the same terms as those on which the 1,350,000 shares are
being offered.
The Company, the Selling Stockholder and all executive officers and
directors of the Company have agreed not to offer, sell or otherwise dispose of
any shares of Common Stock owned by them prior to the expiration of 180 days
from the date of the prospectus without the prior written consent of the
Representatives.
The Underwriting Agreement provides that the Company and the Selling
Stockholder will indemnify the Underwriters and controlling persons, if any,
against certain liabilities, including liabilities under the Securities Act or
to contribute to payments which the Underwriters or any such controlling persons
may be required to make in respect thereof.
In connection with this Offering, certain Underwriters and selling group
members who in the past have acted as market makers in the Common Stock may
engage in passive market making activities in the Common Stock on the Nasdaq
National Market in accordance with Rule 10b-6A under the Exchange Act.
Underwriters and other participants in the distribution of the Common Stock
43
<PAGE>
generally are prohibited during a specified time during (the "qualifying
period") determined in light of the timing of the distribution, from bidding for
or purchasing the Common Stock or a related security except to the extent
permitted under applicable rules, primarily Rules 10b-6 and 10b-6A. Rule 10b-6A
allows, among other things, an Underwriter or member of the selling group for
the Common Stock to effect "passive market making" transactions on the Nasdaq
National Market in the Common Stock during the qualifying period at a price that
does not exceed the highest independent bid for that security at the time of the
transaction. Such a passive market maker must not display a bid for the subject
security at a price in excess of the highest independent bid, and generally must
lower its bid if all independent bids are lowered. Moreover, the passive market
maker's net purchases of such security on each day of the qualifying period
shall not exceed 30% of its average daily trading volume during a reference
period preceding the distribution.
LEGAL MATTERS
The legality of the shares of Common Stock and certain other legal matters
offered hereby will be passed upon for the Company and the Selling Stockholder
by Cors & Bassett, Cincinnati, Ohio and Lindhorst & Dreidame Co., L.P.A.,
Cincinnnati, Ohio. Certain legal matters related to the Offering will be passed
upon for the Underwriters by Alston & Bird, Atlanta, Georgia.
EXPERTS
The Consolidated Financial Statements of the Company as of January 5, 1996
and January 5, 1995, and for the fiscal years then ended, appearing in this
Prospectus and Registration Statement have been audited by Grant Thornton LLP,
independent certified public accountants, as set forth in their report thereon
appearing elsewhere herein, and are included herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The Consolidated Financial Statements of the Company for the fiscal year
ended January 5, 1994, appearing in this Prospectus and Registration Statement
have been audited by Deloitte & Touche LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included herein in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The Financial Statements of TCSS for the fiscal year ended December 31,
1995, appearing in this Prospectus and Registration Statement have been audited
by Deloitte & Touche LLP, independent certified public accountants, as set forth
in their report thereon appearing elsewhere herein, and are included herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The Financial Statements of TCSS for the fiscal year ended December 31,
1994, appearing in this Prospectus and Registration Statement have been audited
by Northup, Haines, Kaduce, Schmid, Macklin, P.C., independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included herein in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act of
1933, as amended, with respect to the Common Stock offered by this Prospectus.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain items of which are contained in schedules and
exhibits to the Registration Statement as permitted by the rules and regulations
of the Commission. For further information with respect to the Company and the
securities offered by this Prospectus, reference is made to the Registration
Statement, including the exhibits and schedules filed therewith. Copies of the
Registration Statement, together with its exhibits and schedules, may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Room 1027, Washington, D.C. 20549
44
<PAGE>
and also at the following regional offices of the Commission: Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World
Trade Center, Suite 1300, New York, New York 10048, upon payment of the charges
prescribed therefor by the Commission. In addition, the Common Stock is included
in the Nasdaq National Market, and the aforementioned materials may also be
inspected at the offices of the Nasdaq National Market at 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at the addresses set forth
above.
45
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Financial Statements of The Company:
Report of Independent Certified Public Accountants....................................................... F-2
Independent Auditors' Report............................................................................. F-3
Consolidated Balance Sheets as of January 5, 1995 and 1996 and April 5, 1996 (unaudited)................. F-4
Consolidated Statements of Income for the Years Ended January 5, 1994, 1995 and 1996 and for the Three
Months Ended April 5, 1995 and 1996 (Unaudited)......................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended January 5, 1994, 1995 and 1996 and for the
Three Months Ended April 5, 1996 (Unaudited)............................................................ F-7
Consolidated Statements of Equity for the Years Ended January 5, 1994, 1995 and 1996 and for the Three
Months Ended April 5, 1996 (Unaudited).................................................................. F-8
Notes to Consolidated Financial Statements............................................................... F-9
Financial Statements of The Computer Supply Store, Inc.:
Independent Auditors' Report............................................................................. F-19
Independent Auditors' Report............................................................................. F-20
Balance Sheets as of December 31, 1995 and 1994.......................................................... F-21
Statements of Operations and Retained Earnings for the Years ended December 31, 1995 and 1994............ F-22
Statements of Cash Flows for the years Ended December 31, 1995 and 1994.................................. F-23
Notes to Financial Statements............................................................................ F-24
Unaudited Pro Forma Consolidated Financial Statements of the Company:
Pro Forma Condensed Consolidated Statement of Income (Unaudited) for the Year Ended January 5, 1996 and
Three Months Ended April 5, 1996........................................................................ F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Pomeroy Computer Resources, Inc.
We have audited the accompanying consolidated balance sheets of Pomeroy
Computer Resources, Inc. as of January 5, 1996 and 1995, and the related
consolidated statements of income, equity, and cash flows for each of the two
years in the period ended January 5, 1996. These financial statements are the
responsibility of the Corporation'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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Pomeroy Computer Resources, Inc. at January 5, 1996 and 1995, and the
consolidated results of its operations and its consolidated cash flows for each
of the two years in the period ended January 5, 1996 in conformity with
generally accepted accounting principles.
Grant Thornton LLP
Cincinnati, Ohio
February 6, 1996, except for Note 18
as to which the date is March 14, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Pomeroy Computer Resources, Inc.
We have audited the accompanying consolidated statements of income, equity,
and cash flows of Pomeroy Computer Resources, Inc. for the year ended January 5,
1994. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provided a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations of Pomeroy Computer Resources,
Inc., its cash flows and its changes in equity for the year ended January 5,
1994, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Cincinnati, Ohio
March 24, 1994
F-3
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 5,
------------------------------
1995 1996
-------------- -------------- APRIL 5, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash........................................................... $ 73,620 $ 596,321 $ 1,098,882
Accounts receivable:
Trade, less allowance of $65,000, $200,737 and $177,344 at
January 5, 1995 and 1996 and April 5, 1996 respectively....... 26,631,488 27,098,141 38,133,365
Vendor product returns, less allowance of $225,000, $210,000
and $65,897 at January 5, 1995 and 1996 and April 5, 1996,
respectively.................................................. 3,542,761 3,484,709 3,835,349
Vendor incentive rebates....................................... 1,551,121 3,141,847 2,494,458
Amount due from stockholder.................................... 140,633 205,525 205,525
Other.......................................................... 129,360 389,336 262,964
-------------- -------------- --------------
Total receivables............................................ 31,995,363 34,319,558 44,931,661
-------------- -------------- --------------
Inventories...................................................... 17,326,486 18,986,807 18,684,588
Other............................................................ 624,344 487,515 528,617
-------------- -------------- --------------
Total current assets......................................... 50,019,813 54,390,201 65,243,748
-------------- -------------- --------------
Equipment and leasehold improvements:
Furniture, fixtures and equipment.............................. 4,213,290 5,407,799 6,905,519
Leasehold improvements......................................... 1,073,079 1,151,606 2,940,469
-------------- -------------- --------------
Total........................................................ 5,286,369 6,559,405 9,845,988
Less accumulated depreciation.................................. 1,079,677 1,968,271 3,260,724
-------------- -------------- --------------
Net equipment and leasehold improvements..................... 4,206,692 4,591,134 6,585,264
-------------- -------------- --------------
Investment in lease residuals.................................... 1,302,117 2,596,499 2,746,000
Goodwill and other intangible assets............................. 953,172 1,445,994 7,036,904
Other assets..................................................... 578,866 961,581 791,125
-------------- -------------- --------------
Total assets................................................. $ 57,060,660 $ 63,985,409 $ 82,403,041
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
JANUARY 5, JANUARY 5,
1995 1996
-------------- -------------- APRIL 5,
1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Notes payable.................................................. $ 422,175 $ 408,864 $ 2,584,750
Accounts payable:
Floor plan financing......................................... 18,974,900 17,676,926 19,820,183
Trade........................................................ 4,631,468 3,966,820 12,274,141
-------------- -------------- --------------
Total accounts payable..................................... 23,606,368 21,643,746 32,094,324
Bank notes payable............................................... 15,441,901 16,877,040 20,266,551
Deferred revenue................................................. 1,700,412 2,286,390 1,906,999
Accrued liabilities:
Employee compensation and benefits............................. 785,276 800,629 1,071,754
Income taxes................................................... 1,051,009 1,117,855 --
Interest....................................................... 56,137 41,995 71,683
Miscellaneous.................................................. 400,848 874,038 2,581,484
-------------- -------------- --------------
Total current liabilities.................................... 43,464,126 44,050,557 60,577,545
-------------- -------------- --------------
Notes payable.................................................... 166,800 100,000 2,240,019
Deferred income taxes............................................ 300,000 635,000 635,000
Equity:
Preferred stock (no shares issued or outstanding).............. -- -- --
Common stock (2,228,908, 2,625,917 and 2,748,643 shares issued
and outstanding at January 5, 1995 and 1996, and April 5,
1996, respectively)........................................... 22,289 26,259 27,460
Paid-in capital................................................ 8,158,080 13,279,697 14,384,113
Retained earnings.............................................. 5,153,371 6,097,902 4,742,910
-------------- -------------- --------------
13,333,740 19,403,858 19,154,483
Less treasury stock, at cost (20,900 shares at January 5, 1995
and 1996, and April 5, 1996, respectively).................... 204,006 204,006 204,006
-------------- -------------- --------------
Total equity................................................. 13,129,734 19,199,852 18,950,477
-------------- -------------- --------------
Total liabilities and equity................................. $ 57,060,660 $ 63,985,409 $ 82,403,041
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED APRIL 5,
---------------------------------------------------- ------------------------------
JANUARY 5, 1994 JANUARY 5, 1995 JANUARY 5, 1996 1995 1996
---------------- ---------------- ---------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales and revenues:
Sales -- equipment and supplies... $ 102,442,073 $ 130,270,342 $ 211,149,458 $ 43,569,807 $ 57,305,349
Service........................... 9,177,515 13,409,559 17,939,868 4,069,591 5,424,128
Other............................. 558,702 895,085 1,620,516 350,106 494,614
---------------- ---------------- ---------------- -------------- --------------
Total net sales and revenues.... 112,178,290 144,574,986 230,709,842 47,989,504 63,224,091
---------------- ---------------- ---------------- -------------- --------------
Cost of sales and service:
Equipment and supplies............ 92,357,597 117,594,334 192,838,684 39,173,751 52,160,271
Service........................... 1,794,165 3,306,736 4,334,806 1,063,530 1,463,507
---------------- ---------------- ---------------- -------------- --------------
Total cost of sales and
service........................ 94,151,762 120,901,070 197,173,490 40,237,281 53,623,778
---------------- ---------------- ---------------- -------------- --------------
Gross profit...................... 18,026,528 23,673,916 33,536,352 7,752,223 9,600,313
---------------- ---------------- ---------------- -------------- --------------
Operating expenses:
Selling, general and
administrative................... 12,172,592 16,268,236 21,862,576 5,341,186 6,436,269
Royalty expense................... 604,968 -- -- -- --
Rent expense...................... 730,721 699,341 894,258 230,913 290,703
Depreciation...................... 199,972 330,628 770,540 139,779 318,183
Amortization...................... 200,363 555,259 233,916 52,564 98,435
Provision for doubtful accounts... 65,000 263,289 489,813 -- --
---------------- ---------------- ---------------- -------------- --------------
Total operating expenses........ 13,973,616 18,116,753 24,251,103 5,764,442 7,143,590
---------------- ---------------- ---------------- -------------- --------------
Income from operations.............. 4,052,912 5,557,163 9,285,249 1,987,781 2,456,723
---------------- ---------------- ---------------- -------------- --------------
Other expense (income):
Interest expense.................. 850,206 1,030,892 1,999,399 490,087 435,039
Litigation settlement and related
costs............................ -- -- -- -- 4,392,102
Miscellaneous..................... (57,205) (56,718) (64,083) (8,012) (93,426)
---------------- ---------------- ---------------- -------------- --------------
Total other expense............. 793,001 974,174 1,935,316 482,075 4,733,715
---------------- ---------------- ---------------- -------------- --------------
Income (loss) before income tax..... 3,259,911 4,582,989 7,349,933 1,505,706 (2,276,992)
Income tax expense (benefit)........ 1,360,000 1,856,000 2,983,000 600,000 (922,000)
---------------- ---------------- ---------------- -------------- --------------
Net income (loss)................... $ 1,899,911 $ 2,726,989 $ 4,366,933 $ 905,706 $ (1,354,992)
---------------- ---------------- ---------------- -------------- --------------
---------------- ---------------- ---------------- -------------- --------------
Weighted average shares outstanding:
Primary........................... 2,433,694 2,429,502 2,669,854 2,533,544 2,744,959
---------------- ---------------- ---------------- -------------- --------------
---------------- ---------------- ---------------- -------------- --------------
Fully diluted..................... 2,433,694 2,429,502 2,695,886 2,597,374 2,753,068
---------------- ---------------- ---------------- -------------- --------------
---------------- ---------------- ---------------- -------------- --------------
Net income (Loss) per common share:
Primary........................... $ 0.78 $ 1.12 $ 1.64 $ 0.36 $ (0.49)
---------------- ---------------- ---------------- -------------- --------------
---------------- ---------------- ---------------- -------------- --------------
Fully diluted..................... $ 0.78 $ 1.12 $ 1.62 $ 0.35 $ (0.49)
---------------- ---------------- ---------------- -------------- --------------
---------------- ---------------- ---------------- -------------- --------------
</TABLE>
.
See notes to consolidated financial statements
F-6
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS ENDED JANUARY 5, APRIL 5,
----------------------------------------- --------------------------
1994 1995 1996 1995 1996
------------ ------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (Loss)....................... $ 1,899,911 $ 2,726,989 $ 4,366,933 $ 905,706 $ (1,354,992)
Adjustments to reconcile net income to
net cash flows from operating
activities:
Litigation settlement................. -- -- -- -- 3,300,000
Depreciation.......................... 199,972 330,628 770,540 139,779 318,183
Amortization.......................... 200,363 555,259 233,916 52,564 98,435
Deferred income taxes................. 90,000 112,000 258,000 11,000 58,000
Net acquisition of lease residuals.... (199,412) (252,518) (1,294,382) (150,000) (75,000)
Issuance of common shares of stock
awards............................... 73,401 40,000 40,000 40,000 40,000
Changes in working capital accounts,
net of effects of subsidiary
companies purchased:
Accounts receivable................. (5,165,976) (12,611,901) (2,129,559) 1,447,163 (4,408,319)
Inventories......................... (1,049,351) (8,619,599) (1,814,197) (237,059) 442,692
Floor plan financing................ 1,278,050 11,398,614 (1,297,974) 1,197,748 2,143,257
Trade payables...................... 1,724,829 457,791 (687,885) (707,704) 4,438,840
Deferred revenue.................... 210,677 503,311 585,978 81,547 (460,864)
Other, net.......................... 62,930 343,123 554,260 (346,232) 148,101
------------ ------------- ------------ ------------ ------------
Net operating activities................. (674,606) (5,016,303) (414,370) 2,434,512 4,688,333
------------ ------------- ------------ ------------ ------------
Cash Flows from Investing Activities:
Capital expenditures.................... (600,889) (1,242,771) (1,070,424) (294,266) (968,145)
Payments for covenants not to compete... -- (219,750) (238,250) (142,750) --
Acquisition of subsidiary companies, net
of cash acquired....................... (14,000) (113,803) (19,514) (19,414) --
Acquisition of reseller assets.......... (435,150) -- (424,695) -- (4,460,094)
------------ ------------- ------------ ------------ ------------
Net investing activities................ (1,050,039) (1,576,324) (1,752,883) (456,430) (5,428,239)
------------ ------------- ------------ ------------ ------------
Cash Flows from Financing Activities:
Payments on notes payable............... (125,000) (57,600) (305,111) (71,400) (1,087,660)
Net proceeds under bank notes payable... 1,483,128 6,302,644 1,435,139 (1,872,541) 2,539,510
Proceeds from long term note payable.... -- 500,000 -- -- --
Purchase of treasury stock.............. -- (204,006) -- -- --
Offering costs.......................... -- (168,573) -- -- --
Proceeds from exercise of stock
options................................ -- -- 1,559,926 -- 120,617
Retirement of stock warrants............ -- -- -- -- (330,000)
------------ ------------- ------------ ------------ ------------
Net financing activities.................. 1,358,128 6,372,465 2,689,954 (1,943,941) 1,242,467
------------ ------------- ------------ ------------ ------------
Increase (decrease) in cash............... (366,517) (220,162) 522,701 34,141 502,561
Cash:
Beginning of period..................... 660,299 293,782 73,620 73,620 596,321
------------ ------------- ------------ ------------ ------------
End of period........................... $ 293,782 $ 73,620 $ 596,321 $ 107,761 $ 1,098,882
------------ ------------- ------------ ------------ ------------
------------ ------------- ------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(INFORMATION PRESENTED FOR PERIODS SUBSEQUENT TO JANUARY 5, 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL EQUITY
--------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Balances at January 5, 1993..................... $ 22,000 $ 8,067,967 $ 526,471 $ -- $ 8,616,438
Net income.................................... 1,899,911 1,899,911
12,764 common shares issued for stock
awards....................................... 128 73,273 73,401
Tax benefit of costs related to initial public
offering..................................... 4,000 4,000
--------- -------------- ------------- ------------ --------------
Balances at January 5, 1994..................... 22,128 8,145,240 2,426,382 -- 10,593,750
Net income.................................... 2,726,989 2,726,989
3,168 common shares issued for stock awards... 32 39,968 40,000
12,976 common shares issued for acquisition of
subsidiary................................... 129 136,445 136,574
Purchases of treasury stock................... (204,006) (204,006)
Costs associated with initial public
offering..................................... (168,573) (168,573)
Tax benefit of costs related to initial public
offering..................................... 5,000 5,000
--------- -------------- ------------- ------------ --------------
Balances at January 5, 1995..................... 22,289 8,158,080 5,153,371 (204,006) 13,129,734
Net income.................................... 4,366,933 4,366,933
4,000 common shares issued for stock awards... 40 39,960 40,000
5,755 common shares issued for acquisition.... 58 99,942 100,000
Stock options exercised and related tax
benefit...................................... 1,664 1,557,921 1,559,585
Stock dividend................................ 2,208 3,420,194 (3,422,402)
Tax benefit of costs related to initial public
offering..................................... 3,600 3,600
--------- -------------- ------------- ------------ --------------
Balances at January 5, 1996..................... 26,259 13,279,697 6,097,902 (204,006) 19,199,852
Net income (loss)............................. (1,354,992) (1,354,992)
3,076 common shares issued for stock awards... 40 39,960 40,000
100,000 common shares issued for
acquisition.................................. 1,000 1,274,000 1,275,000
Retirement of stock warrants.................. (330,000) (330,000)
Stock options exercised....................... 161 120,456 120,617
--------- -------------- ------------- ------------ --------------
Balances at April 5, 1996....................... $ 27,460 $ 14,384,113 $ 4,742,910 $ (204,006) $ 18,950,477
--------- -------------- ------------- ------------ --------------
--------- -------------- ------------- ------------ --------------
</TABLE>
See notes to consolidated financial statements
F-8
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 5, 1994, JANUARY 5, 1995 AND JANUARY 5, 1996
AND
THREE MONTHS ENDED APRIL 5, 1996 (UNAUDITED)
1. COMPANY DESCRIPTION
February 13, 1992, Pomeroy Computer Resources, Inc. was formed and on April
2, 1992 was merged with eight related businesses ("predecessor businesses")
(collectively the "Company"), five of which owned and operated franchises of
ComputerLand Corporation ("ComputerLand") in Ohio and Kentucky. The Company has
10 million shares of $.01 par value common stock authorized, with 2.6 million
shares outstanding. The Company is also authorized to issue 2.0 million shares
of $.01 par value preferred stock. Since the owner of the Company and the
predecessor businesses were the same, this transaction constituted a combination
of the predecessor businesses under common control and was accounted for at
historical cost in a manner similar to that followed for a pooling of interests.
The Company purchased C&N Corp. ("C&N") in fiscal 1992 and Xenas Communications
Corp. ("Xenas") in fiscal 1994 (see Note 13). In fiscal 1995, the Company formed
a wholly-owned subsidiary, Pomeroy Computer Leasing Company, Inc., ("PCL"), for
the purpose of leasing computer equipment to the Company's customers.
The Company sells, installs and services microcomputers and microcomputer
equipment primarily for business, professional, educational and governmental
customers. The Company also derives revenue from customer support services,
including network analysis and design, systems configuration, cabling, custom
installation, training, maintenance and repair. The Company has eleven branch
offices in Kentucky, Iowa, Tennessee, Ohio, Florida, Alabama and Indiana, and
grants credit to substantially all customers in these areas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries
C&N, Xenas and PCL. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain reclassifications have been made to
the 1994 financial statements included herein to conform with the presentation
used in 1995.
FISCAL YEAR -- The Company's fiscal year is a 12-month period ending January
5. References to fiscal 1993, 1994 and 1995 are for the fiscal years ended
January 5, 1994, January 5, 1995 and January 5, 1996, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS -- Goodwill is amortized using the
straight-line method over periods of fifteen to twenty-five years. 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.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS -- Equipment and leasehold improvements
are stated at cost. Depreciation on equipment is computed using the
straight-line method over estimated useful lives. Depreciation on leasehold
improvements is computed using the straight-line method over estimated useful
lives or the term of the lease, whichever is less. 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.
INCOME TAXES -- Deferred income tax liabilities and assets are provided for
temporary differences between the tax basis and reported amounts of assets and
liabilities that will result in taxable or
F-9
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deductible amounts in future years. The Company's temporary differences
primarily result from revenue from the acquisitions of lease residuals not
taxable until received, the use of accelerated depreciation for tax purposes and
accrued expenses not deductible for tax purposes until paid.
VENDOR INCENTIVE REBATES -- Certain vendors provide market development funds
and incentive rebates to perform product training, advertising and other sales
and market development activities. The Company recognizes these rebates when it
has completed its obligation to perform under the specific incentive
arrangement. Incentive rebates are recorded as reductions of selling, general
and administrative expense or, if volume based, cost of sales. Market
development funds and incentive rebates are collectively referred to as Vendor
Incentive Rebates in the Company's Consolidated Balance Sheets.
INVENTORIES -- Inventories are stated at the lower of cost or market. Cost
is determined on the average cost method.
REVENUE RECOGNITION -- The Company recognizes revenue on the sale of
equipment and supplies when the products are shipped. Service revenue is
recognized when the applicable services are provided.
DEFERRED REVENUE -- Revenues received on maintenance contracts are
recognized ratably over the lives of the contracts. Costs related to maintenance
contracts are recognized when incurred.
STOCK OPTIONS -- The Financial Accounting Standards Board issued SFAS No.
123 - Accounting for Stock-Based Compensation in the Fall of 1995. The statement
defines a fair value based method of accounting for an employee stock option to
determine compensation cost at date of grant. However, the statement allows a
company to continue measuring compensation cost for those plans using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25 -
Accounting for Stock Issued to Employees. The Company elected to continue
measuring compensation cost for stock options based on APB Opinion No. 25 and
will provide the required pro forma disclosures prescribed in SFAS No. 123.
NET INCOME PER SHARE -- The computation of primary net income per common and
common equivalent share is based upon the weighted average number of common
shares outstanding during the period plus, in periods in which they have a
dilutive effect, the effect of common shares contingently issuable, primarily
from stock options and warrants. Fully diluted net income per common share also
reflects dilution due to the use of the market price at the end of the period,
when higher than the average price for the period.
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
revenues 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.
INTERIM FINANCIAL STATEMENTS -- The accompanying unaudited financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and Article 10 of Regulations S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
F-10
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for the full year.
3. ACCOUNTS RECEIVABLE
following table summarizes the activity in the allowance for doubtful
accounts for fiscal 1994 and 1995, and the first three months of fiscal 1996
(unaudited).
<TABLE>
<CAPTION>
VENDOR
PRODUCT
TRADE RETURNS
----------- ------------
<S> <C> <C>
Balance January 5, 1994...................................................... $ 65,000 $ --
Provision 1994............................................................. 38,289 225,000
Accounts written-off....................................................... (38,289) --
----------- ------------
Balance January 5, 1995...................................................... 65,000 225,000
Provision 1995............................................................. 93,491 416,474
Accounts written-off....................................................... (89,125) (443,737)
Recoveries................................................................. 131,371 12,263
----------- ------------
Balance January 5, 1996...................................................... 200,737 210,000
Accounts written-off....................................................... (28,146) (180,838)
Recoveries................................................................. 4,753 36,735
----------- ------------
Balance April 5, 1996........................................................ $ 177,344 $ 65,897
----------- ------------
----------- ------------
</TABLE>
4. INVENTORIES
Inventories consist of items held for resale and are comprised of the
following components as of the end of fiscal 1994 and 1995, and as of April 5,
1996:
<TABLE>
<CAPTION>
APRIL 5, 1996
1994 1995 (UNAUDITED)
-------------- -------------- --------------
<S> <C> <C> <C>
Equipment and supplies........................................... $ 16,738,759 $ 17,926,478 $ 17,666,840
Service parts.................................................... 587,727 1,060,329 1,017,748
-------------- -------------- --------------
Total.......................................................... $ 17,326,486 $ 18,986,807 $ 18,684,588
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following as of the end
of the fiscal year and the three months ended April 5, 1996, net of accumulated
amortization of $442,232 (1994), $489,348 (1995) and $587,533 (April 5, 1996),
respectively:
<TABLE>
<CAPTION>
APRIL 5, 1996
1994 1995 (UNAUDITED)
----------- ------------- -------------
<S> <C> <C> <C>
Goodwill..................................................... $ 458,886 $ 450,729 $ 6,101,472
Covenants not to compete..................................... 311,782 394,029 337,637
Customer lists............................................... 182,504 601,236 597,795
----------- ------------- -------------
$ 953,172 $ 1,445,994 $ 7,036,904
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
As a result of its litigation with Vanstar Corporation, the Company in
fiscal 1994 wrote-off unamortized costs in the amount of $251,000 related to its
agreement with Vanstar which are included
F-11
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
in amortization expense. On April 29, 1996 the Company and Vanstar entered into
a settlement agreement (the "Settlement Agreement") which in effect terminated
all agreements between the parties.
In 1993, the Company acquired certain assets, principally customer lists, of
a computer reseller in Louisville, Kentucky. Also, the Company entered into a
five year covenant not to compete with the reseller and its owners. Amounts paid
to the reseller for these intangibles were $194,150 for customer lists and
$241,000 for the covenant not to compete. The Company entered into an additional
covenant not to compete with a former owner of the reseller whereby the Company
paid a total of $277,000 in two installments during 1994 and 1995.
6. BORROWING ARRANGEMENTS
The Company has an available line of credit up to the lesser of $25,000,000
(which amount decreases to $19,000,000 July 1, 1996) or an amount based upon a
formula of eligible trade receivables at an interest rate of 0.25% below the
bank's prime rate (see Note 18). At January 5, 1995 and 1996 and April 5, 1996,
bank notes payable include $2,301,000, $624,000 and $1,181,000, respectively, of
overdrafts in accounts with the Company's primary lender. These amounts were
subsequently funded through the normal course of business. The interest rate
charged was 8.75%, 8.25% and 8.0% at January 5, 1995 and 1996 and April 5, 1996,
respectively. The agreement, which expires in April 1997 (See Note 18), calls
for the payment of a 0.25% commitment fee based on the unused portion of the
line of credit. The revolving credit agreement is collateralized by
substantially all assets of the Company, except those assets which collateralize
certain other financing arrangements. Under the revolving credit agreement, the
Company may not make any cash dividend payments.
The maximum amount outstanding and the average amount outstanding on bank
revolving credit agreements were as follows:
<TABLE>
<CAPTION>
MAXIMUM AMOUNT AVERAGE AMOUNT
PERIOD ENDING OUTSTANDING OUTSTANDING
- ----------------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
January 5, 1994.................................................. $ 9,116,000 $ 8,046,000
January 5, 1995.................................................. $ 15,442,000 $ 9,382,000
January 5, 1996.................................................. $ 19,000,000 $ 14,741,000
April 5, 1996.................................................... $ 22,365,000 $ 17,737,000
</TABLE>
The average amounts outstanding in fiscal 1994 and 1995 are calculated by
dividing the sum of the average daily balances for each month by the number of
months in the period. The average amount outstanding in fiscal year 1993 is
calculated by dividing the sum of the outstanding balances at the end of each
month by the number of months in the applicable period. The weighted average
interest rate on the bank revolving credit agreements was 6.3%, 7.1%, 8.7% and
8.0% in fiscal 1993, 1994 and 1995 and the quarter ended April 5, 1996,
respectively.
In November 1994 the Company exercised an option in its revolving credit
agreement to borrow $500,000 on a term note with interest at a rate of 0.5%
above the bank's prime rate. The interest rate on this term note was revised to
the bank's prime rate in March, 1995. The interest rate charged was 8.5% at
January 5, 1996. As of January 5, 1996, the outstanding balance under the term
loan was $166,800. The term note was repaid on March 14, 1996 with the amendment
and restatement of the Company's loan agreement.
The Company finances inventory through floor plan arrangements with two
finance companies. As of January 5, 1996 and April 5, 1996, the floor plan lines
of credit were $7,500,000 with IBM Credit Corporation ("ICC") and $25,000,000
with Deutsche Financial Services ("DFS"). Borrowings are
F-12
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BORROWING ARRANGEMENTS (CONTINUED)
made on sixty day notes, with one-half of the note amount due in thirty days.
Interest on these arrangements, which are sponsored by certain vendors, is a
0.4% flat charge for both DFS and ICC, which approximates an annual interest
rate of 3.2%.
The maximum amount outstanding and the average amount outstanding on each of
the floor plan arrangements were as follows:
<TABLE>
<CAPTION>
ICC DFS
---------------------------------- ----------------------------------
MAXIMUM AMOUNT AVERAGE AMOUNT MAXIMUM AMOUNT AVERAGE AMOUNT
PERIOD ENDING OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING
- ------------------------------- ----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
January 5, 1994................ $ 4,192,000 $ 2,592,000 $ 4,780,000 $ 3,570,000
January 5, 1995................ $ 5,391,000 $ 3,579,000 $ 14,225,000 $ 7,703,000
January 5, 1996................ $ 6,300,000 $ 4,190,970 $ 21,045,000 $ 15,979,000
April 5, 1996.................. $ 5,002,000 $ 3,359,000 $ 13,923,000 $ 12,108,000
</TABLE>
The average amount outstanding is calculated by dividing the sum of the
outstanding balances for each month by the number of months in the applicable
period.
At April 5, 1996 subordinated debt in the amount of $2,700,000 was
outstanding related to the acquisition of TCSS as described below. See Note 18
of Notes to Consolidated Financial Statements.
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL
1993 1994 1995 5, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Current:
Federal.................................. $ 940,000 $ 1,338,000 $ 2,071,000 $ (707,000)
State.................................... 330,000 406,000 654,000 (273,000)
------------- ------------- ------------- -------------
Total current.......................... 1,270,000 1,744,000 2,725,000 (980,000)
------------- ------------- ------------- -------------
Deferred:
Federal.................................. 78,000 100,000 206,000 46,000
State.................................... 12,000 12,000 52,000 12,000
------------- ------------- ------------- -------------
Total deferred......................... 90,000 112,000 258,000 58,000
------------- ------------- ------------- -------------
Total income tax provision................. $ 1,360,000 $ 1,856,000 $ 2,983,000 $ (922,000)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The approximate tax effect of the temporary differences giving rise to the
Company's deferred income tax assets (liabilities) are:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL
1994 1995 5, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Deferred Tax Asset:
Bad debt provision......................................... $ 90,000 $ 167,000 $ 109,000
------------ ------------ -------------
Deferred Tax Liability:
Acquisition of lease residuals............................. (314,000) (609,000) (639,000)
Other temporary differences................................ 14,000 (26,000) 4,000
------------ ------------ -------------
(300,000) (635,000) (635,000)
------------ ------------ -------------
Net deferred tax liability............................... $ (210,000) $ (468,000) $ (526,000)
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-13
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The Company's effective income tax rate differs from the Federal statutory
rate as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 5,
1993 1994 1995 1996
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Tax at Federal statutory rate............................... 34.0% 34.0% 34.0% 34.0%
State taxes................................................. 6.9 6.0 6.3 6.2
Other....................................................... 0.8 0.5 0.3 0.3
--- --- --- ---
Effective tax rate...................................... 41.7% 40.5% 40.6% 40.5%
--- --- --- ---
--- --- --- ---
</TABLE>
8. OPERATING LEASES
The Company leases office and warehouse space, vehicles and certain office
equipment from various lessors. Lease terms vary in duration and include various
option periods. The leases generally require the Company to pay taxes and
insurance. Future minimum lease payments under noncancelable operating leases
with initial or remaining terms in excess of one year as of January 5, 1996 and
April 5, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR JANUARY 5, 1996 APRIL 5, 1996
- --------------------------------------------------- --------------- -------------
<S> <C> <C>
1996............................................... $ 1,619,000 $ 1,554,000
1997............................................... 1,526,000 1,513,000
1998............................................... 1,071,000 1,138,000
1999............................................... 824,000 933,000
2000............................................... 800,000 928,000
--------------- -------------
Total minimum lease payments................... $ 5,840,000 $ 6,066,000
--------------- -------------
--------------- -------------
</TABLE>
9. EMPLOYEE BENEFIT PLANS
As of July 1, 1992 the Company converted its profit sharing plan, which
covers substantially all employees, to an Employee Stock Ownership Plan
("ESOP"). No less than a majority and no more than 75% of the assets of the ESOP
will be invested in common stock of the Company purchased on the open market. As
of January 5, 1996, the ESOP held 41,000 shares of Company stock. No
contributions were accrued in fiscal 1993 and 1995. A contribution of $100,000
was accrued in fiscal 1994.
The Company has 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 does not contribute to the plan.
10. INVESTMENT IN LEASE RESIDUALS
The Company participates in a Remarketing and Agency Agreement ("Agreement")
with Information Leasing Corporation ("ILC") whereby the Company obtains rights
to 50% of lease residual values for services rendered in connection with
locating the lessee, selling the equipment to ILC and agreeing to assist in
remarketing the used equipment.
During fiscal 1993, 1994, 1995 and the first quarter of 1996, the Company
sold equipment and related support services to ILC, for lease to ILC's
customers, in amounts of $3,010,000, $4,188,000, $23,661,000 and $1,625,000,
respectively. The Company also obtained rights to lease residuals from ILC in
the amount of $235,000, $300,000, $875,000 and $75,000 in 1993, 1994, 1995 and
the first quarter of 1996, respectively. Such amounts are recorded as a
reduction of the related cost of sales. Residuals acquired in this manner are
recorded at the estimated present value of interest retained.
F-14
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INVESTMENT IN LEASE RESIDUALS (CONTINUED)
The Company also purchases residuals associated with separate leasing
arrangements entered into by ILC. Such transactions do not involve the sale of
equipment and related support services by the Company to ILC. Residuals acquired
in this manner are accounted for at cost.
The carrying value of investments in lease residuals is evaluated on a
quarterly basis, and is subject only to downward market adjustments until
ultimately realized through a sale or re-lease of the equipment.
11. MAJOR CUSTOMERS
Sales to two major customers were approximately $13,196,000 and $12,714,000
for fiscal 1993. Sales to a major customer totaled approximately $16,030,000 for
fiscal 1994. Sales to a major customer were approximately $43,849,000 for fiscal
1995. During the first quarter of 1996, sales to two major customers were
$9,460,000 and $4,630,000.
12. ACQUISITION
On November 14, 1994, the Company acquired all of the outstanding stock of
Xenas for approximately $546,000. The purchase price consisted of $273,000 in
cash, notes payable in the amount of $136,000 with interest at the rate of 0.5%
above the prime rate of the Company's primary lender, and 12,976 unregistered
shares of the Company's common stock with a value of $137,000. The acquisition
was accounted for as a purchase, and accordingly the purchase price was
allocated to assets and liabilities based on the estimated value as of the date
of acquisition. The results of Xenas's operations have been included in the
consolidated statements of income from the date of acquisition. The acquisition
agreement provides for the payment of contingent consideration if certain levels
of net operating income, as defined in the agreement, are achieved periodically
from the date of acquisition through fiscal 1997. Any future payments under this
provision would adjust the recorded cost in excess of fair market value of net
assets acquired. Had Xenas been acquired at the beginning of fiscal 1993, the
pro-forma inclusion of its operating results would not have had a significant
effect on the reported consolidated net income for that year.
13. RELATED PARTIES
During fiscal 1995 the Company entered into a ten year triple-net lease
agreement commencing in 1996 for a new headquarters and distribution facility
with a company that is controlled by the Chief Executive Officer of the Company.
The base rental for 1996 on an annualized basis is $583,294. The annual rental
for these properties was determined on the basis of a fair market value rental
opinion provided by an independent real estate company.
During fiscal 1992 the Company loaned $100,000 to an officer of the Company.
This loan is evidenced by a promissory note with an annual interest rate of 1%
over the prime rate and is due April 4, 1996. In addition, a total of $106,000
was advanced to the officer in fiscal years 1993 through 1995. Pomeroy
Investments, LLC (an entity controlled by David B. Pomeroy, II) has agreed to
purchase the note from the Company at its face value and repay the advances in
full. Also in 1993 and 1994, the Company paid the officer $75,000 and $25,000,
respectively, in return for his and his spouse's personal guarantee of the
Company's obligation under the Datago agreement.
F-15
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUPPLEMENTAL CASH FLOW DISCLOSURES
Supplemental disclosures with respect to cash flow information and non-cash
investing and financing activities are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
1993 1994 1995 APRIL 5, 1996
----------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Interest paid......................................... $ 865,000 $ 996,000 $ 2,037,000 $ 405,000
----------- ------------- ------------- --------------
----------- ------------- ------------- --------------
Income taxes paid..................................... $ 517,000 $ 1,719,000 $ 2,658,000 $ 572,000
----------- ------------- ------------- --------------
----------- ------------- ------------- --------------
Business combination accounted for as purchase:
Assets acquired..................................... $ 680,000 $ 774,000 $ 14,830,000
Liabilities assumed................................. (355,000) (24,000) (6,395,000)
Note payable........................................ (136,000) (225,000) (2,700,000)
Stock issued........................................ (137,000) (100,000) (1,275,000)
------------- ------------- --------------
Net cash paid....................................... $ 52,000 $ 425,000 $ 4,460,000
------------- ------------- --------------
------------- ------------- --------------
Cost of executing the Datago Agreement through a
release of amounts owed by ComputerLand.............. $ 316,000
-----------
-----------
Note issued and accrued liabilities for litigation
settlement........................................... $ 3,300,000
--------------
--------------
</TABLE>
15. STOCK OPTION PLANS
The Company's Non-Qualified and Incentive Stock Option Plan provides certain
employees of the Company with options to purchase common stock of the Company
through options at an exercise price equal to the market value on the date of
grant. 600,000 shares of the common stock of the Company are reserved for
issuance under the plan. The plan will terminate ten years from the date of
adoption. Stock options granted under the plan are exercisable in accordance
with various terms as authorized by the Compensation committee. To the extent
not exercised, options will expire not more than ten years after the date of
grant.
The Company's Outside Directors' Stock Option Plan provides outside
directors of the Company with options to purchase common stock of the Company at
an exercise price equal to the fair value of the shares at the date of grant.
75,000 shares of common stock of the Company are reserved for issuance under the
plan. The plan will terminate ten years from the date of adoption. Pursuant to
the plan, an option to purchase 10,000 shares of common stock automatically will
be granted on the first day of the initial term of a director. An additional
2,500 shares of common stock automatically will be granted to an eligible
director upon the first day of each consecutive year of service on the board.
Options may be exercised after one year from the date of grant for not more than
one-third of the shares subject to the option and an additional one-third of the
shares subject to the option may be exercised for each of the next two years
thereafter. To the extent not exercised, options will expire five years after
the date of grant.
F-16
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. STOCK OPTION PLANS (CONTINUED)
The following summarizes the stock option transactions under the plans for
the three fiscal years ended January 5, 1996:
<TABLE>
<CAPTION>
OPTION PRICE PER
SHARES SHARE ($)
---------- ------------------
<S> <C> <C>
Options outstanding January 5, 1993................................. 86,000 $8.00
Granted........................................................... 114,332 $6.62 to $10.75
Surrendered....................................................... (21,000) $8.00
----------
Options outstanding January 5, 1994................................. 179,332 $6.62 to $10.75
Granted........................................................... 106,500 $8.00 to $10.75
Surrendered....................................................... (2,000) $7.81 to $ 9.50
----------
Options outstanding January 5, 1995................................. 283,832 $6.62 to $10.75
Granted........................................................... 66,300 $9.88 to $17.88
Stock dividend effect............................................. 33,383
Exercised......................................................... (164,975) $7.10 to $ 9.88
----------
Options outstanding January 5, 1996................................. 218,540 $6.02 to $17.88
Granted........................................................... 51,500 $12.50
Exercised......................................................... (16,050) $7.27 to $ 9.88
----------
Options outstanding April 5, 1996................................... 253,990 $6.02 to $17.88
----------
----------
Options exercisable at:
January 5, 1994................................................... 115,999 $6.88 to $10.75
January 5, 1995................................................... 241,348 $6.62 to $10.75
January 5, 1996................................................... 199,540 $6.02 to $17.88
April 5, 1996..................................................... 234,990 $6.02 to $17.88
</TABLE>
In 1993, 1994, 1995 and the first quarter of 1996, shares of common stock
were awarded to officers of the Company totalling 12,764, 3,168, 4,000, and
3,076, respectively. Compensation expense resulting from the awards was $73,400
in 1993, $40,000 in each of fiscal years 1994 and 1995, and $10,000 in the first
quarter of 1996.
16. LITIGATION
There are various legal actions arising in the normal course of business
that have been brought against the Company. Management believes these matters
will not have a material adverse effect on the Company's consolidated financial
position or results of operations.
On April 29, 1996, the Company and David B. and Catherine Pomeroy entered
into the Settlement Agreement with Vanstar. Vanstar was the Company's franchisor
from 1981 to 1993, when the Company changed from a franchisee to a "Datago"
purchaser. In December 1994, Vanstar filed a complaint against the Company
alleging that the Company failed to comply with the terms of the Datago
Agreement. In September 1995, Vanstar amended its complaint to add Mr. and Mrs.
Pomeroy as co-defendants because they had guaranteed the Company's obligations
under the Datago Agreement. The Settlement Agreement settles any and all claims
between Vanstar, the Company and Mr. and Mrs. Pomeroy that were raised or could
have been raised in Vanstar's lawsuit against the Company and Mr. and Mrs.
Pomeroy and includes a mutual release among all the parties.
The Company has agreed to pay to Vanstar $3.3 million consisting of $1.65
million in cash and a promissory note in the amount of $1.65 million. The note
is due 120 days from the effective date of the Settlement Agreement and bears
interest at 8%. The note is secured by 100,000 shares of common stock of the
Company owned by Mr. Pomeroy. All agreements between the Company and Vanstar
were
F-17
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. LITIGATION (CONTINUED)
terminated as of the effective date of the Settlement Agreement. Subsequent to
April 5, 1996 the bank has agreed to modify the revolving credit agreement for
the purpose of reflecting the effects of the settlement of this litigation on
certain financial covenants under the revolving credit agreement.
17. RISK OF LOSS FROM CONCENTRATIONS
During fiscal 1995, approximately 59% of the Company's total net sales and
revenues were derived from its top ten customers, including one customer which
accounted for 19% of total net sales and revenues. A loss of one or more of the
Company's major customers could have a material adverse effect on the Company.
Due to the demand for the products sold by the Company, significant product
shortages occur from time to time because manufacturers are unable to produce
sufficient quantities of certain products to meet increased demand. Failure to
obtain adequate product shipments could have a material adverse effect on the
Company's operations and financial results.
The Company is required to have authorizations from manufacturers in order
to sell their products. The loss of a significant vendor's authorization could
have a material adverse effect on the Company's business.
18. BUSINESS COMBINATION
On March 14, 1996, the Company acquired substantially all of the assets and
assumed substantially all of the liabilities of The Computer Supply Store
("TCSS"), a privately held computer reseller located in Des Moines, Iowa. The
purchase price consisted of $4,500,000 in cash, a $2,700,000 subordinated note
and 100,000 unregistered shares of the Company's common stock with an
approximate value of $1,300,000. Interest on the subordinated note, which is
calculated at prime plus 0.5%, is payable quarterly and principal is payable in
four equal annual installments of $675,000. The acquisition will be accounted
for as a purchase, accordingly the purchase price will be allocated to assets
and liabilities based on their estimated value as of the date of the
acquisition. The results of TCSS's operations will be included in the
consolidated statement of income from the date of acquisition. The following
table summarizes, on an unaudited pro forma basis, the estimated combined
results of the Company and TCSS assuming the acquisition had occurred on January
6, 1995. 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 TCSS during the period presented:
<TABLE>
<CAPTION>
APRIL 5,
FISCAL YEAR 1995 1996
---------------- ------------
<S> <C> <C>
Net sales and revenues.............................. $ 291,209,000 $ 75,041
Net income.......................................... 4,794,000 (1,101)
Net income per common share:
Primary........................................... $1.73 $(0.39)
Fully Diluted..................................... $1.72 $(0.39 )
</TABLE>
The Company renewed its revolving credit agreement in March 1996. The
agreement permits the Company to borrow up to the lesser of $25,000,000
(reducing to $19,000,000 as of July 1, 1996) or an amount based on eligible
trade receivables. Borrowings under this agreement, which expires April, 1997,
carry an interest rate of 0.25% below the Bank's prime rate. There were no
significant changes to the financial covenants under the revolving credit
agreement.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The Computer Supply Store, Inc.
Des Moines, Iowa
We have audited the accompanying balance sheet of The Computer Supply Store,
Inc. ("Company") as of December 31, 1995, and the related statements of
operations and retained earnings, and cash flows for the year then ended. 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 audit. The financial statements of the Company for the year ended December
31, 1994 were audited by other auditors whose report, dated February 21, 1995,
expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provided a reasonable basis for our opinion.
In our opinion, the 1995 financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1995, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
[SIGNATURE]
Des Moines, Iowa
February 26, 1996
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
The Computer Supply Store, Inc.
We have audited the accompanying balance sheet of The Computer Supply Store,
Inc. as of December 31, 1994, and the related statements of income, retained
earnings and cash flows for the year then ended. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 The Computer Supply Store,
Inc. as of December 31, 1994, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The financial statements and supplementary information for 1993 were
compiled by us and our report dated March 1, 1994, stated we did not audit or
review the financial statements or supplementary information and, accordingly,
expressed no opinion or other form of assurance on them.
Northup, Haines, Kaduce, Schmid, Macklin, P.C.
February 21, 1995
West Des Moines, Iowa
F-20
<PAGE>
THE COMPUTER SUPPLY STORE, INC.
BALANCE SHEETS
DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
1995 1994
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 367,444 $ 19,306
Accounts receivable.............................................................. 5,025,310 3,607,015
Inventories...................................................................... 1,968,319 2,750,999
Prepaid expenses and other....................................................... 21,893 25,939
-------------- -------------
Total current assets........................................................... 7,382,966 6,403,259
-------------- -------------
Property and equipment:
Land............................................................................. 87,425 87,425
Building and improvements........................................................ 1,424,258 1,054,923
Computer equipment............................................................... 774,048 447,387
Vehicles......................................................................... 306,439 299,271
Other equipment and displays..................................................... 272,197 237,362
Equipment held under capital lease............................................... 186,792 182,630
-------------- -------------
3,051,159 2,308,998
Accumulated depreciation........................................................... (1,046,167) (544,870)
-------------- -------------
Property and equipment, net...................................................... 2,004,992 1,764,128
-------------- -------------
Other assets....................................................................... 46,984 20,003
-------------- -------------
Total assets................................................................... $ 9,434,942 $ 8,187,390
-------------- -------------
-------------- -------------
LIABILITIES
Current liabilities:
Note payable, bank............................................................... $ -- $ 300,000
Accounts payable................................................................. 4,183,513 3,561,980
Dividend distributions payable................................................... 894,752 205,752
Accrued expenses................................................................. 572,403 327,572
Unearned service contracts....................................................... 74,184 78,589
Current portion of long-term debt................................................ 167,682 164,952
Current portion of obligations under capital lease............................... 33,024 30,987
-------------- -------------
Total current liabilities...................................................... 5,925,558 4,669,832
Long-term debt:
Long-term debt, less current portion............................................. 464,280 635,028
Obligations under capital lease, less current portion............................ 57,627 94,703
-------------- -------------
Total liabilities.............................................................. 6,447,465 5,399,563
-------------- -------------
Stockholders' equity:
Common stock, no par value; 10,000 shares authorized, 2,000 shares issued and
outstanding..................................................................... 10,000 10,000
Retained earnings................................................................ 2,977,477 2,777,827
-------------- -------------
Total stockholders' equity..................................................... 2,987,477 2,787,827
-------------- -------------
Total liabilities and stockholders' equity..................................... $ 9,434,942 $ 8,187,390
-------------- -------------
-------------- -------------
</TABLE>
See notes to financial statements.
F-21
<PAGE>
THE COMPUTER SUPPLY STORE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Revenues:
Sale and service............................................................... $ 60,347,663 $ 47,907,731
Other.......................................................................... 151,301 202,667
-------------- --------------
Total revenue................................................................ 60,498,964 48,110,398
Cost of sales and services....................................................... 52,503,474 41,610,404
-------------- --------------
Gross profit..................................................................... 7,995,490 6,499,994
Operating expenses:
Selling, general and administrative............................................ 5,469,050 4,423,071
Rent........................................................................... 61,168 60,796
Depreciation................................................................... 400,917 236,743
-------------- --------------
Total operating expenses..................................................... 5,931,135 4,720,610
-------------- --------------
Income from operations........................................................... 2,064,355 1,779,384
-------------- --------------
Other income (expense):
Interest....................................................................... (106,808) (87,993)
Other.......................................................................... (5,234) 21,178
-------------- --------------
Total other expense.......................................................... (112,042) (66,815)
-------------- --------------
Net income....................................................................... 1,952,313 1,712,569
Retained earnings, beginning of year............................................. 2,777,827 2,300,789
Distributions to stockholders.................................................... (1,752,663) (1,235,531)
-------------- --------------
Retained earnings, end of year................................................... $ 2,977,477 $ 2,777,827
-------------- --------------
-------------- --------------
</TABLE>
See notes to financial statements.
F-22
<PAGE>
THE COMPUTER SUPPLY STORE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 1,952,313 $ 1,712,569
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation..................................................................... 400,917 236,743
Loss on sale of property and equipment........................................... 3,827 10,912
Change in:
Accounts receivable............................................................ (1,418,295) (1,032,840)
Inventories.................................................................... 782,680 (869,955)
Prepaid expenses and other..................................................... (22,935) (19,312)
Accounts payable............................................................... 621,533 971,790
Accrued expenses............................................................... 244,831 225,933
Unearned service contracts..................................................... (4,405) 78,589
------------- --------------
Net cash provided by operating activities.................................... 2,560,466 1,314,429
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment..................................... 56,474
Purchases of property and equipment.............................................. (702,082) (896,237)
------------- --------------
Net cash used in investing activities........................................ (645,608) (896,237)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance borrowings of long-term debt.............................. 2,200,000
Principal payments on debt and obligations under capital leases.................. (503,057) (1,638,367)
Dividend distributions to stockholders........................................... (1,063,663) (1,235,531)
------------- --------------
Net cash used in financing activities........................................ (1,566,720) (673,898)
------------- --------------
Net change in cash and cash equivalents............................................ 348,138 (255,706)
Cash and cash equivalents, beginning of year....................................... 19,306 275,012
------------- --------------
Cash and cash equivalents, end of year............................................. $ 367,444 $ 19,306
------------- --------------
------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................................... $ 106,808 $ 77,506
------------- --------------
------------- --------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchased by issuance of long-term debt................................ $ 51,345
Equipment acquired under capital lease obligations............................... $ 4,162 $ 25,191
------------- --------------
------------- --------------
</TABLE>
See notes to financial statements.
F-23
<PAGE>
THE COMPUTER SUPPLY STORE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1. LINE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
LINE OF BUSINESS -- The Computer Supply Store, Inc. ("Company") is
principally engaged in the retail sale of computer equipment, software, supplies
and supporting services which include repairs, equipment rentals and
installation of computer systems. Trade receivables are principally due from
customers throughout central Iowa.
CASH AND CASH EQUIVALENTS -- For purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less from the date of purchase to be cash
equivalents.
INVENTORIES -- Inventories are stated at the lower of cost (first-in,
first-out method) or market. Warranty parts are expensed when purchased and not
carried as a component of inventory as it is uncertain as to whether the parts
will be sold before becoming obsolete.
PROPERTY AND EQUIPMENT -- Property and equipment is recorded at cost and
depreciated over the estimated useful lives on a straight-line method. Useful
lives are:
<TABLE>
<S> <C>
Buildings and improvements 10 to 40 years
Computer equipment 3 to 7 years
Vehicles 5 years
Other equipment and displays 5 to 10 years
</TABLE>
ACCOUNTS PAYABLE -- Accounts payable includes amounts financed under various
wholesale financing agreements arranged by Company suppliers. Payment terms
under these arrangements are similar to those offered by the suppliers with the
Company subject to interest only on late payments. Amounts owed under these
credit facilities are secured by the specific chattel.
REVENUE RECOGNITION -- The Company recognizes revenue on the sale of
inventory and supplies when the products are shipped. Service revenue is
recognized when the applicable services are provided.
UNEARNED SERVICE CONTRACTS -- Revenues received on service contracts are
recognized ratably over the life of the contracts. Costs related to maintenance
contracts are recognized when incurred.
INCOME TAXES -- The stockholders have elected for the Company to be treated
as an S Corporation; therefore, no income taxes have been provided as the income
is taxable to the stockholders and not to the Company.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FAIR VALUE DISCLOSURES -- The carrying value of accounts payable
approximates the fair value because of the short maturity of those instruments.
It is not practicable to estimate the fair value of long-term debt as the
current incremental rates for similar liabilities is not known. The other
pertinent information required to estimate the fair value of long-term debt is
presented in long-term debt footnote.
RECLASSIFICATIONS -- Certain amounts in the 1994 financial statements are
reclassified to conform with 1995 presentation.
F-24
<PAGE>
THE COMPUTER SUPPLY STORE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Note payable to bank, monthly payments of $9,370 through October 1997, interest at
bank's base rate (8.25% at December 31, 1995) collateralized by accounts receivable.... $ 194,025 $ 284,598
Note payable to bank, monthly payments of $3,339 through May 1997, interest at 10.25%,
collateralized by building and land.................................................... 189,593 208,691
Note payable to a Des Moines not-for-profit agency, monthly payments of $1,687 through
July 2012, interest at 7.67%, collateralized by building and land...................... 188,402 194,664
Notes payable to bank, monthly payments range from $400 to $780, interest ranging from
7.5% to 9.9%, secured by vehicles...................................................... 59,942 112,027
----------- -----------
631,962 799,980
Less current maturities................................................................. 167,682 164,952
----------- -----------
Total long-term debt.................................................................... $ 464,280 $ 635,028
----------- -----------
----------- -----------
</TABLE>
Payments required on long-term debt in future years are as follows:
<TABLE>
<S> <C>
AMOUNT
-----------
Years Ending December 31
1996..................................................................................... $ 167,682
1997..................................................................................... 287,463
1998..................................................................................... 14,600
1999..................................................................................... 10,668
2000..................................................................................... 8,062
Thereafter............................................................................... 143,487
-----------
$ 631,962
-----------
-----------
</TABLE>
The Company has a $1,000,000 revolving line of credit with a bank which
expires June 1, 1996. Interest is payable monthly and computed at the bank's
base rate plus .5% (9.0% at December 31, 1995). The line of credit is secured by
a blanket security interest in all Company assets and is personally guaranteed
by the stockholders of the Company. Under the terms of the line of credit, the
Company is required to maintain a debt to tangible net worth of not greater than
2.5 to 1.0 and minimum collateral coverage of 75% of accounts receivable less
than 60 days old plus 25% of inventory. At December 31, 1995, the Company was in
compliance with all bank covenants. There was no outstanding balance on the line
of credit at December 31, 1995.
3. RELATED PARTY TRANSACTIONS
As of and for the years ending December 31, 1995 and 1994, related party
transactions consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Dividend distributions payable to stockholders................................ $ 894,562 $ 205,652
----------- -----------
----------- -----------
Interest paid to stockholder.................................................. $ 2,398 $ 9,073
----------- -----------
----------- -----------
</TABLE>
F-25
<PAGE>
THE COMPUTER SUPPLY STORE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain equipment under capital lease obligations through
November 1998. Obligations under capital leases have been recorded in the
accompanying financial statements at the present value of future minimum lease
payments and discounted at interest rates ranging from 7.84% to 14.43%.
At December 31, 1995 and 1994, the capitalized cost, accumulated
depreciation and depreciation expense relating to this equipment were as
follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Capitalized cost.............................................................. $ 186,792 $ 182,630
Accumulated depreciation...................................................... (91,437) (49,695)
----------- -----------
$ 95,355 $ 132,935
----------- -----------
----------- -----------
Depreciation expense.......................................................... $ 41,742 $ 44,830
----------- -----------
----------- -----------
</TABLE>
The future minimum lease payments under the capital leases and the net
present value of the future minimum lease payments are as follows for the years
ending December 31:
<TABLE>
<S> <C>
1996..................................................................... $ 40,062
1997..................................................................... 35,248
1998..................................................................... 26,961
---------
Total future minimum lease payments...................................... 102,271
Amount representing interest............................................. 11,620
---------
Present value of future minimum capital lease payments................... 90,651
Amount carried in balance sheet as a current liability................... 33,024
---------
Long-term portion........................................................ $ 57,627
---------
---------
</TABLE>
5. OPERATING LEASES
The Company leases certain facilities under operating leases which require
monthly payments. Total lease expense in 1995 and 1994 was approximately $61,000
and $62,000, respectively. Total future minimum lease payments due for fiscal
years ending December 31 are:
<TABLE>
<S> <C>
1996..................................................................... $ 45,235
1997..................................................................... 40,725
1998..................................................................... 40,725
1999..................................................................... 24,993
2000..................................................................... 9,240
Thereafter............................................................... 5,390
---------
Total.................................................................... $ 166,308
---------
---------
</TABLE>
6. EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan qualified under Internal Revenue Code
Section 401(k). Upon completion of one year of continuous service, employees
become eligible to participate in the plan. Up to 3% of all contributions are
matched by the Company. Company contributions vest at a rate of 20% per year
with such contributions being fully vested at the end of five years of vesting
service. The Company's contributions to the Plan were $71,545 and $43,087 for
1995 and 1994, respectively.
F-26
<PAGE>
THE COMPUTER SUPPLY STORE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. MAJOR CUSTOMERS
Sales for the years ended December 31, 1995 and 1994, include two customers
which represents approximately 27% and 36%, respectively, of total revenues.
Receivables from these customers at December 31, 1995 and 1994, represent
approximately 15% and 31%, respectively, of total accounts receivable.
8. SUBSEQUENT EVENT
Subsequent to December 31, 1995, the Company has entered into discussions
with an unrelated party to sell substantially all of the assets of the Company.
The sale is expected to be consummated on or about March 14, 1996.
F-27
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JANUARY 5, 1996 AND THREE MONTHS ENDED APRIL 5, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED APRIL
YEAR ENDED JANUARY 5, 1996 5, 1996
------------------------------------- -----------
HISTORICAL (1) YEAR ENDED HISTORICAL (2)
---------------------- PRO FORMA ----------- -----------
COMPANY TCSS ADJUSTMENTS PRO FORMA COMPANY
----------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales and revenues.......................................... $ 230,710 $ 60,499 $ 291,209 $ 63,224
Cost of sales and service....................................... 197,174 52,504 (3) 249,678 53,624
----------- --------- ----------- -----------
Gross profit.................................................. 33,536 7,995 41,531 9,600
Operating expenses.............................................. 24,251 5,931 $ 614(4) 30,796 7,143
----------- --------- ------------- ----------- -----------
Income from operations........................................ 9,285 2,064 (614) 10,735 2,457
Interest expense................................................ 1,999 107 618(5) 2,724 435
Litigation settlement and related costs......................... -- -- -- -- 4,392
Miscellaneous income............................................ (64) 5 (59) (93)
----------- --------- ------------- ----------- -----------
Income before income taxes.................................... 7,350 1,952 (1,232) 8,070 (2,277)
Income tax expense.............................................. 2,983 $ -- (293)(6) 3,276 (922)
----------- --------- ------------- ----------- -----------
Net income...................................................... $ 4,367 1,952 (1,525) $ 4,794 $ (1,355)
----------- --------- ------------- ----------- -----------
----------- --------- ------------- ----------- -----------
Weighted average shares outstanding............................. 2,670 2,770 2,745
----------- ----------- -----------
----------- ----------- -----------
Net income per common share..................................... $ 1.64 $ 1.73 $ (0.49)
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
PRO FORMA
TCSS ADJUSTMENTS PRO FORMA
--------- --------------- -----------
<S> <C> <C> <C>
Net sales and revenues.......................................... $ 11,817 $ 75,041
Cost of sales and service....................................... 10,342 63,966
--------- -----------
Gross profit.................................................. 1,475 11,075
Operating expenses.............................................. 951 83 8,177
--------- --- -----------
Income from operations........................................ 524 (83) 2,898
Interest expense................................................ 15 450
Litigation settlement and related costs......................... -- -- 4,392
Miscellaneous income............................................ 2 (91)
--------- --- -----------
Income before income taxes.................................... 507 (83) (1,853)
Income tax expense.............................................. 203 (33) (752)
--------- --- -----------
Net income...................................................... $ 304 $ (50) $ (1,101)
--------- --- -----------
--------- --- -----------
Weighted average shares outstanding............................. 2,821
-----------
-----------
Net income per common share..................................... $ (0.39 )
-----------
-----------
</TABLE>
- ------------------------------
(1) Based on the financial statements of the Company and TCSS for the year ended
January 5, 1996 and December 31, 1995, respectively.
(2) Based on the financial statements of the Company for the three months ended
April 5, 1996 and the financial statements of TCSS for the two months ended
February 29, 1996.
(3) The pro forma information does not assume any reduction of TCSS's historical
costs or expenses due to synergies with the Company's operations.
(4) Reflects additional payroll for former owners of TCSS based on new
employment agreements, rent on building not purchased and amortization of
estimated goodwill over a 15 year period.
(5) Reflects additional interest expense resulting from financing the purchase
of TCSS.
(6) Reflects the income tax provision for TCSS for the period presented and the
income tax effect of pro forma adjustments.
F-28
<PAGE>
GLOSSARY
<TABLE>
<CAPTION>
COMPANY NAMES*
- ------------------------------------
<S> <C>
3Com................................ 3Com Corporation
AMCO................................ Allied Mutual Insurance Company
AST................................. AST Research, Inc.
Alliant............................. Alliant Health Systems, Inc.
Ameridata........................... Ameridata Technologies, Inc.
Andersen Consulting................. Andersen Consulting Corp.
Apple............................... Apple Computer, Inc.
Bank of Mississippi................. Bank of Mississippi, a subsidiary of Bancorp South Inc.
Barnett Bank........................ Barnett Bank, Inc.
Bay Networks........................ Bay Networks, Inc.
Belcan Engineering.................. Belcan Engineering Group Inc.
Canon............................... Canon Computer Systems, Inc.
Champion............................ Champion International Corp.
Columbia/HCA........................ Columbia/Healthcare Corporation of America
Commonwealth of Kentucky............ Commonwealth of Kentucky
Compaq.............................. Compaq Computer Corporation
CompuCom............................ CompuCom Systems, Inc.
Data Flex........................... DataFlex Corporation
DFS................................. Deutsche Financial Services
EDS................................. Electronic Data Systems, Inc.
Entex............................... Entex Information Services, Inc.
Epson............................... Epson America, Inc.
GE.................................. General Electric Corporation
Genicom............................. Genicom Corporation
Great Financial..................... Great Financial Bank, FSB
Hewlett-Packard..................... Hewlett-Packard Company
IBM................................. International Business Machines Corporation
ICC................................. IBM Credit Corporation
ILC................................. Information Leasing Corporation
ISSC................................ Integrated Services Solutions Corp. (A division of IBM)
InaCom.............................. InaCom Corp.
Intel............................... Intel Corporation
Jergens............................. Andrew Jergen Company
KFC................................. Kentucky Fried Chicken Corp.
Kroger.............................. The Kroger Company
Lexmark............................. Lexmark International, Inc.
Lotus............................... Lotus Development Corp.
Milacron............................ Cincinnati Milacron Inc.
Microsoft........................... Microsoft Corporation; the Company is a "Microsoft Solution Provider"
NEC................................. NEC Technologies, Inc.
National Pen........................ National Pen Corp.
Norwest Mortgage.................... Norwest Mortgage, Inc., a subsidiary of Norwest Corporation
Novell.............................. Novell, Inc.
P&G................................. The Procter & Gamble Company
Pioneer HiBred...................... Pioneer HiBred International, Inc.
Principal Insurance................. Principal Mutual Life Insurance Company
Providian........................... Providian Insurance Corp.
Regis............................... Regis Corporation
Saint Thomas Hospital............... Saint Thomas Hospital (Nashville, TN)
</TABLE>
G-1
<PAGE>
<TABLE>
<S> <C>
Sarcom.............................. Sarcom Technologies, Inc.
Square D............................ Square D Company
Star Bank........................... Star Bank, N.A. (Cincinnati, Ohio)
Sun Trust Bank...................... Sun Trust Bank, N.A., (Nashville, Tennessee)
TCSS................................ The Computer Supply Store, Inc.
TFN................................. The Future Now, Inc.
Toshiba............................. Toshiba America Information Systems, Inc.
Vanstar............................. Vanstar Corporation
Western-Southern.................... Western-Southern Life Insurance Company
*All Company names and trade names are the legal property of their respective owners.
<CAPTION>
TECHNICAL TERMS
- ------------------------------------
<S> <C>
Aggregator.......................... A company that purchases directly from manufacturers in large quantities,
maintains inventory, breaks bulk and resells to distributors, resellers and
value-added resellers
Configuration....................... The customization of equipment to a customer's specifications. May include
the loading of software, adding of memory or combining of different
manufacturers' equipment in such a way that it will be compatible as an
integrated system
EDI (Electronic Data Interchange)... The connecting of computer systems at different companies so that
information may be directly exchanged between them
LAN................................. Local area network
Open system......................... A standards-based network that includes hardware and software from different
manufacturers
PC.................................. Personal computer
Price protection.................... An agreement between the Company and a manufacturer that when a decrease in
the price of its product is instituted, the manufacturer will rebate the
Company for the difference between the new price and the price paid by the
Company for product in its inventory
Roll-Out............................ Single sale involving a large volume of similar products to be delivered on
a pre-specified timetable
VAR (Value-added reseller).......... A company that purchases equipment or software from a manufacturer,
aggregator or distributor, provides value added services to their clients
including network management, configuration systems integration and
training and subsequently resells the enhanced product
WAN................................. Wide area network
</TABLE>
G-2
<PAGE>
[INSIDE BACK COVER]
1. Photo looking down on a desk top showing two hands resting on desk and
another set of hands signing a contract.
- Text below the photo: "Equipment Leasing"
2. Photo of several cables fanned out in a colorful display.
- Text below the photo: "Cabling & Wiring Services"
3. Photo of a man sitting in a chair facing a rack of network computer file
servers.
- Text below the photo: "User Support Services"
4. Photo of Computer Compact Disc (CD) shown reflecting colorful array of
light.
- Text below the photo: "Integrated Media Technologies"
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations in connection with this offering
other than those contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company, the Selling Stockholder or any Underwriter. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy, any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. The delivery
of this Prospectus at any time does not imply that the information herein is
correct as of any time subsequent to its date. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstance, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to the date hereof.
------------------------
TABLE OF CONTENTS
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<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 11
Capitalization................................. 11
Price Range of Common Stock and Dividend
Policy........................................ 12
Selected Consolidated Financial and Operating
Data.......................................... 13
Selected Pro Forma Consolidated Financial
Data.......................................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 15
Business....................................... 22
Management..................................... 31
Certain Transactions........................... 37
Principal and Selling Stockholders............. 38
Description of Capital Stock................... 39
Shares Eligible for Future Sale................ 42
Underwriting................................... 43
Legal Matters.................................. 44
Experts........................................ 44
Available Information.......................... 44
Index to Consolidated Financial Statements..... F-1
Glossary....................................... G-1
</TABLE>
1,350,000 Shares
[LOGO]
Common Stock
--------------
PROSPECTUS
--------------
J.C.Bradford &Co.
Tucker Anthony
Incorporated
, 1996
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses relative to the offering.
Expenses other than filing fees are estimated.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 8,365
NASD filing fee.................................................. 3,000
Nasdaq Stock Market's National Market listing fee................ 17,500
Accounting Fees and Expenses..................................... 80,000
Transfer Agent's Fees and Expenses............................... 5,000
Legal Fees and Expenses.......................................... 235,000
Blue Sky Fees and Expenses....................................... 15,000
Printing and Engraving Expenses.................................. 85,000
Miscellaneous.................................................... 51,135
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Total Expenses............................................... $ 500,000
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</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
Delaware corporation to indemnify present and former directors, officers,
employees or agents of the corporation. The Company's Certificate of
Incorporation and Bylaws provide for indemnification of directors and officers
of the Company to the fullest extent permitted by the DGCL. The Company's
Certificate of Incorporation provides that the Company shall indemnify to the
fullest extent authorized under the DGCL each person who was or is made a party
to, or is threatened to be made a party to, or is involved in any action, suit
or proceeding by reason of the fact such person is or was a director or officer
of the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation or enterprise, including
service with respect to employee benefit plans, against all expense, liability
and loss (including attorney's fees, judgments, fines, ERISA excise taxes and
penalties, and amounts paid in settlement) reasonably incurred by such person in
connection therewith provided that the applicable standards of conduct under the
DGCL are satisfied. These standards are, with respect to civil proceedings, that
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Company or its stockholders
and, with respect to criminal proceedings, that such person had no reasonable
cause to believe his or her conduct was unlawful. However, under the DGCL, with
respect to claims by or in the right of the Company, no indemnification may be
made in respect of any such claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his or her duty to the Company except to the extent that the Court of
Chancery of Delaware or the Court in which such action or suit was brought shall
determine that despite such adjudication and in view of all the circumstances of
the case, such person is fairly and reasonably entitled to such indemnity as
such court deems proper.
The Company has not purchased directors' and officers' liability insurance
covering certain liabilities that may be incurred by the officers and directors
of the Company in connection with the performance of their duties.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On April 9, 1993, 3,478 shares were issued to each of Edwin S. Weinstein and
Frank D. Friedersdorf pursuant to their respective Employment Agreements. Also
pursuant to their respective Employment Agreements, on May 5, 1994, June 10,
1995 and January 12, 1996, 1,584 shares, 2,000 shares and 1,538, respectively,
were issued to each of Messrs. Weinstein and Friedersdorf. All of these shares
were exempt from registration under the Act pursuant to Section 4(2) of the Act.
On April 9, 1993, 5,808 shares were issued to James Cordas pursuant to his
Employment Agreement. These
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<PAGE>
shares were exempt from registration under the Act pursuant to Section 4(2) of
the Act. On June 19, 1995, 1,100 shares were issued to Stephen E. Pomeroy as a
stock bonus. The shares were exempt from registration under the Act pursuant to
Section 4(2) of the Act.
On March 14, 1996, the Company issued 100,000 shares to The Computer Supply
Store, Inc. ("TCSS") pursuant to an Asset Purchase Agreement between the
Company; TCSS; and Richard Feaster; Victoria Feaster; Harry Feaster; Carolyn
Feaster; Victoria Feaster, trustee of the Emily Patricia Feaster Trust; and
Victoria Feaster, trustee of the Nicole Ann Feaster Trust. The shares were
issued in exchange for substantially all of the assets of TCSS. The shares were
exempt from registration under the Act pursuant to Section 4(2) of the Act (Rule
506 of Regulation D). On October 13, 1995, the Company issued 5,755 shares
pursuant to an Asset Purchase Agreement between the Company and Cabling
Unlimited, Inc. ("CUI"). The shares were issued in exchange for substantially
all of the assets of CUI. The shares were exempt from registration under the Act
pursuant to Section 4(2) of the Act. On November 14, 1994, the Company issued
12,976 shares pursuant to a Stock Purchase Agreement among Gregory V. Peck,
Thomas G. Baggs and Thomas E. Beckman and the Company. The shares were issued in
exchange for all of the issued and outstanding stock of Xenas Communications
Corp ("Xenas"). The number of shares owned by the former shareholders of Xenas
increased to 14,272 as a result of a 10% stock dividend paid on May 22, 1995.
The shares issued in connection with the Xenas acquisition were exempt from
registration under the Act pursuant to Section 4(2) of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
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1.1 Form of Underwriting Agreement among the Company, the Selling
Shareholder and J.C. Bradford & Co. and Tucker Anthony Incorporated,
as the Representatives of the several Underwriters.
3.1 Certificate of Incorporation of the Company (Incorporated herein by
reference to Exhibit 3(a) of the Company's Form S-1 filed February
14, 1992).
3.2 Bylaws of the Company (Incorporated herein by reference to Exhibit
3(b) of Company's Form S-1 filed February 14, 1992).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and the Bylaws of the Company defining rights of
holders of Common Stock of the Company.
4.2 Specimen of Stock Certificate (Incorporated herein by reference to
Exhibit 4 of Company's Form S-1 filed Feb. 14, 1992).
5 Opinion of Cors & Bassett regarding legality of Common Stock being
registered.
10 Material Contracts
10.1 Loan Agreement between Star Bank, N.A. and the Company dated November
19, 1992 (Incorporated herein by reference to Exhibit 10(i)(a)(1) of
Company's Form 10-K filed March 31, 1993).
10.2 Amendment to Loan Agreement by Letter Agreement dated December 16,
1992 by and among Star Bank, N.A., the Company and C&N Corp.
(Incorporated herein by reference to Exhibit 10(i)(a)(2) of Company's
Form 10-K filed March 31, 1993).
10.3 Amendment to Loan Agreement by Letter Agreement dated March 12, 1993
by and among Star Bank, N.A., the Company and C&N Corp. (Incorporated
herein by reference to Exhibit 10(i)(a)(3) of Company's Form 10-K
filed April 7, 1994).
</TABLE>
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10.4 Amendment to Loan Agreement by Letter Agreement dated April 30, 1993
by and among Star Bank, N.A., the Company and C&N Corp. (Incorporated
herein by reference to Exhibit 10(i)(a)(4) of Company's Form 10-K
filed April 7, 1994).
<C> <S>
10.5 Amendment to Loan Agreement by Letter Agreement dated June 30, 1993 by
and among Star Bank, N.A., the Company and C&N Corp. (Incorporated
herein by reference to Exhibit 10(i)(a)(5) of Company's Form 10-K
filed April 7, 1994).
10.6 Amendment to Loan Agreement by Letter Agreement dated August 5, 1993
by and among Star Bank, N.A., the Company and C&N Corp. (Incorporated
herein by reference to Exhibit 10(i)(a)(6) of Company's Form 10-K
filed April 7, 1994).
10.7 Amendment to Loan Agreement by Letter Agreement dated November 29,
1993 by and among Star Bank, N.A., the Company and C&N Corp.
(Incorporated herein by reference to 10(i)(a)(7) of Company's Form
10-K filed April 7, 1994).
10.8 Amendment to Loan Agreement by Letter Agreement dated May 6, 1994 by
and among Star Bank, N.A., the Company and C&N Corp. (Incorporated
herein by reference to Exhibit 10(i)(a)(8) of Company's Form 10-K
filed April 7, 1994).
10.9 Amendment to Loan Agreement by Letter Agreement dated November 3, 1994
by and among Star Bank, N.A., the Company and C&N Corp. (Incorporated
herein by reference to Exhibit 10(i)(a)(9) of Company's Form 10-K
filed April 7, 1994).
10.10 Amendment to Loan Agreement by Letter Agreement dated November 8, 1994
by and among Star Bank, N.A., the Company and C&N Corp. (Incorporated
herein by reference to Exhibit 10(i)(a)(10) of Company's Form 10-K
filed April 7, 1994).
10.11 Amendment to Loan Agreement by Letter Agreement dated November 30,
1994 by and among Star Bank, N.A., the Company and C&N Corp.
(Incorporated herein by reference to Exhibit 10(i)(a)(11) of
Company's Form 10-K filed April 7, 1994).
10.12 Amendment to Loan Agreement by Letter Agreement dated January 30, 1995
by and among Star Bank, N.A., the Company and C&N Corp. (Incorporated
herein by reference to Exhibit 10(i)(a)(12) of Company's Form 10-K
filed April 4, 1995).
10.13 Amendment to Loan Agreement by Letter Agreement dated March 31, 1995
by and among Star Bank, N.A., the Company and C&N Corp. (Incorporated
herein by reference to Exhibit 10(i)(a)(13) of Company's Form 10-Q
filed May 18, 1995).
10.14 Amendment to Loan Agreement by Letter Agreement dated May 31, 1995 by
and among Star Bank, N.A., the Company and C&N Corp. (Incorporated
herein by reference to Exhibit 10(i)(a)(14) of Company's Form 10-Q
filed August 18, 1995).
10.15 Amendment to Loan Agreement by Letter Agreement dated October 19, 1995
by and among Star Bank, N.A., the Company and C&N Corp. (Incorporated
herein by reference to Exhibit 10(i)(a)(15) of Company's Form 10-Q
filed Nov. 17, 1995).
10.16 Amendment to Loan Agreement by Letter Agreement dated December 18,
1995 by and among Star Bank, N.A., the Company, C&N Corp. and Xenas
Communications Corp (Incorporated herein by reference to Exhibit
10(i)(a)(16) of Company's Form 10-K filed April 4, 1996).
10.17* Amended and Restated Loan Agreement between the Company, C&N Corp.,
Xenas Communications Corp., Pomeroy Computer Leasing Company, Inc.
and Star Bank, N.A., dated March 14, 1996.
10.18 Agreement for Wholesale Financing (Security Agreement) between IBM
Credit Corporation and the Company dated April 2, 1992 (Incorporated
herein by reference to Exhibit 10(i)(b)(1) of Company's Form 10-K
filed April 7, 1994).
</TABLE>
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10.19 Addendum to Agreement for Wholesale Financing between IBM Credit
Corporation and the Company dated July 7, 1993 (Incorporated herein
by reference to Exhibit 10(i)(b)(2) of Company's Form 10-K filed
April 7, 1994).
<C> <S>
10.20 Agreement for Wholesale Financing (Security Agreement) between ITT
Commercial Finance Corporation and the Company dated March 27, 1992
(Incorporated herein by reference to Exhibit 10(i)(c)(1) of Company's
Form 10-K filed April 7, 1994).
10.21 Addendum to Agreement for Wholesale Financing between ITT Commercial
Finance Corporation and the Company dated July 7, 1993 (Incorporated
herein by reference to Exhibit 10(i)(c)(2) of Company's Form 10-K
filed April 7, 1994).
10.22 Amendment to Agreement for Wholesale Financing between Deutsch
Financial Services f/k/a/ ITT Commercial Finance Corporation and the
Company dated May 5, 1995 (Incorporated herein by reference to
Exhibit 10(i)(c)(3) of Company's Form 10-Q filed May 18, 1995).
10.23 Termination and Release Agreement among the Company, C&N Corp. and
ComputerLand Corporation dated July 9, 1993 (Incorporated herein by
reference to Exhibit 10(i)(d)(1) of Company's Form 10-K filed April
7, 1994).
10.24 Agreement for Sale of Computer Products (Datago) among the Company,
C&N Corp. and ComputerLand Corporation dated July 9, 1993
(Incorporated herein by reference to Exhibit 10(i)(d)(2) of Company's
Form 10-K filed April 7, 1994).
10.25 Option Agreement re: Jacksonville Branch among the Company, C&N Corp.
and ComputerLand Corporation dated February 15, 1993 (Incorporated
herein by reference to Exhibit 10(i)(d)(3) of Company's Form 10-K
filed April 7, 1994).
10.26 Amendment to Option Agreement for Jacksonville Branch among the
Company, C&N Corp. and ComputerLand Corporation dated July 9, 1993
(Incorporated herein by reference to Exhibit 10(i)(d)(4) of Company's
Form 10-K filed April 7, 1994).
10.27 Non-Solicitation Agreement among the Company, C&N Corp. and
ComputerLand Corporation dated July 9, 1993 (Incorporated herein by
reference to Exhibit 10(i)(d)(5) of Company's Form 10-K filed April
7, 1994).
10.28 Letter Agreement Concerning Acquisition of CSMS/ILS Source Code among
the Company, C&N Corp. and ComputerLand Corporation dated July 9,
1993 (Incorporated herein by reference to Exhibit 10(i)(d)(6) of
Company's Form 10-K filed April 7, 1994).
10.29 Asset Purchase Agreement between the Company and Cabling Unlimited,
Inc. dated October 13, 1995 (Incorporated herein by reference to
Exhibit 10(i)(z)(1) of Company's Form 10-K filed April 4, 1996).
10.30 Agreement between Cabling Unlimited, Inc. and the Company dated
October 13, 1995 (Incorporated herein by reference to Exhibit
10(i)(z)(2) of Company's Form 10-K filed April 4, 1996).
10.31 Agreement between Karen Epperson and the Company dated October 13,
1995 (Incorporated herein by reference to Exhibit 10(i)(z)(3) of
Company's Form 10-K filed April 4, 1996).
10.32 Employment Agreement between the Company and Karen Epperson dated
October 13, 1995 (Incorporated herein by reference to Exhibit
10(i)(z)(4) of Company's Form 10-K filed April 4, 1996).
</TABLE>
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10.33 Assumption of Liabilities between Cabling Unlimited, Inc. and the
Company dated October 13, 1995 (Incorporated herein by reference to
Exhibit 10(i)(z)(5) of Company's Form 10-K filed April 4, 1996).
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10.34 Asset Purchase Agreement among the Company and The Computer Store of
Kentucky, Inc. and Richard C. Mills dated July 7, 1993 (Incorporated
herein by reference to Exhibit 10(i)(l)(1) of Company's Form 10-K
filed April 7, 1994).
10.35 Employment Agreement between the Company and Richard C. Mills dated
July 7, 1993 (Incorporated herein by reference to Exhibit 10(iii)(h)
of Company's Form 10-K filed April 7, 1994).
10.36 Covenant not to Compete between the Company and Richard C. Mills dated
July 7, 1993 (Incorporated herein by reference to Exhibit 10(i)(l)(2)
of Company's Form 10-K filed April 7, 1994).
10.37 Remarketing and Agency Agreement (the "Remarketing Agreement") between
Information Leasing Corporation and the Company dated January 7, 1990
(Incorporated herein by reference to Exhibit 10(i)(p)(1) of Company's
Form S-1 filed Feb. 14, 1992).
10.38 Amendment No. 1 to the Remarketing Agreement dated November 12, 1991
(Incorporated herein by reference to Exhibit 10(i)(p)(2) of Company's
Form S-1 filed Feb. 14, 1992).
10.39 Letter, dated February 2, 1994, extending term of Remarketing
Agreement to May 1, 1996 (Incorporated herein by reference to Exhibit
10(i)(p)(3) of Company's Form 10-K filed April 4, 1996).
10.40 Amendment No. 2 to the Remarketing Agreement dated October 10, 1995
(Incorporated herein by reference to Exhibit 10(i)(p)(4) of Company's
Form 10-K filed April 4, 1996).
10.41 Stock Purchase Agreement among the Company and Charles E. Alm, Nancy
Alm, Trustee Under The C&N Corp. Employee Stock Ownership Plan, John
Palamaro and Nancy Alm dated December 16, 1992 (Incorporated herein
by reference to Exhibit 10(i)(r) of Company's Form 10-K filed March
31, 1993).
10.42 Joint Venture Agreement between Stargel Management Systems, Inc. and
the Company dated February 8, 1993 (Incorporated herein by reference
to Exhibit 10(i)(s)(1) of Company's Form 10-K filed April 7, 1994).
10.43 Amendment to Joint Venture Agreement between Stargel Management
Systems, Inc. and the Company effective June 30, 1993 (Incorporated
herein by reference to Exhibit 10(i)(s)(2) of Company's Form 10-K
filed April 7, 1994).
10.44 Consulting Agreement between the Company and John Schertell dated May
26, 1993 (Incorporated herein by reference to Exhibit 10(i)(t)(1) of
Company's Form 10-K filed April 7, 1994).
10.45 Amendment to Consulting Agreement between the Company and John
Schertell dated March 28, 1994 (Incorporated herein by reference to
Exhibit 10(i)(t)(2) of Company's Form 10-K filed April 7, 1994).
10.46 Stock Purchase Agreement among the Company and Gregory V. Peck, Thomas
G. Baggs and Thomas E. Beckman dated November 14, 1994 (Incorporated
herein by reference to Exhibit 10(i)(w) of Company's Form 10-K filed
April 4, 1995).
</TABLE>
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10.47 Asset Purchase Agreement among the Company; TCSS; and Richard Feaster,
Victoria Feaster, Harry Feaster, Carolyn Feaster, Victoria Feaster,
trustee of the Emily Patricia Feaster Trust, and Victoria Feaster,
trustee of the Nicole Ann Feaster Trust dated March 14, 1996
(Incorporated herein by reference to Exhibit 10(i)(z) of Company's
Form 8-K dated March 14, 1996).
<C> <S>
10.48* Lease between the Company and TCSS dated March 15, 1996.
10.49* Lease between Arthur K. Jones Trust, Firstar Bank Des Moines, N.A.,
and William A. Jones, Trustees, and The Computer Supply Store, Inc.
dated July 1, 1994 (assigned to the Company effective as of March 14,
1996).
10.50* Registration Rights Agreement between the Company and TCSS dated March
14, 1996.
10.51* Employment Agreement between the Company and Richard Feaster dated
March 14, 1996.
10.52* Employment Agreement between the Company and Victoria Feaster dated
March 14, 1996.
10.53 Employment Agreement between the Company and David B. Pomeroy, dated
March 12, 1992 (Incorporated herein by reference to Exhibit
10(iii)(a)(1) of Company's Form S-1 filed Feb. 14, 1992).
10.54 First Amendment to Employment Agreement between the Company and David
B. Pomeroy effective July 6, 1993 (Incorporated herein by reference
to Exhibit 10(iii)(a)(2) of Company's Form 10-K filed April 7, 1994).
10.55 Second Amendment to Employment Agreement between the Company and David
B. Pomeroy dated October 14, 1993 (Incorporated herein by reference
to Exhibit 10(iii)(a)(3) of Company's Form 10-K filed April 7, 1994).
10.56 Third Amendment to Employment Agreement between the Company and David
B. Pomeroy dated January 6, 1995 (Incorporated herein by reference to
Exhibit 10(iii)(a)(5) of Company's Form 10-Q filed Nov. 17, 1995).
10.57 Fourth Amendment to Employment Agreement between the Company and David
B. Pomeroy dated March 29, 1996 (incorporated herein by reference to
Exhibit 10(iii)(a)(8) of the Company's Form 10-Q filed May 20, 1996).
10.58 Fifth Amendment to Employment Agreement between the Company and David
B. Pomeroy dated March 29, 1996 (incorporated by reference to Exhibit
10(iii)(a)(9) of Company's 10-Q filed May 20, 1996).
10.59 Agreement between the Company and David B. Pomeroy related to the
personal guarantee of the Datago agreement by David B. Pomeroy and
his spouse effective July 6, 1993 (Incorporated herein by reference
to Exhibit 10(iii)(a)(4) of Company's Form 10-K filed April 7, 1994).
10.60 Supplemental Executive Compensation Agreement between the Company and
David B. Pomeroy, II dated January 6, 1995 (Incorporated herein by
reference to Exhibit 10(iii)(a)(6) of Company's Form 10-Q filed Nov.
17, 1995).
10.61 Employment Agreement between the Company and Edwin S. Weinstein dated
February 13, 1992 (Incorporated herein by reference to Exhibit
10(iii)(c) of Company's Form S-1 filed Feb. 14, 1992).
</TABLE>
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10.62 Collateral Assignment Split Dollar Agreement between the Company;
Edwin S. Weinstein, as Trustee; and David B. Pomeroy, II dated June
28, 1995 (Incorporated herein by reference to Exhibit 10(iii)(a)(7)
of Company's Form 10-Q filed Nov. 17, 1995).
<C> <S>
10.63 Employment Agreement between the Company and Frank D. Friedersdorf
dated July 23, 1991 (Incorporated herein by reference to Exhibit
10(iii)(c)(4) of Company's Form 10-K filed April 7, 1994).
10.64* Employment Agreement between the Company and James Eck dated February
26, 1996, and effective as of September 18, 1995.
10.65 Columbia/HCA Healthcare Corporation Agreement between Columbia/HCA
Information Services, Inc. and the Company dated December 12, 1995
(Incorporated herein by reference to Exhibit 10(i)(bb) of Company's
Form 10-K filed April 4, 1996).
10.66 IBM Agreement for Authorized Dealers and Industry Remarketers with the
Company, dated September 3, 1991 (Incorporated herein by reference to
Exhibit 10(i)(e)(1) of Company's Form S-1 filed Feb. 14, 1992).
10.67 Schedule of Substantially Identical IBM Agreements for Authorized
Dealers and Industry Remarketers (Incorporated herein by reference to
Exhibit 10(i)(e)(2) of Company's Form S-1 filed Feb. 14, 1992).
10.68 Compaq Computer Corporation United States Dealer Agreement with the
Company, dated September 27, 1990 (Incorporated herein by reference
to Exhibit 10(i)(f) of Company's Form S-1 filed Feb. 14, 1992).
10.69 Dealer Sales Agreement between Apple Computer, Inc. and the Company,
dated April 1, 1991 (Incorporated herein by reference to Exhibit
10(i)(g) of Company's Form S-1 filed Feb. 14, 1992).
10.70 Lease between Pomeroy Investments, LLC and the Company for 1020
Petersburg Rd., Hebron, KY, and 1050 Elijah Creek Road, Hebron KY
dated September 5, 1995 (Incorporated herein by reference to Exhibit
10(i)(x) of Company's Form 10-Q filed Nov. 17, 1995).
10.71 Lease between F.G.&H. Partnership and the Company for 908 DuPont
Circle, Louisville, KY, dated May 9, 1990 (Incorporated herein by
reference to Exhibit 10(i)(i) of Company's Form S-1 filed Feb. 14,
1992).
10.72 Lease between New England Mutual Life Insurance Company for 2041
Creative Drive, Lexington, KY dated October 11, 1995 (Incorporated
herein by reference to Exhibit 10(i)(y) of Company's Form 10-Q filed
Nov. 17, 1995).
10.73 Lease between Lincoln National Investment Management and the Company
for Suite 150F in the Terraces on Market Place Blvd., Knoxville, TN
dated September 30, 1992 (Incorporated herein by reference to Exhibit
10(i)(o) of Company's Form 10-K filed March 31, 1993).
10.74 Lease between Athens Properties and the Company for Crosspark Drive,
Knoxville, TN dated October 31, 1995 (Incorporated herein by
reference to Exhibit 10(i)(q) of Company's Form 10-K filed April 4,
1996).
10.75 Lease between Crown Development Group and the Company for 3740 St.
Johns Bluff Road, Suite 19, Jacksonville, FL dated September 17, 1992
(Incorporated herein by reference to Exhibit 10(i)(n) of Company's
Form 10-K filed March 31, 1993).
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10.76 Amendment to Lease between Crown Development Group and the Company for
3740 St. Johns Bluff Road, Suite 19, Jacksonville, FL dated December
11, 1995 (Incorporated herein by reference to Exhibit 10(i)(n) of
Company's Form 10-K filed April 4, 1996).
<C> <S>
10.77 Lease between NWI Airpark L.P. and the Company for 717 Airpark Center
Drive, Nashville, TN dated February 24, 1994 (Incorporated herein by
reference to Exhibit 10(i)(u) of Company's Form 10-K filed April 4,
1995).
10.78 Lease between Gleeson, Inc. and the Company for 115 Wiltshire Avenue,
Louisville, KY dated May 10, 1995 (assigned to the Company effective
October 13, 1995) (Incorporated herein by reference to Exhibit
10(i)(aa) of Company's Form 10-K filed April 4, 1996).
10.79 Lease between House Investments -- Eaton & Lauth Realty Fund No. 1,
L.P. and the Company for 8770 Commerce Park Place, Indianapolis, IN
dated March 29, 1991 (assigned to the Company effective October 13,
1995) (Incorporated herein by reference to Exhibit 10(i)(v) of
Company's Form 10-K filed April 4, 1996).
10.80 Lease between Industrial Developments International, Inc., and the
Company for 1840 Airport Exchange Blvd., Suite 240, Erlanger, KY
dated November 2, 1992 (Incorporated herein by reference to Exhibit
10(i)(k)(1) of Company's Form 10-K filed March 31, 1993).
10.81 Amendment to lease between Industrial Developments International,
Inc., and the Company for 1840 Airport Exchange Blvd., Suite 240,
Erlanger, KY dated December 31, 1992 (Incorporated herein by
reference to Exhibit 10(i)(k)(2) of Company's Form 10-K filed March
31, 1993).
10.82 Lease between Industrial Developments International, Inc., and the
Company for 1850 Airport Exchange Blvd., Suite 600, Erlanger, KY
dated November 2, 1992 (Incorporated herein by reference to Exhibit
10(i)(k)(3) of Company's Form 10-K filed March 31, 1993).
10.83 Amendment to lease between Industrial Developments International,
Inc., and the Company for 1850 Airport Exchange Blvd., Suite 600,
Erlanger, KY dated December 31, 1992 (Incorporated herein by
reference to Exhibit 10(i)(k)(4) of Company's Form 10-K filed March
31, 1993).
10.84 Lease between Robert R. Rockenfield, d/b/a Queensgate Properties and
the Company for 1045 West Eighth Street, Cincinnati, OH dated June
12, 1990 (Incorporated herein by reference to Exhibit 10(i)(j) of
Company's Form S-1 filed Feb. 14, 1992).
10.85 Lease between Sydney A. Warm and the Company for 1021 West Eighth
Street, Cincinnati, OH, dated May 15, 1990 (Incorporated herein by
reference to Exhibit 10(i)(h) of Company's Form S-1 filed Feb. 14,
1992).
10.86* Purchase Agreement between the Company and First of Michigan
Corporation dated March 28, 1996.
10.87* Purchase Agreement between the Company and John C. Donnelly dated
March 28, 1996.
10.88* Purchase Agreement between the Company and Dan B. French, Jr. dated
March 28, 1996.
10.89* Purchase Agreement between the Company and James C. Penman dated March
28, 1996.
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<TABLE>
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NUMBER EXHIBIT
- -------- ----------------------------------------------------------------------
10.90 The Company Savings 401(k) Plan, effective July 1, 1991 (Incorporated
herein by reference to Exhibit 10(iii)(d) of Company's Form S-1 filed
Feb. 14, 1992).
<C> <S>
10.91 The Company's Employee Stock Ownership Plan and Trust, effective July
1, 1992 (Incorporated herein by reference to Exhibit 10(iii)(e) of
Company's Form S-1 filed Feb. 14, 1992).
10.92 The Company's 1992 Non-Qualified and Incentive Stock Option Plan dated
February 13, 1992 (Incorporated herein by reference to Exhibit
10(iii)(f) of Company's Form S-1 filed Feb. 14, 1992).
10.93 The Company's 1992 Outside Directors Stock Option Plan dated February
13, 1992 (Incorporated herein by reference to Exhibit 10(iii)(g) of
Company's Form S-1 filed Feb. 14, 1992).
10.94 Settlement Agreement between Vanstar Corporation, Merisel, Inc.,
Merisel FAB, Inc. and the Company, David Pomeroy and Catherine
Pomeroy dated April 29, 1996 (Incorporated herein by reference to
Exhibit 10(i)(cc) of Company's Form 8-K dated April 30, 1996).
10.95 Stock Pledge Agreement between David B. Pomeroy and Vanstar
Corporation dated April 29, 1996 (Incorporated herein by reference to
Exhibit 10(i)(cc) of Company's Form 8-K dated April 30, 1996).
10.96* Agreement between David B. Pomeroy and the Company dated April 29,
1996.
21 Subsidiaries of the Company (Incorporated herein by reference to
Exhibit 21 of Company's Form 10-K filed April 4, 1996).
23.1* Consent of Grant Thornton LLP
23.2* Consent of Deloitte & Touche LLP -- Cincinnati
23.3* Consent of Deloitte & Touche LLP -- Des Moines
23.4* Consent of Northup Haines Kaduce Schmid Macklin -- West Des Moines
23.5 Consent of Cors & Bassett (contained in the opinion of counsel to be
filed as Exhibit 5 hereto)
24 Power of Attorney (included in Part II of the Registration Statement)
27 Financial Data Schedule
</TABLE>
- ------------------------
* previously filed
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-9
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, in each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-effective Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Cincinnati, State of Ohio, June 11, 1996.
POMEROY COMPUTER RESOURCES, INC.
By: DAVID B. POMEROY, II
-----------------------------------
David B. Pomeroy, II
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Pre-effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------ -------------------------------------------- -----------------
DAVID B. POMEROY, II Chairman of the Board, President and Chief
-------------------------------------- Executive Officer (Principal Executive June 11, 1996
David B. Pomeroy, II Officer)
* Director, Chief Financial Officer, Treasurer
-------------------------------------- and Secretary (Principal Financial and June 11, 1996
Edwin S. Weinstein Accounting Officer)
*
-------------------------------------- Director June 11, 1996
James H. Smith, III
*
-------------------------------------- Director June 11, 1996
David W. Rosenthal
-------------------------------------- Director June , 1996
Michael E. Rohrkemper
</TABLE>
* Attorney-in-fact
II-11
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
1,350,000 Shares
of
Common Stock
UNDERWRITING AGREEMENT
__________, 1996
J. C. BRADFORD & CO.
TUCKER ANTHONY INCORPORATED
As Representatives of the Several Underwriters
c/o J. C. Bradford & Co.
J. C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201
Ladies and Gentlemen:
Pomeroy Computer Resources, Inc., a Delaware corporation (the "Company"),
proposes to sell to the underwriters named in Schedule I hereto (the
"Underwriters") for whom you are acting as the representatives (the
"Representatives") 1,200,000 shares of the common stock, par value $.01 per
share ("Common Stock"), of the Company (the "Company Shares"), and David B.
Pomeroy, II (the "Selling Shareholder") proposes to sell to the Underwriters
150,000 shares of Common Stock (the "Selling Shareholder Shares"). The Company
Shares and the Selling Shareholder Shares are hereinafter referred to as the
"Firm Shares". The Firm Shares are to be sold to the Underwriters, acting
severally and not jointly, in such amounts as are set forth in Schedule I hereto
opposite the name of each Underwriter. The Company also proposes to grant to
the Underwriters an option to purchase up to 202,500 additional shares of Common
Stock as provided for in Section 3 of this Agreement for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
(the "Option Shares"). The Firm Shares and the Option Shares are herein called
the "Shares."
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Underwriter and agrees as follows:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), a registration statement on Form S-1 (Registration No.
333-05149), including the related preliminary prospectus relating to the
Shares, and has filed one or more amendments related thereto. Copies of
such registration statement and any amendments, including any post-
effective amendments, and all forms of the related prospectuses contained
therein and any supplements thereto, have been delivered to you. Such
registration statement, including the prospectus, Part II, all financial
schedules and exhibits thereto, and all information deemed to be a part of
such registration
<PAGE>
statement pursuant to Rule 430A under the Securities Act, as amended, at
the time when it shall become effective (including any registration
statement for the same offering that becomes effective upon filing pursuant
to Rule 462(b) of the Securities Act), is herein referred to as the
"Registration Statement," and the prospectus included as part of the
Registration Statement on file with the Commission that discloses all
the information that was omitted from the prospectus on the effective date
pursuant to Rule 430A of the Rules and Regulations (as defined below) and
in the form filed pursuant to Rule 424(b) (including a Term Sheet (as
defined herein) if the Company relied on Rule 434) under the Securities Act
is herein referred to as the "Final Prospectus." The prospectus included
as part of the Registration Statement on the date when the Registration
Statement became effective (including the information deemed to be a part
of thereof pursuant to Rule 430A and Rule 434, if applicable) is referred
to herein as the "Effective Prospectus." Any prospectus included in the
Registration Statement and in any amendment thereto prior to the effective
date of the Registration Statement is referred to herein as a "Preliminary
Prospectus." For purposes of this Agreement, "Rules and Regulations" mean
the rules and regulations promulgated by the Commission under either the
Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as applicable. "Term Sheet" means any term sheet that
satisfies the requirements of Rule 434 under the Securities Act.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus, at
the time of filing thereof, complied with the requirements of the
Securities Act and the Rules and Regulations, and did not include any
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,
in the light of the circumstances under which they were made, not
misleading; except that the foregoing does not apply to statements or
omissions made in reliance upon and in conformity with written information
furnished to the Company by any Underwriter specifically for use therein
(it being understood that the only information so provided is the
information included in the last paragraph on the cover page, the two
paragraphs relating to stabilization practices on the inside front cover
and under the caption "Underwriting" in the Final Prospectus). When the
Registration Statement becomes effective and at all times subsequent
thereto up to and including the First Closing Date (as hereinafter
defined), (i) the Registration Statement, the Effective Prospectus and
Final Prospectus and any amendments or supplements thereto will contain all
statements which are required to be stated therein in accordance with the
Securities Act, the Exchange Act and the Rules and Regulations and will
comply with the requirements of the Securities Act, the Exchange Act and
the Rules and Regulations, and (ii) neither the Registration Statement, the
Effective Prospectus nor the Final Prospectus nor any amendment or
supplement thereto will include any 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, in light of the circumstances in which they
are made, not misleading; except that the foregoing does not apply to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter
specifically for use therein (it being understood that the only information
so provided is the information included in the last paragraph on the cover
page, the two paragraphs relating to stabilization practices on the inside
front cover and under the caption "Underwriting" in the Final Prospectus).
(c) The Company and each subsidiary of the Company (as used herein,
the term "subsidiary" includes any corporation, joint venture or
partnership in which the Company or any subsidiary of the Company has a ten
percent ownership interest) is duly organized and validly existing and in
good standing under the laws of the respective jurisdictions of their
organization or incorporation, as the case may be, with full corporate
power and authority to own their properties
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<PAGE>
and conduct their businesses as now conducted and are duly qualified or
authorized to do business and are in good standing in all jurisdictions
wherein the nature of their business or the character of property owned or
leased may require them to be qualified or authorized to do business, where
the failure to so qualify would have a material adverse effect on the
Company and its subsidiaries, taken as a whole. The Company and its
subsidiaries hold all licenses, consents and approvals, and have satisfied
all eligibility and other similar requirements imposed by federal and state
regulatory bodies, administrative agencies or other governmental bodies,
agencies or officials, in each case as material to the conduct of the
respective businesses in which they are engaged. Each of the Company's
subsidiaries is set forth on Exhibit 21 to the Registration Statement.
(d) The outstanding stock of each of the Company's corporate
subsidiaries is duly authorized, validly issued, fully paid and
nonassessable. All of the outstanding stock of each of the Company's
corporate subsidiaries is owned by the Company, clear of any lien,
encumbrance, pledge, equity or claim of any kind. No options or warrants
or other rights to purchase, agreements or other obligations to issue or
other rights to convert any obligations into any shares of capital stock or
of ownership interests in any of the Company's subsidiaries are
outstanding. Other than as disclosed in the Effective Prospectus and the
Final Prospectus, neither the Company nor any of its subsidiaries is a
partner or joint venturer in any partnership or joint venture.
(e) The capitalization of the Company is as set forth under the
caption "Capitalization" in the Effective Prospectus and the Final
Prospectus, and the Company's capital stock conforms to the description
thereof contained under the caption "Description of Capital Stock" in the
Effective Prospectus and the Final Prospectus. All the issued shares of
capital stock of the Company have been duly authorized and validly issued,
are fully paid and nonassessable. None of the issued shares of capital
stock of the Company have been issued in violation of any preemptive or
similar rights. The Shares have been duly and validly authorized and, upon
issuance and delivery and payment therefor in the manner herein described,
will be validly issued, fully paid and nonassessable. There are no
preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the transfer of, any shares of Common Stock pursuant to
the Company's Certificate of Incorporation, bylaws or other governing
documents or any agreement or other instrument to which the Company is a
party or by which it may be bound except as described in the Effective
Prospectus and the Final Prospectus and except for restrictions on transfer
imposed under applicable securities laws. Neither the filing of the
Registration Statement nor the offer or sale of the Shares as contemplated
by this Agreement gives rise to any rights for or relating to the
registration of any shares of Common Stock or any other securities of the
Company. The Underwriters will receive good and marketable title to the
Shares to be issued and delivered by the Company hereunder, free and clear
of all liens, encumbrances, claims, security interests, restrictions,
shareholders' agreements and voting trusts whatsoever.
(f) All offers and sales of the Company's securities prior to the
date hereof were at all relevant times either registered under the
Securities Act or exempt from the registration requirements of the
Securities Act and were duly registered or the subject of an available
exemption from the registration requirements of the applicable state
securities or Blue Sky laws.
(g) The Company has full legal right, power and authority to enter
into this Agreement and to sell and deliver the Shares to the Underwriters
as provided herein, and this Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding agreement
of the Company enforceable against the Company in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency
and other laws
-3-
<PAGE>
affecting creditors' rights generally or general principles of equity. No
consent, approval, authorization or order of any court or governmental
agency or body or third party is required for the performance of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except such as have been obtained and
such as may be required by the National Association of Securities Dealers,
Inc. ("NASD") or under the Securities Act, or state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by the
Underwriters. The issue and sale of the Shares by the Company, the
Company's performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in a breach or violation
of, or conflict with, any of the terms and provisions of, or constitute a
default by the Company or any of its subsidiaries under, any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party or to
which the Company or any of its subsidiaries or any of their respective
properties is subject, the Certificate of Incorporation or bylaws of the
Company or any of its subsidiaries or any statute or any judgment, decree,
order, rule or regulation of any court or governmental agency or body
applicable to the Company, or any subsidiary or any of their respective
properties. Neither the Company nor any subsidiary is in violation of its
Articles or Certificate of Incorporation or bylaws or any law,
administrative rule or regulation or arbitrators' or administrative or
court decree, judgment or order or in violation or default (there being no
existing state of facts which with notice or lapse of time or both would
constitute a default) in the performance or observance of any obligation,
agreement, covenant or condition contained in any material contract,
indenture, deed of trust, mortgage, loan agreement, note, lease, agreement
or other instrument or permit to which it is a party or by which it or any
of its properties is or may be bound, which such violation or default could
have a material and adverse effect on the Company and its subsidiaries,
taken as a whole.
(h) The financial statements and the related notes and schedules of
(A) the Company and its consolidated subsidiaries and (B) The Computer
Supply Store, Inc. (the "Acquired Company") included in the Registration
Statement, the Effective Prospectus and the Final Prospectus present fairly
the financial position, results of operations and changes in financial
position and cash flow of the Company and its consolidated subsidiaries and
of the Acquired Company, at the dates and for the periods to which they
relate and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated. The unaudited pro forma financial information of the Company
included in the Registration Statement, the Effective Prospectus and the
Final Prospectus have been prepared in accordance with the Commission's
rules and regulations and guidelines with respect to pro forma financial
statements and the assumptions used in the preparation thereof are, in the
Company's opinion, reasonable and made in good faith. The financial and
statistical data set forth in the Effective Prospectus and the Final
Prospectus under the captions "Prospectus Summary," "Use of Proceeds,"
"Capitalization," "Selected Consolidated Financial and Operating Data,"
"Selected Pro Forma Consolidated Financial and Operating Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Principal and Selling Shareholders," and "Certain
Transactions" present fairly the information set forth therein on the basis
stated in the Effective Prospectus and the Final Prospectus. Grant
Thornton LLP has certified the financial statements of the Company for the
year ended January 5, 1996 and January 5, 1995. Deloitte & Touche LLP has
certified the financial statements of the Company for the year ended
January 5, 1994. Deloitte & Touche LLP has certified the financial
statements of the Acquired Company for the year ended December 31, 1995 and
Northup, Haines, Kaduce, Schmid, Macklin, P.C. has certified the financial
statements of the Acquired Company for the year ended December 31, 1994.
Each of Grant Thornton LLP, Deloitte & Touche LLP and Northup, Haines,
Kaduce, Schmid,
-4-
<PAGE>
Macklin, P.C. is a firm of independent public accountants as required by
the Securities Act and the Rules and Regulations.
(i) Subsequent to January 5, 1996, neither the Company nor any
subsidiary has sustained any material loss or interference with its
business or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, which is not disclosed in
the Effective Prospectus and the Final Prospectus; and subsequent to the
respective dates as of which information is given in the Registration
Statement, the Effective Prospectus and the Final Prospectus, (i) neither
the Company nor any of its subsidiaries has incurred any material
liabilities or obligations, direct or contingent, or entered into any
material transactions not in the ordinary course of business and (ii) there
has not been any (a) change in the capital stock, partnership interests,
joint venture interests, or obligations under capital leases of the Company
and its subsidiaries or (b) material change in the long-term debt or short-
term borrowings of the Company and its subsidiaries or any issuance of
options, warrants or rights to purchase the capital stock of the Company,
or any material adverse change, or any development involving a prospective
material adverse change, in the general affairs, management, business,
prospects, financial position, net worth or results of operations of the
Company and its subsidiaries, taken as a whole, except in each case as
described in or contemplated by the Effective Prospectus and the Final
Prospectus.
(j) Except as described in the Effective Prospectus and the Final
Prospectus or as previously disclosed in writing to you, there is not
pending, or to the knowledge of the Company threatened, any action, suit,
proceeding, inquiry or investigation, to which the Company, any of its
subsidiaries or to their Knowledge any of their officers or directors is a
party, or to which the property of the Company or any subsidiary is
subject, before or brought by any court or governmental agency or body,
wherein an unfavorable decision, ruling or finding could prevent or
materially hinder the consummation of this Agreement or result in a
material adverse change in the business condition (financial or other),
prospects, financial position, net worth or results of operations of the
Company and its subsidiaries, taken as a whole.
(k) There are no contracts or other documents required by the
Securities Act or by the Rules and Regulations to be described in the
Registration Statement, the Effective Prospectus or the Final Prospectus or
to be filed as exhibits to the Registration Statement which have not been
described or filed as required.
(l) Except as described in the Effective Prospectus and the Final
Prospectus, the Company and each of its subsidiaries have good and
marketable title to all real and material personal property owned by them,
free and clear of all material liens, charges, encumbrances or defects,
except those reflected in the financial statements hereinabove described.
The real and personal property and buildings referred to in the Effective
Prospectus and the Final Prospectus which are leased from others by the
Company are held under valid, subsisting and enforceable leases. The
Company or its subsidiaries owns or leases all such properties as are
necessary to its operations as now conducted.
(m) The Company's system of internal accounting controls is
sufficient to meet the objectives of internal accounting control insofar as
those objectives pertain to the prevention or detection of errors or
irregularities in amounts that would be material in relation to the
Company's financial statements. Neither the Company, any of its
subsidiaries, nor any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or any such
-5-
<PAGE>
subsidiary has, directly or indirectly used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; violated any provision
of the Foreign Corrupt Practices Act of 1977, as amended; or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
(n) The Company and its subsidiaries have filed all foreign, federal,
state and material local income and franchise tax returns required to be
filed through the date hereof and have paid all taxes shown as due
therefrom; and there is no tax deficiency, assessment, fine or penalty that
has been, nor does the Company or any subsidiary have knowledge of any tax
deficiency, assessment, fine or penalty which is likely to be, asserted
against the Company or its subsidiaries, which if determined adversely
could materially and adversely affect the earnings, assets, affairs,
business prospects or condition (financial or other) of the Company and its
subsidiaries, taken as a whole.
(o) The Company and its subsidiaries operate their business in each
jurisdiction in which the Company or any of its subsidiaries is doing
business in conformity with all applicable statutes, ordinances, decrees,
orders, rules and regulations of all applicable governmental bodies,
including federal, state and local governing bodies in the United States
and all foreign governments in areas outside of the United States, except
where such failure would have no material adverse effect on the business,
operations, property or business prospects of the Company and its
subsidiaries, taken as a whole. The Company and its subsidiaries have all
licenses, approvals or consents to operate their respective business in all
locations in which such businesses are currently being operated other than
such licenses, approvals or consents the failure to so have obtained would
not have a material adverse effect on the Company or its subsidiaries, and
the Company and its subsidiaries have no knowledge of any existing or
imminent matter other than as specifically disclosed in the Effective
Prospectus and the Final Prospectus which may have a material adverse
effect on the business, operations, property or business prospects of the
Company and its subsidiaries, considered as a whole.
(p) Neither the Company nor any of its subsidiaries have failed to
file with the applicable regulatory authorities any statement, report,
information or form required by any applicable law, regulation or order and
all such filings or submissions were in compliance with applicable laws
when filed and no deficiencies have been asserted by any regulatory
commission, agency or authority with respect to such filings or
submissions, except where such failure would have no material adverse
effect on the business, operations, property or business prospects of the
Company and its subsidiaries, considered as a whole. Neither the Company
nor any of its subsidiaries have failed to maintain in full force and
effect any license or permit necessary or proper for the conduct of its
business, or received any notification that any revocation or limitation
thereof is threatened or pending, and there is not pending any change under
any law, regulation, license or permit which could materially adversely
affect the business, operations, property or business prospects of the
Company and its subsidiaries, taken as a whole. Neither the Company nor
any of its subsidiaries have received any notice of violation of or been
threatened with a charge of violating and, to the Company's knowledge, and
except as previously disclosed in writing to you, are not under
investigation with respect to a possible violation of any provision of any
law, regulation or order.
(q) No labor dispute exists with the Company's employees or with
employees of its subsidiaries or is threatened which could materially
adversely affect the Company and its
-6-
<PAGE>
subsidiaries, taken as a whole. The Company is not aware of any existing
or threatened labor disturbance by its employees or by any employees of its
subsidiaries which could be expected to materially adversely effect the
condition (financial or otherwise), results of operations, properties,
affairs, management, business affairs or business prospects of the Company
and its subsidiaries, taken as a whole.
(r) Except as disclosed in the Effective Prospectus and the Final
Prospectus, the Company and its subsidiaries own or possess, or can acquire
on reasonable terms, the licenses, copyrights, trademarks, service marks,
trade names, patents and proprietary and other confidential information
presently employed by them in connection with the businesses now operated
by them, and, neither the Company nor any of its subsidiaries have received
any notice of infringement of or conflict with asserted rights of others
with respect to any of the foregoing which, alone or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would result in
any material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and its
subsidiaries, taken as a whole.
(s) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; and neither the Company nor any such subsidiary has any reason
to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business at a
comparable cost.
(t) Other than as set forth in the Company's bank loan agreement, no
subsidiary of the Company is currently prohibited, directly or indirectly,
from paying any dividends to the Company, from making any other
distributions on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary or from transferring any
of such subsidiary's property or assets to the Company or any other
subsidiary of the Company.
(u) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment company"
or a company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(v) Neither the Company nor any of its subsidiaries, nor any of the
directors, officers, employees or agents of the Company and its
subsidiaries have taken and will not take, directly or indirectly, any
action designed to cause or result in, or which has constituted or which
might be expected to constitute, stabilization or manipulation of the price
of the Common Stock.
(w) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act, and is qualified as a Nasdaq National Market security of The
Nasdaq Stock Market, Inc. The Company has taken no action designed to
terminate, or likely to have the effect of terminating, the registration of
the Common Stock under the Exchange Act or qualification of the Common
Stock on the Nasdaq National Market, nor has the Company received any
notification that the Commission or the NASD is contemplating terminating
such registration or qualification.
(x) Neither the Company nor any of its subsidiaries is in violation
of any federal or state law or regulation relating to occupational safety
and health and the Company and its subsidiaries have received all permits,
licenses or other approvals required of them under
-7-
<PAGE>
applicable federal and state laws and regulations to conduct their
respective businesses, and the Company and each such subsidiary is in
compliance with all terms and conditions of any such permit, license or
approval, except any such violation of law or regulation, failure to
receive required permits, licenses or other approvals or failure to comply
with the terms and conditions of such permits, licenses or approvals which
would not, singly or in the aggregate, result in a material and adverse
effect on the earnings, assets, affairs, business prospects or condition
(financial or otherwise) of the Company and its subsidiaries, taken as a
whole.
(y) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
(z) Except where such failure to comply or violation would not,
singly or in the aggregate have a material adverse effect on the earnings,
assets, affairs, business prospects or condition (financial or otherwise)
of the Company and its subsidiaries, taken as a whole, (i) the Company has
complied with the Immigration Reform and Control Act of 1986 and all
regulations promulgated thereunder ("IRCA") with respect to the completion
and maintenance of Forms I-9, Employment Eligibility Verification Forms,
for all of its current employees and reverification of the employment
status of any and all employees whose employment authorization documents
indicated a limited period of employment authorization; (ii) with respect
to all former employees who left the Company's employment within three
years prior to the date hereof, the Company has complied with IRCA with
respect to the maintenance of Forms I-9 for at least three years or for one
year beyond the date of termination, whichever is later; (iii) the Company
has not violated any applicable laws relating to immigration and has
employed only individuals authorized to work in the United States and has
never been the subject of any inspection or investigation relating to its
compliance with or violation of IRCA; and (iv) the Company has not been
warned, fined or otherwise penalized by reason or any failure to comply
with IRCA, and no such proceeding is pending or threatened.
(aa) Each of the reports and registration statements filed by the
Company with the Commission under the Securities Act or the Exchange Act,
when they became effective or were filed with the Commission, as the case
may be, conformed in all material respects to the requirements of the
Securities Act or the Exchange Act and the Rules and Regulations, and none
of such documents 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.
(bb) The Company has not distributed and, prior to the later of (i)
the First Closing Date and (ii) the completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Final Prospectus
or any amendment or supplement thereto, or other materials, if any,
permitted by the Securities Act.
(cc) At the time the Registration Statement became effective (A) it
did 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 and (B) the Effective Prospectus and
Final Prospectus did not and will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
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<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER. The
Selling Shareholder represents and warrants to each Underwriter and agrees as
follows:
(a) The Selling Shareholder has good and marketable title to the
Selling Shareholder Shares to be sold by the Selling Shareholder, free and
clear of any liens, encumbrances, equities and claims (other than as
imposed by the Securities Act or this Agreement), and full right, power and
authority to effect the sale and delivery of the Selling Shareholder
Shares; and upon the delivery of and payment for the Selling Shareholder
Shares pursuant to this Agreement, good and marketable title to the Selling
Shareholder Shares, free and clear of any liens, encumbrances, equities,
claims, security interests, restrictions, shareholder agreements or voting
trusts, will be transferred to the Underwriters.
(b) The Selling Shareholder has duly executed and delivered the
Custody Agreement in the form previously delivered to the Representatives,
appointing [Cors & Bassett] as the duly authorized custodian (the
"Custodian") of the Selling Shareholder Shares. Shares of Common Stock, in
suitable form for transfer, representing the Selling Shareholder Shares to
be sold by the Selling Shareholder hereunder have been deposited with the
Custodian pursuant to the Custody Agreement for the purpose of delivery
pursuant to this Agreement. The Selling Shareholder agrees that the
Selling Shareholder Shares on deposit with the Custodian are subject to the
interest of the Underwriters hereunder, that the arrangements made for such
custody are to that extent irrevocable, and that the obligations of the
Selling Shareholder hereunder shall not be terminated except as provided in
this Agreement and the Custody Agreement. If the Selling Shareholder
should die or become incapacitated, or if any other event should occur,
before the delivery of the Shares of the Selling Shareholder hereunder, the
Selling Shareholder Shares deposited with the Custodian shall be delivered
by the Custodian in accordance with the terms and conditions of this
Agreement as if such death, incapacity, or other event had not occurred,
regardless of whether or not the Custodian shall have received notice
thereof.
(c) The Selling Shareholder has duly executed and delivered this
Agreement. This Agreement constitutes a legal, valid and binding
obligation of the Selling Shareholder, enforceable against the Selling
Shareholder in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency and other laws affecting creditors'
rights generally or general principles of equity. All authorizations and
consents necessary for the execution and delivery of this Agreement and the
Custody Agreement on behalf of the Selling Shareholder and for the sale and
delivery of the Selling Shareholder Shares to be sold by the Selling
Shareholder hereunder has been given. The Selling Shareholder has the
legal capacity and full right, power and authority to execute this
Agreement and the Custody Agreement.
(d) The performance of this Agreement and the Custody Agreement and
the consummation of the transactions contemplated hereby and thereby by the
Selling Shareholder will not result in a breach or violation of, or
conflict with, any of the terms or provisions of, or constitute a default
by the Selling Shareholder under, any indenture, mortgage, deed of trust,
trust (constructive or other), loan agreement, lease, franchise, license or
other agreement or instrument to which the Selling Shareholder or any of
the Selling Shareholder's properties is bound, any statute, or any
judgment, decree, order, rule or regulation of any court or governmental
agency or body applicable to the Selling Shareholder or any of the Selling
Shareholder's properties.
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<PAGE>
(e) The Selling Shareholder has not taken and will not take, directly
or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the price
of the Common Stock. The Selling Shareholder has not distributed nor will
distribute any prospectus or other offering material in connection with the
offer and sale of the Shares other than any Preliminary Prospectus or the
Final Prospectus or other material permitted by the Securities Act.
(f) For a period of 180 days from the effective date of the
Registration Statement, the Selling Shareholder agrees that the Selling
Shareholder will not, directly or indirectly, sell, offer to sell, grant
any option for the sale of, or otherwise dispose of any shares of Common
Stock, or any warrant or other security convertible or exchangeable into or
giving the holder thereof the right to acquire Common Stock, without the
prior written consent of the Representatives.
(g) The representations and warranties of the Company in Section 1 of
this Agreement are true and correct. The Selling Shareholder has reviewed
and is familiar with the Registration Statement as originally filed with
the Commission, and as amended, and the Preliminary Prospectus. There are
no facts, conditions or information not disclosed in such Preliminary
Prospectus that have materially adversely affected or could materially
adversely affect the business, financial position, net worth or results of
operations, or could materially adversely affect the properties or assets
of the Company and its subsidiaries, taken as a whole. The Preliminary
Prospectus does not include an 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 Selling Shareholder represents that it was not prompted to
sell the Selling Shareholder Shares by any information concerning the
Company or any subsidiary that is not set forth in the Preliminary
Prospectus, the Effective Prospectus, or the Final Prospectus.
(h) At the time the Registration Statement became effective (A) such
parts of the Registration Statement and any amendments and supplements
thereto as specifically refer to the Selling Shareholder did 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 and (B) such parts of the Effective Prospectus and Final
Prospectus as specifically refer to the Selling Shareholder did not and
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(i) Any certificate signed by or on behalf of the Selling Shareholder
as such and delivered to the Representatives or to counsel for the
Representatives shall be deemed a representation and warranty by the
Selling Shareholder to each Underwriter as to the matters covered thereby.
(j) In order to document each Underwriter's compliance with its
reporting and withholding obligations or responsibilities with respect to
the transactions herein contemplated, the Selling Shareholder agrees to
deliver to you prior to or at the First Closing Date (as defined below) a
properly completed and executed United States Treasury Department Form W-9
(or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
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<PAGE>
3. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein
set forth, the Company and the Selling Shareholder agree severally and not
jointly to sell to each of the Underwriters, and each of the Underwriters,
severally and not jointly, agrees to purchase at a purchase price of
$______ per share, the number of Firm Shares set forth opposite such
Underwriter's name in Schedule I hereto.
(b) The Company also grants to the Underwriters an option to
purchase, solely for the purpose of covering over-allotments in connection
with the distribution and sale of the Firm Shares, all or any portion of
the Option Shares at the purchase price per share set forth above. The
option granted hereby may be exercised as to all or any part of the Option
Shares at any time within 30 days after the date the Registration Statement
becomes effective (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock
Exchange is open for trading). The Underwriters shall not be under any
obligation to purchase any Option Shares prior to the exercise of such
option. The option granted hereby may be exercised by the Underwriters by
the Representatives giving written notice or by telephone (confirmed in
writing) to the Company setting forth the number of Option Shares to be
purchased and the date and time for delivery of and payment for such Option
Shares and stating that the Option Shares referred to in such notice are to
be used for the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares. If such notice is given prior to
the First Closing Date (as defined herein), the date set forth therein for
such delivery and payment shall not be earlier than two full business days
thereafter or the First Closing Date, whichever occurs later. If such
notice is given on or after the First Closing Date, the date set forth
therein for such delivery and payment shall not be earlier than three full
business days thereafter. In either event, the date so set forth shall not
be more than 10 full business days after the date of such notice. The date
and time set forth in such notice is herein called the "Second Closing
Date." Upon exercise of the option, the Company shall become obligated to
sell to the Underwriters, and, subject to the terms and conditions herein
set forth, the Underwriters shall become obligated to purchase, for the
account of each Underwriter, from the Company the number of Option Shares
specified in such notice. Option Shares shall be purchased for the
accounts of the Underwriters in proportion to the number of Firm Shares set
forth opposite such Underwriter's name in Schedule I hereto, except that
the respective purchase obligations of each Underwriter shall be adjusted
so that no Underwriter shall be obligated to purchase fractional Option
Shares.
(c) Certificates in definitive form for the Firm Shares which each
Underwriter has agreed to purchase hereunder shall be delivered by or on
behalf of the Company and the Selling Shareholder to the Underwriters for
the account of such Underwriter against payment by such Underwriter or on
its behalf of the purchase price therefor by certified or official bank
check payable in New York Clearing House (next day) funds, to the order of
the Company or the Selling Shareholder, as the case may be, at the offices
of J. C. Bradford & Co. ("Bradford"), 330 Commerce Street, Nashville,
Tennessee 37201, or at such other place as may be agreed upon by Bradford,
the Company and the Selling Shareholder, at 10:00 A.M., Nashville,
Tennessee time, on the third (or if the Firm Shares are priced, as
contemplated by rule 15c6-1(c), promulgated pursuant to the Exchange Act,
after 4:30 P.M., Washington, D.C. time, the fourth) full business day after
this Agreement becomes effective, or at such other time thereafter as the
Representatives, the Company and the Selling Shareholder may mutually
determine, such time of delivery against payment being herein referred to
as the "First Closing Date." The First Closing Date and the Second Closing
Date are herein individually referred to as the "Closing Date" and
collectively
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<PAGE>
referred to as the "Closing Dates." Certificates in definitive form for
the Option Shares which each Underwriter shall have agreed to purchase
hereunder shall be similarly delivered by or on behalf of the Company on
the Second Closing Date. The certificates in definitive form for the
Shares to be delivered will be in good delivery form and in such
denominations and registered in such names as Bradford may request not less
than 48 hours prior to the First Closing Date or the Second Closing Date,
as the case may be. Such certificates will be made available for checking
and packaging at a location as may be designated by you, at least 24 hours
prior to the First Closing Date or the Second Closing Date, as the case may
be. It is understood that you may (but shall not be obligated to) make
payment on behalf of any Underwriter or Underwriters for the Shares to be
purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their
obligations hereunder.
4. OFFERING BY THE UNDERWRITERS. After the Registration Statement
becomes effective, the several Underwriters propose to offer for sale to the
public the Firm Shares and any Option Shares which may be sold at the price and
upon the terms set forth in the Final Prospectus.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
of the Underwriters that:
(a) The Company shall comply with the provisions of and make all
requisite filings with the Commission pursuant to Rules 424, 430A and 434,
if relied upon by the Company, of the Rules and Regulations and to notify
you promptly (in writing, if requested) of all such filings. The Company
shall notify you promptly of any request by the Commission for any
amendment of or supplement to the Registration Statement, the Effective
Prospectus or the Final Prospectus or for additional information; the
Company shall prepare and file with the Commission, promptly upon your
request, any amendments of or supplements to the Registration Statement,
the Effective Prospectus or the Final Prospectus which, in your reasonable
opinion, may be necessary or advisable in connection with the distribution
of the Shares; and the Company shall not file any amendment of or
supplement (including any Term Sheet) to the Registration Statement, the
Effective Prospectus or the Final Prospectus to which you reasonably object
after reasonable notice thereof. The Company shall advise you promptly
after it receives notice by the Commission or any jurisdiction or other
regulatory body of any stop order or other order suspending the
effectiveness of the Registration Statement, suspending or preventing the
use of any Preliminary Prospectus, the Effective Prospectus or the Final
Prospectus or suspending the qualification of the Shares for offering or
sale in any jurisdiction, or of the institution of any proceedings for any
such purpose; and the Company shall use its reasonable best efforts to
prevent the issuance of any stop order or other such order and, should a
stop order or other such order be issued, to obtain as soon as possible the
lifting thereof.
(b) The Company will take or cause to be taken all necessary action
and furnish to whomever you direct such information as may be reasonably
required in qualifying the Shares for offer and sale under the securities
or Blue Sky laws of such jurisdictions as the Underwriters may designate
and will continue such qualifications in effect for as long as may be
reasonably necessary to complete the distribution and for a period of not
less than one year after the Effective Date; provided, that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction in which the Company is not currently so subject.
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<PAGE>
(c) Within the time during which a Final Prospectus relating to the
Shares is required to be delivered under the Securities Act, the Company
shall comply with all requirements imposed upon it by the Securities Act,
as now and hereafter amended, and by the Rules and Regulations, as from
time to time in force, so far as is necessary to permit the continuance of
sales of or dealings in the Shares as contemplated by the provisions hereof
and the Final Prospectus. If during such period any event occurs as a
result of which the Final Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances then existing, not misleading, or if during such period it is
necessary to amend the Registration Statement or supplement the Final
Prospectus to comply with the Securities Act, the Company shall promptly
notify you and shall amend the Registration Statement or supplement the
Final Prospectus (at the expense of the Company) so as to correct such
statement or omission or effect such compliance.
(d) The Company will furnish without charge to the Representatives
copies of the Registration Statement (two of which shall be signed and
shall be accompanied by all exhibits thereto) and will furnish, without
charge to the Representatives, each Underwriter and to any dealer in
securities, each Preliminary Prospectus, the Effective Prospectus and the
Final Prospectus, and all amendments and supplements thereto, including any
prospectus or supplement prepared after the effective date of the
Registration Statement, in each case as soon as available and in such
quantities as the Underwriters may reasonably request.
(e) The Company will (i) deliver to you at such office or offices as
you may designate as many copies of the Preliminary Prospectus and Final
Prospectus as you may reasonably request, and (ii) for a period of not more
than one month after the Registration Statement becomes effective or such
longer period that a Final Prospectus relating to the Shares is required to
be delivered under the Securities Act, send to the Underwriters as many
additional copies of the Final Prospectus and any supplement thereto as you
may reasonably request.
(f) The Company shall make generally available to its security
holders, in the manner contemplated by Rule 158(b) under the Securities Act
as promptly as practicable and in any event no later than 45 days after the
end of its fiscal quarter in which the first anniversary of the effective
date of the Registration Statement occurs, an earnings statement satisfying
the provisions of Section 11 (a) of the Securities Act covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement.
(g) The Company will apply the net proceeds from the sale of the
Shares as set forth under the caption "Use of Proceeds" in the Final
Prospectus.
(h) During a period of five years from the effective date of the
Registration Statement, the Company will furnish to the Representatives,
without charge, copies of all reports and other communications (financial
or other) furnished by the Company to its shareholders and, as soon as
available, copies of any reports or financial statements furnished or filed
by the Company to or with the Commission or any national securities
exchange or over-the-counter market on which any class of securities of the
Company may be listed or traded and such additional information concerning
the business and financial condition of the Company and its subsidiaries as
you from time to time may reasonably request.
(i) The Company will, from time to time, after the effective date of
the Registration Statement file with the Commission such reports as are
required by the Securities Act, the
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<PAGE>
Exchange Act and the Rules and Regulations, and shall also file with state
securities commissions in states where the Shares have been sold by you (as
you shall have advised us in writing) such reports as are required to be
filed by the securities acts and the regulations of those states.
(j) Except pursuant to this Agreement or with your written consent,
the Company will not, and the Company has provided agreements executed by
each of the Company's executive officers and directors providing that none
of them will, for a period of 180 days from the effective date of the
Registration Statement, offer for sale, sell, grant any options, rights or
warrants with respect to any shares of Common Stock, securities convertible
into Common Stock or any other capital stock of the Company, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or such
other securities or capital stock, except for (i) the grant of options
pursuant to the Company's stock option plans or other stock bonus plans in
the ordinary course consistent with past practice; or (ii) the issuance of
shares of Common Stock or other securities convertible into Common Stock or
any other capital stock of the Company solely to the owners of capital
stock of any company acquired by the Company.
(k) If at any time during the 30-day period after the date the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which, in
your reasonable opinion, the market price for the Shares has been or is
likely to be materially adversely affected (regardless of whether such
rumor, publication or event necessitates a supplement to or amendment of
the Final Prospectus), after written notice from you advising the Company
to the effect set forth above, the Company agrees forthwith to prepare,
consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you,
responding to or commenting on such rumor, publication or event; provided,
however, that the Company shall have no obligation under this Section 5(k)
to disseminate a public statement or press release or make any other
communication if, in the Company's judgment, such communication may have an
adverse effect on any pending acquisition negotiation in which the Company
may then be engaged.
(l) Neither the Company nor any of its officers, directors or
affiliates will take, directly or indirectly, any action designed to cause
or result in, or which might constitute or be expected to constitute,
stabilization or manipulation of the price of the Common Stock.
(m) The Company will cause the Shares to be listed on the Nasdaq
Stock Market at each Closing Date and will use its reasonable best efforts
to cause the Shares to be so listed for at least one year from the date
hereof.
6. EXPENSES. The Company and the Selling Shareholder agree with the
Underwriters that (a) whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is terminated,
the Company will pay all fees and expenses incident to the performance of the
obligations of the Company and the Selling Shareholder, including, but not
limited to, (i) the Commission's registration fee, (ii) the expenses of printing
(or reproducing) and distributing the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto), each
Preliminary Prospectus, the Effective Prospectus, the Final Prospectus, any
amendments or supplements thereto, and this Agreement and other underwriting
documents, including Underwriter's Questionnaires, Underwriter's Powers of
Attorney, Blue Sky Memoranda, Agreements Among Underwriters and Selected Dealer
Agreements, (iii) fees and expenses of accountants and counsel for the Company
and the Selling Shareholder, (iv) reasonable expenses of registration or
qualification of the
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<PAGE>
Shares under state Blue Sky and securities laws, including the fees and
disbursements of counsel to the Underwriters in connection therewith, provided,
such counsel fees shall not exceed $7,500, (v) filing fees paid or incurred by
the Underwriters and related fees and expenses of counsel to the Underwriters in
connection with filings with the NASD, provided, such counsel fees shall not
exceed $5,000, (vi) expenses of listing the Shares on the Nasdaq National
Market, (vii) any expenses for travel, lodging and meals incurred by the Company
in connection with marketing, dealer and other meetings attended by the Company
and the Underwriters in marketing the Shares, (viii) the costs and charges of
the Company's transfer agent and registrar and the cost of preparing the
certificates for the Shares and (ix) all other costs and expenses incident to
the performance of its obligations hereunder not otherwise provided for in this
Section; and (b) all reasonable out-of-pocket expenses, including counsel fees,
disbursements and expenses, incurred by the Underwriters in connection with
investigating, preparing to market and marketing the Shares and proposing to
purchase and purchasing the Shares under this Agreement, will be borne and paid
by the Company only if the sale of the Shares provided for herein is not
consummated by reason of the termination of this Agreement by the
Representatives pursuant to Sections 10 or 13(iv) or pursuant to Section 13(ii)
because of any failure or refusal on the part of the Company or the Selling
Shareholder to comply in all material respects with any term or fulfill in all
material respects any of the conditions of this Agreement. The Company and the
Selling Shareholder have agreed between themselves with regard to the sharing of
fees and expenses. It is understood, however, that, except as provided in this
Section 6 and Sections 8, 9 and 10, the Underwriters will pay all of their own
costs and expenses, including the fees of their counsel and any advertising
expenses in connection with any offers they may make.
7. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The respective
obligations of the Underwriters hereunder shall be subject, in their discretion,
to the accuracy of the representations and warranties of the Company and the
Selling Shareholder herein as of the date hereof and as of the Closing Date as
if made on and as of the Closing Date, to the accuracy of the statements of the
Company's officers made pursuant to the provisions hereof, to the performance by
the Company and the Selling Shareholder of all of their covenants and agreements
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective not later than 4:00 P.M., Washington,
D.C. time, on the day following the date of this Agreement, or such later
time and date as shall have been consented to by the Representatives and
all filings required by Rule 424, Rule 430A and Rule 434, if applicable, of
the Rules and Regulations shall have been made; no stop order suspending
the effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted or threatened
or, to the knowledge of the Company or the Underwriters, shall be
contemplated by the Commission; any request of the Commission for
additional information (to be included in the Registration Statement or the
Final Prospectus or otherwise) shall have been complied with to your
reasonable satisfaction; and the NASD, upon review of the terms of the
public offering of the Shares, shall not have objected to such offering or
the terms or the Underwriters' participation in the same.
(b) No Underwriter shall have advised the Company that the
Registration Statement, Preliminary Prospectus, the Effective Prospectus or
Final Prospectus, or any amendment or any supplement thereto, contains an
untrue statement of fact which, in your good faith judgment, is material,
or omits to state a fact which, in your good faith judgment, is material
and is required to be stated therein or necessary to make the statements
therein not misleading.
(c) The Representatives shall have received (i) an opinion, dated the
First Closing Date, from Cors & Bassett, counsel for the Company and the
Selling Shareholder, substantially in
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the form and substance attached hereto as EXHIBIT A, and reasonably
acceptable to the Underwriters and (ii) an opinion dated the First Closing
Date, from Lindhorst & Dreidame, counsel to the Company and the Selling
Shareholder, substantially in the form and substance attached hereto as
EXHIBIT B and reasonably acceptable to the Underwriters.
(d) The Underwriters shall have received an opinion or opinions,
dated the Closing Date, of Alston & Bird, counsel for the Underwriters,
with respect to the Registration Statement and the Final Prospectus, and
such other related matters as the Underwriters may reasonably require.
(e) The Representatives shall have received from each of Grant
Thornton LLP, Deloitte & Touche LLP and Northup, Haines, Kaduce, Schmid,
Macklin, P.C., a letter dated the date hereof and, at the Closing Date, a
second letter dated the Closing Date in form and in substance reasonably
satisfactory to the Representatives, stating that they are independent
public accountants with respect to the Company and its subsidiaries or the
Acquired Company, as the case may be, within the meaning of the Securities
Act and the applicable Rules and Regulations, and to the effect that:
(i) In their opinion, the consolidated financial statements and
schedules examined by them and included in the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the published Rules
and Regulations and are presented in accordance with generally
accepted accounting principles consistently applied; and they have
made a review in accordance with standards established by the American
Institute of Certified Public Accountants of the consolidated interim
financial statements, selected financial data, and/or condensed
financial statements derived from audited financial statements of the
Company;
(ii) The unaudited summary and selected financial information
included in the Preliminary Prospectus and the Final Prospectus under
the captions "Prospectus Summary," "Summary Financial and Operating
Data," "Selected Consolidated Financial and Operating Data," and
"Selected Pro Forma Consolidated Financial and Operating Data" agrees
with the corresponding amounts in the audited financial statements
included in the Final Prospectus or previously reported on by them;
(iii) On the basis of a reading of the latest available
interim consolidated financial statements (unaudited) of the Company
and its subsidiaries, a reading of the minute books of the Company and
its subsidiaries, inquiries of officials of the Company responsible
for financial and accounting matters and other specified procedures,
all of which have been agreed to by the Representatives, nothing came
to their attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statement do not comply as to form in all material
respects with the accounting requirements of the federal
securities laws and the related published rules and regulations
thereunder or are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent
with the basis for the audited financial statements contained in
the Registration Statement;
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<PAGE>
(B) any other unaudited financial statement data included
in the Final Prospectus do not agree with the corresponding items
in the unaudited consolidated financial statements from which
data was derived and any such unaudited data were not determined
on a basis substantially consistent with the basis for the
corresponding amounts in the audited financial statements
included in the Prospectus;
(C) at a specified date not more than three days prior to
the date of delivery of such respective letter, there was any
change in the consolidated capital stock, decline in
stockholders' equity or increase in long-term debt of the Company
and its subsidiaries, or other items specified by the
Underwriters in each case as compared with amounts shown in the
latest balance sheets included in the Final Prospectus, except in
each case for changes, decreases or increases which the Final
Prospectus discloses have occurred or may occur or which are
described in such letters; and
(D) for the period from the closing date of the latest
consolidated statements of income included in the Effective
Prospectus and the Final Prospectus to a specified date not more
than three days prior to the date of delivery of such respective
letter, there were any decreases in total revenues or net income
of the Company, or other items specified by the Underwriters, or
any increases in any items specified by the Underwriters, in each
case as compared with the corresponding period of the preceding
year, except in each case for decreases which the Final
Prospectus discloses have occurred or may occur or which are
described in such letter.
(iv) On the basis of (A) a reading of the unaudited pro forma
condensed consolidated balance sheets as of January 5, 1996 and April
5, 1996, and the unaudited pro forma condensed consolidated statements
of income for the year ended January 5, 1996, and the three-month
period ended April 5, 1996, included in the Registration Statement,
(B) inquiries of certain officials of the Company and of the Acquired
Company, and (C) the proof of the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in
the unaudited pro forma condensed consolidated financial statements,
nothing came to their attention that caused them to believe that the
unaudited pro forma condensed consolidated financial statements
included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of Rule
11-02 of Regulation S-X and that the pro forma adjustment have not
been properly applied to the historical amounts in the compilation of
those statements.
(v) They have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages
and financial information specified by you which are derived from the
general accounting records of the Company and its subsidiaries and the
Acquired Company, as the case may be, which appear in the Effective
Prospectus and the Final Prospectus and have compared and agreed such
amounts, percentages financial information with the accounting records
of the Company and its subsidiaries and the Acquired Company, as the
case may be or to analyses and schedules prepared by the Company and
its subsidiaries and the Acquired Company, as the case may be from its
detailed accounting records.
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In the event that the letters to be delivered referred to above set
forth any such changes, decreases or increases, it shall be a further
condition to the obligations of the Underwriters that the Underwriters
shall have determined, after discussions with officers of the Company
responsible for financial and accounting matters and with Grant Thornton
LLP, Deloitte & Touche LLP and Northup, Haines, Kaduce, Schmid, Macklin,
P.C., that such changes, decreases or increases as are set forth in such
letters do not reflect a material adverse change in the stockholders'
equity or long-term debt of the Company as compared with the amounts shown
in the latest consolidated balance sheets of the Company included in the
Final Prospectus, or a material adverse change in total revenues or net
income, of the Company, in each case as compared with the corresponding
period of the prior year.
(f) There shall have been furnished to you a certificate, dated as of
the Closing Date and addressed to you, signed by the Chief Executive
Officer and by the Chief Financial Officer of the Company to the effect
that:
(i) the representations and warranties of the Company in Section
1 of this Agreement are true and correct, as if made at and as of the
Closing Date, and 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 the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been initiated or are pending, or to their knowledge,
threatened under the Securities Act;
(iii) all filings required by Rule 424 and Rule 430A of the Rules
and Regulations have been made;
(iv) they have carefully examined the Registration Statement, the
Effective Prospectus and the Final Prospectus, and any amendments or
supplements thereto, and such documents do not include any 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
(v) since the effective date of the Registration Statement,
there has occurred no event required to be set forth in an amendment
or supplement to the Registration Statement, the Effective Prospectus
or the Final Prospectus which has not been so set forth.
(g) The representations and warranties of the Selling Shareholder
shall be true and correct as if made at and as of the Closing Date and the
Selling Shareholder shall deliver to you a certificate to that effect,
dated the Closing Date, signed by Selling Shareholder.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Final Prospectus, and except as
stated therein, the Company and its subsidiaries have not sustained any
material loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other calamity, whether
or not covered by insurance, or from any labor dispute or any court or
governmental action, order or decree, or become a party to or the subject
of any litigation which is material to the Company and its
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subsidiaries, taken as a whole, nor shall there have been any material
adverse change, or any development involving a prospective material adverse
change, in the business, properties, key personnel, capitalization, net
worth, results of operations or condition (financial or other) of the
Company and its subsidiaries, taken as a whole, which loss, interference,
litigation or change, in your reasonable judgment shall render it
inadvisable to commence or continue the offering of the Shares at the
offering price to the public set forth on the cover page of the Prospectus
or to proceed with the delivery of the Shares.
(i) The Shares shall have been listed on the Nasdaq National Market.
(j) You shall have been furnished such additional documents and
certificates as you may reasonably request.
The Company and the Selling Shareholder shall furnish to the
Representatives such conformed copies of such opinions, certificates, letters
and documents in such quantities as the Representatives shall reasonably
request.
The respective obligations of the Underwriters to purchase and pay for the
Option Shares shall be subject, in their discretion, to each of the foregoing
conditions to purchase the Firm Shares, except that all references to the
"Closing Date" shall be deemed to refer to the Second Closing Date, if it shall
be a date other than the Closing Date.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, and each person, if any, who controls any Underwriter within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based in whole or in part upon (i) any inaccuracy in
the representations and warranties of the Company and the Selling
Shareholder contained herein, (ii) any failure of the Company or the
Selling Shareholder to perform their obligations hereunder or under law,
(iii) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Effective Prospectus or Final Prospectus, or any amendment or supplement
thereto, any audio or visual materials supplied by the Company and used in
connection with the marketing of the Shares, including without limitation,
slides, videos, films and tape recordings; or in any Blue Sky application
or other written information furnished by the Company filed in any state or
other jurisdiction in order to qualify any or all of the Shares under the
securities laws thereof (a "Blue Sky Application"), or (iv) the omission or
alleged omission to state in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus or any amendment
or supplement thereto or any Blue Sky Application a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action as such
expenses are incurred; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon (i) any untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, the Preliminary Prospectus, the Effective
Prospectus or Final Prospectus or such amendment or such supplement in
reliance upon
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and in conformity with written information furnished to the Company by any
Underwriter specifically for use therein (it being understood that the only
information so provided is the information included in the last paragraph
on the cover page, the two paragraphs relating to stabilization practices
on the inside front cover and under the caption "Underwriting" in any
Preliminary Prospectus and the Final Prospectus and the Effective
Prospectus) or (ii) the failure of the Underwriters to deliver the Final
Prospectus after the effective date, as required under Section 4(3) of the
Securities Act and Rule 174 thereunder (provided, that such failure to
deliver was not the result of the failure of the Company to timely supply
sufficient quantities of the Final Prospectus to the Underwriters upon the
Underwriter's reasonable request).
(b) The Selling Shareholder agrees to indemnify and hold harmless
each Underwriter, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based in whole or in part
upon (i) any inaccuracy in the representations and warranties of the
Selling Shareholder contained herein, (ii) any failure of the Selling
Shareholder to perform his obligations hereunder or under law, (iii) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application or (iv) the omission or alleged omission to
state in the Registration Statement, any Preliminary Prospectus, the
Effective Prospectus or Final Prospectus or any amendment or supplement
thereto or any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter and each such controlling person for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action as such expenses are incurred.
The Selling Shareholder will not be liable in any such case to the extent
that any such loss, claim, damage, or liability arises out of or is based
upon (i) any untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, the Preliminary
Prospectus, the Effective Prospectus or Final Prospectus or such amendment
or such supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter specifically for
use therein (it being understood that the only information so provided is
the information included in the last paragraph on the cover page, the two
paragraphs relating to stabilization practices on the inside front cover
and under the caption "Underwriting" in any Preliminary Prospectus and the
Final Prospectus and the Effective Prospectus), or (ii) the failure of the
Underwriters to deliver the Final Prospectus after the effective date, as
required under Section 4(3) of the Securities Act and Rule 174 thereunder
(provided, that if such failure to deliver was the result of the failure of
the Company to timely supply sufficient quantities of the Final Prospectus
to the Underwriters upon the Underwriter's reasonable request, then the
Company shall indemnify the Underwriters and other persons set forth in
this Section 8(b) with respect to any associated losses, claims, damages or
liabilities pursuant to Section 8(a) above).
(c) Neither the Company nor the Selling Shareholder will, without
prior written consent of each Underwriter, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding (or related cause of action or portion thereof) in
respect of which indemnification may be sought hereunder (whether or not
such Underwriter is a party to such claim, action, suit or proceeding),
unless such settlement,
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compromise or consent includes an unconditional release of such Underwriter
from all liability arising out of such claim, action, suit or proceeding
(or related cause of action or portion thereof).
(d) Each Underwriter will 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 and the Selling Shareholder against any
losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person or the Selling Shareholder may
become subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or Final Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state in the Registration Statement,
any Preliminary Prospectus, the Effective Prospectus or Final Prospectus or
any amendment or supplement thereto 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
reliance upon and in conformity with written information furnished to the
Company by any Underwriter specifically for use therein (it being
understood that the only information so provided is the information
included in the last paragraph on the cover page, the two paragraphs
relating to stabilization practices on the inside front cover and under the
caption "Underwriting" in any Preliminary Prospectus and in the Effective
Prospectus and the Final Prospectus);
(e) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, including governmental
proceedings, such indemnified party will, if a claim in respect thereof is
to be made against the indemnifying party under this Section 8 notify the
indemnifying party 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 otherwise than under this Section 8,
except to the extent the indemnifying party is irrevocably prejudiced
thereby. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with any other counsel
satisfactory to such indemnified party; and after notice from the
indemnifying party to such indemnified party of its election to so assume
the defense thereof, 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 other than reasonable costs of investigation incurred at
the direction of the indemnifying party. The indemnified party shall have
the right to employ separate counsel if advised by separate counsel that
one or more material legal defenses are available to it that are different
or in addition to those available to the indemnified party, and in that
event the reasonable fees and expenses of separate counsel shall be paid by
the indemnifying party. However, in no event, shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in
addition to local counsel, if any) separate from their own counsel for all
indemnified parties in connection with any action or separate, but similar
or related, actions arising out of the same general allegations or
circumstances.
(f) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the
preceding part of this Section 8 is for any reason held
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to be unavailable to the Underwriters, the Company or the Selling
Shareholders or is insufficient to hold harmless an indemnified party, then
the Company and the Selling Shareholders shall contribute to the damages
paid by the Underwriters, and the Underwriters shall contribute to the
damages paid by the Company and the Selling Shareholders provided, however,
that 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.
In determining the amount of contribution to which the respective parties
are entitled, there shall be considered the relative benefits received by
each party from the offering of the Shares (taking into account the portion
of the proceeds of the offering realized by each), the parties' relative
knowledge and access to information concerning the matter with respect to
which the claim was asserted, the opportunity to correct and prevent any
statement or omission, and any other equitable considerations appropriate
under the circumstances. The Company and the Selling Shareholders and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by PRO RATA or per capita allocation (even if
the Underwriters were treated as one entity for such purpose). No
Underwriter or person controlling such Underwriter shall be obligated to
make contribution hereunder which in the aggregate exceeds the underwriting
discount applicable to the Shares purchased by such Underwriter under this
Agreement, less the aggregate amount of any damages which such Underwriter
and its controlling persons have otherwise been required to pay in respect
of the same or any similar claim. The Underwriters' obligations to
contribute hereunder are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section, each
person, if any, who controls an Underwriter within the meaning of Section
15 of the Securities 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 Section 15 of the Securities
Act, and the Selling Shareholders shall have the same rights to
contribution as the Company.
(g) The obligations of the Company and the Selling Shareholder under
this Section 8 shall be in addition to any liability which the Company and
the Selling Shareholder may otherwise have and shall extend, upon the same
terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Securities Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend, upon
the same terms and conditions, to each officer and director of the Company
and to each person, if any, who controls the Company within the meaning of
the Securities Act and to the Selling Shareholder.
9. DEFAULT OF UNDERWRITERS. If any Underwriter defaults in its
obligation to purchase Shares hereunder and if the total number of Shares which
such defaulting Underwriter agreed but failed to purchase is ten percent or less
of the total number of Shares to be sold hereunder, the non-defaulting
Underwriters shall be obligated severally to purchase (in the respective
proportions which the number of Shares set forth opposite the name of each non-
defaulting Underwriter in Schedule I hereto bears to the total number of Shares
set forth opposite the names of all the non-defaulting Underwriters), the Shares
which such defaulting Underwriter or Underwriters agreed but failed to purchase.
If any Underwriter so defaults and the total number of Shares with respect to
which such default or defaults occur is more than ten percent of the total
number of Shares to be sold hereunder, and arrangements satisfactory to the
other Underwriters, the Company and the Selling Shareholder for the purchase of
such Shares by other persons (who may include the non-defaulting Underwriters)
are not made within 36 hours after such default, this Agreement, insofar as it
relates to the sale of the Shares, will terminate without liability on the part
of the non-defaulting Underwriters, the Company or the Selling Shareholder
except for (i) the provisions of
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Section 8 hereof and (ii) the expenses to be paid or reimbursed by the Company
pursuant to Section 6. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 9.
Nothing herein shall relieve a defaulting Underwriter from liability for its
default.
10. DEFAULT BY THE SELLING SHAREHOLDERS. If the Selling Shareholder shall
fail to sell the number of Firm Shares that the Selling Shareholder is obligated
to sell, the Representatives may, at their option, by notice to the Company,
either (a) require the Company to sell and deliver the number of Firm Shares as
to which the Selling Shareholder has defaulted, (b) elect to purchase the Firm
Shares that the Company has agreed to sell pursuant to this Agreement or
(c) terminate this Agreement without liability on the part of the Underwriters
or the Company, except for the provisions of Section 8 hereof and the expenses
to be paid or reimbursed by the Company pursuant to Section 6.
In the event of a default under this Section that does not result in the
termination of this Agreement, the Representatives shall have the right to
postpone the First Closing Date or Second Closing Date for a period not
exceeding seven days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements. No action
taken pursuant to this Section shall relieve the Company or the Selling
Shareholder so defaulting from liability, if any, in respect of such default.
11. SURVIVAL CLAUSE. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers, the Selling Shareholder and the Underwriters set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, any of its officers or
directors, the Selling Shareholder, any Underwriter or any controlling person,
(ii) any termination of this Agreement and (iii) delivery of and payment for the
Shares.
12. EFFECTIVE DATE. This Agreement shall become effective at whichever of
the following times shall first occur: (i) at 11:30 A.M., Washington, D.C. time,
on the next full business day following the date on which the Registration
Statement becomes effective or (ii) at such time after the Registration
Statement has become effective as the Representatives shall release the Firm
Shares for sale to the public; PROVIDED, HOWEVER, that the provisions of
Sections 6, 8, 11 and 12 hereof shall at all times be effective. For purposes
of this Section 12, the Firm Shares shall be deemed to have been so released
upon the release by the Representatives for publication, at any time after the
Registration Statement has become effective, of any newspaper advertisement
relating to the Firm Shares or upon the release by the Representatives of
telegrams offering the Firm Shares for sale to securities dealers, whichever may
occur first.
13. TERMINATION. This Agreement may be terminated by the Representatives
by notice to the Company and the Selling Shareholder (i) at any time before it
becomes effective in accordance with Section 12 hereof; (ii) in the event that
at or prior to the First Closing Date the Company or the Selling Shareholder
shall have failed, refused or been unable to perform any agreement on the part
of the Company or the Selling Shareholder to be performed hereunder (or any
other condition to the obligations of the Underwriters hereunder is not
fulfilled); (iii) if at or prior to the Closing Date trading in securities on
the New York Stock Exchange, the American Stock Exchange or the over-the-counter
market shall have been suspended or limited or minimum or maximum prices shall
have been established on either of such Exchanges or such market, or a banking
moratorium shall have been declared by Federal or state authorities; (iv) if at
or prior to the Closing Date trading in securities of the Company shall have
been suspended; or (v) if there shall have been any outbreak or escalation of
major hostilities in which the United States is involved, any declaration of war
by Congress or any other substantial national or international calamity or
emergency if, in the reasonable judgment of the Representatives, the effect of
any such
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outbreak, escalation, declaration, calamity or emergency makes it impractical or
inadvisable to proceed with completion of the sale of and payment for the Shares
at the offering price to the public set forth on the cover page of the
Prospectus or to proceed with the delivery of the Shares. Termination of this
Agreement pursuant to this Section 13 shall be without liability of any party to
any other party other than as provided in Sections 6 and 8 hereof.
14. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed or delivered or telegraphed and
confirmed in writing to the Representatives in care of J. C. Bradford & Co., J.
C. Bradford Financial Center, 330 Commerce Street, Nashville, Tennessee 37201,
Attention: Kirk Lundblade or if sent to the Company shall be mailed, delivered
or telegraphed and confirmed in writing to the Company at 1840 Airport Exchange
Boulevard, Suite 240, Erlanger, Kentucky 41018, Attention: David B. Pomeroy,
II.
15. MISCELLANEOUS. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company, the Selling Shareholder and
their respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of this
Agreement. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Company, the Selling Shareholder
and the several Underwriters and for the benefit of no other person except that
(i) the representations and warranties and indemnities of the Company, the
Selling Shareholder and contained in this Agreement shall also be for the
benefit of any person or persons who control any Underwriter within the meaning
of Section 15 of the Securities Act and (ii) the indemnities by the Underwriters
shall also be for the benefit of the directors of the Company, officers of the
Company who have signed the Registration Statement and any person or persons who
control the Company within the meaning of Section 15 of the Securities Act. No
purchaser of Shares from any Underwriter will be deemed a successor because of
such purchase. The validity and interpretation of this Agreement shall be
governed by the laws of the State of Tennessee. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. You hereby
represent and warrant to the Company that you have authority to act hereunder on
behalf of the several Underwriters, and any action hereunder taken by you will
be binding upon all the Underwriters.
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If the foregoing is in accordance with your understanding of our agreement,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Company, the Selling Shareholder and each of the several Underwriters.
Very truly yours,
POMEROY COMPUTER RESOURCES, INC.
By:
----------------------------
David B. Pomeroy, II
Title: Chief Executive Officer
SELLING SHAREHOLDER
By:
----------------------------
David B. Pomeroy, II
Confirmed and accepted as of the
date first above written.
J. C. BRADFORD & CO.
TUCKER ANTHONY INCORPORATED
For themselves and as Representatives
of the Several Underwriters
By: J. C. Bradford & Co.
By:
-------------------------
(Authorized Representative)
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EXHIBIT A
FORM OF CORS & BASSETT LEGAL OPINION
It is our opinion that:
1. The Company has been duly incorporated and is validly existing
and in good standing as a corporation under the laws of the State of
Delaware, with full power and authority to own its properties and conduct
its business as now conducted. Except where failure to do so would not
have a material adverse effect on the Company's financial condition, the
Company (i) is duly qualified to do business as a foreign corporation and
is in good standing in all other jurisdictions where the nature of its
business or character of property owned or leased require it to be
qualified or authorized to do business and (ii) holds all licenses,
certificates, permits, franchises and authorizations from governmental
authorities necessary for the conduct of its business in all locations in
which such business is currently being conducted.
2. Each of the Company's subsidiaries is validly existing and in
good standing under the laws of the state of its incorporation or
organization, as the case may be, with full power and authority to own its
properties and conduct is business as now conducted. Except where the
failure to do so would have no material adverse effect on the Company's
financial condition, each such subsidiary (i) is duly qualified or
authorized to do business as a foreign corporation and is in good standing
in all other jurisdictions where the nature of its business or character of
property owned or leased require it to be qualified or authorized to do
business and (ii) holds all licenses, certificates, permits, franchises and
authorizations from governmental authorities necessary for the conduct of
its business in all locations in which such business is currently being
conducted. The outstanding stock of each of the Company's subsidiaries is
duly authorized, validly issued, fully paid and nonassessable. All of the
outstanding stock of each of the subsidiaries is owned beneficially and of
record by the Company, free and clear of all liens, encumbrances, pledges,
equities or claims of any kind, except as described in the Final
Prospectus. To our knowledge, no options or warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock or of ownership
interests in any of the Company's subsidiaries are outstanding.
3. As of the date specified therein, the Company has authorized and
issued capital stock as set forth under the caption "Capitalization" in the
Final Prospectus, and the Company's capital stock conforms to the
description thereof contained under the caption "Description of Capital
Stock" in the Final Prospectus. All of the issued shares of Common Stock
(including the Selling Shareholder Shares) have been duly authorized and
are validly issued, fully paid and nonassessable. The Company Shares and
the Option Shares have been duly and validly authorized, and upon issuance
thereof and payment therefor as provided in the Underwriting Agreement will
be validly issued, fully paid and nonassessable.
4. None of the issued shares of capital stock of the Company
(including the Selling Shareholder Shares) have been issued in violation of
or subject to any preemptive or similar rights and there are no preemptive
rights or other rights to subscribe for or to purchase, or any restriction
upon the transfer of the Shares or any other shares of Common Stock
pursuant to the Company's Certificate of Incorporation, Bylaws or any
agreement or instrument to which the Company or the Selling Shareholder is
a party or by which it may be bound. Neither the filing of the
Registration Statement nor the offer or sale of the Shares as contemplated
thereby gives rise to any rights, for or
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relating to the registration of any shares of Common Stock or any other
securities of the Company. The Underwriters have received good and
marketable title to the Company Shares, the Selling Shareholder Shares and
the Option Shares, if applicable, free and clear of all liens,
encumbrances, claims, security interests, restrictions, shareholders
agreements and voting trusts whatsoever, and the certificates for the
Company Shares, Selling Shareholder Shares and the Option Shares, if
applicable are in due and proper form.
5. No consent, approval, authorization or order of any court,
governmental agency or body or, to our knowledge, any third party, is
required for the performance of the Underwriting Agreement by the Company
or the consummation by the Company of the transactions contemplated
thereby, except such as have been obtained under the Act and such as may be
required by the NASD and other state securities or blue sky laws in
connection with the purchase and distribution of the Shares by the several
Underwriters. The performance of the Underwriting Agreement by the Company
and the consummation by the Company of the transactions contemplated
thereby will not conflict with or result in a breach or violation by the
Company or any of its subsidiaries of any of the terms or provisions of, or
constitute a default by the Company or any of its subsidiaries under, the
Certificate of Incorporation or Bylaws of the Company or any of its
subsidiaries, or, to our knowledge, (i) any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or to which the Company or
any of its subsidiaries or their properties are subject, (ii) any statute,
or (iii) any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to the Company or any of its
subsidiaries or their properties.
6. The Underwriting Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and legally binding
obligation of the Company, enforceable against the Company in accordance
with its terms, and the Company has full legal right, power and authority
to enter into the Underwriting Agreement and to issue, sell and deliver the
Company Shares and the Option Shares to be sold by it to the Underwriters
as provided therein, except as such may be limited by bankruptcy,
insolvency, reorganization or similar laws relating to creditors' rights or
debtors' obligations generally and except that (i) the remedies of specific
performance and injunctive and other forms of relief are subject to general
equitable principles, whether enforcement is sought at law or in equity,
(ii) such enforcement may be subject to the discretion of the court before
which any proceedings therefor may be brought and (iii) rights to indemnity
and contribution may be limited by state or federal laws relating to
securities or the policies underlying such laws.
7. To our knowledge, except as described in the Final Prospectus,
there is not pending or threatened, any action, suit, proceeding, inquiry
or investigation to which the Company or any of its subsidiaries is a
party, or to which the property of the Company or any of its subsidiaries
is subject, before or brought by any court or governmental agency or body,
which, if determined adversely to the Company or any of its subsidiaries,
could result in a material adverse change in the business, financial
position, net worth or results of operations, or could materially adversely
affect the properties or assets, of the Company and its subsidiaries, taken
as a whole.
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<PAGE>
8. To our knowledge, no default exists and no event has occurred
which, with notice or after the lapse of time to cure or both, would
constitute a default in the due performance and observance of any term,
covenant or condition of any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which the Company or
any of its subsidiaries is a party or to which they or their properties are
subject, which default or event would have material adverse effect on the
Company and its subsidiaries.
9. Neither the Company nor any subsidiary is in violation of its
Certificate of Incorporation or Bylaws or, to our knowledge, in violation
of any law, administrative rule or regulation or arbitrators' or
administrative or court decree, judgment or order or in violation or
default (there being no existing state of facts which with notice or lapse
of time or both would constitute a default) in the performance or
observance of any obligation, agreement, covenant or condition contained in
any material contract, indenture, deed of trust, mortgage, loan agreement,
note, lease, agreement or other instrument or permit to which it is a party
or by which it or any of its properties is or may bound, where such
violation or default could have a material adverse effect on the business,
financial position, net worth or results of operations, or could materially
adversely affect the properties or assets, of Company or its subsidiaries,
taken as a whole.
10. The Registration Statement and all post-effective amendments
thereto have become effective under the Act, and no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending, or, to
our knowledge, threatened or contemplated by the Commission. All filings
required by Rule 424 and Rule 430A of the Rules and Regulations have been
made. The Registration Statement, the Effective Prospectus and Final
Prospectus, and any amendments or supplements thereto, as of their
respective effective or issues dates, complied as to form with the
requirements of the Act and the Rules and Regulations. The descriptions in
the Registration Statement, the Effective Prospectus and the Final
Prospectus of statutes, regulations, legal and governmental proceedings,
and contracts and other documents are accurate and present fairly the
information required to be stated therein. To our knowledge, there are no
pending or threatened legal or governmental proceedings, statues or
regulations required to be described in the Final Prospectus which are not
described as required to be described in the Registration Statement or the
Final Prospectus or to be filed as exhibits to the Registration Statement
which are not described and filed as required.
11. The Company is not, and will not be as a result of the
consummation of the transactions contemplated by the Underwriting
Agreement, as "investment company" within the meaning of the Investment
Company Act of 1940.
12. The Underwriting Agreement and the Custody Agreement described
therein have been duly executed and delivered by or on behalf of the
Selling Shareholder and constitute valid and binding agreements of the
Selling Shareholder enforceable against the Selling Shareholder in
accordance with their terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization or similar laws now or hereafter
in effect relating to creditors' rights or debtors' obligations generally
and except that (i) the remedies of specific performance and injunctive and
other forms of relief are subject to general equitable principles, whether
enforcement is sought at law or in equity, (ii) such enforcement may be
subject to the discretion of the court before which any proceedings
therefor may be brought and (iii) rights to indemnity and contribution may
be limited by state or federal laws relating to securities or the policies
underlying such laws. All authorizations and consents necessary for the
execution and delivery of the Underwriting Agreement and the Custody
Agreement on behalf of the Selling Shareholder and for
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<PAGE>
the sale and delivery of the Selling Shareholder Shares to be sold by the
Selling Shareholder hereunder have been given. To our knowledge, there are
no facts which would cause the Selling Shareholder to lack the legal
capacity and full right, power and authority to execute the Underwriting
Agreement and the Custody Agreement and the Power of Attorney.
13. To our knowledge, the performance of the Underwriting Agreement
and the Custody Agreement and the consummation of the transactions
contemplated thereby by the Selling Shareholder will not result in a breach
or violation of, or conflict with, any of the terms or provisions of, or
constitute a default by the Selling Shareholder under, any indenture,
mortgage, deed of trust, trust (constructive or other), loan agreement,
lease franchise, license or other agreement or instrument to which the
Selling Shareholder or any of the Selling Shareholder's properties is
bound, any statute, or any judgment, decree, order, rule or regulation of
any court or governmental agency or body applicable to the Selling
Shareholder.
14. No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated by the Underwriting Agreement in connection with
the Selling Shareholder Shares to be sold by the Selling Shareholder
thereunder, except such as have been obtained under the Act and such as may
be required by the NASD and other state securities or blue sky laws in
connection with the purchase and distribution of the Shares by the several
Underwriters.
15. As of the closing, the Selling Shareholder has made good
delivery, duly endorsed, to the Underwriters or to a financial intermediary
designated by the Underwriters of the Selling Shareholder Shares, if
applicable, and, assuming that the Underwriters constitute bona fide
purchasers as defined in Section 8-302 of the Uniform Commercial Code, the
Selling Shareholder has transferred good and marketable title to the
Selling Shareholder Shares, free and clear of any and all liens, pledges,
encumbrances, charges, agreements, equities, claims, security interests,
restrictions, shareholder agreements or voting trusts.
We have participated in the preparation of the Registration Statement, the
Effective Prospectus and the Final Prospectus and in conferences with officers
and other representatives of the Company, counsel for the Underwriters,
representatives of the independent public accountants for the Company, and your
representatives at which the contents of the Registration Statement, the
Effective Prospectus and the Final Prospectus were discussed, and no facts have
come to our attention which lead us to believe that the Registration Statement,
the Effective Prospectus or the Final Prospectus, or any amendment or supplement
thereto, contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; PROVIDED, HOWEVER, that we express no view as to
financial statements or other financial data contained in the Registration
Statement, the Effective Prospectus or the Final Prospectus.
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<PAGE>
EXHIBIT B
FORM OF LINDHORST & DREIDAME LEGAL OPINION
It is our opinion that:
1. All sales of the Company's securities prior to the date hereof
were at all relevant times duly registered or exempt from the registration
requirements of the Act and were duly registered or the subject of an
exemption from the registration requirements of applicable state securities
or blue sky laws.
2. To our knowledge, no default exists and no event has occurred
which, with notice or after the lapse of time to cure or both, would
constitute a default in the due performance and observance of any term,
covenant or condition of any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which the Company or
any of its subsidiaries a party or to which they or their properties are
subject, which default or event would have material adverse effect on the
Company and its subsidiaries.
3. Neither the Company nor any subsidiary is in violation of its
Certificate of Incorporation or Bylaws or, to our knowledge, in violation
of any law, administrative rule or regulation or arbitrators' or
administrative or court decree, judgment or order or in violation or
default (there being no existing state of facts which with notice or lapse
of time or both would constitute a default) in the performance or
observance of any obligation, agreement, covenant or condition contained in
any material contract, indenture, deed of trust, mortgage, loan agreement,
note, lease, agreement or other instrument or permit to which it is a party
or by which it or any of its properties is or may bound, where such
violation or default could have a material adverse effect on the business,
financial position, net worth or results of operations, or could materially
adversely affect the properties or assets, of Company or its subsidiaries,
taken as a whole.
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<PAGE>
SCHEDULE I
UNDERWRITERS
Number of
Firm Shares
Underwriter to be Purchased
----------- ---------------
J.C. BRADFORD & CO.
TUCKER ANTHONY INCORPORATED
<PAGE>
TOTAL
<PAGE>
[CORS & BASSETT LETTERHEAD]
June 11, 1996
Pomeroy Computer Resources, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
Ladies and Gentlemen:
We have acted as legal counsel in connection with the preparation of a
Registration Statement on Form S-1 under the Securities Act of 1933, as
amended ("Registration Statement") covering an aggregate of 1,552,500 shares
of common stock, par value $.01 per share (the "Common Stock"), of Pomeroy
Computer Resources, Inc., a Delaware corporation (the "Company") (including
202,500 shares subject to an over-allotment option granted to the
Underwriters), of which 1,402,500 shares are being offered by the Company
(the "Company Shares") and 150,000 are being offered by a Selling Stockholder
(the "Selling Stockholder Shares").
We have examined and are familiar with the Certificate of Incorporation
and By-Laws of the Company, and the various corporate records and
proceedings relating to the organization of the Company and the proposed
issuance of the Common Stock. We have also examined such other documents and
proceedings as we have considered necessary for the purpose of this opinion.
Based on the foregoing, it is our opinion that (i) the Company Shares
have been duly authorized and, when issued and paid for in accordance with
the terms of the Registration Statement, will be validly issued, fully paid
and non-assessable, and (ii) the Selling Stockholder Shares have been duly
authorized and validly issued and are fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and with such state securities administrators as may
require such opinion of counsel for the registration of the Common Stock, and
to the reference to this firm under the heading "Legal Matters" in the
Prospectus. In giving this consent, we do not thereby admit that we are
within the category of persons whose consent is required under Section 7 of
the Securities Act or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
CORS & BASSETT
