<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1996
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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 , 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 May 28, 1996,
the last reported sale price for the Common Stock on the Nasdaq National Market
was $15.50 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 182 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 May 15, 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 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 253,990 shares subject to outstanding options at May 23, 1996 at a
weighted average exercise price of $9.24 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 $ 20,844
Total assets.......................................................................... 82,403 82,403
Total debt (7)........................................................................ 25,091 8,163
Stockholders' equity.................................................................. 18,950 35,878
</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, $1.72, $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 declared on May 2, 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 $15.50 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%, 59% 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 $14.4 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. 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 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 48%,
74%, 68% and 55% respectively, of the Company's total sales of equipment and
supplies.
6
<PAGE>
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 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."
7
<PAGE>
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 and 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 materially
and adversely affect the Company. 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 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
8
<PAGE>
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 and 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 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
9
<PAGE>
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 27.9%
of the outstanding Common Stock (approximately 26.6% 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 (including 1,072,055 shares held by affiliates of the Company), 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. The 1,081,630 shares held by officers and
directors 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 from 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 $16.9 million (approximately $19.9 million if the Underwriters'
over-allotment option is exercised in full). The Company currently intends to
use net proceeds to reduce indebtedness under the Company's revolving credit
facility (the "Credit Facility") and to repay $1.0 million of a $2.7 million
subordinated note issued in connection with the acquisition of TCSS (the
"Subordinated Note"). 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 May 28, 1996, an aggregate of $22.7 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 $15.50 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 $ 6,673
--------- -----------
--------- -----------
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 31,300
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 35,878
--------- -----------
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 May 28, 1996).................................. 16.75 13.50
</TABLE>
On May 28, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $15.50. As of May 15, 1996, there were approximately
2,420 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 expense (income):
Interest expense................................................ 754 604 850 1,031 1,999
Litigation settlement and related costs......................... -- -- -- -- --
Miscellaneous................................................... 26 (54) (57) (57) (64)
--------- --------- --------- --------- ---------
Total other expense........................................... 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 expense (income):
Interest expense................................................ 490 435
Litigation settlement and related costs......................... -- 4,392 (5)
Miscellaneous................................................... (8) (93)
--------- ------------
Total other expense........................................... 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 and the separate financial statements and
related notes of TCSS appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------
YEAR ENDED THREE MONTHS
JANUARY 5, ENDED
1996 APRIL 5, 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 expense (income):
Interest expense.......................................................................... 2,724 450
Litigation settlement and related costs................................................... -- 4,392
Miscellaneous............................................................................. (59) (91)
-------------- ---------------
Total other expense................................................................... 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 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 May 23, 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 vendors, is a 0.4% flat charge for both DFS and
ICC, which approximates an annual interest rate of 3.2%.
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 May 28, 1996, the
amount outstanding was $22.7 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 as
well as to modify certain terms 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 portion, the Company may
have to renegotiate its credit line 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 effectively outsource 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 May 15, 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, a corporate reseller of microcomputer systems
located in Des Moines, Iowa. In 1995, the Company acquired Cabling Unlimited, a
provider of communications cabling installation services in Indianapolis,
Indiana. The Company believes that the industry in which it operates has
experienced consolidation in recent years. In response to this trend, the
Company has sought to expand through selective acquisitions of computer and
related service providers. The Company is regularly engaged in evaluating
strategic acquisitions and geographic markets in which to open new regional
offices.
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 Lotus
AST Hayes Microsoft
Bay Networks Hewlett-Packard NEC
Canon IBM Novell
Compaq Intel 3Com
Epson Lexmark Toshiba
</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 48%, 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
23
<PAGE>
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.
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.
The Company's profitability has been enhanced 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 materially and adversely affect the Company's profit margins.
Vendor authorization is normally required for the Company to be able to sell
a vendor's products which are purchased from an aggregator or distributor. The
Company's direct purchase and authorized dealer agreements are typically subject
to periodic renewal and may be terminated without cause on thirty to ninety
days' notice and immediately with cause.
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 and installation, training and technical support for a
variety of microcomputer equipment. 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 68 to support the
growth in this segment 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, vendor 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 May 15, 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
24
<PAGE>
for customers who have geographically dispersed field personnel. Customers may
deliver their systems to the Company's depot repair center or arrange scheduled
or as-required pick-ups of their systems. The depot repair center currently has
the capability to process more than 75,000 desktop and laptop PCs, monitors and
printers annually.
In addition to offering hardware maintenance services, the Company offers
warehousing for customers' products not currently in use, hardware management,
which includes asset tagging, identifying and tracking inventory and software
support agreements. Typically, these software support agreements provide for
"blocks of time" during which the Company's SEs may be called upon by customers
for installation of additional equipment, training and problem resolution. As of
May 15, 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 182 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 and strategic importance
of the sale, including services. 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 UPS
Lexmark Western-Southern
Milacron University of Tennessee
</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.
25
<PAGE>
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. 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 Company has transitioned TCSS into its Des Moines branch office. Like the
Company, TCSS 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 and pre-tax income of $2.0 million and $1.9 million, respectively.
TCSS' service revenues have historically accounted for a smaller percentage of
total revenues (1.3% in 1995) than the percentage of service revenues of the
Company. As of May 15, 1996, the Des Moines branch had approximately 130 service
contracts in effect.
As of May 15, 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 133 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
50 administrative and distribution personnel.
26
<PAGE>
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. The growth strategy of the Company is 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.
MANAGEMENT INFORMATION SYSTEM
The Company relies upon the accuracy and proper utilization of its
management information system which is designed to yield accurate and timely
financial and operational information. 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 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. The Company has established Electronic Data Interchange ("EDI")
trading partnerships with a number of its major suppliers and key customers.
When fully utilized, this 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.
EMPLOYEES
As of May 15, 1996, the Company had 686 full-time employees consisting of
the following: 300 service and technical personnel including 68 systems
engineers; 182 direct sales and sales support
27
<PAGE>
representatives; 49 management personnel; and 155 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 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 distribution facility was occupied as a distribution
facility until January 1996 and former corporate headquarters was occupied until
May 1996 in Erlanger, Kentucky. The Company is using the former distribution
facility for its depot repair center until the expiration date of the lease. 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."
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.
30
<PAGE>
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.
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
31
<PAGE>
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").
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.
32
<PAGE>
(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.
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
33
<PAGE>
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.
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.
34
<PAGE>
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.
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
35
<PAGE>
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 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.
36
<PAGE>
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 May 20, 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........................... 58,368(2) 2.1 -- 58,368 1.5
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....................... 4,691(5) * -- 4,691 *
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........................ 9,389(8) * -- 9,389 *
Pomeroy Computer Resources, ESOP............. 41,487(9) 1.5 -- 41,487 1.0
All directors and executive officers as a
group ( 9 persons).......................... 1,434,730(10) 49.7% 150,000 1,304,730(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, 16,561 shares are 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 and 41,487 shares owned by the ESOP. See Note (9) below. Of the
41,487 shares owned by the ESOP, 2,174 shares are allocated to Mr. Weinstein
which shares he has the right to vote under the Plan. Excludes shares owned
by his spouse.
(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) Excludes shares owned by her spouse. Includes 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. Includes 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. Also
includes 8,250 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
27.9% of the Common Stock after completion of the Offering described herein,
including shares owned by his family members (approximately 26.6% 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.
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 1,081,630 shares held by officers and directors 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.
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
41
<PAGE>
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 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 by Cors & Bassett,
Cincinnati, 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 and also at the following
regional offices of the Commission: Citicorp Center, 500 West Madison Street,
44
<PAGE>
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-1
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets as of January 5, 1995 and 1996 and April 5, 1996 (unaudited)................. F-3
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-5
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-6
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-7
Notes to Consolidated Financial Statements............................................................... F-8
Financial Statements of The Computer Supply Store, Inc.:
Independent Auditors' Report............................................................................. F-18
Independent Auditors' Report............................................................................. F-19
Balance Sheets as of December 31, 1995 and 1994.......................................................... F-20
Statements of Operations and Retained Earnings for the Years ended December 31, 1995 and 1994............ F-21
Statements of Cash Flows for the years Ended December 31, 1995 and 1994.................................. F-22
Notes to Financial Statements............................................................................ F-23
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-27
</TABLE>
<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-1
<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-2
<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-3
<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-4
<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-5
<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-6
<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-7
<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-8
<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-9
<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-10
<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-11
<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-12
<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-13
<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-14
<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-15
<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-16
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. LITIGATION (CONTINUED)
terminated as of the effective date of the Settlement Agreement. The Company is
in the process of modifying certain terms of its 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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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>
Divided distributions payable to stockholders................................. $ 894,562 $ 205,652
----------- -----------
----------- -----------
Interest paid to stockholder.................................................. $ 2,398 $ 9,073
----------- -----------
----------- -----------
</TABLE>
F-24
<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-25
<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-26
<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-27
<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 America, 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.
Farm Bureau......................... Farm Bureau Life Investment Advisory Services, Inc.
GE.................................. General Electric Corporation
Genicom............................. Genicom Corporation
Great Financial..................... Great Financial Bank, FSB
Hayes............................... Hayes Microcomputer Products, Inc.
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
NEC................................. NEC Technologies, Inc.
National Pen........................ National Pen Corp.
Norwest Mortgage.................... Norwest Mortgage
Novell.............................. Novell, Inc.
P&G................................. The Procter & Gamble Company
Pioneer HiBred...................... Pioneer HiBred International
Principal Insurance................. Principal Mutual Life Insurance Company
Providian........................... Providian Insurance Corp.
Regis............................... Regis Corporation
</TABLE>
G-1
<PAGE>
<TABLE>
<S> <C>
Saint Thomas Hospital............... Saint Thomas Hospital (Nashville, TN)
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.
UPS................................. United Parcel Service Co.
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, adds value 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
<TABLE>
<CAPTION>
Page
---------
<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..................................... 30
Certain Transactions........................... 37
Principal and Selling Stockholders............. 38
Description of Capital Stock................... 39
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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- -------------------------------------------
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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
---------
Total Expenses............................................... $ 500,000
---------
---------
</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
II-1
<PAGE>
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 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
<TABLE>
<CAPTION>
NUMBER EXHIBIT
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<C> <S>
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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<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- -------- ----------------------------------------------------------------------
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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<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- -------- ----------------------------------------------------------------------
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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<TABLE>
<CAPTION>
NUMBER EXHIBIT
- -------- ----------------------------------------------------------------------
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).
<C> <S>
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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<TABLE>
<CAPTION>
NUMBER EXHIBIT
- -------- ----------------------------------------------------------------------
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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<TABLE>
<CAPTION>
NUMBER EXHIBIT
- -------- ----------------------------------------------------------------------
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).
</TABLE>
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<TABLE>
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NUMBER EXHIBIT
- -------- ----------------------------------------------------------------------
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.
</TABLE>
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<TABLE>
<CAPTION>
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>
- ------------------------
* to be filed by Amendment
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 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Cincinnati, State of Ohio,
June 4, 1996.
POMEROY COMPUTER RESOURCES, INC.
By: /s/ DAVID B. POMEROY, II
-----------------------------------
David B. Pomeroy, II
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David B. Pomeroy and Edwin S. Weinstein, or
either of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement (including, but not limited to, any registration statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b) of the
Act), and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact, agent or
their substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------ ---------------------------------------------- ---------------
/s/ DAVID B. POMEROY, II Chairman of the Board, President and Chief
-------------------------------------- Executive Officer (Principal Executive June 4, 1996
David B. Pomeroy, II Officer)
/s/ EDWIN S. WEINSTEIN Director, Chief Financial Officer, Treasurer
-------------------------------------- and Secretary (Principal Financial and June 4, 1996
Edwin S. Weinstein Accounting Officer)
/s/ JAMES H. SMITH, III
-------------------------------------- Director June 4, 1996
James H. Smith, III
/s/ DAVID W. ROSENTHAL
-------------------------------------- Director June 4, 1996
David W. Rosenthal
-------------------------------------- Director June 4, 1996
Michael E. Rohrkemper
</TABLE>
II-11
<PAGE>
AMENDED AND RESTATED
LOAN AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of March 14, 1996, by and
between POMEROY COMPUTER RESOURCES, INC., a Delaware corporation, C & N CORP., a
Tennessee corporation, XENAS COMMUNICATIONS CORP., an Ohio corporation and
POMEROY COMPUTER LEASING COMPANY, INC., a Kentucky corporation (hereinafter
referred to collectively as "Borrowers" and individually as a "Borrower,"
"Pomeroy," "C&N," "Xenas" or "Leasing") and STAR BANK, NATIONAL ASSOCIATION, a
national banking association (the "Bank"). This Agreement amends and restates a
prior loan agreement between Pomeroy and the Bank dated November 19, 1992, as
amended, as to which C&N and Xenas were guarantors.
1. BORROWERS' REPRESENTATIONS AND WARRANTIES. To induce the Bank to
enter into this Agreement to agree to make the loans described in Section 4 of
this Agreement (the "Loans"), Borrowers make, jointly and severally, the
following representations and warranties:
(a) CORPORATE EXISTENCE. Borrowers are duly organized, validly
existing and in good standing under the laws of the states of their
incorporation. Borrowers are duly qualified as foreign corporations and in
good standing under the laws of the jurisdictions listed in EXHIBIT "1(a)"
of this Agreement, which are the only jurisdictions where the failure to be
so qualified by Borrowers would have a material adverse effect on their
business prospects or financial condition of Borrowers.
(b) CORPORATE AUTHORITY. Borrowers have full corporate power and
authority to own their properties and to conduct its business as such
business is now being conducted and to execute, deliver and perform under
this Agreement and each of the other documents contemplated or required by
or related to this Agreement (the "Loan Documents"), including, but not by
way of limitation, all those documents required by Section 4 of this
Agreement.
(c) BORROWING AUTHORIZATION. The execution by Borrowers and the
delivery and performance of this Agreement, the Notes and other Loan
Documents in connection with the borrowings hereunder (i) have been duly
authorized by all requisite corporate action of Borrowers and (ii) will not
violate (A) any provision of law, (B) any order of any court or other
agency of government, (C) the Certificates or Articles of Incorporation and
By-laws or Regulations of Borrowers, (D) any provision of any indenture,
agreement or other instrument to which Borrowers are a party, or by which
any of its properties or assets are bound, which would have a material
adverse effect on Borrowers or their assets or business, (iii) will not be
in conflict with, result in a breach of or
<PAGE>
constitute (with due notice and/or lapse of time) a default under any such
indenture, agreement, or other instrument, which would have a material
adverse effect on Borrowers or their assets or business, and (iv) will not
result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the material properties or assets of
Borrowers (other than in favor of the Bank hereunder).
(d) FINANCIAL INFORMATION AND REPORTS. EXHIBIT "1(d)" to this
Agreement is a true and complete list of the financial statements and
projected financial statements previously furnished to the Bank within the
last twenty four (24) months in connection with the borrowings to be made
hereunder. The audited annual financial statements have been prepared in
accordance with generally accepted accounting principles, consistently
applied in accordance with past practices, and all such statements
accurately present the financial condition of Borrowers and its operations
as of the date (or with respect to the period) noted in such financial
statements. Other than any liability incident to litigation described in
EXHIBIT "1(f)" to this Agreement, Borrowers have no material contingent
liabilities not provided for or disclosed in such financial statements.
Each such statement is true, correct and complete. No such statement omits
to state a material fact necessary to make such report not misleading in
light of the circumstances under which it was made. There has been no
material adverse change in the business or financial condition of Borrowers
since the date of the last financial statement noted in EXHIBIT "1(d)".
(e) INDEBTEDNESS. Except as reflected in the Financial Statements
listed in EXHIBIT "1(d)" attached hereto or as described in EXHIBIT "1(e)"
to this Agreement, Borrowers have no indebtedness, other than the
obligations provided for in this Agreement, and has not guaranteed the
obligations of any other person (except by endorsement of negotiable
instruments payable on sight for deposit or collection or similar banking
transactions in the usual course of business).
(f) ACTIONS PENDING. There is no action or proceeding pending or, to
the knowledge of Borrowers, threatened against or affecting Borrowers
before any court or administrative agency except for those described in
EXHIBIT "1(f)" to this Agreement, none of which might result in any
material adverse change in the business or condition of the Borrowers.
(g) TITLE TO COLLATERAL SECURITY. Borrowers have good, indefeasible
and merchantable title to and ownership of all of their real and personal
property including, without limitation, the Collateral Security (as defined
in Section 4(e) of this Agreement) and other security for any of the
obligations provided for in this Agreement, free and clear of all liens,
claims, security interests and encumbrances except those liens: (i) in
favor of the Bank pursuant to Section 4 below or pursuant to prior loans
from the Bank; (ii) as allowed by Section 2(f)
-2-
<PAGE>
below; and (iii) permitted liens in favor of third-parties specified in
EXHIBIT "1(g)" to this Agreement or specified in the financial statements
noted in EXHIBIT "1(d)" (the "Permitted Liens"). Borrowers have and will
continue to have full rights and powers to give the Bank a security
interest in the Collateral Security.
(h) EMPLOYEE BENEFIT PLANS. Except as otherwise noted in "EXHIBIT
1(f)", No "reportable event" or "prohibited transaction," as defined by the
Employee Retirement Income Security Act of 1974 ("ERISA") has occurred or
is continuing, as to any plan of Borrowers which poses a threat of taxes or
penalties against or termination of such plans (or trusts related thereto).
Borrowers have not violated in any material respect the requirements of any
"qualified pension benefit plan," as defined in ERISA and the Internal
Revenue Code of 1986 or done anything to create any material liability
under the Multi-Employee Pension Plan Amendment Act. Borrowers have not
incurred any material liability to the Pension Benefit Guarantee
Corporation ("PBGC") in connection with such plans, including, but not
limited to any funding deficiency (as defined by ERISA).
(i) PURPOSE OF LOANS. The purpose of the Loans is described in
EXHIBIT "1(i)" to this Agreement. The Loans are not secured, directly or
indirectly, by any stock for the purpose of purchasing or carrying any
margin stock or for any purpose which would violate either Regulation U, 12
C.F.R. Part 221, or Regulation X, 12 C.F.R. Part 224, promulgated by the
Board of Governors of the Federal Reserve System.
(j) COMPLIANCE. Borrowers are in compliance in all material respects
with all laws, statutes, ordinances, rules, regulations and orders of any
governmental entity applicable to them (including, but not by way of
limitation, any such laws, statutes, ordinances, rules, regulations and
orders related to ecology, human health and the environment), the violation
of which would have a material adverse effect on Borrowers or their assets
or operations.
(k) NO DEFAULT. No default (or event which, with notice or lapse of
time, or both, would constitute a default) exists under any agreement or
instrument for borrowed money to which Borrowers are a party or pursuant to
which any property of Borrowers are encumbered. Borrowers warrant that it
is current on all material money and trade obligations (other than the
subject of a bona fide dispute), and that all dividend payments and or
declarations owed to shareholders are current.
(l) OFFERING OF NOTES. Borrowers nor any agent acting for them has
offered the Notes or any similar obligation of Borrowers for sale to or
solicited any offers to buy the Notes or any similar obligation of
Borrowers from any person other than Bank and Borrowers nor any agent
acting for it will take any
-3-
<PAGE>
action which would subject the sale of the Notes to the registration
provisions of Section 5 of the Federal Securities Act of 1933, as amended.
(m) ABILITY TO CONDUCT BUSINESS. Borrowers possess adequate
management, employees, assets, governmental approvals, and, to the extent
applicable, licenses, patents, patent applications, copyrights, trademarks,
trademark applications and trade names, to continue to conduct their
businesses as heretofore conducted.
(n) ADVERSE CONTRACTS AND CONDITIONS. Borrowers are not a party to
any contract or agreement, or subject to any charge, corporate
restrictions, judgment, decree or order, materially and adversely affecting
their businesses, properties, assets, operations or condition, financial or
otherwise. Borrowers are not a party to any labor disputes which could
result in a general work stoppage or which could have a material adverse
effect on Borrowers' business operations. There are no strikes or
walk-outs relating to any labor contracts entered into by Borrowers.
(o) TAXES. Except as described in EXHIBIT "1(o)" to this Agreement,
Borrowers have filed all federal, state and local tax returns and other
reports which they are required by law to file, have paid all taxes,
assessments and other similar charges that are due and payable (unless
being contested in good faith by Borrowers and then only if adequate
reserves for same have been established on Borrowers' books), and Borrowers
have withheld all employee and similar taxes which it is required by law to
withhold.
(p) BROKER'S FEES. No brokerage, finder's or similar fee or
commission is due to any party by reason of Borrowers entering into this
Agreement or by reason of any of the transactions contemplated hereby, and
Borrowers shall and hereby do jointly and severally indemnify and hold Bank
harmless from all such fees and commissions.
2. BORROWERS' COVENANTS. In consideration of the Bank's promise to
make the Loans, Borrowers agree that, from the date of this Agreement and until
the Loans are paid in full and Borrowers' obligations under this Agreement are
fully performed, they shall:
(a) BOOKS AND RECORDS. Keep and maintain complete books of accounts,
records and files with respect to its business in accordance with generally
accepted accounting principles consistently applied in accordance with past
practices and shall accurately and completely record all transactions
therein.
(b) FINANCIAL STATEMENTS; PERIODIC REPORTS; VERIFICATION. Furnish to
the Bank: (i) within ninety (90) days after the last day of each fiscal
year of
-4-
<PAGE>
Pomeroy, a copy of the annual audited consolidated financial statements of
Pomeroy and its subsidiaries prepared in accordance with generally accepted
accounting principles applied on a basis consistent with that of the
preceding fiscal year, with detail consistent with past financial
statements (including, at a minimum, a balance sheet, profit and loss
statement with proper footnotes, statement of retained earnings and sources
and application of funds), and signed by independent certified public
accountants satisfactory to the Bank; (ii) within forty-five (45) days
after the last day of each fiscal month, a copy of unaudited consolidated
financial statements, with detail consistent with past financial statements
of Pomeroy and its subsidiaries; (iii) within twenty (20) days after the
last day of each month, a borrowing base certificate in the form of Exhibit
"2(b)(iii)" attached hereto, supported by an accounts receivable aging
report, and such other statements and/or reports as Bank shall reasonably
request all in sufficient detail to fully and accurately present the
financial condition and results of operations of Borrowers; (iv) within the
first sixty (60) days of each fiscal year, an annual projection of income
statements and cash forecasts for such year; (v) together with each report
described above, a certification of same and a "no default" certificate in
the form of EXHIBIT "2(b)(v)" attached hereto signed by Borrowers' chief
financial officer with such back-up detail as the Bank may reasonably
request; (vi) any annual auditor's management letter; (vii) copies of all
reports or mailings to shareholders and all filings with the Securities
Exchange Commission or any other federal or state agency; and (viii) such
other reports and information as the Bank may reasonably request
(including, without limitation, at such time as the Bank may require same,
consolidating financial statements which show the individual financial
statements of each subsidiary of Pomeroy and any inter-company
eliminations, an aging of all payables and a list of all parties owing
receivables to Borrowers and their addresses). The Bank agrees to
reasonably extend any time periods hereunder to accommodate delays beyond
the reasonable control of Borrowers. The Bank also agrees that at the end
of any quarter in which Borrowers' consolidated Debt Ratio (as defined
herein) is below 2.0 to 1.0, [A] the interim unaudited financial statements
required under subsection (b)(ii) above shall be due 45 days after the end
of such quarter and any successive quarter in which such Debt Ratio is
achieved, and [B] no borrowing base certificate under subsection (b)(iii)
will be required. Both the monthly financial statement and the borrowing
base certificate obligations hereunder shall be reinstated for the month
following any quarter in which the aforesaid Debt Ratio test is not met for
the quarter in question (and in effect for each succeeding month until the
quarterly debt service test is again met). Borrowers shall permit the
Bank, or its agents or representatives, at all times to perform field
audits, inspect Borrowers' personal property and to verify accounts,
inspect, check, make copies of or extracts from the books, records and
files of Borrowers, and Borrowers will make the same available to the Bank
or its agents and representatives at any reasonable time (within usual
business hours), and upon reasonable notice for such purposes. Borrowers
shall provide Bank or its agents
-5-
<PAGE>
or representatives with reasonable clerical assistance in order to permit
Bank or its agents or representatives to complete any of its work as
contemplated by this Agreement.
(c) CASUALTY INSURANCE. Maintain and/or cause to be maintained
insurance policies on all real and personal property of Borrowers
(including, but not by way of limitation, the Collateral Security and other
security for the obligations provided for herein) with responsible carriers
acceptable to the Bank to such extent and against such hazards and
liabilities as is commonly maintained by companies similarly situated, such
policies to specify the Bank as the "loss payee" of Borrowers and carry
endorsements that require thirty (30) days advance notice to the Bank of
any cancellation of same, and at least annually (and more frequently if
requested by the Bank) provide the Bank with certificates of insurance or
other satisfactory evidence thereof.
(d) LIABILITY INSURANCE. Maintain in full force and effect such
liability and business interruption insurance with respect to the
activities of Borrowers and other insurance as is commonly maintained by
similar companies and as may be reasonably required by Bank, all such
insurance to be provided by responsible carriers acceptable to Bank.
(e) TAXES. File all federal, state and local tax returns and other
reports Borrowers are required by law to file and pay when due all taxes,
assessments, and other liabilities, except that Borrowers shall not be
obligated to pay any taxes or assessments which Borrowers are contesting in
good faith provided that adequate reserves therefor are established on
Borrowers' books and that such taxes and assessments are promptly paid when
the dispute is finally determined.
(f) INDEBTEDNESS. Not incur or permit to exist any indebtedness by
Borrowers in excess of $500,000 in the aggregate outstanding during any one
fiscal year except (i) the borrowings under this Agreement; (ii)
indebtedness incurred in connection with the liens permitted by Section
2(g) herein; (iii) indebtedness (which is not being paid out with the Loan
proceeds) existing as of the date of this Agreement and reflected in the
financial statements described in EXHIBIT "1(d") to this Agreement; (iv)
other indebtedness existing as of the date of this Agreement, including
subordinated indebtedness to The Computer Supply Store, inc. (hereinafter
called "Supply") in connection with the purchase of Supply's assets, all as
further described in EXHIBIT "1(e)" to this Agreement; (v) short term
unsecured trade credit or accounts incurred in the ordinary course of
business; and (vi) indebtedness related to purchase money security
interests arising as to the purchase of fixed assets by Borrowers in the
ordinary course of its business and limited as noted in Section 2(g) below.
"Indebtedness" shall mean for all purposes of this Agreement any
indebtedness for borrowed money
-6-
<PAGE>
or indebtedness representing the deferred purchase price of property being
acquired pursuant to installment or conditional sale agreements or
capitalized lease obligations.
(g) LIENS. Not create or permit to exist any mortgage, pledge,
security interest, title retention right, lien or other encumbrance
(collectively "liens") with respect to any assets now owned or hereafter
acquired by Borrowers except those liens: (i) created in favor of the Bank
hereunder; (ii) related to current taxes not yet delinquent or as security
for taxes being contested in good faith, or in connection with workers'
compensation insurance, unemployment insurance or old age pensions, or of
mechanics and materialmen for sums not due or sums being contested in good
faith and for which adequate reserves are set aside on Borrowers' books to
pay same when finally determined to be due; (iii) those granted in the
normal course of business to procure bid, performance or surety bonds; (iv)
liens granted by Borrowers which do not materially impair the value of
Borrowers' assets or Bank's security interest granted herein (so long as
any of such liens noted in subsections (ii), (iii) and (iv) herein,
separately or in the aggregate, do not materially affect the property or
operations of Borrowers or materially diminish the Collateral Security or
the Bank's interest therein); (v) the Permitted Liens; and (vi) purchase
money security interests granted to vendors and floor plan financing
institutions affecting only Borrowers' assets and arising in the ordinary
course of Borrowers' business and not secured by any asset except the asset
being purchased by Borrowers.
(h) CORPORATE EXISTENCE AND STATUS. Except with the prior written
consent of the Bank, maintain the corporate existence of Borrowers in good
standing under the laws of each jurisdictions described in Section 1(a) of
this Agreement and not amend, without prior written notice to Bank, the
Certificate or Articles of Incorporation, or By-laws, or fiscal year for
tax and accounting purposes of Borrowers.
(i) CONTRACTS. Not enter into any agreement, contract or arrangement
which would materially impair or adversely affect the right and/or ability
of Borrowers to carry on their businesses as now conducted or materially
impair or adversely affect the Collateral Security or other security for
the obligations provided for hereunder.
(j) MERGER AND TRANSFER OF ASSETS. Except with the prior written
consent of the Bank or as to the purchase of assets of Supply as described
herein, Borrowers shall not (i) purchase the shares of or an ownership
interest in any other entity, (ii) be a party to any merger, consolidation,
or reorganization (including any acquisition of all or substantially all of
the equity, assets or debt of any other enterprise) or enter into or form
any partnership or joint venture; (iii) sell, transfer, convey, or lease,
or grant an option to sell, transfer, convey
-7-
<PAGE>
or lease all or any part of any Borrower's property, tangible or
intangible, except in the normal course of business or as authorized
herein, or involving the sale of damaged, obsolete, or discontinued assets;
(iv) not materially change the nature of or discontinue Borrowers' current
business activities; (v) not sell, discount, encumber or assign, with or
without recourse, any accounts receivable except in the ordinary course
of business in connection with the collection of accounts which are at
least ninety (90) days past due.
(k) BANK AS PRIMARY DEPOSITORY. Maintain all significant accounts
and other banking relationships of Borrowers (including, without
limitation, all significant operating accounts, demand and time deposit
accounts, certificate of deposit accounts, and safekeeping accounts) at the
Bank.
(l) MAINTENANCE OF PROPERTY. To the extent consistent with good
business practices, maintain all real and personal property of Borrowers in
good condition and repair, not commit or permit any waste thereof, and not
remove or permit the removal of any improvement, accession or fixture
therefrom that may in any way impair the value of said property or the
Bank's Collateral Security hereunder.
(m) COMPLIANCE WITH LAW. Comply at all times, with all material
laws, statutes, ordinances, rules, regulations and orders of any
governmental entity (including, but not by way of limitation, such laws,
statutes, ordinances, rules, regulations and orders relating to ecology,
human health and the environment) having jurisdiction over Borrowers or any
part of its assets, where such failure to comply would have a material
adverse effect on Borrowers or their assets. Borrowers shall obtain and
maintain all permits, licenses, approvals and other similar documents
required by any such laws, statutes, ordinances, rules, regulations or
orders.
(n) RESTRICTED PAYMENTS. Not (i) declare or pay any cash dividend to
any of Borrowers' shareholders except to Pomeroy from its subsidiaries
(stock dividends being permitted); (ii) make any advances, capital
injections or other transfers between Borrowers and/or their subsidiaries
or affiliates (except in the normal course of business to fund working
capital needs of any Borrower except Leasing); (iii) make any payment to
Supply unless it meets the conditions of EXHIBIT "2(n)" attached hereto and
made a part hereof; (iv) make any distributions of Borrowers' assets or
loans or advances to officers, directors or employees, except that
Borrowers may advance or reimburse employee travel and other expenditures
in the normal course of business AND reasonable advances to employees
against bonuses expected to be paid within one year of such advance; or (v)
purchase, redeem, retire or otherwise acquire any shares of any Borrower's
stock from such Borrower's shareholders (including those pursuant to
existing stock purchase arrangements).
-8-
<PAGE>
(o) CAPITAL EXPENDITURES; OTHER FINANCIAL COVENANTS. (i) not make,
in the aggregate for all Borrowers, capital expenditures (including
capitalized leases) in excess of $2,250,000 for the fiscal year ended
January 5, 1996 and $1,500,000 for any fiscal year thereafter, and (ii)
meet the other financial covenants specified in EXHIBIT "2(o)" to this
Agreement.
(p) SALE OF INVENTORY. Not sell its inventory except in the ordinary
course of its business, and such inventory shall not otherwise be taken or
removed from any of Borrowers' premises (including leased premises and
public warehouses). Except for sales to Borrowers' employees consistent
with past practices, Borrowers shall not sell, lease, transfer or make any
other disposition of any inventory to any affiliate of Borrowers or to any
director, officer, employee or shareholder of Borrowers or of any affiliate
of Borrowers.
(q) NOTICE OF LITIGATION. Notify Bank in writing, promptly upon
Borrowers learning thereof, of any litigation, suit or administrative
proceeding which may materially affect the operations, financial condition
or business of Borrowers or Bank's security interest in the Collateral
Security or other security for the obligations provided for herein, whether
or not the claim is considered by Borrowers to be covered by insurance.
(r) ERISA NOTICE. Notify Bank in writing (i) promptly upon the
occurrence of any material event described in Section 4043 of ERISA, other
than a termination, partial termination or merger of a "Plan" (as defined
in ERISA) or a transfer of a Plan's assets and (ii) prior to any
termination, partial termination or merger of a Plan or a transfer of a
Plan's assets.
(s) ABILITY TO CONDUCT BUSINESS. Maintain adequate management,
employees, assets, governmental approvals, permits and licenses and/or, if
applicable, patents, patent applications, copyrights, trademarks, trademark
applications and trade names, to conduct their businesses as now or
hereafter conducted.
(t) NOTICE OF LABOR DISPUTE. Notify Bank, promptly upon Borrowers
learning thereof, of any labor dispute to which Borrowers may become a
party which could result in a general work stoppage or which could have a
material adverse effect on any Borrower's business operations, any strikes
or walkouts relating to any of its operations or facilities which could
have a material adverse effect on Borrowers or their assets or operations,
and/or the expiration of any labor contract to which Borrowers are a party
or by which Borrowers are bound.
(u) NOTICE OF DEFAULT OF INDEBTEDNESS. Notify Bank, promptly upon
the occurrence thereof, of any default by Borrowers under any note,
indenture,
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<PAGE>
loan agreement, mortgage, lease, deed or other similar agreement to which
Borrowers are a party or by which Borrowers are bound.
(v) SUFFICIENT CAPITAL. At all times prior to, during and after any
disbursement of the Loans, will have capital sufficient to carry on their
businesses and transactions as now conducted and all businesses and
transactions in which it is about to engage, be solvent and able to pay its
debts as they mature, and will own property having a value, both at fair
valuation and at present fair saleable value, greater than the amount
required to pay its debts.
(w) OWNERSHIP AND OPERATIONS; COMPENSATION. (i) Maintain C&N, Xenas
and Leasing as wholly-owned subsidiaries of Pomeroy, and (ii) cause David
B. Pomeroy to maintain direct or indirect ownership of at least twenty-five
percent (25%) of all the shares of Pomeroy and agree not to pledge his
shares or grant any interest therein to anyone but the Bank or a family
member, remain Chairman and CEO of Pomeroy, and not allow any Change of
Control of Borrowers. "Change of Control" shall mean any transaction,
event or circumstance, or series thereof, the result of which is that (i)
beneficial ownership, in the aggregate of more than Fifty Percent (50%) of
the total voting power entitled to vote for the election of directors of
the Borrowers (including securities convertible by their terms into stock
having such voting power) is acquired by any person or group (within the
usual meaning of same under SEC Rule 13d-3) of related persons, other than
the holders of common stock of Pomeroy as of the date hereof.
(x) WAIVER. Permit any variance from the covenants of Borrowers
pursuant to this Section 2 only with the prior written consent and/or
waiver of the Bank. Any such variance by consent and/or waiver shall
relate solely to the variance addressed in such consent and/or waiver, and
shall not operate as the Bank's consent and/or waiver to any other variance
of the same covenant or other covenants, nor shall it preclude the exercise
by the Bank of any power or right under this Agreement.
3. CLOSING CONDITIONS. The obligation of the Bank to make the
Loans, or any portion thereof, is subject to the satisfaction of each of the
following conditions precedent:
(a) DEFAULT. Before and after giving effect to any Loan or any
portion thereof, no Event of Default, as defined in Section 5 of this
Agreement, or any event which, with the passage of time or notice or both,
would mature into an Event of Default shall have occurred or be continuing;
(b) WARRANTIES. Before and after giving effect to any Loan or any
portion thereof, the representations and warranties in Section 1 hereof
shall be
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true and correct in all material respects as though made on the date of
such Loan or portion thereof;
(c) CERTIFICATION. Borrowers shall have delivered to the Bank
certificates as of the date of this Agreement and as of the date of this
Agreement and any future date as Bank may request, in a form satisfactory
to the Bank, of the chief financial officer of Borrowers (i) as to the
matters set out in Sections 3(a) and 3(b) of this Agreement, (ii) that the
resolutions described in Section 3(d) of this Agreement have not been
amended or rescinded, and (iii) as to incumbency of all officers of
Borrowers (with specimen signatures of such incumbent officers and whenever
such officers have been changed); and
(d) RESOLUTIONS. Borrowers shall have delivered to the Bank a copy,
duly certified as of the date of this Agreement by the secretary or
assistant secretary of Borrowers of (a) the resolutions of the Borrowers'
Board of Directors authorizing all borrowings hereunder and the execution
and delivery of this Agreement and the Notes and other Loan Documents
hereunder (b) all documents evidencing other necessary corporate action by
Borrowers, and (c) all approvals or consents, if any, with respect to this
Agreement, the Notes and other Loan Documents.
(e) NOTES. Borrowers shall have delivered its promissory note
evidencing the Revolving Credit Loans from the Bank substantially in the
form of EXHIBIT "4(a)(ii)" to this Agreement, and properly executed by an
authorized officer or officers of Borrowers (collectively, with any renewal
or replacement notes, and any future Term Notes, the "Notes") and all other
Loan Documents so properly executed.
(f) DELIVERY OF COLLATERAL SECURITY. The Collateral Security
specified in Section 4(e) has been provided to the satisfaction of the
Bank.
(g) OPINION. Borrowers shall have delivered to the Bank an opinion
of present outside counsel to the Borrowers (or other counsel acceptable to
the Bank), dated the date of the Loan (or such other date acceptable to the
Bank) to the effect that (i) Borrowers are duly incorporated, validly
existing and in good standing under the laws of its states of
incorporation; (ii) Borrowers have full power to execute and deliver this
Agreement, the Notes and other Loan Documents and to perform its
obligations under same; (iii) such actions have been duly authorized by all
necessary corporate action, and are not in conflict with any provision of
law or of the Certificate or Articles of Incorporation, or By-laws or
Regulations of Borrowers, nor, to the best knowledge of such counsel after
due investigation, in conflict with any agreement, order or decree binding
upon Borrowers; and (iv) this Agreement and the Notes and other Loan
Documents are the legal and binding obligations of Borrowers, enforceable
in accordance with
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their terms, except as the same may be affected by bankruptcy, insolvency,
moratorium or similar laws now or hereafter in effect, or by legal and
equitable principles relating to or limiting creditors' rights generally,
or other rules of law or equity limiting the availability of attorney's
fees or of specific performance, injunctive relief or other equitable
remedies may limit, restrict, modify or otherwise impair the enforceability
of the Agreement, the Notes and other Loan Documents.
(h) INSURANCE. Borrowers shall have delivered evidence of insurance
as required by Sections 2(c) and 2(d) of this Agreement reasonably
satisfactory to Bank.
(i) GOOD STANDING CERTIFICATES. Borrowers shall have delivered good
standing certificates for the states of their incorporation and good
standing certificates for all other states and jurisdictions described in
Section 1(a) of this Agreement.
(j) INTERCREDITOR AGREEMENTS AND CONSENTS. Acceptable inter-creditor
agreements shall remain in effect between Bank, IBM Credit Corp. ("IBM")
and Deutch Financial Corp. [previously ITT Commercial Finance Corp.]
("ITT").
(k) ASSET PURCHASE AGREEMENT. The Asset Purchase Agreement between
Pomeroy and Supply has been signed in form substantially as previously
delivered to Bank and an executed original thereof delivered to Bank.
(l) OTHER DOCUMENTS; INSPECTION. Borrowers shall have delivered to
the Bank such other documents, certificates and instruments as the Bank, in
its sole discretion, may reasonably request at least three (3) business
days prior to the date of this Agreement, and such post-loan closing
documents as may be requested by the Bank to evidence, protect or perfect
the Loans and any collateral security therefore. The Bank or its
designated representative shall have the continuing right to inspect and
review, at reasonable times and upon reasonable notice, all Borrowers'
records, documents and assets, directly or indirectly related to the Loan
or Borrowers' obligations provided for in this Agreement.
4. LOANS.
(a) REVOLVING CREDIT LOANS AND COMMITMENT; CREDIT RESERVE. Subject
to the terms and conditions of this Agreement, and subject to there being no
Event of Default (or an event which would, with notice or the passage of time or
both, mature into an Event of Default) by Borrowers hereunder, the Bank agrees
to lend and relend to the Borrowers, jointly and severally, for the purposes
specified in EXHIBIT "1(i)" to the Agreement, during the period
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from the date hereof to THE EARLIER OF (i) April 30, 1997 (or the date of any
extension of this Agreement in a writing signed by the Bank), OR (ii) the date
of the occurrence of an Event of Default specified in Section 5 below, unless
waived by the Bank (such earlier date herein called the "Commitment Termination
Date"), such amounts as Borrowers may from time to time request not exceeding in
the aggregate at any time outstanding to Borrowers the LESSER OF: [A] Eighty-
Five Percent (85%) of Eligible Receivables, OR [B] Twenty-Five Million Dollars
(U.S.$25,000,000), reducing to Nineteen Million Dollars (U.S.$19,000,000) as of
July 1, 1996. If the aggregate amount of Revolving Credit Loans made to
Borrowers hereunder and outstanding at any one time exceeds the limits as
described in Section 4(a)[A] and 4(a)[B] above, then Borrowers shall, within
five (5) days thereof, repay sufficient of the Loans to bring the outstanding
Loan amount within such limits. "Eligible Receivables" hereunder shall mean
those accounts receivables of Borrowers acceptable in good faith to Bank and as
further specified in EXHIBIT "4(a)(i)" to this Agreement. The Commitment Amount
shall also be reduced dollar-for-dollar for letters of credit issued by the Bank
at the request of Borrowers (such additional credit facilities being subject to
approval and pricing by the Bank on a case-by-case basis). Such loans shall be
referred to herein as the "Revolving Credit Loan" or the "Revolving Credit
Loans."
The sum of all Revolving Credit Loan draws shall never exceed the
Commitment Amount. The Revolving Credit Loans shall be available to Borrowers
in the form of a Business Checking Plus credit reserve arrangement (the "Credit
Reserve") under which the Bank will make loans to Borrowers in connection with a
concentration deposit account of Borrowers in the name of Pomeroy, account
number 480-3828-37 (the "Account"), which will be zero-balanced hereunder to the
Target Balance noted herein. Transfers under the Credit Reserve shall
constitute Revolving Credit Loans hereunder and shall be made in either of the
following ways: (i) the Bank shall make an automatic transfer directly to the
Account in One Thousand Dollars ($1,000.00) multiples (up to the unused portion
of the Commitment Amount) at any time and from time-to-time that checks drawn
against, or other charges assessed against the Account pursuant to this
Agreement, the Bank's general terms and conditions as to deposit accounts or
otherwise, would (if paid) cause the Account balance, if deposited or credited
through ordinary, regular Account transactions (subject to the zero-balancing
specified herein), to decrease below the target amount specified from time-to-
time by the Bank (the "Target Balance"). [The initial Target Balance shall be
One Thousand Dollars ($1,000.00)]; AND/OR (ii) upon receipt by the Bank from any
Borrower of a request (normally by telephone) drawing against the Credit Reserve
in any amount not less than $1,000 or any multiple thereof, but not more than
the then-unused portion of the Commitment Amount, the Bank shall transfer to the
Account the amount so authorized. The Borrowers agree not to issue checks in
excess of the sum of (A) funds in the Account deposited or credited through
Revolving Credit Loans hereunder and through ordinary, regular Account
transactions (subject to the zero-balancing specified herein) as reduced by
withdrawals against the Account, repayments of Loans under this Agreement and
other charges assessed against the Account (collectively the "Checking
Balance"), PLUS (B) the unused portion of the Commitment Amount. However, the
Bank, at its option, may honor any one or more checks or loan authorizations,
although to do so may cause the unpaid balance of the Credit Reserve to exceed
the Commitment Amount, but such action shall not constitute a waiver by the
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Bank of its rights hereunder to declare all amounts owing immediately due and
payable or of any of its other rights where there has been a violation of the
terms of this Agreement
All Revolving Credit Loans shall be repaid as follows: Any funds
deposited to the Account (subject to the zero-balancing noted herein) as they
become collected from any source, including (without limitation) from Borrowers'
accounts at the Bank will (automatically and without exception) be applied first
to applicable interest charges, then to fees associated with this Agreement or
the Credit Reserve or charges to the Account, then to repayment of any
outstanding principal balance of Revolving Credit Loans, and only then will the
balance remaining be credited to the Account. However, upon any event of
default, the Bank may allocate between charges, fees, interests or principal, as
it deems best for the Bank. Such applications will be disclosed monthly at the
same time as the Account statement is prepared. All such automatic payments
shall be deemed made from proceeds of Collateral Security provided to the Bank
hereunder. Each Revolving Credit Loan draw by Borrowers from the Bank shall be
deemed a warranty, representation and certification by Borrowers that such draw
is fully available hereunder. The Revolving Credit Loans shall be evidenced by
the Revolving Credit Note given by Borrowers to the Bank, in the form of EXHIBIT
"4(a)(ii)" attached hereto and made a part hereof (the "Revolving Credit Note").
The Bank is hereby authorized by Borrowers to enter from time to time on the
reverse of its Revolving Credit Note the principal balance of its Revolving
Credit Loan and all payments and prepayments thereon, and the aggregate unpaid
amount of the Revolving Credit Loan set forth on the Revolving Credit Note shall
be contained in a monthly statement sent to Borrowers and if not objected to by
Borrowers within a reasonable time thereafter, shall be presumptive evidence of
the principal amount owing to the Bank and unpaid thereon. Upon written request
of the Bank, Borrowers shall immediately exchange the Revolving Credit Note then
outstanding for a revised and updated Revolving Credit Note. The Revolving
Credit Note shall bear interest at a rate which shall vary from time to time
with the rate announced at the Bank as its prime rate (the "Prime Rate") minus
one-fourth of one percent (0.25%), such rate to be adjusted on the effective
date of any change in the Prime Rate. The Prime Rate is determined solely by
the Bank pursuant to market factors and its own operating needs and such rate is
not necessarily the Bank's best or most favorable rate for commercial or other
loans. If, upon receipt of financial statements at the end of each fiscal
quarter (and effective for such quarter), Borrowers' Debt Ratio (as defined in
EXHIBIT "2(o") is less than 2.5 to 1.0 AND the ratio of Borrowers' consolidated
Debt [as defined in EXHIBIT "2(o)"] to consolidated net earnings before
interest, taxes, and depreciation and amortization expenses for the trailing
twelve (12) fiscal months (the "EBITDA Ratio") is less than 3.5 to 1.0, the
interest rate hereunder shall reduce to the Prime Rate minus 0.50% effective as
of the first day of the second month following the end of such quarter (and
shall be so effective until such ratio can no longer be met, when it will revert
to the Prime Rate minus 0.25%). Likewise, when the Debt Ratio is less than 2.0
to 1.0 and the EBITDA Ratio is less than 3.0 to 1.0, the interest rate shall
reduce to the Prime Rate minus 0.75%, subject to effectiveness and subsequent
reduction (to Prime minus 0.50% or 0.25%, as the case may be) as noted above.
Such interest shall be computed on the basis of a year consisting of 360 days
(twelve (12) months of thirty (30) days each) but applied to the actual number
of days elapsed. Interest shall be payable to the Bank monthly in arrears,
commencing on March 31, 1996, and monthly thereafter on the last day of
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each month and when the Revolving Credit Note is due. After any Event of
Default hereunder or after maturity, whether by acceleration or otherwise, the
Revolving Credit Note shall bear interest (computed and adjusted in the same
manner, and with the same effect, as interest on the Revolving Credit Note prior
to maturity) payable on demand at a rate per annum equal to the Prime Rate plus
three percent (3%), in all cases until paid and whether before or after any
entry of any judgment thereon. Borrower shall also pay any late payment charge
specified in the Revolving Credit Note. The Revolving Credit Note shall be due
on April 30, 1997 (unless extended by a written agreement with Bank, which Bank
does not hereby commit to do) without need for demand or notice to Borrowers, or
earlier on the date of any earlier Commitment Termination Date.
(b) TERM LOANS. Subject to the terms and conditions of this
Agreement, the Bank agrees to consider lending to Borrowers, jointly and
severally, as of such date and subject to such terms as the Bank and Borrowers
may (but also may not) agree in the future, certain term loans for specific
purposes now not known. Such loans shall be referred to herein as the "Term
Loans." The Term Loans shall be evidenced by one or more term notes given by
such Borrowers to the Bank, in the form of EXHIBIT "4(b)" attached hereto and
made a part hereof (any one such note herein called a "Term Note"). No
repayment or prepayment of the Term Loan by Borrowers shall create any
obligation on the part of the Bank to relend such repaid or prepaid amounts to
Borrowers. The Term Note shall bear interest at a per annum rate which shall
vary from time to time with the Prime Rate plus or minus agreed percentage
rates, such rates to be adjusted on the effective date of any change in the
Prime Rate. Such interest shall be computed on the basis of a year consisting
of 360 days but applied to the actual number of days elapsed. Interest shall be
payable to the Bank in arrears on the last day of each quarter commencing one
month after the date of loan disbursement, with principal repayable as agreed.
After an Event of Default hereunder, or after maturity, whether by acceleration
or otherwise, the Term Loans shall bear interest (computed and adjusted in the
same manner, and with the same effect, as interest on the Term Loans prior to
maturity) payable on demand at a rate per annum equal to the Prime Rate plus
three percent (3%), in all cases until paid and whether before or after entry of
any judgment thereon. Borrowers shall also pay any late payment fees specified
in the Term Note. The Bank does not hereby commit to make such Term Loans.
(c) COMMITMENT FEE. Borrowers shall pay the Bank a commitment fee of
one fourth of one percent (0.25%) on the average daily unused portion of the
maximum Commitment Amount, invoiced by Bank to Borrowers quarterly in arrears.
In case of any change in law or governmental rules, regulations, guidelines or
orders (or any interpretation thereof) or the introduction of new laws,
regulations or guidelines which require Bank to reserve for unfunded revolving
credit commitments, the Bank may charge Borrowers an additional fee which will
compensate Bank for such requirements.
(d) PREPAYMENTS. The Borrowers may from time to time, after the date
of this Agreement and from time to time thereafter, repay or prepay part or all
of the Revolving Credit Loan or any Term Loan principal balance outstanding.
There shall be no prepayment
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premium for any such prepayments by Borrowers. As to any Term Loan, the
payments shall be applied to installments due in inverse order of maturity.
(e) PLACE OF PAYMENT. All payments of principal and interest
hereunder shall be made in immediately available funds to the Bank at 425 Walnut
Street, Location 8160, Cincinnati, Ohio 45202, or at such other places as may be
designated by the Bank to the Borrowers in writing. Borrowers direct the Bank
to charge any account or charge or increase any loan balance of Borrowers at the
Bank for the amount of any interest or principal payments or fees due to the
Bank hereunder.
(f) COLLATERAL SECURITY. All the obligations of the Borrowers to the
Bank under this Agreement, the Notes and Loan Documents shall be secured by the
following (together called the "Collateral Security"):
(i) a security interest in and to all of Borrowers' tangible or
intangible property including (without limitation) machinery, equipment,
furnishings, fixtures, inventory, accounts [meaning accounts receivable,
accounts, instruments, chattel paper, documents, contracts, contract rights
(including, without limitation, all rights of Borrowers against Supply in
the Asset Purchase Agreement between them), choses of action and any form
of obligation now or hereafter owing to Borrowers], general intangibles
(including, without limitation, any franchise rights, patents, licenses,
copyrights, trademarks and trade names), goodwill of and debt and equity
securities owned by Borrowers (excluding the stock of C&N, Xenas, Leasing,
and any other subsidiary) wherever located, now owned or existing or
hereafter acquired or arising, and their proceeds and products, cash or
non-cash, as evidenced by the Bank's standard form Security Agreements and
Schedules attached hereto as EXHIBITS "4(f)(i)(A) through "4(f)(i)(E)" and
made a part hereof (hereinafter collectively called the "Security
Agreements");
(ii) subordination agreements with Supply as evidenced by a
subordination agreement attached hereto as EXHIBIT "4(f)(ii)" and made a
part hereof (hereinafter called the "Subordination");
(iii) delivery by Pomeroy to Bank of its stock certificates
evidencing ownership of C&N, Xenas and Leasing, with executed stock powers
attached;
(iv) a security interest in favor of the Bank as specified in Section
4(g) herein; and
(v) as may otherwise be specified in the Revolving Credit Notes
and/or Security Agreements, as same may be amended or restated from time to
time.
The Bank shall not be bound in any way to exercise its realization
interest in the Collateral Security in any particular order or excluding any
particular remedy. It is agreed that
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all Bank's security interests in the Collateral Security shall be first priority
except as to inventory pledged to floor planners, IBM, ITT and others which the
Bank approves in writing pursuant to Intercreditor Agreements acceptable to
Bank. The Collateral Security shall be in form satisfactory to the Bank and its
counsel, and the Borrowers agree to execute or cause to be executed any and all
documents and deliver to the possession of the Bank such documents or other
assets of Borrowers as are determined necessary by the Bank or its counsel to
evidence or assure the protection, perfection and/or enforcement of such
Collateral Security (including, but not limited to, landlord waivers, additional
confirmation security agreements as to newly acquired inventory, and UCC
financing statements). The provisions of the Revolving Credit Note, any future
Term Note, Security Agreements, Subordination and other related documents
providing or related to the Collateral Security for the Bank shall supplement
and be in addition to those of this Agreement and any inconsistent provisions
therein shall be interpreted in all respects to be in favor of the Bank,
provided, however, that whenever possible, such provisions shall be interpreted
and limited consistent with the provisions and limitations of this Agreement.
(g) LIEN; RIGHT OF SET-OFF. Borrowers hereby grant to Bank a
continuing lien and a security interest for all obligations of Borrowers to Bank
in and to any and all moneys, securities and other properties of Borrowers and
the proceeds thereof now or hereafter held or received by or in transit to the
Bank from or for the account of Borrowers, whether for safekeeping, pledge,
transmission, collection or otherwise, and also upon any and all deposits
(general and special), account balances and credits of Borrowers with Bank at
any time existing. In addition to all statutory rights of Bank, Bank is hereby
authorized at any time and from time to time, without prior notice to Borrowers
to set-off, appropriate, apply and enforce said lien and security interest in
any and all items hereinbefore specified in this subsection referred to against
all obligations of Borrowers to the Bank arising under this Agreement and the
Notes, and Borrowers shall continue to be liable to the Bank for any deficiency
with interest at the rates set forth herein and in the Notes.
5. EVENTS OF DEFAULT; COLLATERAL REALIZATION. If any of the
following events (any such event shall be referred to as an "Event of Default")
shall occur, then Bank may, without further notice or demand, accelerate the
Loans and declare them to be, and thereupon the Loans (and the Notes) and other
obligations due hereunder shall become immediately due and payable, AND, to the
extent the maximum Commitment Amount has not yet been used or fully drawn on by
Borrowers, terminate the balance of same, AND the Bank shall have all rights
provided herein or in any of the other Loan Documents or otherwise provided by
law to realize on the Collateral Security or to take any other action or utilize
any remedies provided in the Loan Documents and in whatever order the Bank may
determine in its sole discretion (and all such powers and remedies shall be
cumulative and not exclusive of one another or any other right, remedy or
power):
(a) Borrowers do not pay or, repay to Bank any principal of or any
interest on any Loan or the Revolving Credit Notes or any fee or obligation
when due whether by reason of demand, acceleration or otherwise, within ten
(10)
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working days of the date notice is sent to Borrowers from Bank, or any
other non-payment default or demand or acceleration shall occur under any
Loan Document (and same shall not be cured within any available period); or
(b) Borrowers do not pay principal or interest on any other borrowed
money obligation equal to or in excess of $300,000 (inclusive of interest
and fees) when due or the holder of such other obligation declares, or may
declare, such obligation due prior to its stated maturity because of
Borrowers' default thereunder (unless such obligation is the subject of an
unexpired cure period or a bona fide dispute by such Borrower); or
(c) Borrowers do not perform their obligations under any agreement
material to their businesses and the other party to such agreement
declares, or may declare, such agreement in default (unless such agreement
is the subject of an unexpired cure period or a bona fide dispute by
Borrowers); or
(d) Any material adverse change occurs in Borrowers' litigation with
Vanstar Corporation (formerly Computerland Corporation);
(e) Any representation or warranty made by Borrowers herein or in any
other Loan Document or writing furnished in connection with this Agreement
shall be false in any material respect when made; or
(f) Borrowers violate any material covenant, agreement or condition
contained herein or in any other Loan Document or writing (other than to
make payment of principal, interest, fees or obligations) and does not cure
(or deliver to the Bank an acceptable plan of corrective action to cure
promptly) such violation to the reasonable satisfaction of the Bank within
thirty (30) days of mailing of written notice of such violation from the
Bank; or
(g) Any Borrower is unable to pay its business debts as due OR such
Borrowers' consolidated financial statements indicate insolvency or a
deficit net worth; or
(h) With respect to the plans referred to in Section 1(i), or any
other similar plan, a "reportable event" or "prohibited transaction"
pursuant to ERISA has occurred which results in the imposition of material
taxes or penalties against Borrowers or the termination of such plans (or
trusts related thereto), or Borrowers incurs any material liability to PBGC
in connection with such plans, and does not cure (or deliver to the Bank an
acceptable plan of corrective action to promptly cure) same to the
satisfaction of the Bank within ten (10) days of such occurrence; or
(i) Any Borrower makes an assignment for the benefit of creditors; or
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(j) Any Borrower applies for the appointment of a trustee or receiver
of any part of the assets of such Borrower or commences any proceedings
relating to such Borrower under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or other
liquidation law of any jurisdiction; or any such application if filed, or
any such proceedings are commenced, against such Borrower and such Borrower
indicates approval, consent on acquiescence; or an order is entered
appointing such trustee or receiver, or adjudicating such Borrower bankrupt
or insolvent, or approving the petition in any such proceedings, and such
order remains in effect for thirty (30) days; or
(k) Any order is entered in any proceedings against any Borrower
decreeing the dissolution or division of such Borrower or its assets, and
such order remains in effect for thirty (30) days; or
(l) A material part of any Borrower's operations shall cease for a
period of thirty (30) days, other than temporary or seasonal cessations
which are simultaneously experienced by other companies in the same line of
business (which, if continued, would have a material adverse effect on
Borrowers' operations or financial condition); or
(m) Any final judgment in excess of confirmed insurance coverage
satisfactory to Bank which, together with other outstanding judgments
against Borrowers which have not been discharged or execution thereon
stayed, causes the aggregate of such judgments to exceed Five Hundred
Thousand Dollars ($500,000), shall be rendered against Borrowers and within
sixty (60) days such judgment shall not have been discharged or execution
stayed pending appeal or within sixty (60) days after the expiration of any
such stay such judgment shall not have been discharged; or
(n) If, in the reasonable opinion of Bank, there has been a material
adverse change in the consolidated financial affairs or operating condition
of Borrowers over the financial condition of Borrowers in the January 5,
1996 consolidated financial statements of Pomeroy and its subsidiaries.
The above recitation of Events of Default: (i) shall supplement and
be in addition to any defaults specified within the Revolving Credit Notes, any
future Term Notes, Security Agreements, Subordination and any other Loan
Document, which shall be interpreted in all respects in favor of the Bank but
whenever possible shall be interpreted and limited consistent with the default
provisions of this Agreement; and (ii) shall not in any way defer or in any way
limit the Bank from exercising its rights in connection with other notes or
financial accommodations issued to the Borrowers. To the extent any
cure-of-default period is provided above, the Bank may nevertheless, at its
option pending completion of such cure, suspend its obligations to consider
further Loans hereunder.
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6. GENERAL.
(a) REASONABLE ACTIONS. Bank agrees that in taking any action which
it is permitted or empowered to take under this Loan Agreement, it will act
reasonably under what it believes are the facts and circumstances existing
at such time.
(b) DELAY. No delay, omission or forbearance on the part of the Bank
or the holder of any Notes, in the exercise of any power or right shall
operate as a waiver thereof, nor shall any single or partial delay,
omission or forbearance in the exercise of any other power or right. The
rights and/or remedies of the Bank herein provided are cumulative, shall be
interpreted in all respects in favor of the Bank, and are not exclusive of
any other rights and/or remedies provided by law.
(c) NOTICE. Any notice hereunder to Borrowers or Bank shall be in
writing and, if mailed, shall be deemed to be given by Borrowers to Bank
when received by the Bank at its address set forth below, and by Bank to
Borrowers when sent by mail, postage prepaid, and addressed to the Borrower
at its address set forth below:
Bank: Star Bank, National Association
425 Walnut Street
Location 8160
Cincinnati, Ohio 45202
Attention: Douglas V. Wyatt
Vice President
With a copy to: Taft, Stettinius & Hollister
1800 Star Bank Center
Cincinnati, Ohio 45202
Attention: Melvin S. Shotten, Esq.
All Borrowers: Pomeroy Computer Resources, Inc.
1840 Airport Exchange Blvd., Suite 240
Erlanger, KY 41018-3131
Attention: Edwin S. Weinstein
Chief Financial Officer and Treasurer
With a copy to: Lindhorst & Dreidame Co., L.P.A.
P. O. Box 3339
Suite 2300
312 Walnut Street
Cincinnati, Ohio 45201-3339
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Attention: James H. Smith, III, Esq.
The Borrowers or the Bank may, by written notice to the other, designate another
address for purposes hereunder.
(d) EXPENSES; INDEMNITY. Borrowers jointly and severally agree to
pay all out-of-pocket expenses of the Bank and its employees (including
attorney's fees and legal expenses, but excluding the salaries of the
Bank's own employees) incurred by the Bank in entering into and closing
this Agreement and preparing the documentation in connection herewith and
in connection with any of the Loan Documents, and the Borrowers jointly and
severally agree to pay the Bank upon demand for the same. Borrowers
jointly and severally agree to pay all filing fees to protect the Bank's
security interest under this Agreement, and if the Bank pays for same,
Borrowers shall reimburse the Bank upon demand. The Borrowers jointly and
severally agree to pay the Bank upon demand for administering or enforcing
the obligations of the Borrowers hereunder or under any Notes or documents
relative to the Collateral Security or under any of the Loan Documents
(including reasonable attorney's fees and legal expenses), and to defend,
indemnify and hold the Bank harmless from all liability, obligation, cost,
damage or expense (including reasonable attorney's fees and legal expenses)
for taxes (except income or franchise taxes), fees or third party claims
which may arise or be related to the execution, delivery or performance of
this Agreement or any of the Loan Documents or the issuance of the Notes.
Such obligations of the Borrowers shall survive any termination of this
Agreement.
(e) SURVIVAL. All covenants of Borrowers made herein or otherwise in
writing in connection with the transactions contemplated hereby shall
survive the execution and delivery of this Loan Agreement, the Notes and
the Loan Documents, and shall remain in effect so long as any obligations
of Borrowers are outstanding hereunder or under any of the Loan Documents.
(f) SEVERABILITY. Any provision of this Agreement (or any Exhibit
hereto) which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition of
enforceability without invalidating the remaining portions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(g) LAW. IMPORTANT: The Loans shall be deemed made in Ohio and the
Revolving Credit Notes, and Term Notes (and any other notes) and all other
Loan Documents evidencing same, and all the rights and Obligations of
Borrowers and the Bank hereunder, shall in all respects be governed by and
construed in accordance with the laws of the State of Ohio, including all
matters of construction, validity and performance. Without limitation on
the ability of the Bank to exercise all its rights as to the Collateral
Security for the Loans or to initiate and prosecute any action or
proceeding in any applicable jurisdiction related to loan repayment,
Borrowers and the Bank agree that any action or proceeding commenced by or
on behalf of the parties arising out of or relating
-21-
<PAGE>
to the Loans and/or the Notes and/or other documents evidencing same and/or
the Loan Documents shall be commenced and maintained exclusively in the
District Court of the United States for the applicable District of Ohio, or
any other court of applicable jurisdiction located in Cincinnati, Ohio.
The Borrowers and the Bank also agree that a summons and complaint
commencing an action or proceeding in any such Ohio courts by or on behalf
of such parties shall be properly served and shall confer personal
jurisdiction on a party to which said party consents, if (a) served
personally or by certified mail to the other party at any of its addresses
noted herein, or (b) as otherwise provided under the laws of the State of
Ohio. The interest rate and all other terms of the Loans negotiated with
Borrowers are, in part, related to the aforesaid provisions on
jurisdiction, which the Bank deems a vital part of this loan arrangement.
(h) SUCCESSORS. This Agreement shall be binding upon Borrowers and
Bank and its successors and assigns, and shall inure to the benefit of
Borrowers and Bank and the successors and assigns of Bank. Borrowers shall
not assign its rights or duties hereunder without the prior written consent
of Bank.
(i) AMENDMENT. This Agreement may not be modified or amended except
in writing signed by authorized officers of Bank and Borrowers.
(j) EXHIBITS. For all purposes hereof, the Exhibits attached hereto
shall be considered a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed at Cincinnati, Ohio by its officers thereunto duly authorized as of the
date first above written.
STAR BANK, NATIONAL ASSOCIATION POMEROY COMPUTER RESOURCES, INC.
By: \s\ Douglas V. Wyatt By: \s\ Edwin S. Weinstein
------------------------------- -----------------------------------
Douglas V. Wyatt Edwin S. Weinstein
Vice President Chief Financial Officer and Treasurer
C & N CORP.
By: \s\ Edwin S. Weinstein
-----------------------------------
Edwin S. Weinstein
Vice President
-22-
<PAGE>
XENAS COMMUNICATIONS CORP.
By: \s\ Edwin S. Weinstein
-----------------------------------
Edwin S. Weinstein
Secretary-Treasurer
POMEROY COMPUTER LEASING COMPANY, INC.
By: \s\ Edwin S. Weinstein
-----------------------------------
Edwin S. Weinstein
Secretary-Treasurer
-23-
<PAGE>
LIST OF EXHIBITS
1(a) - Jurisdictions
1(d) - Financial Information and Reports
1(e) - Indebtedness
1(f) - Actions Pending
1(g) - Permitted Liens
1(i) - Purpose of Loans
1(o) - Tax Matters
2(b)(iii) - Borrowing Base Certificate
2(b)(v) - No-Default Certificate
2(o) - Financial Covenants
4(a)(i) - Eligible Receivables
4(a)(ii) - Revolving Credit Note
4(b) - Term Note
4(f)(i)(A) through
4(f)(i)(E) - Security Agreements and Schedules
4(f)(ii) - Subordination
<PAGE>
EXHIBIT 1(a)
JURISDICTIONS
1. Pomeroy Computer Resources, Inc. -
(a) State of Incorporation: Delaware
(b) Other states in which qualified to do business: Alabama, Indiana,
Iowa, Kentucky, Ohio
2. C & N Corp. -
(a) State of Incorporation: Tennessee
(b) Other states in which qualified to do business: Florida
3. Xenas Communications Corp. -
(a) State of Incorporation: Ohio
(b) Other states in which qualified to do business: None
4. Pomeroy Computer Leasing Company, Inc. -
(a) State of Incorporation: Kentucky
(b) Other states in which qualified to do business: Ohio, Tennessee
<PAGE>
EXHIBIT 1(d)
FINANCIAL STATEMENTS
1. Audited consolidated financial statements of Pomeroy and its subsidiaries
for the fiscal year ended January 5, 1996.
2. Quarterly interim financial statements of Pomeroy and its subsidiaries for
the period from January 6, 1995 through January 5, 1996.
3. Consolidated balance sheet and income statement projections (with and
without the Supply acquisition) for the fiscal year of Pomeroy and its
subsidiaries ending January 5, 1997.
<PAGE>
EXHIBIT 1(e)
INDEBTEDNESS
Purchase Obligations owing to Supply under the Asset Purchase
Agreement between Pomeroy and Supply.
<PAGE>
EXHIBIT 1(f)
ACTIONS PENDING
LITIGATION AND OTHER PROCEEDINGS
1. THE VANSTAR CORPORATION V. POMEROY COMPUTER RESOURCES, INC.
This action was brought by Vanstar Corporation (formerly known as
Computerland Corporation) against the Company for various money damages and
other relief relating to alleged breaches by Pomeroy under the written contract
for the sale of computer products. Plaintiff's answers to this litigation was
filed on December 14, 1994 and discovery has continued since that date. This
case was scheduled to proceed to trial November 13, 1995 but was continued until
March 25, 1996. During this period, substantial discovery has taken place
concerning the specifics of the litigation.
2. POMEROY COMPUTER RESOURCES, INC. V. RANDALL J. MUELLER AND INACOM
INFORMATION SYSTEMS.
The Company has not yet decided whether it intends to convert this
action to a claim for damages against Inacom Information Systems for tortious
interference.
3. DANIEL K. COLE V. POMEROY COMPUTER RESOURCES, INC.
This action was brought by Daniel Cole against the Company arising out
of the termination of his employment, which the plaintiff alleged as a breach of
his Employment Agreement. The plaintiff sued for injunctive relief and for
damages based on breach of contract and other legal theories. This entire
litigation has been settled per the payment by the Company of the sum of
$95,000.00 to Mr. Cole and the providing him with indemnity should FTA
Enterprises, Inc. refile its litigation against Mr. Cole.
4. FTA ENTERPRISES, INC. V. POMEROY COMPUTER RESOURCES, INC., KENNETH M.
DENTON, AND DANIEL K. COLE, KNOX COUNTY, TENNESSEE, CHANCERY COURT, DOCKET NO.
121407-1 FILED APRIL 5, 1994
This lawsuit was dismissed by the plaintiff on September 11, 1995.
Plaintiff's counsel has asserted that plaintiff intends to refile essentially
the same suit.
In this lawsuit, FTA alleged that Pomeroy conspired with the
individual defendants, former managers at FTA, to lure other FTA employees to
Pomeroy, thus damaging FTA. FTA also claims that the defendants illegally
obtained FTA's trade secrets, customer lists and other confidential information;
that defendants induced FTA's former employees to breach their employment
contracts; and that the defendants induced FTA's customers to breach their
contracts with FTA.
FTA claimed in the prior suit it has suffered compensatory damages in
an amount not in excess of $2,000,000. FTA claims its should be awarded
punitive damages not in excess of $2,000,000. FTA also seeks to treble any
compensatory damages under Tennessee law which are attribute to FTA's inducement
to breach claims.
<PAGE>
5. POMEROY COMPUTER RESOURCES, INC. V. KEITH NOBLE AND THE FUTURE NOW,
INC.
The Company filed a Verified Complaint for a Temporary Restraining
Order, Preliminary Injunction and Permanent Injunction to enjoin Keith Noble
from becoming an Employee of Future Now. The Company was able to enter into an
agreement in which Mr. Noble agreed not to compete against Company for a set
period of time. Incident thereto, The Future Now paid Company the sum of
$4,4860.00 as reimbursement for legal costs incurred by Company incident to the
filing of this complaint. The Company has recently converted this action to a
claim for damages against Future Now for tortious interference. A discovery
schedule has recently been set.
6. FTD ENTERPRISES, INC.
FTD Enterprises, Inc. filed this action in Franklin County, Kentucky
Circuit Court against the Company alleging that a predecessor of the Company,
Pomeroy Investments of Frankfort Partnership, had breached certain covenant not
to compete provisions and various representations and warranties relating to
certain purchased assets arising out of an Asset Purchase and Sale Agreement
dated November 16, 1990. This case is in its discovery stage and the parties
are current responding to the first set of interrogatories and requests for
production of documents.
7. SC LIQUIDATION LLC, SUCCESSOR IN INTEREST TO SOLUTRONIX CORPORATION V.
POMEROY COMPUTER RESOURCES, INC.
SC Liquidation LLC, successor in interest to Solutronix Corporation
recently filed this action in District Court in the Fourth Judicial District of
the County of Hennepin, State of Minnesota alleging that the Company owes
plaintiff the sum of $12,804.44 for goods, wares and services that the plaintiff
allegedly provided to Company on or about August 27, 1995. This case was
recently filed and the Company has received an extension to February 15, 1996 to
file its answer to this complaint.
8. M&W, INC. D/B/A COMPUTERLAND OF NASHVILLE V. POMEROY COMPUTER
RESOURCES, INC., ET AL., DAVIDSON COUNTY (NASHVILLE), TENNESSEE CHANCERY COURT,
DOCKET NO. 94-2922-III, FILED MAY 27, 1994.
This case contains allegations that former employees of plaintiff
conspired with the Company to damage plaintiff's business by luring away
employees, inducing the breaches of contracts, and appropriating confidential
information. The Company has meritorious defenses to all of the claims.
Although settlement discussions have taken place, primarily between
principals without the involvement of counsel, settlement does not appear likely
at this time. Plaintiff's preliminary settlement overtures were in the range of
$200,000 although they varied over the year.
2
<PAGE>
A temporary injunction hearing has been held and the only relief
granted was that the Company was prohibited from using any of plaintiff's
proprietary information if any such information is in the Company's possession.
A trial date has not been set, however a trial is expected in mid-
1996. Other than in connection with the injunction hearing, discovery has begun
but remains in its beginning stages.
9. CUMBERLAND COMPUTERS V. POMEROY COMPUTER RESOURCES, INC.
This case has been settled per the payment by the Company of
$2,500.00.
10. HURST V. POMEROY COMPUTER RESOURCES, INC. (SUCCESSOR IN INTEREST TO
POMEROY INVESTMENTS OF LEXINGTON, INC.)
This case has been settled per the payment by the Company of
$1,000.00.
11. COMPUTER SYSTEMS REPAIRS, INC. V. POMEROY COMPUTER RESOURCES, INC.
This case has been settled per the payment by the Company of
$20,000.00.
UNASSERTED CLAIMS OR ASSESSMENTS
1. Pomeroy Computer Resources, Inc. was contacted in March, 1995
concerning an alleged breach of contract allegation made by Hartford Computer
Group emanating out of the client's alleged purchasing of 9,600 units of IBM
part no. 92G7200. Pomeroy Computer Resources, Inc. provided certain information
to the counsel for Hartford Computer Group, Inc. in April of 1995; and Pomeroy
Computer Resources, Inc. has not heard any communications from him in the recent
months concerning this matter.
2. There is a disability discrimination claim filed against Pomeroy
Computer Resources, Inc. with the EEOC and two race discrimination claims filed
with the EEOC. All of these claims are in the early stages of litigation, and
it is too early to predict the outcome of these claims.
3. There is a dispute between AT&T and Pomeroy Computer Resources, Inc.
emanating out of the decision of AT&T GIS to discontinue its Globalyst personal
computing and communication PC business. Numerous allegations are being made by
both AT&T and the Company concerning amounts allegedly owed to AT&T and the
amounts owed by AT&T to Pomeroy Computer Resources, Inc. relating to various
inventory that Pomeroy Computer Resources, Inc. had purchased, spare parts and
numerous other business issues. The parties continue to negotiate a resolution
to this matter.
3
<PAGE>
EXHIBIT 1(g)
PERMITTED LIENS
None
<PAGE>
EXHIBIT 1(i)
PURPOSE OF LOANS
The proceeds of the Revolving Credit Loan shall be used to refinance
prior Bank loans, to acquire the assets of Supply and to provide Borrowers with
working capital.
<PAGE>
EXHIBIT 1(o)
TAX MATTERS
None
<PAGE>
EXHIBIT 2(b)(iii)
BORROWING BASE CERTIFICATE
FOR POMEROY COMPUTER RESOURCES, INC.,
C & N CORP. AND XENAS COMMUNICATIONS CORP.
STAR BANK, NATIONAL ASSOCIATION , 19
-------------------- ----
Gentlemen:
We submit the following information regarding Receivables of the Borrowers in
connection with the Loan Agreement dated March 14, 1996 entered into by and
between the Borrowers and the Bank (the "Agreement"). Capitalized terms used
herein and not otherwise defined herein shall have the meaning given them in the
Agreement.
Completed for the month ending .
---------------
I. AS TO POMEROY COMPUTER RESOURCES, INC.:
Total Receivables beginning of the month $
--------------------
Plus: Sales for the month
--------------------
Minus: Total cash receipts on
accounts for the month
--------------------
Plus or Minus: Miscellaneous debit/credit
adjustments to Receivables
--------------------
Total Receivables end of month $
--------------------
Minus: Receivables over 90 days
from invoice date $
-----------------
Remaining balance of
Receivables from a customer
or division with 25% over 90
days from the invoice date
-----------------
Contra accounts
-----------------
Employee or Affiliate accounts
-----------------
Deposits
-----------------
Other
-----------------
Total Eligible Receivables $
--------------------
II. AS TO C & N CORP.:
Total Receivables beginning of the month $
--------------------
Plus: Sales for the month
--------------------
Minus: Total cash receipts on
accounts for the month
--------------------
Plus or Minus: Miscellaneous debit/credit
adjustments to Receivables
--------------------
Total Receivables end of month $
--------------------
Minus: Receivables over 90 days
from invoice date $
-----------------
Remaining balance of
Receivables from a customer
or division with 25% over 90
days from invoice date
-----------------
Contra accounts
-----------------
Employee or Affiliate accounts
-----------------
Deposits
-----------------
Other
-----------------
Total Eligible Receivables $
--------------------
<PAGE>
III. AS TO XENAS COMMUNICATIONS CORP.:
Total Receivables beginning of the month $
--------------------
Plus: Sales for the month
--------------------
Minus: Total cash receipts on
accounts for the month
--------------------
Plus or Minus: Miscellaneous debit/credit
adjustments to Receivables
--------------------
Total Receivables end of month $
--------------------
Minus: Receivables over 90 days
from invoice date $
-----------------
Remaining balance of
Receivables from a customer
or division with 25% over 90
days from the invoice date
-----------------
Contra accounts
-----------------
Employee or Affiliate accounts
-----------------
Deposits
-----------------
Other
-----------------
Total Eligible Receivables $
--------------------
TOTALS AS TO I, II AND III: $
--------------------
X 85%
Amount available ("Amounts Available") under the revolving credit
facility for all Borrowers (including letters of credit)= $
--------------------
Outstanding balance under the revolving credit facility for all
Borrowers (including letters of credit) at month-end
$ --------------------
Availability excess (shortage) $
--------------------
If shortage, amount of paydown included herewith $
--------------------
CERTIFICATION
I hereby certify that at no time during the past month did the outstanding
balance under the revolving credit facility (including letters of credit) exceed
the Amount Available (as defined above) and that no "Event of Default" as
defined in the Agreement exists at this time or existed during the past month.
POMEROY COMPUTER RESOURCES, INC. C & N CORP.
By: By:
-------------------------------- ------------------------------------
Edwin S. Weinstein Edwin S. Weinstein
Chief Financial Officer and Secretary Vice President
XENAS COMMUNICATIONS CORP.
By:
--------------------------------
Edwin S. Weinstein
Secretary-Treasurer
<PAGE>
EXHIBIT 2(b)(v)
FINANCIAL STATEMENT CERTIFICATION
I, , Chief Financial Officer of Pomeroy Computer
----------------------------
Resources, Inc. hereby certifies to Star Bank, National Association that the
attached [financial statement/projection] dated , 19 for Pomeroy
------------ ---
Computer Resources, Inc. is accurate, complete and fairly presents in all
material respects the matters stated therein and has been prepared on a basis
consistent with such financial statements prepared for prior periods and in
accordance with generally accepted accounting principles. I further certify
that no "Event of Default" as defined in the Loan Agreement has occurred.
POMEROY COMPUTER RESOURCES, INC.
By:
-----------------------------------
(Name and Title)
-----------------------------------
(Date)
<PAGE>
EXHIBIT 2(n)
RESTRICTED PAYMENTS
Borrowers shall make no payment to Supply unless allowed under the
terms of a Subordination Agreement between Bank, Supply and Borrowers EXCEPT as
may relate to indemnity payments ("Indemnity Payments") as defined under Section
10 of the Asset Purchase Agreement between Borrowers and Supply effective March
14, 1996 (in the form submitted to Bank herewith). Borrowers agree that before
making such Indemnity Payment they shall first provide to Bank an accurate and
complete pro forma borrowing base certificate showing that the amounts of
Revolving Credit Loans outstanding PLUS the proposed Indemnity Payments meet the
dollar and Eligible Receivables limitations specified in Section 4(a) hereof
AND, after such proposed Indemnity Payment, Borrowers still meet the financial
covenants specified in EXHIBIT "2(o)" hereof. Notwithstanding the foregoing,
Borrowers shall make no such Indemnity Payment to Supply if any Event of Default
has occurred (or will occur with such Indemnity Payment or notice or the passage
of time) except from Borrower funds generated through loans or investments from
third parties (with any such new debt satisfactorily subordinated to Bank).
<PAGE>
EXHIBIT 2(o)
FINANCIAL COVENANTS
In addition to the provisions of the Loan Agreement, Borrowers shall
have the following requirements:
1. Maintain consolidated Tangible Net Worth at no less than the
following amounts by and after the following dates:
TANGIBLE NET WORTH DATE
$13,000,000 March 13, 1996
$14,500,000 October 5, 1996
$16,000,000 January 5, 1997
"Tangible Net Worth" shall mean all equity accounts PLUS any debt fully
subordinated to the Bank (excluding, however, debt owed to Supply MINUS all
intangible assets MINUS any amounts due from officers, shareholders, or
affiliates of the Borrowers (excluding employee travel or expense advances
extended in the normal course of business).
2. Maintain a ratio of consolidated Debt to consolidated Tangible Net
Worth [the "Debt Ratio"] of not more than the following amounts by and after the
following dates:
Debt Ratio Date
5.0 to 1.0 March 13, 1996
4.5 to 1.0 October 5, 1996
4.0 to 1.0 January 5, 1997
"Debt" hereunder shall mean all the obligations and liabilities of the Borrowers
including (but not limited to) accounts payable, accrued expenses, Bank
borrowings, other notes payable, capitalized lease obligations, and amounts due
to floor plan finance companies.
<PAGE>
3. Generate at all times consolidated twelve (12) month trailing
after-tax net income of not less than $3,500,000.
<PAGE>
EXHIBIT 4(a)(i)
ELIGIBLE ACCOUNTS RECEIVABLE
"Eligible Receivables" will mean those accounts receivables of the
Borrowers as defined in the Security Agreements ("Receivables") which, when
scheduled to the Bank and at all times thereafter, do not violate the provisions
of this Agreement or the Security Agreements and which the Bank, in its sole
credit judgment, deems to be such Eligible Receivables. The total of Eligible
Receivables will be calculated net of any reserves the Bank deems necessary or
appropriate. No Receivable will be an Eligible Receivable if:
(i) it is due or unpaid more than 60 days after the due date thereof
or more than 90 days after the date of the original invoice issued with
respect to the sale giving rise thereto or it has not been invoiced; or
(ii) it arises out of a sale other than a bona fide outright sale of
goods made in the ordinary course of business or it arises out of any sale
to a person, firm or corporation which is an employee or Affiliate of the
Borrowers or controlled by an employee or Affiliate of the Borrowers; or
(iii)it is in dispute (in which case the Receivable will be ineligible
to the extent of such dispute); or
(iv) any warranty contained in this Agreement or the Security
Agreements with respect to Eligible Receivables or any warranty with
respect to such Receivables contained in this Agreement has been breached;
or
(v) it is evidenced by chattel paper and the chattel paper has not
been delivered to the Bank; or
(vi) the Receivable is or may become subject to any right of setoff by
the account debtor, and that the account debtor has not entered into an
agreement with the Bank which is acceptable to the Bank with respect to the
waiver of rights of setoff; or the account debtor has disputed liability,
or made any claim with respect to any other Receivable due from such
account debtor to ineligible to the extent of such dispute, claim, and/or
setoff; or
(vii)the account debtor has filed a petition for bankruptcy or any
other petition for relief under the Bankruptcy Code, made an assignment for
the benefit of creditors, or if any petition or other applicable for relief
under the Bankruptcy Code has been filed against the account debtor, or if
the debtor has failed, suspended its business operations, become insolvent,
or suffered a receiver or a trustee to be appointed for any of its assets
or affairs; or
(viii)the account debtor is also the supplier or creditor of the
Borrowers, and that account debtor has not entered into an agreement with
the Bank with respect to the waiver of rights of setoff which is acceptable
to the Bank; or
<PAGE>
(ix) the sale is to an account debtor outside the continental United
States, unless the sale is on letter of credit or acceptance terms
acceptable to the Bank; or
(x) the sale to such customer is on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval, consignment, or any other repurchase or
return basis; or
(xi) the Bank believes in its sole judgment, that collection of such
Receivable is insecure or that such Receivable may not be paid by reason of
the account debtor's financial inability to pay; or
(xii)the account debtor is any Governmental Authority, or any
department, agency or instrumentality thereof, unless the Borrowers if
applicable, (a) submits documentation with respect to such Receivable to
the Bank including but not limited to documentation establishing that such
Receivable does not grow out of progress payment agreement, (b) the
Borrowers assign their right to payment of such Receivables to the Bank
pursuant to the Assignment of Claims Act of 1940, as amended, (31 U.S.C.
Section 203 et seq.) or any other similar applicable law, and (c) the Bank
determines that any such receivable is absolute, unconditional and in
compliance with all applicable laws and regulations and the lien rights of
the Bank have been perfected; or
(xiii)the goods giving rise to such Receivable have not been shipped
and delivered to and accepted by the account debtor or the services giving
rise to such Receivable have not been performed by the Borrowers, and
accepted by the account debtor (or the sale has otherwise not been
consummated); or
(xiv)the Receivables of the respective account debtor exceed a credit
limit determined by the Bank, in its sole discretion, at any time or times
hereafter, to the extent such Receivable exceeds such limit; or
(xv) more than twenty-five percent (25%) of the Receivables of the
respective account debtor, or, as to any account debtor organized and
operated on a divisional basis recognized by the general business
community, more than 20% of the Receivables of the respective division of
such account debtor, have remained due or unpaid for more than 60 days
after the due date thereof or more than 90 days after the date of the
original invoice issued by the Borrowers with respect to the sale giving
rise thereto; or
(xvi)which is otherwise determined by the Bank to be ineligible for
any other reason generally accepted in the commercial finance business as a
reason for ineligibility, including but not limited to any sum retained by
account debtors pursuant to contracts with the Borrowers.
"Affiliate" will mean, with respect to any person, any other person directly or
indirectly controlling, controlled by, under common control with such person. A
person shall be deemed to control a corporation if such person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise. Without limiting the foregoing,
all of the Borrowers' officers, directors, subsidiary corporations, joint
ventures, and partners will be deemed to be the Borrowers' Affiliates for
purposes of this Agreement, and beneficial ownership
<PAGE>
of ten percent (10%) or more of the voting equity of a person (twenty-five
percent (25%) in the case of institutional investor-shareholders) shall be
deemed to constitute control. "Governmental Authority" will mean any nation or
government, any state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including, without limitation, any
department, commission, board, bureau, agency, administration, service or other
instrumentality of the United States of America, of any state, the District of
Columbia, municipality or any other governmental entity.
- Exhibit 4(a)(i) -- Page 2 -
<PAGE>
EXHIBIT 4(a)(ii)
AMENDED AND RESTATED
REVOLVING CREDIT PROMISSORY NOTE
$25,000,000.00 Cincinnati, Ohio
March 14, 1996
POMEROY COMPUTER RESOURCES, INC., a Delaware corporation, C & N CORP., a
Tennessee corporation, XENAS COMMUNICATIONS CORP., an Ohio corporation and
POMEROY COMPUTER LEASING COMPANY, INC., a Kentucky corporation (herein
collectively called "Borrowers"), for value received, hereby jointly and
severally promise to pay to the order of STAR BANK, NATIONAL ASSOCIATION (the
"Bank") or its assigns or successors, on or before April 30, 1997, the principal
sum of Twenty Five Million Dollars ($25,000,000.00) or such portion thereof as
may be advanced and to pay interest from the date hereof (computed on the basis
of a 360-day year) on the unpaid balance thereof at a per annum rate of interest
equal at all times to the rate announced from time to time by the Bank as its
prime rate (the "Prime Rate") minus one-fourth of one percent (0.25%), such
interest rate to be adjusted as specified in the Loan Agreement (as hereinafter
defined). The Prime Rate is determined solely by the Bank pursuant to market
factors and the Bank's operating needs and is not necessarily the Bank's best or
most favorable rate for commercial or other loans.
Interest and principal shall be payable in installments as specified in the
Loan Agreement. Payments of both principal and interest are to be made at the
principal office of the Bank at 425 Walnut Street in the City of Cincinnati,
Ohio in lawful money of the United States of America, or as otherwise designated
by the Bank.
At the option of the Bank, (a) prior to acceleration of this Note, in the
event that any interest or principal amounts remain unpaid past thirty (30) days
of the date due, and/or (b) upon the occurrence of any other Event of Default
under this Note or upon the acceleration of this Note, interest (computed and
adjusted in the same manner, and with the same effect, as interest on this Note
prior to maturity) will be paid on the outstanding balance of this Note on
demand at the Prime Rate plus three percent (3%) per annum up to any maximum
rate permitted by law, in all cases until paid and whether before or after the
entry of any judgment thereon. In addition, in the event that the Borrower
should fail to make any payment hereunder within ten (10) days of the date due,
the Borrower shall pay the Bank a fee in an amount of up to five percent (5%) of
the amount of such payment, but in no event less than fifty dollars ($50.00),
which fee shall be immediately due and payable without notice or demand.
<PAGE>
This Note is the "Revolving Credit Note" referred to in the Amended and
Restated Loan Agreement of even date herewith to which the Borrowers and the
Bank are parties (herein, as amended, restated and/or supplemented from time to
time, the "Loan Agreement"), and this Note is subject to the terms and
conditions of the Loan Agreement and the Collateral Security provided therein,
and its maturity is subject to acceleration upon the terms provided in the Loan
Agreement. Terms used herein shall have the same defined meaning as set forth in
the Loan Agreement. To the extent any provision of this Note shall be deemed to
be inconsistent with any provision of the Loan Agreement, said provision of the
Loan Agreement shall control.
This Note is being executed and delivered in, is intended to be performed
in, shall be construed and enforceable in accordance with, and governed by, the
laws of the State of Ohio and shall be subject to the venue limitations provided
in the Loan Agreement.
Presentment for payment, notice of dishonor, protest and notice of protest
are hereby waived.
POMEROY COMPUTER RESOURCES, INC. C & N CORP
By: /s/ Edwin S. Weinstein By: /s/ Edwin S. Weinstein
--------------------------- ----------------------------
Edwin S. Weinstein Edwin S. Weinstein
Chief Financial Officer Vice President
XENAS COMMUNICATIONS CORP. POMEROY COMPUTER LEASING
COMPANY, INC.
By: /s/ Edwin S. Weinstein By: /s/ Edwin S. Weinstein
--------------------------- ----------------------------
Edwin S. Weinstein Edwin S. Weinstein
Secretary-Treasurer Secretary-Treasurer
<PAGE>
EXHIBIT 4(b)
TERM PROMISSORY NOTE
$ Cincinnati, Ohio
-------------
, 1996
-------------
POMEROY COMPUTER RESOURCES, INC., a Delaware corporation, C & N CORP., a
Tennessee corporation, XENAS COMMUNICATIONS CORP., an Ohio corporation and
POMEROY COMPUTER LEASING COMPANY, INC., a Kentucky corporation (herein
collectively called "Borrowers"), for value received, hereby jointly and
severally promise to pay to the order of STAR BANK, NATIONAL ASSOCIATION (the
"Bank") or its assigns or successors, on or before _______________, 19___, the
principal sum of __________________________________ Dollars ($_____________) and
to pay interest from the date hereof (computed on the basis of a 360-day year)
on the unpaid balance thereof at a per annum rate of interest equal at all times
as specified in the Loan Agreement (as hereinafter defined).
Interest and principal shall be payable in installments as specified in the
Loan Agreement. Payments of both principal and interest are to be made at the
principal office of the Bank at 425 Walnut Street in the City of Cincinnati,
Ohio in lawful money of the United States of America, or as otherwise designated
by the Bank.
At the option of the Bank, (a) prior to acceleration of this Note, in the
event that any interest or principal amounts remain unpaid past thirty (30) days
of the date due, and/or (b) upon the occurrence of any other Event of Default
under this Note or upon the acceleration of this Note, interest (computed and
adjusted in the same manner, and with the same effect, as interest on this Note
prior to maturity) will be paid on the outstanding balance of this Note on
demand at the Prime Rate plus three percent (3%) per annum up to any maximum
rate permitted by law, in all cases until paid and whether before or after the
entry of any judgment thereon. In addition, in the event that the Borrower
should fail to make any payment hereunder within ten (10) days of the date due,
the Borrower shall pay the Bank a fee in an amount of up to five percent (5%) of
the amount of such payment, but in no event less than fifty dollars ($50.00),
which fee shall be immediately due and payable without notice or demand.
This Note is the "Term Note" referred to in the Amended and Restated Loan
Agreement of even date herewith to which the Borrowers and the Bank are parties
(herein, as amended, restated and/or supplemented from time to time, the "Loan
Agreement"), and this Note is subject to the terms and conditions of the Loan
Agreement and the Collateral Security provided therein, and its maturity is
subject to acceleration upon the terms provided in the Loan Agreement. Terms
used herein shall have the same defined meaning as set forth in the Loan
Agreement. To the extent any provision of this Note shall be deemed to be
inconsistent with any provision of the Loan Agreement, said provision of the
Loan Agreement shall control.
This Note is being executed and delivered in, is intended to be performed
in, shall be construed and enforceable in accordance with, and governed by, the
laws of the State of Ohio and shall be subject to the venue limitations provided
in the Loan Agreement.
Presentment for payment, notice of dishonor, protest and notice of protest
are hereby waived.
POMEROY COMPUTER RESOURCES, INC. C & N CORP.
By: By:
-------------------------------- ------------------------------------
Edwin S. Weinstein, Chief Edwin S. Weinstein, Vice President
Financial Officer
<PAGE>
XENAS COMMUNICATIONS CORP. POMEROY COMPUTER LEASING COMPANY, INC.
By: By:
-------------------------------- ------------------------------------
Edwin S. Weinstein, Edwin S. Weinstein,
Secretary-Treasurer Secretary-Treasurer
<PAGE>
SECURITY AGREEMENT
March 14, 1996
POMEROY COMPUTER RESOURCES, INC. whose principal place of business is
located at 1840 Airport Exchange Blvd., Suite 240, Erlanger, KY 41018 (the
"Borrower"), jointly and severally if more than one, in consideration of loans
or other financial accommodations at anytime made to Borrower by STAR BANK,
NATIONAL ASSOCIATION (its successors or assigns (the "Bank"), hereby grants to
the Bank a security interest in all of Borrower's assets or rights described in
paragraph 2 below or elsewhere in this Agreement, and all proceeds and products
thereof, to secure the payment of all indebtedness and liabilities of Borrower
to the Bank, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, including any extensions or
renewals thereof, and whether incurred alone or with others, as maker, endorser,
guarantor or surety, plus interest thereon and all costs of collection, legal
expenses and attorney's fees paid or incurred by the Bank in collecting and/or
enforcing any of such indebtedness or liabilities or realizing on the security
given hereby or otherwise (all such indebtedness, liabilities, interest, costs,
fees and expenses being hereinafter called the "Obligations"). The parties
further agree to as follows:
1. BORROWER'S PLACES OF BUSINESS. Borrower warrants that Borrower's only
places of business and mailing addresses (other than that listed above) are
those, if any, listed below (if none, so state):
See Schedule "A" Attached Hereto And Made A Part Hereof.
__________________________________________________________________
Street or P.O. Box City, County State
__________________________________________________________________
Street or P.O. Box City, County State
Borrower will notify Bank promptly in writing of any change in the location of
any place of business or mailing address, or the establishment of any new place
of business or mailing address.
2. SECURED PROPERTY LISTING AND DEFINITION. The following shall be
included in the Bank's security interest (as noted in the box) and all of such
included items, together with other items made subject to the Bank's security
interests by this Agreement, shall collectively be called the "Collateral":
/x/ "Inventory," which means goods, merchandise and other personal
property, now owned or hereafter acquired by the Borrower, which are held for
sale or lease or are furnished or to be furnished under a contract of service or
are raw materials, work in process or materials used or consumed or to be used
or consumed in the Borrower's business, and whether in Borrower's possession or
in the custody or possession of a third party for the account of Borrower or the
Bank, and all accessions, proceeds and products thereof.
<PAGE>
/x/ "Accounts Receivable," which means all Borrower's accounts, open
accounts receivable, book debts, contract rights, notes, drafts, acceptances,
instruments, chattel paper, general intangibles and other forms of obligations
or receivables now existing or hereafter acquired by Borrower, and all proceeds
thereof, plus any and all goods returned or rejected by, or repossessed from
Borrower's customers.
/x/ "Equipment," which means the specific items listed below, together
with all other of Borrower's machinery, parts, tools, accessories, attachments,
additions, other goods and accessions now owned or hereafter acquired and used
in Borrower's business, including all replacements, accessions and proceeds
thereof: --------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
/x/ "Fixtures and Furniture," which means all fixtures and furniture of
any kind and type now owned and hereafter acquired by Borrower located at all
places of business or elsewhere and including all replacements, accessions and
all proceeds thereof.
/x/ Other, See Schedule "A" Attached Hereto And Made A Part Hereof
----------------------------------------------------------
3. EVIDENCE OF COLLATERAL. Borrowers agrees to deliver to the Bank such
evidence of the Borrower's interest in the Collateral and of its availability
for use as collateral, as the Bank may request. At the request of the Bank, the
Borrower shall stamp its books and the ledger cards of all Accounts Receivable,
or other evidence thereof, to show the assignment and pledge to the Bank.
4. MAINTENANCE OF COLLATERAL LEVEL. The Borrower will at all times
maintain Collateral having a minimum aggregate value aggregate to the Bank, and
if Borrower fails to do so, Borrower (a) will immediately reduce the unpaid
Obligations as requested by the Bank or (b) upon the request of the Bank, will
immediately deposit additional Collateral or agree to additional security
interests satisfactory to the Bank.
5. INVENTORY; PROCESSING AND SALES. Provided that the Borrower is not in
default of any of the provisions of this Agreement, the Borrower shall have the
right to process and sell Inventory in the regular course of business, but the
Bank's security interest hereunder shall attach to all proceeds of all sales or
other disposition of such Inventory. Upon demand by the Bank, Borrower will
immediately deliver to the Bank the proceeds of such sale of Inventory either in
the identical form received or, at the Bank's option, pay to the Bank an amount
equal to such proceeds. Any payment, guarantee, security, property or right
received by Borrower in connection with the Inventory shall be received as the
agent of and on behalf of the Bank, will be kept separate and apart from all
other property of Borrower, will be capable of identification, and will be
delivered and paid immediately to the Bank as additional Collateral hereunder.
Upon default, Inventory shall not be sold, taken or removed from Borrower's
place of business,
<PAGE>
or shifted between places of business, except with the prior written consent of
the Bank.
6. ACCOUNTS RECEIVABLE; PROCESSING AND COLLECTION. At the option and
request of the Bank, immediately upon receipt all checks, drafts, cash and other
remittance in payment or on account of Borrower's Accounts Receivable, the
Borrower will deposit the same in a special account maintained with the Bank,
over which only the Bank shall have power of withdrawal. The funds in said
account shall be held by the Bank as Collateral for the Obligations, and the
Bank may apply said funds as payment on such of the Obligations as it may
determine or release said funds to the Borrower's account for Borrower's use.
Said proceeds shall be deposited in precisely the form received, except for
endorsement of the Borrower where necessary to permit collection of items, which
endorsement the Borrower agrees to make, and which the Bank is authorized to
make on Borrower's behalf as its Attorney-In-Fact. Pending such deposit,
Borrower agrees not to commingle any such checks, drafts, cash and other
remittances with any of the Borrower's funds or property, but will hold them
separately in trust for the Bank until deposit thereof with the Bank. The Bank
shall have the right to notify the account debtors obligated on any or all of
Borrower's Accounts Receivable to make payment directly to the Bank, and the
Bank shall have the right in its own name or in the name of the Borrower to
demand, collect, receive, receipt for, sue for, compound and give acquittance
for, any and all amounts due or to become due on the Accounts Receivable and to
endorse the name of Borrower as its Attorney-In-Fact on all commercial paper
given in payment or part payment or in evidence thereof or related thereto, and
in its discretion to file any claim or take any other action or proceeding which
the Bank may deem necessary or appropriate to protect and preserve and realize
upon the security interest of the Bank in the Accounts Receivable and the
proceeds thereof, which right the Bank may exercise at any time whether or not
the Borrower is then in default or was making collections thereon. Until such
time as the Bank elects to exercise such right by notifying Borrower, the
Borrower is authorized, as agent of the Bank, to collect and enforce said
Accounts Receivable. All costs of such collection and enforcement, including
attorney's fees and out-of-pocket expenses, shall be borne solely by the
Borrower whether incurred by the Bank or Borrower.
7. INSURANCE. With respect to the Collateral, the Borrower shall
maintain at all times insurance against risks of fire with extended coverage,
sprinkler leakage and all other risks customarily insured against by companies
engaged in similar business to that of Borrower, in amounts, containing such
terms, in such form, for such periods, and written by such companies as may be
satisfactory to the Bank. All such policies shall contain loss payable clauses
or endorsements to the Bank as its interest may appear and shall provide for
written notice to the Bank prior to any cancellation. In the event of failure
to provide and maintain insurance as herein provided, the Bank may, at its
option, provide such insurance and add the amount thereof to the Obligations.
The Borrower shall furnish to the Bank certificates or other evidence
satisfactory to the Bank of compliance with the foregoing provisions.
<PAGE>
Proceeds from any loss under such insurance policies shall be paid first to the
Bank and applied on such of the Obligations as the Bank shall determine. If any
such proceeds shall be paid by check, draft or other instrument payable to
Borrower and Bank jointly, the Bank is authorized and empowered by the Borrower
to endorse its name as Borrower's Attorney-In-Fact and take such other action as
it deems advisable to reduce the same to cash.
8. WARRANTIES AND FURTHER COVENANTs. a.) Borrower represents and
warrants that (1) each Account Receivable and all papers and documents relating
thereto are genuine and in all respects what they purport to be; (2) that each
Account Receivable is valid and arises out of a bona fide sale of goods and sold
and delivered by the Borrower to, or in the process of being delivered to, or
out of and for services actually rendered by the Borrower to the account debtor
named in the Account Receivable; (3) that the amount of the Account Receivable
represented as owing is the correct amount actually and unconditionally owing
except for normal cash discounts and is not disputed, and except for such normal
cash discounts is not subject to any set-offs, credits, deductions and
counter-charges; (4) that no surety bond was required or given in connection
with said Account Receivable or the contract or purchase orders out of which
the same arose; and (5) that the Borrower is the owner of all the Collateral
free and clean of all claims, liens, encumbrances, rights of set-off, and
security interests of any nature whatsoever (except this security interest)
and there are no financing statements covering same on file at any public
office.
b.) If a corporation or partnership, the Borrower hereby represents and
warrants the existence of all necessary power to enter into and execute this
Agreement and that this Agreement is not in violation of its Articles, Charter,
Regulations or By-Laws, or of any federal, state or local laws or judicial
rulings, or of any contractual obligation with any third party, and that this
Agreement is enforceable in accordance with its terms. Borrower will deliver,
upon request of the Bank, a written opinion of Borrower's counsel to such
effect.
c.) The Borrower shall execute and deliver to the Bank such lists,
descriptions and designations of the Collateral as the bank may require. The
Borrower shall at all reasonable times and from time to time allow the Bank, by
or through any of its officers, agents, attorneys or accountants, to examine,
inspect or make extracts from Borrower's books and records and to examine and
verify the Collateral wherever kept. So long as any Obligations remain
outstanding, the Bank, without cost to it, shall have a right of ingress to and
egress from any of the Borrower's places of business (or other places at which
the Collateral may be located) and may use any lifts, hoists, trucks and other
of Borrower's facilities to examine, handle or remove the Collateral. Borrower
further agrees to provide to the Bank, upon demand, statements and information
with respect to Borrower's business, including but not limited to profit and
loss reports, balance sheets and other financial statements. All such financial
data and listings of the Collateral shall be compiled in accordance with general
accepted accounting principles consistently applied.
<PAGE>
d.) The Borrower shall keep the Collateral in good order and repair.
Borrower shall not sell, offer to sell or otherwise transfer the Collateral, nor
pledge, mortgage or create, or suffer to exist a security interest claim, lien,
encumbrance, right of set-off or security interest of any kind whatsoever in the
Collateral or the proceeds or products thereof in favor of any person other than
the Bank without prior written consent of the Bank. The Borrower shall also pay
promptly when due all taxes, assessments, and governmental charges upon or
against the Borrower or the property of the Borrower. At its option, the Bank
may discharge taxes, liens or other encumbrances at any time levied or placed on
the Collateral, and pay for the maintenance and repair of same, should Borrower
fail to do so. Borrower agrees to reimburse the Bank on demand for any payment
so made, and until such reimbursement any amount so paid by the Bank shall be
added to the principal amount of the Obligations secured hereby.
e.) The Borrower shall immediately notify the Bank in writing of any
information which Borrower has or may receive with regard to the Collateral
which might in any manner affect the value thereof or the rights of the Bank
with respect thereto.
f.) The Borrower agrees to execute and deliver financing statements under
the Uniform Commercial Code, and statements or amendments thereof or supplements
thereto, and such other instruments as the Bank may from time to time require in
order to evidence, perfect, secure, preserve, protect and enforce the security
interest hereby granted. If any Collateral is or will be attached to real
estate, Borrower will upon demand by the Bank, furnish the Bank with an
appreciate disclaimer or waiver signed by all persons having an interest in the
real estate, of any interest in such Collateral which may be prior to the Bank's
security interest hereunder. The Bank is irrevocably appointed as
Attorney-In-Fact for the Borrower in all matters pertaining to all such
perfection, preservation, protection and enforcement.
g.) The Borrower agrees to pay all costs of filing financing, continuation
and termination statements with respect to the Collateral. Borrower also agrees
to pay all other expenses, including attorney's fees, incurred by the Bank in
the protection or enforcement of its rights in the Collateral and this
Agreement.
9. FURTHER SECURITY. Any deposits or other sums at anytime credited by
or due from the bank to the Borrower in the possession of the Bank may at all
times be held and treated as Collateral for the payment of the Obligations, and
the Bank may apply or set off such deposits or other sums against said
Obligations to the extent said Obligations are due and payable. Further, the
Borrower also gives to and creates in favor of the Bank an additional security
interest in any other property, and the proceeds and products thereof, now or
hereafter in the possession of or pledged to the Bank belonging to the Borrower
or in which the Borrower has any interest. The Borrower will at anytime at the
Bank's request, sign financing statements, trust receipts, security
<PAGE>
interests or other documents evidencing and perfecting such security interest.
10. EVENTS OF DEFAULT; ACCELERATION; USE AND OPERATION OF SECURED
PROPERTY. Any one or more of the following shall constitute events of default:
(a) default by Borrower in the payment or performance, when due or payable, of
any of the Obligations, or default by any endorser, guarantor or surety for any
liability of the Borrower to the Bank; (b) failure of the Borrower to pay when
due any tax or any premium on any insurance policy pursuant to his Agreement;
(c) the making by the Borrower of any misrepresentation to the Bank hereunder,
or otherwise for the purpose of obtaining credit or an extension of credit; (d)
failure of the Borrower after request by the Bank to furnish promptly financial
information or to permit promptly the inspection of books or records; (e)
failure of Borrower to perform or observe any of the provisions of this
Agreement or of any other instrument pertaining to the Obligations; (f) issuance
of an injunction or attachment against property of the Borrower; (g) appointment
of a receiver of any part of the property of the Borrower or the commencement by
or against the Borrower of any proceeding under any bankruptcy, arrangement,
reorganization, insolvency or similar law for the relief of debtors, or by or
against any guarantor or surety for the Borrower; or (h) the occurrence of such
a change in the condition or affairs (financial or otherwise) of the Borrower,
or of any endorser, guarantor or surety for any liability of the Borrower to the
Bank, as in the opinion of the Bank impairs the Bank's security or increases its
risk. Upon occurrence of any of the events of default, any or all of the
Obligations shall, at the option of the Bank and notwithstanding any time or
credit allowed by any instrument evidencing a liability, be immediately due and
payable without notice or demand. The Bank may exercise any one or more of the
rights and remedies granted pursuant to this Agreement and also exercise any or
all of the rights and remedies afforded to a secured party under the Uniform
Commercial Code as enacted in the State in which the principal office of the
Bank is located, including without limitation the right upon default to take
possession and sell, lease or otherwise dispose of the Collateral, and/or to
operate, use or exercise any rights of ownership pertaining to the Collateral as
the Bank deems necessary to preserve the value and receive the benefits of such
Collateral. For that purpose the Bank may, so far as Borrower can give
authority therefore, enter upon any premises on which the Collateral or any part
thereof may be situated, take possession of and remove the same therefrom. The
Bank may request Borrower to make the Collateral available to the Bank at a
place to be designated by the Bank which is reasonably convenient to both
parties. Upon repossession or recovery of the Collateral by the Bank, it may,
after reasonable notification to the Borrower, sell the Collateral at public or
private sale, at which sale the Bank may become the purchaser. Pending any such
action, the Bank may liquidate the Accounts Receivable and continue to operate,
use and exercise rights of ownership pertaining to the Collateral. Out of the
proceeds arising from said liquidation and sale, the Bank may pay all costs and
expenses incurred in connection with the retaking, removing, holding,
restoration to saleable condition(including finishing of manufacture), keeping,
storing, operating, using, advertising, and
<PAGE>
selling the Collateral, and then pay the amount due and owing to the Bank on the
Obligations. The balance if, any, remaining may then be applied by the Bank to
the satisfaction of known indebtedness secured by any subordinate security
interest in the Collateral, accounting to the Borrower for the surplus, if any,
remaining in possession of the Bank after all such security interests, liens,
claims and charges have been paid. The Borrower shall be liable to the Bank for
any deficiency that may result upon such liquidation and sale of the Collateral
and waives all claims for damages by reason of any seizure, repossession,
retention, operation, use or sale of said Collateral. The requirement of
reasonable notice, if necessary, shall be met if such notice is mailed, postage
prepaid, to the first of the places of business of the Borrower shown in this
Agreement at least ten (10) days before the time of the sale or other
disposition. While exercising its rights as a secured party hereunder,
including operation, use and receipt of benefits from the Collateral, the Bank
shall not be liable in any fashion to the Borrower or any third party (including
without limitation Borrower's employees, invitees, customers and suppliers) for
any damages arising from such operation and use, or any obligations, duties, or
liabilities of Borrower in connection therewith (including without limitation
Borrower's contracts, agreements, guarantees, commitments or warranties).
11. WAIVERS; CONTINUED LIABILITY. The Bank shall not be deemed to have
waived any of its rights in this Agreement or to the Collateral unless such
waiver is in writing and signed by the Bank and such waiver shall not operate as
a wavier of any other default or of the same default on a subsequent occasion.
No renewal or extension of time of payment of the Obligations at any rate of
interest, no release, surrender, exchange of modification of the Collateral, no
release of any person primarily or secondarily liable on the Obligations
(including any maker, endorser, guarantor or surety), no delay in enforcement of
payment of the Obligations and no delay, omission or forebearance in exercising
any right or power with respect to the Obligations, the Collateral, or this
Agreement shall affect the liability of the Borrower to the Bank. The Borrower
waives presentment, protest, demand, notice of dishonor or default, notice of
acceptance of this Agreement, notice of any loans made, renewals or extension
granted, notice of any Collateral released, surrendered, exchanged or modified,
and to the extent permitted by law, notice of other action taking in reliance
hereon and all demands and notices of any kind in connection with the
Collateral, the Obligations or this Agreement.
12. DURATION. The term of this Agreement shall commence with the date
hereof and end on the date when the Borrower has paid in full all of the
Obligations secured hereby and the Bank gives notice to the Borrower that no
further loans are to be made hereunder. Until such termination, this Agreement
shall be a continuing one.
13. GENERAL. This Agreement shall be subject to other provisions in any
notes or other documents signed by the Borrower in any capacity concerning the
Obligations which are not inconsistent with the
<PAGE>
provisions contained herein. All rights and liabilities hereunder shall be
governed and limited by and construed in accordance with the laws of the state
in which the principal office of the Bank is located and this Agreement shall
inure to the benefit of the Bank and bind the Borrower, and their respective
successors and assigns, or legal representatives and heirs, as the case may be.
Any provision hereof which may prove limited or unenforceable under any laws or
judicial rulings shall not affect the validity or enforcement of the remainder
of the provision or of any other provision.
STAR BANK, NATIONAL ASSOCIATION POMEROY COMPUTER RESOURCES, INC.
By /s/ Douglas V. Wyatt, V.P. By: /s/ Edwin S. Weinstein
----------------------------- ----------------------------
Douglas V. Wyatt Edwin S. Weinstein
Title Vice President Chief Financial Officer
-------------------------- -------------------------------
-------------------------------
BORROWER(S)
<PAGE>
SCHEDULE "A" TO SECURITY AGREEMENT BETWEEN
STAR BANK, NATIONAL ASSOCIATION
AND POMEROY COMPUTER RESOURCES, INC.
Dated March 14, 1996
A. Debtor's Office and Inventory Locations:
1. 565 W. Main Street
Lexington, KY 40507
2. 908 Dupont Road
Louisville, KY 40207
3. 7653 D Mall Road
Florence, KY 41042
4. 11 North Building, Suite 6A
Ft. Thomas, KY 41075
5. 1020 U.S. 42
Hebron, KY
6. 1050 Elijah Creek Rd.
Hebron, KY
7. 150 F Market Place
Knoxville, TN
8. 717 Airpark Center Drive
Nashville, TN
9. (Also known as Cabling
Unlimited)
8770 Commerce Park Place
Indianapolis, IN
10. 1850 Airport Exchange Blvd.
Erlanger, KY
11. 11530 Century Blvd.
Cincinnati, OH 45246
12. 6645 Singletree Drive
Columbus, OH 43299
13. (Also Known As The Computer
Supply Store)
408 Locust Street
Des Moines, IA 50265
14. (Also Known As The Computer
Supply Store)
1312 Locust Street
Des Moines, IA 50265
15. 250 Grandview Drive
Ft. Mitchell, KY 41017
16. 2041 Creative Drive, Suite 400
Lexington, KY
17. 3740 St. Johns Bluff Road
Jacksonville, FL
18. 1208 3rd Avenue South
Birmingham, AL
19. (Also Known as Cabling
Unlimited)
115 Wiltshire Ave.
Louisville, KY
20. 1045 W. Eighth Street
Cincinnati, OH
B. ADDITIONAL PROVISIONS
This Security Agreement and the attached Schedules are entered into between
the Bank and Borrower pursuant to the terms of a Loan Agreement of even
date herewith and as may be amended and/or revised or restated in the
future. This Security Agreement shall not be interpreted more broadly and
shall be deemed limited by provisions of such Loan Agreement, including
(without limitation) those concerning the Collateral and Events of
Default).
STAR BANK, NATIONAL ASSOCIATION POMEROY COMPUTER RESOURCES, INC.
By /s/ Douglas V. Wyatt, V.P. By: /s/ Edwin S. Weinstein
----------------------------- ----------------------------
Douglas V. Wyatt Edwin S. Weinstein
Vice President Chief Financial Officer
<PAGE>
SECURITY AGREEMENT
March 14, 1996
POMEROY COMPUTER LEASING COMPANY, INC., whose principal place of business
is located at 1840 Airport Exchange Blvd., Suite 240, Erlanger, Kentucky 41018
(the "Borrower"), jointly and severally if more than one, in consideration of
loans or other financial accommodations at anytime made to Borrower by STAR
BANK, NATIONAL ASSOCIATION, (its successors or assigns (the "Bank"), hereby
grants to the Bank a security interest in all of Borrower's assets or rights
described in paragraph 2 below or elsewhere in this Agreement, and all proceeds
and products thereof, to secure the payment of all indebtedness and liabilities
of Borrower to the Bank, whether direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, including any extensions or
renewals thereof, and whether incurred alone or with others, as maker, endorser,
guarantor or surety, plus interest thereon and all costs of collection, legal
expenses and attorney's fees paid or incurred by the Bank in collecting and/or
enforcing any of such indebtedness or liabilities or realizing on the security
given hereby or otherwise (all such indebtedness, liabilities, interest, costs,
fees and expenses being hereinafter called the "Obligations"). The parties
further agree to as follows:
1. BORROWER'S PLACES OF BUSINESS. Borrower warrants that Borrower's only
places of business and mailing addresses (other than that listed above) are
those, if any, listed below (if none, so state):
SEE SCHEDULE "A" ATTACHED HERETO AND MADE A PART HEREOF
Street or P.O. Box City, County State
- --------------------------------------------------------------------------------
Street or P.O. Box City, County State
Borrower will notify Bank promptly in writing of any change in the location of
any place of business or mailing address, or the establishment of any new place
of business or mailing address.
2. SECURED PROPERTY LISTING AND DEFINITION. The following shall be
included in the Bank's security interest (as noted in the box) and all of such
included items, together with other items made subject to the Bank's security
interests by this Agreement, shall collectively be called the "Collateral":
/x/ "Inventory," when means goods, merchandise and other personal
property, now owned or hereafter acquired by the Borrower, which are held for
sale or lease or are furnished or to be furnished under a contract of service or
are raw materials, work in process or materials used or consumed or to be used
or consumed in the Borrower's business, and whether in Borrower's possession or
in the custody or possession of a third party for the account of Borrower or the
Bank, and all accessions, proceeds and products thereof.
<PAGE>
/x/ "Accounts Receivable," which means all Borrower's accounts, open
accounts receivable, book debts, contract rights, notes, drafts, acceptances,
instruments, chattel paper, general intangibles and other forms of obligations
or receivables now existing or hereafter acquired by Borrower, and all proceeds
thereof, plus any and all goods returned or rejected by, or repossessed from
Borrower's customers.
/x/ "Equipment," which means the specific items listed below, together
with all other of Borrower's machinery, parts, tools, accessories, attachments,
additions, other goods and accessions now owned or hereafter acquired and used
in Borrower's business, and including all replacements, accessions and proceeds
thereof:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------.
/x/ "Fixtures and Furniture," which means all fixtures and furniture of
any kind and type now owned and hereafter acquired by Borrower located at all
places of business or elsewhere and including all replacements, accessions and
all proceeds thereof.
/x/ Other, SEE SCHEDULE "A" ATTACHED HERETO AND MADE A PART
HEREOF
--------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------.
3. EVIDENCE OF COLLATERAL. Borrower agrees to deliver to the Bank such
evidence of the Borrower's interest in the Collateral and of its availability
for use as collateral, as the Bank may request. At the request of the Bank, the
Borrower shall stamp its books and the ledger cards of all Accounts Receivable,
or other evidence thereof, to show the assignment and pledge to the Bank.
4. MAINTENANCE OF COLLATERAL LEVEL. The Borrower will at all times
maintain Collateral having a minimum aggregate value acceptable to the Bank, and
if Borrower fails to do so, Borrower (a) will immediately reduce the unpaid
Obligations as requested by the Bank or (b) upon the request of the Bank, will
immediately deposit additional Collateral or agree to additional security
interests satisfactory to the Bank.
5. INVENTORY; PROCESSING AND SALES. Provided that the Borrower is not
in default of any of the provisions of this Agreement, the Borrower shall have
the right to process and sell Inventory in the regular course of business, but
the Bank's security interest hereunder shall attach to all proceeds of all sales
or other disposition of such Inventory. Upon demand by the Bank, Borrower will
immediately deliver to the Bank the proceeds of such sale of Inventory either in
the identical form received or, at the Bank's option, pay to the Bank an amount
equal to such proceeds. Any payment, guarantee, security, property or right
received by Borrower in connection with the Inventory shall be received as the
agent of and on behalf of the Bank, will be kept separate and apart from all
other property of Borrower, will be capable of identification, and
<PAGE>
will be delivered and paid immediately to the Bank as additional Collateral
hereunder. Upon default, Inventory shall not be sold, taken or removed from
Borrower's place of business, or shifted between places of business, except with
the prior written consent of the Bank.
6. ACCOUNTS RECEIVABLE; PROCESSING AND COLLECTION. At the option and
request of the Bank, immediately upon receipt of all checks, drafts, cash and
other remittance in payment or on account of Borrower's Accounts Receivable, the
Borrower will deposit the same in a special account maintained with the Bank,
over which only the Bank shall have power of withdrawal. The funds in said
account shall be held by the Bank as Collateral for the Obligations, and the
Bank may apply said funds as payment on such of the Obligations as it may
determine or release said funds to the Borrower's account for Borrower's use.
Said proceeds shall be deposited in precisely the form received, except for
endorsement of the Borrower where necessary to permit collection of items, which
endorsement the Borrower agrees to make, and which the Bank is authorized to
make on Borrower's behalf as its Attorney-In-Fact. Pending such deposit,
Borrower agrees not to commingle any such checks, drafts, cash and other
remittances with any of the Borrower's funds or property, but will hold them
separately in trust for the Bank until deposit thereof with the Bank. The Bank
shall have the right to notify the account debtors obligated on any or all of
Borrower's Accounts Receivable to make payment directly to the Bank, and the
Bank shall have the right in its own name or in the name of the Borrower to
demand, collect, receive, receipt for, sue for, compound and give acquittance
for, any and all amounts due or to become due on the Accounts Receivable and to
endorse the name of Borrower as its Attorney-In-Fact on all commercial paper
given in payment or part payment or in evidence thereof or related thereto, and
in its discretion to file any claim or take any other action or proceeding which
the Bank may deem necessary or appropriate to protect and preserve and realize
upon the security interest of the Bank in the Accounts Receivable and the
proceeds thereof, which right the Bank may exercise at any time whether or not
the Borrower is then in default or was making collections thereon. Until such
time as the Bank elects to exercise such right by notifying Borrower, the
Borrower is authorized, as agent of the Bank, to collect and enforce said
Accounts Receivable. All costs of such collection and enforcement, including
attorney's fees and out-of-pocket expenses, shall be borne solely by the
Borrower whether incurred by the Bank or Borrower.
8. WARRANTIES AND FURTHER COVENANTS. a.) Borrower represents and
warrants that (1) each Account Receivable and all papers and documents relating
thereto are genuine and in all respects what they purport to be; (2) that each
Account Receivable is valid and arises out of a bona fide sale of goods sold and
delivered by the Borrower to, or in the process of being delivered to, or out of
and for services actually rendered by the Borrower to the account debtor named
in the Account Receivable; (3) that the amount of the Account Receivable
represented as owing is the correct amount actually and unconditionally owing
except for normal cash discounts and is not disputed, and except for such normal
cash discounts is not subject to any set-offs, credits, deductions and counter-
charges; (4) that no surety bond was required or
<PAGE>
given in connection with said Account Receivable or the contract or purchase
orders out of which the same arose; and (5) that the Borrower is the owner of
all the Collateral free and clear of all claims, liens, encumbrances, rights of
set-off, and security interests of any nature whatsoever (except this security
interest) and there are no financing statements covering same on file at any
public office.
b.) If a corporation or partnership, the Borrower hereby represents and
warrants the existence of all necessary power to enter into and execute this
Agreement and that this Agreement is not in violation of its Articles, Charter,
Regulations or By-Laws, or of any federal, state or local laws or judicial
rulings, or of any contractual obligation with any third party, and that this
Agreement is enforceable in accordance with its terms. Borrower will deliver,
upon request of the Bank, a written opinion of Borrower's counsel to such
effect.
c.) The Borrower shall execute and deliver to the Bank such lists,
descriptions and designations of the Collateral as the Bank may require. The
Borrower shall at all reasonable times and from time to time allow the Bank, by
or through any of its officers, agents, attorneys or accountants, to examine,
inspect or make extracts from Borrower's books and records and to examine and
verify the Collateral wherever kept. So long as any Obligations remain
outstanding, the Bank, without cost to it, shall have a right of ingress to and
egress from any of the Borrower's places of business (or other places at which
the Collateral may be located) and may use any lifts, hoists, trucks and other
of Borrower's facilities to examine, handle or remove the Collateral. Borrower
further agrees to provide to the Bank, upon demand, statements and information
with respect to Borrower's business, including but not limited to profit and
loss reports, balance sheets and other financial statements. All such financial
data and listings of the Collateral shall be compiled in accordance with general
accepted accounting principles consistently applied.
d.) The Borrower shall keep the Collateral in good order and repair.
Borrower shall not sell, offer to sell or otherwise transfer the Collateral, nor
pledge, mortgage or create, or suffer to exist a security interest claim, lien,
encumbrance, right of set-off or security interest of any kind whatsoever in the
Collateral or the proceeds or products thereof in favor of any person other than
the Bank without prior written consent of the Bank. The Borrower shall also pay
promptly when due all taxes, assessments, and governmental charges upon or
against the Borrower or the property of the Borrower. At its option, the Bank
may discharge taxes, liens or other encumbrances at any time levied or placed
on the Collateral, and pay for the maintenance and repair of same, should
Borrower fail to do so. Borrower agrees to reimburse the Bank on demand for any
payment so made, and until such reimbursement any amount so paid by the Bank
shall be added to the principal amount of the Obligations secured hereby.
e.) The Borrower shall immediately notify the Bank in writing of any
information which Borrower has or may receive with regard to the Collateral
which might in any manner affect the value thereof or the rights of the Bank
with respect thereto.
f.) The Borrower agrees to execute and deliver financing statements under
the Uniform Commercial Code, and statements or amendments thereof or supplements
thereto, and such other instruments as
<PAGE>
the Bank may from time to time require in order to evidence, perfect, secure,
preserve, protect and enforce the security interest hereby granted. If any
Collateral is or will be attached to real estate, Borrower will upon demand by
the Bank, furnish the Bank with an appropriate disclaimer or waiver signed by
all persons having an interest int he real estate, of any interest in such
Collateral which may be prior to the Bank's security interest hereunder. The
Bank is irrevocably appointed as Attorney-In-Fact for the Borrower in all
matters pertaining to all such perfection, preservation, protection and
enforcement.
g.) The Borrower agrees to pay all costs of filing, financing,
continuation and termination statements with respect to the Collateral.
Borrower also agrees to pay all other expenses, including attorney's fees,
incurred by the Bank in the protection or enforcement of its rights in the
Collateral and this Agreement.
9. FURTHER SECURITY. Any deposits or other sums at anytime credited by
or due from the Bank to the Borrower in the possession of the Bank may at all
times be held and treated as Collateral for the payment of the Obligations, and
the Bank may apply or set off such deposits or other sums against said
Obligations to the extent said Obligations are due and payable. Further, the
Borrower also gives to and creates in favor of the Bank an additional security
interest in any other property, and the proceeds and products thereof, now or
hereafter in the possession of or pledged to the Bank belonging to the Borrower
or in which the Borrower has any interest. The Borrower will at anytime at the
Bank's request, sign financing statements, trust receipts, security interests or
other documents evidencing and perfecting such security interest.
10. EVENTS OF DEFAULT; ACCELERATION; USE AND OPERATION OF SECURED
PROPERTY. Any one or more of the following shall constitute events of default:
(a) default by Borrower in the payment or performance, when due or payable, of
any of the Obligations, or default by any endorser, guarantor or surety for any
liability of the Borrower to the Bank; (b) failure of the Borrower to pay when
due any tax or any premium on any insurance policy pursuant to this Agreement;
(c) the making by the Borrower of any misrepresentation to the Bank hereunder,
or otherwise for the purpose of obtaining credit or an extension of credit; (d)
failure of the Borrower after request by the Bank to furnish promptly financial
information or to permit promptly the inspection of books or records; (e)
failure of Borrower to perform or observe any of the provisions of this
Agreement or of any other instrument pertaining to the Obligations; (f) issuance
of an injunction or attachment against property of the Borrower; (g) appointment
of a receiver of any part of the property of the Borrower or the commencement by
or against the Borrower of any proceeding under any bankruptcy, arrangement,
reorganization, insolvency or similar law for the relief of debtors, or by or
against any guarantor or surety for the Borrower; or (h) the occurrence of such
a change in the condition or affairs (financial or otherwise) of the Borrower,
or of any endorser, guarantor or surety for any liability of the Borrower to the
Bank, as in the opinion of the Bank impairs the Bank's security or increases its
risk. Upon occurrence of
<PAGE>
any of the events of default, any or all of the Obligations shall, at the option
of the Bank and notwithstanding any time or credit allowed by any instrument
evidencing a liability, be immediately due and payable without notice or demand.
The Bank may exercise any one or more of the rights and remedies granted
pursuant to this Agreement and also exercise any or all of the rights and
remedies afforded to a secured party under the Uniform Commercial Code as
enacted in the State in which the principal office of the Bank is located,
including without limitation the right upon default to take possession and sell,
lease or otherwise dispose of the Collateral, and/or to operate, use or exercise
any rights of ownership pertaining to the Collateral as the Bank deems necessary
to preserve the value and receive the benefits of such Collateral. For that
purpose the Bank may, so far as Borrower can give authority therefore, enter
upon any premises on which the Collateral or any part thereof may be situated,
take possession of and remove the same therefrom. The Bank may require Borrower
to make the Collateral available to the Bank at a place to be designated by the
Bank which is reasonably convenient to both parties. Upon repossession or
recovery of the Collateral by the Bank, it may, after reasonable notification to
the Borrower, sell the Collateral at public or private sale, at which sale the
Bank may become the purchaser. Pending any such action, the Bank may liquidate
the Accounts Receivable and continue to operate, use and exercise rights of
ownership pertaining to the Collateral. Out of the proceeds arising from said
liquidation and sale, the Bank may pay all costs and expenses incurred in
connection with the retaking, removing, holding, restoration to saleable
condition (including finishing of manufacture), keeping, storing, operating,
using, advertising, and selling the Collateral, and then pay the amount due and
owing to the Bank on the Obligations. The balance, if any, remaining may then
be applied by the Bank to the satisfaction of known indebtedness secured by any
subordinate security interest in the Borrower shall be liable to the Bank for
any deficiency that may result upon such liquidation and sale of the Collateral
and waives all claims for damages by reason of any seizure, repossession,
retention, operation, use or sale of said Collateral. The requirement of
reasonable notice, if necessary, shall be met if such notice is mailed, postage
prepaid, to the first of the places of business of the Borrower shown in this
Agreement at least ten (10) days before the time of the sale or other
disposition. While exercising its rights as a secured party hereunder,
including operation, use and receipt of benefits from the Collateral, the Bank
shall not be liable in any fashion to the Borrower or any third party (including
without limitation Borrower's employees, invitees, customers and suppliers) for
any damages arising from such operation and use, or any obligations, duties, or
liabilities of Borrower in connection therewith (including without limitation
Borrower's contracts, agreements, guarantees, commitments or warranties).
11. WAIVERS; CONTINUED LIABILITY. The Bank shall not be deemed to have
waived any of its rights in this Agreement or to the Collateral unless such
waivers is in writing and signed by the Bank and such waiver shall not operate
as a waiver of any other default or of the same default on a subsequent
occasion. No renewal or extension of time of payment of the Obligations any
rate of interest, no release,
<PAGE>
surrender, exchange of modification of the Collateral, no release of any person
primarily or secondarily liable on the Obligations (including any maker,
endorser, guarantor or surety), no delay in enforcement of payment of the
Obligations and no delay, omission or forbearance in exercising any right or
power with respect to the Obligations, the Collateral, or this Agreement shall
affect the liability of the Borrower to the Bank. The Borrower waives
presentment, protest, demand, notice of dishonor or default, notice of
acceptance of this Agreement, notice of any loans made, renewals or extension
granted, notice of any Collateral released, surrendered, exchanged or modified,
and to the extent permitted by law, notice of other action taken in reliance
hereon and all demands and notices of any kind in connection with the
Collateral, the Obligations or this Agreement.
12. DURATION. The term of this Agreement shall commence with the date
hereof and end on the date when the Borrower has paid in full all of the
Obligations secured hereby and the Bank gives notice to the Borrower that no
further loans are to be made hereunder. Until such termination, this Agreement
shall be a continuing one.
13. GENERAL. This Agreement shall be subject to other provisions in any
notes or other documents signed by the Borrower in any capacity concerning the
Obligations which are not inconsistent with the provisions contained herein.
All rights and liabilities hereunder shall be governed and limited by and
construed in accordance with the laws of the state in which the principal office
of the Bank is located and this Agreement shall inure to the benefit of the Bank
and bind the Borrower, and their respective successors and assigns, or legal
representatives and heirs, as the case may be. Any provision hereof which may
prove limited or unenforceable under any laws or judicial rulings shall not
affect the validity or enforcement of the remainder of the provision or of any
other provision.
STAR BANK, NATIONAL ASSOCIATION POMEROY COMPUTER LEASING CO., INC.
By /s/ Douglas V. Wyatt, V.P. By: /s/ Edwin S. Weinstein
----------------------------- ----------------------------
Douglas V. Wyatt Edwin S. Weinstein
Title: Vice President Title: Secretary-Treasurer
------------------------- -------------------------
<PAGE>
SCHEDULE "A"
TO SECURITY AGREEMENT BETWEEN
STAR BANK, NATIONAL ASSOCIATION
AND POMEROY COMPUTER LEASING COMPANY, INC.
Dated March 14, 1996
ADDITIONAL PROVISIONS:
This Security Agreement and the attached Schedules are entered into between
the Bank and Borrower pursuant to the terms of a Loan Agreement of even
date herewith and as may be amended and/or revised or restated in the
future. This Security Agreement shall not be interpreted more broadly and
shall be deemed limited by provisions of such Loan Agreement, including
(without limitation) those concerning the Collateral and Events of
Default).
STAR BANK, NATIONAL ASSOCIATION POMEROY COMPUTER LEASING COMPANY, INC.
By /s/ Douglas V. Wyatt, V.P. By: /s/ Edwin S. Weinstein
----------------------------- ----------------------------
Douglas V. Wyatt Edwin S. Weinstein
Vice President Secretary-Treasurer
<PAGE>
SECURITY AGREEMENT
March 14, 1996
XENAS COMMUNICATIONS CORP. whose principal place of business is located at
1840 Airport Exchange Blvd., Suite 240, Erlanger, KY 41018 (the "Borrower"),
jointly and severally if more than one, in consideration of loans or other
financial accommodations at anytime made to Borrower by STAR BANK, NATIONAL
ASSOCIATION (its successors or assigns (the "Bank"), hereby grants to the Bank a
security interest in all of Borrower's assets or rights described in paragraph 2
below or elsewhere in this Agreement, and all proceeds and products thereof, to
secure the payment of all indebtedness and liabilities of Borrower to the Bank,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, including any extensions or renewals thereof, and
whether incurred alone or with others, as maker, endorser, guarantor or surety,
plus interest thereon and all costs of collection, legal expenses and attorney's
fees paid or incurred by the Bank in collecting and/or enforcing any of such
indebtedness or liabilities or realizing on the security given hereby or
otherwise (all such indebtedness, liabilities, interest, costs, fees and
expenses being hereinafter called the "Obligations"). The parties further agree
to as follows:
1. BORROWER'S PLACES OF BUSINESS. Borrower warrants that Borrower's only
places of business and mailing addresses (other than that listed above) are
those, if any, listed below (if none, so state):
See Schedule "A" Attached Hereto And Made A Part Hereof.
Street or P.O. Box City, County State
- ------------------------------------------------------------------
Street or P.O. Box City, County State
Borrower will notify Bank promptly in writing of any change in the location of
any place of business or mailing address, or the establishment of any new place
of business or mailing address.
2. SECURED PROPERTY LISTING AND DEFINITION. The following shall be
included in the Bank's security interest (as noted in the box) and all of such
included items, together with other items made subject to the Bank's security
interests by this Agreement, shall collectively be called the "Collateral":
/x/ "Inventory," which means goods, merchandise and other personal
property, now owned or hereafter acquired by the Borrower, which are held for
sale or lease or are furnished or to be furnished under a contract of service or
are raw materials, work in process or materials used or consumed or to be used
or consumed in the Borrower's business, and whether in Borrower's possession or
in the custody or possession of a third party for the account of Borrower or the
Bank, and all accessions, proceeds and products thereof.
<PAGE>
/x/ "Accounts Receivable," which means all Borrower's accounts, open
accounts receivable, book debts, contract rights, notes, drafts, acceptances,
instruments, chattel paper, general intangibles and other forms of obligations
or receivables now existing or hereafter acquired by Borrower, and all proceeds
thereof, plus any and all goods returned or rejected by, or repossessed from
Borrower's customers.
/x/ "Equipment," which means the specific items listed below, together
with all other of Borrower's machinery, parts, tools, accessories, attachments,
additions, other goods and accessions now owned or hereafter acquired and used
in Borrower's business, including all replacements, accessions and proceeds
thereof: ---------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
/x/ "Fixtures and Furniture," which means all fixtures and furniture of
any kind and type now owned and hereafter acquired by Borrower located at all
places of business or elsewhere and including all replacements, accessions and
all proceeds thereof.
/x/ Other, See Schedule "A" Attached Hereto And Made A Part Hereof
- -----------------------------------------------------------------
3. EVIDENCE OF COLLATERAL. Borrowers agrees to deliver to the Bank such
evidence of the Borrower's interest in the Collateral and of its availability
for use as collateral, as the Bank may request. At the request of the Bank, the
Borrower shall stamp its books and the ledger cards of all Accounts Receivable,
or other evidence thereof, to show the assignment and pledge to the Bank.
4. MAINTENANCE OF COLLATERAL LEVEL. The Borrower will at all times
maintain Collateral having a minimum aggregate value aggregate to the Bank, and
if Borrower fails to do so, Borrower (a) will immediately reduce the unpaid
Obligations as requested by the Bank or (b) upon the request of the Bank, will
immediately deposit additional Collateral or agree to additional security
interests satisfactory to the Bank.
5. INVENTORY; PROCESSING AND SALES. Provided that the Borrower is not in
default of any of the provisions of this Agreement, the Borrower shall have the
right to process and sell Inventory in the regular course of business, but the
Bank's security interest hereunder shall attach to all proceeds of all sales or
other disposition of such Inventory. Upon demand by the Bank, Borrower will
immediately deliver to the Bank the proceeds of such sale of Inventory either in
the identical form received or, at the Bank's option, pay to the Bank an amount
equal to such proceeds. Any payment, guarantee, security, property or right
received by Borrower in connection with the Inventory shall be received as the
agent of and on behalf of the Bank, will be kept separate and apart from all
other property of Borrower, will be capable of identification, and will be
delivered and paid immediately to the Bank as additional Collateral hereunder.
Upon default, Inventory shall not be sold, taken
<PAGE>
or removed from Borrower's place of business, or shifted between places of
business, except with the prior written consent of the Bank.
6. ACCOUNTS RECEIVABLE; PROCESSING AND COLLECTION. At the option and
request of the Bank, immediately upon receipt all checks, drafts, cash and other
remittance in payment or on account of Borrower's Accounts Receivable, the
Borrower will deposit the same in a special account maintained with the Bank,
over which only the Bank shall have power of withdrawal. The funds in said
account shall be held by the Bank as Collateral for the Obligations, and the
Bank may apply said funds as payment on such of the Obligations as it may
determine or release said funds to the Borrower's account for Borrower's use.
Said proceeds shall be deposited in precisely the form received, except for
endorsement of the Borrower where necessary to permit collection of items, which
endorsement the Borrower agrees to make, and which the Bank is authorized to
make on Borrower's behalf as its Attorney-In-Fact. Pending such deposit,
Borrower agrees not to commingle any such checks, drafts, cash and other
remittances with any of the Borrower's funds or property, but will hold them
separately in trust for the Bank until deposit thereof with the Bank. The Bank
shall have the right to notify the account debtors obligated on any or all of
Borrower's Accounts Receivable to make payment directly to the Bank, and the
Bank shall have the right in its own name or in the name of the Borrower to
demand, collect, receive, receipt for, sue for, compound and give acquittance
for, any and all amounts due or to become due on the Accounts Receivable and to
endorse the name of Borrower as its Attorney-In-Fact on all commercial paper
given in payment or part payment or in evidence thereof or related thereto, and
in its discretion to file any claim or take any other action or proceeding which
the Bank may deem necessary or appropriate to protect and preserve and realize
upon the security interest of the Bank in the Accounts Receivable and the
proceeds thereof, which right the Bank may exercise at any time whether or not
the Borrower is then in default or was making collections thereon. Until such
time as the Bank elects to exercise such right by notifying Borrower, the
Borrower is authorized, as agent of the Bank, to collect and enforce said
Accounts Receivable. All costs of such collection and enforcement, including
attorney's fees and out-of-pocket expenses, shall be borne solely by the
Borrower whether incurred by the Bank or Borrower.
7. INSURANCE. With respect to the Collateral, the Borrower shall
maintain at all times insurance against risks of fire with extended coverage,
sprinkler leakage and all other risks customarily insured against by companies
engaged in similar business to that of Borrower, in amounts, containing such
terms, in such form, for such periods, and written by such companies as may be
satisfactory to the Bank. All such policies shall contain loss payable clauses
or endorsements to the Bank as its interest may appear and shall provide for
written notice to the Bank prior to any cancellation. In the event of failure
to provide and maintain insurance as herein provided, the Bank may, at its
option, provide such insurance and add the amount thereof to the Obligations.
The Borrower shall furnish to the Bank certificates or other evidence
satisfactory to the Bank of compliance with the foregoing provisions.
<PAGE>
Proceeds from any loss under such insurance policies shall be paid first to the
Bank and applied on such of the Obligations as the Bank shall determine. If any
such proceeds shall be paid by check, draft or other instrument payable to
Borrower and Bank jointly, the Bank is authorized and empowered by the Borrower
to endorse its name as Borrower's Attorney-In-Fact and take such other action as
it deems advisable to reduce the same to cash.
8. WARRANTIES AND FURTHER COVENANTs. a.) Borrower represents and
warrants that (1) each Account Receivable and all papers and documents relating
thereto are genuine and in all respects what they purport to be; (2) that each
Account Receivable is valid and arises out of a bona fide sale of goods and sold
and delivered by the Borrower to, or in the process of being delivered to, or
out of and for services actually rendered by the Borrower to the account debtor
named in the Account Receivable; (3) that the amount of the Account Receivable
represented as owing is the correct amount actually and unconditionally owing
except for normal cash discounts and is not disputed, and except for such normal
cash discounts is not subject to any set-offs, credits, deductions and
counter-charges; (4) that no surety bond was required or given in connection
with said Account Receivable or the contract or purchase orders out of which
the same arose; and (5) that the Borrower is the owner of all the Collateral
free and clean of all claims, liens, encumbrances, rights of set-off, and
security interests of any nature whatsoever (except this security interest) and
there are no financing statements covering same on file at any public office.
b.) If a corporation or partnership, the Borrower hereby represents and
warrants the existence of all necessary power to enter into and execute this
Agreement and that this Agreement is not in violation of its Articles, Charter,
Regulations or By-Laws, or of any federal, state or local laws or judicial
rulings, or of any contractual obligation with any third party, and that this
Agreement is enforceable in accordance with its terms. Borrower will deliver,
upon request of the Bank, a written opinion of Borrower's counsel to such
effect.
c.) The Borrower shall execute and deliver to the Bank such lists,
descriptions and designations of the Collateral as the bank may require. The
Borrower shall at all reasonable times and from time to time allow the Bank, by
or through any of its officers, agents, attorneys or accountants, to examine,
inspect or make extracts from Borrower's books and records and to examine and
verify the Collateral wherever kept. So long as any Obligations remain
outstanding, the Bank, without cost to it, shall have a right of ingress to and
egress from any of the Borrower's places of business (or other places at which
the Collateral may be located) and may use any lifts, hoists, trucks and other
of Borrower's facilities to examine, handle or remove the Collateral. Borrower
further agrees to provide to the Bank, upon demand, statements and information
with respect to Borrower's business, including but not limited to profit and
loss reports, balance sheets and other financial statements. All such financial
data and listings of the Collateral shall be compiled in accordance with general
accepted accounting principles consistently applied.
<PAGE>
d.) The Borrower shall keep the Collateral in good order and repair.
Borrower shall not sell, offer to sell or otherwise transfer the Collateral, nor
pledge, mortgage or create, or suffer to exist a security interest claim, lien,
encumbrance, right of set-off or security interest of any kind whatsoever in the
Collateral or the proceeds or products thereof in favor of any person other than
the Bank without prior written consent of the Bank. The Borrower shall also pay
promptly when due all taxes, assessments, and governmental charges upon or
against the Borrower or the property of the Borrower. At its option, the Bank
may discharge taxes, liens or other encumbrances at any time levied or placed on
the Collateral, and pay for the maintenance and repair of same, should Borrower
fail to do so. Borrower agrees to reimburse the Bank on demand for any payment
so made, and until such reimbursement any amount so paid by the Bank shall be
added to the principal amount of the Obligations secured hereby.
e.) The Borrower shall immediately notify the Bank in writing of any
information which Borrower has or may receive with regard to the Collateral
which might in any manner affect the value thereof or the rights of the Bank
with respect thereto.
f.) The Borrower agrees to execute and deliver financing statements under
the Uniform Commercial Code, and statements or amendments thereof or supplements
thereto, and such other instruments as the Bank may from time to time require in
order to evidence, perfect, secure, preserve, protect and enforce the security
interest hereby granted. If any Collateral is or will be attached to real
estate, Borrower will upon demand by the Bank, furnish the Bank with an
appreciate disclaimer or waiver signed by all persons having an interest in the
real estate, of any interest in such Collateral which may be prior to the Bank's
security interest hereunder. The Bank is irrevocably appointed as
Attorney-In-Fact for the Borrower in all matters pertaining to all such
perfection, preservation, protection and enforcement.
g.) The Borrower agrees to pay all costs of filing financing, continuation
and termination statements with respect to the Collateral. Borrower also agrees
to pay all other expenses, including attorney's fees, incurred by the Bank in
the protection or enforcement of its rights in the Collateral and this
Agreement.
9. FURTHER SECURITY. Any deposits or other sums at anytime credited by
or due from the bank to the Borrower in the possession of the Bank may at all
times be held and treated as Collateral for the payment of the Obligations, and
the Bank may apply or set off such deposits or other sums against said
Obligations to the extent said Obligations are due and payable. Further, the
Borrower also gives to and creates in favor of the Bank an additional security
interest in any other property, and the proceeds and products thereof, now or
hereafter in the possession of or pledged to the Bank belonging to the Borrower
or in which the Borrower has any interest. The Borrower will at anytime at the
Bank's request, sign financing statements, trust receipts, security
<PAGE>
interests or other documents evidencing and perfecting such security interest.
10. EVENTS OF DEFAULT; ACCELERATION; USE AND OPERATION OF SECURED
PROPERTY. Any one or more of the following shall constitute events of default:
(a) default by Borrower in the payment or performance, when due or payable, of
any of the Obligations, or default by any endorser, guarantor or surety for any
liability of the Borrower to the Bank; (b) failure of the Borrower to pay when
due any tax or any premium on any insurance policy pursuant to his Agreement;
(c) the making by the Borrower of any misrepresentation to the Bank hereunder,
or otherwise for the purpose of obtaining credit or an extension of credit; (d)
failure of the Borrower after request by the Bank to furnish promptly financial
information or to permit promptly the inspection of books or records; (e)
failure of Borrower to perform or observe any of the provisions of this
Agreement or of any other instrument pertaining to the Obligations; (f) issuance
of an injunction or attachment against property of the Borrower; (g) appointment
of a receiver of any part of the property of the Borrower or the commencement by
or against the Borrower of any proceeding under any bankruptcy, arrangement,
reorganization, insolvency or similar law for the relief of debtors, or by or
against any guarantor or surety for the Borrower; or (h) the occurrence of such
a change in the condition or affairs (financial or otherwise) of the Borrower,
or of any endorser, guarantor or surety for any liability of the Borrower to the
Bank, as in the opinion of the Bank impairs the Bank's security or increases its
risk. Upon occurrence of any of the events of default, any or all of the
Obligations shall, at the option of the Bank and notwithstanding any time or
credit allowed by any instrument evidencing a liability, be immediately due and
payable without notice or demand. The Bank may exercise any one or more of the
rights and remedies granted pursuant to this Agreement and also exercise any or
all of the rights and remedies afforded to a secured party under the Uniform
Commercial Code as enacted in the State in which the principal office of the
Bank is located, including without limitation the right upon default to take
possession and sell, lease or otherwise dispose of the Collateral, and/or to
operate, use or exercise any rights of ownership pertaining to the Collateral as
the Bank deems necessary to preserve the value and receive the benefits of such
Collateral. For that purpose the Bank may, so far as Borrower can give
authority therefore, enter upon any premises on which the Collateral or any part
thereof may be situated, take possession of and remove the same therefrom. The
Bank may request Borrower to make the Collateral available to the Bank at a
place to be designated by the Bank which is reasonably convenient to both
parties. Upon repossession or recovery of the Collateral by the Bank, it may,
after reasonable notification to the Borrower, sell the Collateral at public or
private sale, at which sale the Bank may become the purchaser. Pending any such
action, the Bank may liquidate the Accounts Receivable and continue to operate,
use and exercise rights of ownership pertaining to the Collateral. Out of the
proceeds arising from said liquidation and sale, the Bank may pay all costs and
expenses incurred in connection with the retaking, removing, holding,
restoration to saleable condition(including finishing of manufacture), keeping,
storing, operating, using, advertising, and
<PAGE>
selling the Collateral, and then pay the amount due and owing to the Bank on the
Obligations. The balance if, any, remaining may then be applied by the Bank to
the satisfaction of known indebtedness secured by any subordinate security
interest in the Collateral, accounting to the Borrower for the surplus, if any,
remaining in possession of the Bank after all such security interests, liens,
claims and charges have been paid. The Borrower shall be liable to the Bank for
any deficiency that may result upon such liquidation and sale of the Collateral
and waives all claims for damages by reason of any seizure, repossession,
retention, operation, use or sale of said Collateral. The requirement of
reasonable notice, if necessary, shall be met if such notice is mailed, postage
prepaid, to the first of the places of business of the Borrower shown in this
Agreement at least ten (10) days before the time of the sale or other
disposition. While exercising its rights as a secured party hereunder,
including operation, use and receipt of benefits from the Collateral, the Bank
shall not be liable in any fashion to the Borrower or any third party (including
without limitation Borrower's employees, invitees, customers and suppliers) for
any damages arising from such operation and use, or any obligations, duties, or
liabilities of Borrower in connection therewith (including without limitation
Borrower's contracts, agreements, guarantees, commitments or warranties).
11. WAIVERS; CONTINUED LIABILITY. The Bank shall not be deemed to have
waived any of its rights in this Agreement or to the Collateral unless such
waiver is in writing and signed by the Bank and such waiver shall not operate as
a wavier of any other default or of the same default on a subsequent occasion.
No renewal or extension of time of payment of the Obligations at any rate of
interest, no release, surrender, exchange of modification of the Collateral, no
release of any person primarily or secondarily liable on the Obligations
(including any maker, endorser, guarantor or surety), no delay in enforcement of
payment of the Obligations and no delay, omission or forebearance in exercising
any right or power with respect to the Obligations, the Collateral, or this
Agreement shall affect the liability of the Borrower to the Bank. The Borrower
waives presentment, protest, demand, notice of dishonor or default, notice of
acceptance of this Agreement, notice of any loans made, renewals or extension
granted, notice of any Collateral released, surrendered, exchanged or modified,
and to the extent permitted by law, notice of other action taking in reliance
hereon and all demands and notices of any kind in connection with the
Collateral, the Obligations or this Agreement.
12. DURATION. The term of this Agreement shall commence with the date
hereof and end on the date when the Borrower has paid in full all of the
Obligations secured hereby and the Bank gives notice to the Borrower that no
further loans are to be made hereunder. Until such termination, this Agreement
shall be a continuing one.
13. GENERAL. This Agreement shall be subject to other provisions in any
notes or other documents signed by the Borrower in any capacity concerning the
Obligations which are not inconsistent with the
<PAGE>
provisions contained herein. All rights and liabilities hereunder shall be
governed and limited by and construed in accordance with the laws of the state
in which the principal office of the Bank is located and this Agreement shall
inure to the benefit of the Bank and bind the Borrower, and their respective
successors and assigns, or legal representatives and heirs, as the case may be.
Any provision hereof which may prove limited or unenforceable under any laws or
judicial rulings shall not affect the validity or enforcement of the remainder
of the provision or of any other provision.
STAR BANK, NATIONAL ASSOCIATION XENAS COMMUNICATIONS CORP.
By /s/ Douglas V. Wyatt, V.P. By: /s/ Edwin S. Weinstein
----------------------------- ----------------------------
Douglas V. Wyatt Edwin S. Weinstein
Title Vice President Secretary-Treasurer
-------------------------- -------------------------------
-------------------------------
BORROWER(S)
<PAGE>
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement") is entered into effective
as of March 14, 1996, among (i) POMEROY COMPUTER RESOURCES, INC., a Delaware
corporation (the "Borrower"), (ii) THE COMPUTER SUPPLY STORE, INC., an Iowa
corporation, its successors and assigns (the "Subordinated Creditor") and (iii)
STAR BANK, NATIONAL ASSOCIATION, an Ohio banking corporation, its successors or
assigns (the "Senior Creditor").
RECITALS
WHEREAS, Pursuant to an Amended and Restated Loan Agreement, dated as of
March 14, 1996 (the "Senior Loan Agreement"), between the Borrower and the
Senior Creditor, the Senior Creditor has extended a commitment to make available
to Borrower certain revolving credit and term loans in the aggregate principal
amount of Twenty-Five Million ($25,000,000.00) Dollars (the "Senior Loans"); and
WHEREAS, the Senior Loans are to be evidenced by a revolving credit note
(together with all substitutions and replacements therefor and all amendments
and supplements thereof in accordance with the terms of this Agreement, (the
"Senior Notes") in the maximum aggregate principal amount not to exceed Twenty-
Five Million ($25,000,000.00) Dollars.
WHEREAS, Borrower is using a portion of the proceeds of the Senior Loans to
purchase substantially all the assets of Subordinated Creditor; and
WHEREAS, in connection with the acquisition of substantially all the assets
of Subordinated Creditor, the Subordinated Creditor will take back a promissory
note in the original principal amount of $2,700,000.00 plus interest, fees,
costs and other amounts payable in respect thereof ("Acquisition Debt") in
partial consideration of the payment of the purchase price for such assets; and
WHEREAS, a condition precedent to the making of the Senior Loans is the
execution and delivery of this Subordination Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. CERTAIN TERMS. The following terms, when used in this
Agreement, including the introductory paragraph and RECITALS hereto, shall,
except where the context otherwise requires, have the following meanings:
<PAGE>
"ACQUISITION DEBT" has the meaning specified in the fourth paragraph of the
recitals hereto.
"ACQUISITION NOTE" means the promissory note issued by Borrower to the
Subordinated Creditor which evidences the Acquisition Debt.
"AGREEMENT" means this Subordination Agreement.
"APPLICABLE LAW" means and includes statutes and rules and regulations
thereunder and interpretations thereof by any governmental agency charged with
the administration or the interpretation thereof, and orders, requests,
directives, instructions and notices of any governmental authority.
"BANKRUPTCY OR INSOLVENCY PROCEEDING" means any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization, assignment
for the benefit of creditors or other similar case or proceeding for the
liquidation, dissolution, reorganization or winding up of the Borrower, or of
all or any portion of the property of Borrower, whether voluntary or
involuntary, partial or complete.
"BORROWER" has the meaning specified in the introductory paragraph hereto.
"ENFORCEMENT ACTION" means (a) the acceleration of any Subordinated Debt,
(b) any realization or foreclosure upon any collateral securing the Subordinated
Debt, (c) any demand by the Subordinated Creditor for payment of the
Subordinated Debt, or (d) subject always to the provisions contained in the next
sentence, the enforcement of any of the rights or remedies of the Subordinated
Creditor against the Borrower, whether under the Subordinated Debt Documents or
otherwise, and whether by action at Law, suit in equity, arbitration proceedings
or otherwise. The term "Enforcement Action" shall not include or be deemed to
include the giving of notices (including, without limitation, notices of
default, notices of Events of Default, notices of demand for payment, notices of
breaches of covenants, etc.), the making of requests or the delivery of other
communications pursuant to and upon the terms permitted or otherwise
contemplated by any of the Subordinated Debt Documents, it being understood and
agreed that any action of the kind described above in the foregoing sentence may
be taken by the Subordinated Creditor at any time and from time to time after
the date hereof without any limitation or restriction.
"ENFORCEMENT ACTION NOTICE" has the meaning specified in Section 3.2(b).
"EVENT OF DEFAULT" has, in connection with permitted payments under Section
2.6 hereof, the meaning specified in the Senior Loan Agreement and, with respect
to Standstill Events as defined herein and as used in Section 3., has the
meaning specified in the Acquisition Note.
"EXTENSION OF CREDIT" means any loan, letter of credit or other extension
of credit of any kind or character and in the case of revolving credit
facilities, includes lending and relending up to the maximum amount thereof, the
substitution of term notes for portions of the revolving credit notes and any
Permitted Increase.
<PAGE>
"INSTRUMENT" means any contract, agreement, indenture, mortgage or other
document or writing (whether a formal agreement, letter or otherwise) under
which any obligation is evidenced, assumed or undertaken, or any right to any
lien is granted or perfected.
"PAYMENT IN FULL" and "PAID IN FULL" mean payment in full in cash.
"PAYMENT OR DISTRIBUTION ON ACCOUNT OF SUBORDINATED DEBT" OR "PAYMENT OR
DISTRIBUTION" means any payment or distribution of any kind or character,
whether in cash, securities or other property or any combination thereof, and
whether voluntary or involuntary, on account of principal of, or interest on any
Subordinated Debt, or on account of any redemption, retirement, repurchase or
other acquisition for value of any Subordinated Debt.
"Permitted INCREASE" means any increase in the principal amount of the
Senior Debt effected by Senior Lender, except the aggregate amounts of any such
increases outstanding at any one time shall not exceed the amount set forth on
Exhibit A attached hereto.
"PROCEEDS" shall have the meaning (a) ascribed to that term under the
U.C.C. and shall in any event include any and all payments or distributions of
any kind or character received by way of exercise of rights of set-off,
counterclaim or cross-claim, or enforcement of any claim, against the Borrower,
(b) any and all proceeds of any insurance, indemnity, warranty, guaranty of
letter of credit payable to the Borrower with respect to any collateral securing
the Subordinated Debt or Senior Debt, or (c) any and all other amounts from time
to time paid or payable or distributable under or with respect to any collateral
securing the Subordinated Debt or Senior Debt.
"STAR BANK, NATIONAL ASSOCIATION", as used in the defined terms "Senior
Debt" and "Senior Debt Documents", means and includes Star Bank, National
Association, the party executing this Agreement as Senior Creditor, and its
successors or assigns in title and any so-called "participants" purchasing any
participating interest or so-called "participants" in any of the rights, title
or interest of Star Bank, National Association under any of the Senior Debt
Documents or in relation to any of the Senior Debt.
"REORGANIZATION SECURITIES" means securities issued by the Borrower (or any
successor in exchange for all Subordinated Debt upon the effectiveness of a plan
of reorganization in bankruptcy of the Borrower that are either (a) equity
securities of the Borrower having no mandatory redemption, repurchase or
dividend obligations, and that are not convertible into or exchangeable for any
securities having mandatory payment, redemption, repurchase or dividend
obligations or (b) debt securities of the Borrower the payment of which is
subordinated, at least to the extent provided in this Agreement with respect to
the Subordinated Debt, prior to the Payment in Full of the Senior Debt, PROVIDED
that no class of Senior Debt is impaired (within the meaning of Section 1124 of
Title 11 of the United States Code) by such plan of reorganization.
"SENIOR CREDITOR" has the meaning specified in the introductory paragraph
hereto.
<PAGE>
"SENIOR DEBT" means all indebtedness and other obligations of the Borrower,
contingent or otherwise, to the Senior Creditor, now or hereafter existing,
under or with respect to:
(a) Extension of Credit by the Senior Creditor under the Senior Debt
Documents in an aggregate outstanding principal amount not exceeding Twenty-Five
Million Dollars ($25,000,000.00).
(b) interest (including interest accruing at the contract rate after
the commencement of any Bankruptcy or Insolvency Proceeding, whether or not such
interest is an allowed claim in such proceeding) on Extensions of Credit
described in CLAUSE (a) of this definition and on any Permitted Increase
described in CLAUSE (c) below, and fees, costs, expenses, indemnities,
reimbursements and other amounts owing to the Senior Creditor on Extensions of
Credit described in clause (a) of this definition; and
(c) any Permitted Increase.
"SENIOR DEBT DOCUMENTS" means, collectively, (a) the Senior Loan Agreement
and (b) the Senior Notes (SUBJECT ALWAYS to the provisions of the defined term
"Senior Debt") and each other Instrument executed in connection with or
evidencing, governing, guaranteeing or securing any indebtedness under any such
document or any Permitted Increase, all as the same may be amended, modified or
supplemented pursuant to the terms thereof in accordance with the provisions of
this Agreement.
"SENIOR LOANS" has the meaning specified in the first paragraph of the
RECITALS hereto.
"SENIOR LOAN AGREEMENT" has the meaning specified in the first paragraph of
the RECITALS hereto.
"STANDSTILL EVENT" means the occurrence of any one or more of the EVENTS OF
DEFAULT under the Acquisition Note.
"STANDSTILL EVENT NOTICE" shall mean the date the Subordinated Creditor
shall have provided written notice of such Standstill Event to the Senior
Creditor and Borrower.
"STANDSTILL PERIOD" means, in relation to any Standstill Event, the period
beginning on the date the Standstill Event in relation to such Standstill Period
shall have occurred and ending on the date determined pursuant to Section
3.1(a).
"SUBORDINATED CREDITOR" has the meaning specified in the introductory
paragraph hereto or any holder of the Acquisition Note.
"SUBORDINATED DEBT" means all indebtedness and other obligations of the
Borrower, contingent or otherwise, now or hereafter existing, under or in
respect of the Acquisition Note, and interest (including interest accruing after
the occurrence of an Event of Default as defined in the Acquisition Note), fees,
costs, expenses, indemnities, reimbursements thereon and other
<PAGE>
amounts payable in respect thereof (including any such obligations to prepay,
repurchase, retire, redeem or acquire for value any such indebtedness).
"SUBORDINATED DEBT DOCUMENTS" means, collectively, (a) the Acquisition Note
and (b) each Instrument now or hereafter executed in connection with or
evidencing, governing, guarantying or securing any indebtedness under any such
document.
"U.C.C." means the Uniform Commercial Code, as in effect from time to time
in the State of Ohio.
SECTION 1.2. SENIOR LOAN AGREEMENT. Unless otherwise defined herein or
the context otherwise requires, terms used in this Agreement, including the
introductory paragraph and RECITALS hereto, that are defined in the Senior Loan
Agreement (as in effect on the date hereof), have the meanings given to such
terms in the Senior Loan Agreement (as in effect on the date hereof).
SECTION 1.3. U.C.C. DEFINITIONS. Unless otherwise defined herein or the
context otherwise requires, terms for which meanings are provided in the U.C.C.
are used in this Agreement, including the introductory paragraph and RECITALS
hereto, with such meanings.
SECTION 1.4. GENERAL PROVISIONS RELATING TO DEFINITIONS. Terms for which
meanings are defined in this Agreement shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
The term "including" means including, without limiting the generality of any
description preceding such term. Except as otherwise expressly provided herein,
each reference herein to any Person shall include a reference to such Person's
successors in title and assigns or (as they case may be) his successors,
assigns, heirs, executors, administrators and other legal representatives.
Except as otherwise expressly provided herein, references to any Instrument
defined in this Agreement refer to such Instrument as originally executed, or,
if subsequently varied, replaced or supplemented from time to time, as so
varied, replaced or supplemented and in effect at the relevant time of reference
thereto.
ARTICLE 2
DEBT SUBORDINATION ARRANGEMENTS
SECTION 2.1. AGREEMENT TO SUBORDINATE. The Borrower and the Subordinated
Creditor agree with and for the benefit of the Senior Creditor that all
Subordinated Debt is hereby expressly subordinated and made junior in right of
payment, to the extent and in the manner provided in this Agreement, to the
prior Payment in Full of all Senior Debt.
SECTION 2.2. BANKRUPTCY OR INSOLVENCY PROCEEDING. In the event of any
Bankruptcy or Insolvency Proceeding:
(a) The Senior Creditor shall first be entitled to receive Payment in
Full of all Senior Debt before the Subordinated Creditor shall be entitled to
receive any payment or
<PAGE>
distribution on account of Subordinated Debt (other than distributions in the
form of Reorganization Securities); and
(b) the Senior Creditor shall be entitled to receive (until Payment
in Full of all Senior Debt) any payment or distribution on account of
Subordinated Debt (other than distributions in the form or Reorganization
Securities) which may be payable or deliverable to the Subordinated Creditor
(including any such payment or distribution payable or deliverable by virtue of
the provisions of, or any security for, any Instrument governing indebtedness
which is subordinate and junior in right of payment to the Subordinated Debt).
SECTION 2.3. DELIVERY OF PROHIBITED PAYMENTS OR DISTRIBUTIONS ON ACCOUNT
OF SUBORDINATED DEBT TO SENIOR CREDITOR. If any Payment or Distribution on
Account of Subordinated Debt (other than distributions in the form of
Reorganization Securities or distributions authorized by Sections 2.6 and 2.8)
is collected or received by the Subordinated Creditor, then such payment or
distribution shall be paid over or delivered forthwith to the Senior Creditor.
SECTION 2.4. SUBROGATION. Upon payment in full in cash of all Senior
Debt, the Subordinated Creditor shall be immediately subrogated to the rights of
the Senior Creditor (to the extent of the payments and distributions previously
made to the Senior Creditor pursuant to the provisions of this ARTICLE 2) to
receive payments and distributions of property of the Borrower applicable to
Senior Debt until all amounts owing on Subordinated Debt shall be paid in full.
No payments or distributions applicable to Senior Debt which the Subordinated
Creditor shall receive by reason of its being subrogated to the rights of the
Senior Creditor pursuant to the provisions of this SECTION 2.4 shall, as between
the Borrower and its creditors, other than the Senior Creditor and the
Subordinated Creditor, be deemed to be a payment by the Borrower to or for the
account of Subordinated Debt; and, for the purposes of such subrogation, no
payments or distributions to the Senior Creditor of any property to which the
Subordinated Creditor would be entitled except for the provisions of this
Agreement, and no payment pursuant to provisions of this Agreement to the Senior
Creditor by the Subordinated Creditor, shall, as between the Borrower and its
creditors, if any, other than the Senior Creditor and the Subordinated Creditor,
be deemed to be a payment by the Borrower to or for the account of Senior Debt,
it being understood that the provisions of this Agreement are intended solely
for the purpose of defining the relative rights of the Subordinated Creditor, on
the one hand, and the Senior Creditor, on the other hand, and nothing contained
in this SECTION 2.4 or elsewhere in this Agreement is intended to or shall
impair, as between the Borrower and the Subordinated Creditor, the obligation of
Borrower, which is absolute and unconditional, to pay to the Subordinated
Creditor, subject to the rights of the Senior Creditor under this Agreement, the
Subordinated Debt as and when the same shall become due and payable in
accordance with its terms.
SECTION 2.5. SENIOR DEFAULTS AND ACCELERATION. In any circumstances
where Section 2.2 does not apply, the Subordinated Creditor will not be entitled
to receive or retain any direct or indirect payment (except any payment
previously made by Borrower to the Subordinated Creditor which complied with
Sections 2.6 and 2.8) (in cash, property, by set-off or otherwise) from the
Borrower of or on account of any Acquisition Debt if:
<PAGE>
(a) all or any part of the Senior Debt is due and payable at stated
maturity, by acceleration or otherwise; or
(b) at the time of making such payment and immediately after giving
effect thereto, there shall exist an Event of Default under the Senior Loan
Agreement.
SECTION 2.6. PERMITTED PAYMENTS. The Subordinated Creditor shall not be
entitled to receive or retain any prepayment (in cash, property, by set-off or
otherwise) of or on account of the Acquisition Note until such time as the
Senior Debt is paid in full. Provided that there exists no Event of Default (or
event which would become and Event of Default with notice or the passage of
time) under the Senior Loan Agreement which remains uncured, the Subordinated
Creditor shall be entitled to receive interest repayment and principal
repayment, under the Acquisition Debt in accordance with the terms of the
Acquisition Note.
SECTION 2.7. TURN-OVER OF PAYMENTS RECEIVED. If the Subordinated
Creditor shall receive any payment with respect to the Acquisition Note which
the Subordinated Creditor is not permitted to receive and retain pursuant to
this Agreement, such payment shall be held in trust by the Subordinated Creditor
for the benefit of, and shall be paid over promptly on demand to the Senior
Creditor or its successors and assigns, as their respective interests may
appear, for application to the payment of all Senior Debt remaining unpaid until
the same shall have been paid in full in cash, after giving effect to any
concurrent payment or distribution to the Senior Creditor. No such payments or
distributions to the Senior Creditor or its successors and assigns shall be
deemed to discharge the Senior Debt until it is repaid in full.
SECTION 2.8. PERMITTED PAYMENTS; RIGHT TO RETAIN PAYMENTS.
Notwithstanding the foregoing, any payment in respect of the Acquisition Debt
made in compliance with the terms of this Agreement and received by the
Subordinated Creditor shall become its sole and absolute property and shall not
be subject to any payment over or any distribution to or claim by the Senior
Creditor or any other person, unless at the time of receipt of such payment (i)
an event specified in either Section 2.2, 2.5(a) or 2.5(b) shall have occurred
and be continuing and with respect to an event specified in Section 2.5(b) only,
the Senior Creditor shall have given Subordinated Creditor notice of such event
within sixty (60) days of the occurrence of such event of default. In the event
that the Subordinated Creditor receives any payment on the Subordinated Debt
made in compliance herewith, and Senior Creditor has not given any notice as
described above, such payment shall conclusively be determined to be a permitted
payment hereunder, otherwise, upon receipt of such notice within such sixty (60)
day period, Subordinated Creditor shall promptly remit such payment to Senior
Creditor for application in accordance with Section 2.3 hereof. In addition, in
the event that Borrower would complete a secondary offering during the term of
this Agreement for its common stock, Subordinated Creditor shall be entitled to
receive the sum of One Million Dollars ($1,000,000.00) (or such lesser amount if
the remaining principal balance unpaid under the Acquisition Note is below such
amount at such time) upon the completion of the secondary offering and such
shall be a Permitted Payment under Section 2.6 and shall not be subject to the
sixty-day notice provision contained in this Section 2.8.
SECTION 2.9. BORROWER'S OBLIGATIONS ABSOLUTE. The provisions of this
Agreement are solely for the purpose of defining the relative rights of Senior
Creditor as the holder of the
<PAGE>
Senior Debt, Borrower and the holder of the Acquisition Note. Nothing herein
shall impair, as between the Borrower and the Senior Creditor, its successors or
assigns, as the holder of any Senior Debt, the obligations of the Borrower,
which are unconditional and absolute, to pay to the holder thereof the Senior
Debt, in accordance with the terms of the Senior Loan Agreement. Nothing herein
shall impair, as between the Borrower and the Subordinated Creditor, the
obligations of the Borrower which are unconditional and absolute to pay
Subordinated Creditor in accordance with the terms of the Acquisition Note,
subject to the terms of this Subordination Agreement.
ARTICLE 3
LIMITATIONS ON CERTAIN ENFORCEMENT ACTIONS
SECTION 3.1. IMPOSITION OF STANDSTILL PERIOD.
(a) Each Standstill Period will commence on the date the Standstill
Event in relation to such Standstill Period shall have occurred and will
terminate upon the earliest to occur of (i) the date which is 180 days after the
later of (a) occurrence of an Event of Default as defined in the Acquisition
Note or (b) the giving of the Standstill Event Notice; (ii) the date, after such
Standstill Period shall have commenced, such Standstill Event shall have been
cured or waived or shall otherwise have ceased to exist; or (iii) March 14,
2000,
(b) At any time during a Standstill Period, Borrower or Senior
Creditor may cause any Event of Default under the Acquisition Debt to be cured
and, in such event, the Subordinated Creditor shall not have any right to
accelerate the principal payment of the Acquisition Debt as relates to such
Event of Default that was cured.
SECTION 3.2. LIMITATIONS ON ENFORCEMENT ACTIONS. The Subordinated
Creditor will not take any Enforcement Action until such time as:
(a) any Standstill Period is no longer continuing; and
(b) the Subordinated Creditor shall have given to the Borrower and
the Senior Creditor not less than 30 days' prior written notice (an "Enforcement
Action Notice") of the intent of the Subordinated Creditor to take such
Enforcement Action.
SECTION 3.3. CERTAIN NOTICES. The Subordinated Creditor shall not take
any action of the kind described in the second sentence of the defined term
"Enforcement Action" until the Subordinated Creditor shall have given the Senior
Creditor at least two (2) days prior notice to the taking thereof.
SECTION 3.4. LIMITATIONS ON COMMENCEMENT OF BANKRUPTCY OR INSOLVENCY
PROCEEDING. The Subordinated Creditor will not commence or institute, or join
with any other Person or Persons in commencing or instituting, any Bankruptcy or
Insolvency Proceeding.
SECTION 3.5. LIMITATION ON REMEDIES UPON ACCELERATION OF SENIOR DEBT.
Notwithstanding any contrary provision of any Subordinated Debt Document, the
acceleration
<PAGE>
of any Senior Debt by the commencement of legal proceedings by the Senior
Creditor against the Borrower to enforce payment of any Senior Debt shall
entitle the Subordinated Creditor to accelerate Subordinated Debt or take other
Enforcement Action (subject to the applicable provisions of Section 2.3 of this
Agreement).
ARTICLE 4
WAIVERS
SECTION 4.1. WAIVERS OF NOTICE, ETC. The obligations of the Subordinated
Creditor under this Agreement, and the subordination arrangements contained
herein, shall not be to any extent or in any way or manner whatsoever impaired
or otherwise affected by any of the following, whether or not the Subordinated
Creditor shall have had any notice or knowledge of any thereof:
(a) the dissolution, termination of existence, death, bankruptcy,
liquidation, insolvency, appointment of a receiver for all or any part of the
property of, assignment for the benefit of creditors by, or the commencement of
any Bankruptcy or Insolvency Proceeding by or against, the Borrower;
(b) the absorption, merger or consolidation of, or the effectuation
of any other change whatsoever in the name, membership, constitution or place of
formation of, the Borrower;
(c) any extension or postponement of the time for the payment of any
Senior Debt, the acceptance of any partial payment thereon, any and all other
indulgences whatsoever by the Senior Creditor in respect of any Senior Debt, the
taking, addition, substitution or release, in whole or in part, at any time or
times, of any collateral securing any Senior Debt, or the addition, substitution
or release, in whole or in part, of any Person or Persons primarily or
secondarily liable in respect of any Senior Debt;
(d) any action or delay in acting or failure to act on the part of
the Senior Creditor under any Senior Debt Documents or in respect of the Senior
Debt or any collateral securing any Senior Debt or otherwise, including (i) any
action by the Senior Creditor to enforce any of its rights, remedies or claims
in respect of any collateral securing any Senior Debt, (ii) any failure by the
Senior Creditor strictly or diligently to asset any rights or to pursue any
remedies or claims against the Borrower or any other Person or Persons under any
of the Senior Debt Documents or provided by statute or at law or in equity,
(iii) any failure by the Senior Creditor to perfect or to preserve the
perfection or priority of any of its Liens securing any Senior Debt, or (iv) any
failure or refusal by the Senior Creditor to foreclose or to realize upon any
collateral securing any Senior Debt or to take any action to enforce any of its
rights, remedies or claims under any Senior Debt Document;
(e) any modification or amendment of, or any supplement or addition
to, any Senior Debt Document;
<PAGE>
(f) any waiver, consent or other action or acquiescence by the Senior
Creditor in respect of any default by the Borrower in its performance or
observance of or compliance with any term, covenant or condition contained in
any Senior Debt Document; or
(g) the declaration that any Senior Debt Document or any provision
thereof is null and void or illegal, invalid, unenforceable or inadmissible in
evidence; or the failure of any Senior Debt Document to be in full force and
effect.
The Subordinated Creditor hereby absolutely, unconditionally and
irrevocably assents to and waives notice of any and all matters hereinbefore
specified in CLAUSES (a) through (g).
ARTICLE 5
AGREEMENT OF SENIOR CREDITOR AND BORROWER
SECTION 5.1. AGREEMENT OF SENIOR CREDITOR TO PROVIDE SUBORDINATED
CREDITOR WITH NOTICE. Senior Creditor agrees to provide the Subordinated
Creditor with notice of any and all written notice(s) of an Event of Default
that Senior Creditor has provided to the Borrower declaring an Event of Default
under the Senior Loan Documents within ten (10) business days of such fact.
Such notice shall be provided in writing to the disbursement agent at the
following address:
The Computer Supply Store
Attention: Rick Feaster
1408 Locust
Des Moines, Iowa 50309
or at such other address as may be provided by the Subordinated Creditor to the
Senior Creditor; and
With a copy to: Frank J. Carroll, Esq.
Davis, Brown, Koehn, Shors & Roberts, P.C.
The Financial Center, 666 Walnut Street, Suite 2500
Des Moines, Iowa 50309-3993
Notwithstanding the agreement of Senior Creditor to deliver notices
pursuant to the terms above, Subordinated Creditor and Borrower hereby
acknowledge that the failure to delivery any such notice shall not (i) affect or
be deemed to be a waiver by Senior Creditor of any of the rights or remedies of
Senior Creditor under this Agreement or (ii) create any liability on behalf of
Senior Creditor with respect to such failure to Subordinated Creditor.
SECTION 5.2. REPRESENTATIONS AND WARRANTY OF THE BORROWER. The Borrower
hereby represents to the Senior Creditor as follows:
(a) all subordinated debt existing on the date hereof is Subordinated
Debt.
ARTICLE 6
<PAGE>
MISCELLANEOUS
SECTION 6.1. AMENDMENTS, WAIVERS, ETC. The provisions of this Agreement
may from time to time be amended, modified or waived, if such amendment,
modification or waiver is in writing and consented to by the Subordinated
Creditor, Borrower and by the Senior Creditor. No failure or delay on the part
of any Person in exercising any power or right under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power or right preclude any other or further exercise thereof or the
exercise of any other power or right. No notice to or demand hereunder shall
entitle any Person to any notice or demand in similar or other circumstances,
unless otherwise required by this Agreement. the remedies herein provided are
cumulative and not exclusive of any other remedies provided at law or in equity.
No waiver or approval by a Person under this Agreement shall, except as may be
otherwise stated in such waiver or approval, be applicable to any subsequent
transactions. No waiver or approval hereunder shall require any similar or
dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 6.2. FURTHER ASSURANCES. The Subordinated Creditor and the
Borrower will, from time to time at its own expense, promptly execute and
deliver all such further Instruments, and take all such further action, as may
be reasonably necessary or appropriate, or as the Senior Creditor may reasonably
request, in order to carry out the intent of this Agreement.
SECTION 6.3. SPECIFIC PERFORMANCE. Senior Creditor is hereby authorized
to demand specific performance of this Agreement at any time when the
Subordinated Creditor shall have failed to comply with any of the provisions of
this Agreement applicable to them whether or not Borrower shall have complied
with any of the provisions hereof applicable to it, and the Subordinated
Creditor hereby irrevocably waives any defense based on the adequacy of a remedy
aw law which might be asserted as a bar to such remedy of specific performance.
SECTION 6.4. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of any such provision in any other jurisdiction.
SECTION 6.5. ENFORCEMENT BY SENIOR CREDITOR. The Borrower and the
Subordinated Creditor acknowledge and agree that their respective obligations
hereunder are, and are intended to be, an inducement and consideration to the
Senior Creditor to acquire and continue to hold, or to continue to hold, the
Senior Debt. The Senior Creditor shall be deemed conclusively to have relied
upon the obligations hereunder of the Borrower and the Subordinated Creditor in
acquiring and continuing to hold, or in continuing to hold, the Senior Debt.
The Senior Creditor is hereby made an obligee hereunder and may enforce directly
the obligations of the Borrower and the Subordinated Creditor contained herein.
The Senior Creditor, by accepting the benefits of this Agreement, is bound by
the provisions hereof.
<PAGE>
SECTION 6.6. CONTINUING AGREEMENT. This Agreement shall in all respects
be a continuing agreement, and this Agreement and the agreements and obligations
of the Borrower and the Subordinated Creditor hereunder shall remain in full
force and effect until all Senior Debt is indefeasibly paid in full or all
Subordinated Debt is paid in full in compliance with this Agreement.
SECTION 6.7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and shall inure to the benefit of, the Borrower and the Senior Creditor
and the Subordinated Creditor and their respective successors in title and
assigns. The rights and obligations of the Subordinated Creditor under this
Agreement shall be assigned automatically to, and the term "Subordinated
Creditor" as used in this Agreement shall automatically include, any assignee or
successor of such Subordinated Creditor, and such assignee or successor shall
automatically become a party to this Agreement as a Subordinated Creditor
without the need for the execution of any Instrument or the taking of any other
action. The Subordination Creditor shall deliver a complete copy of this
Agreement to any potential assignee or successor of the Subordinated Creditor
prior to the effectiveness of any such assignment. At the request of the Senior
Creditor, the Subordinated Creditor shall execute and deliver to the Senior
Creditor an instrument of accession hereto.
SECTION 6.8. NOTICES. All notices and other communications provided to a
party hereunder shall (except as otherwise specifically provided herein) be in
writing or by facsimile transmission and addressed or delivered to it at its
address designated for notices set forth below its signature hereto; at the
addresses specified in Section 5.1 if notice is to the Subordinated Creditor; or
at such other address as may be designated by such party in a notice to the
other parties. Any notice, if mailed and properly addressed with postage
prepaid, and any notice, if transmitted by facsimile transmission, shall be
deemed given when received.
SECTION 6.9. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the Borrower, the Senior Creditor and the Subordinated Creditor
with respect to the subject matter hereof and supersedes any prior or
contemporaneous agreements, representations, warranties or understandings,
whether oral, written or implied, as to the subject matter of this Agreement.
SECTION 6.10. CHOICE OF LAW. THIS AGREEMENT HAS BEEN EXECUTED AND
DELIVERED IN THE STATE OF OHIO AND SHALL IN ALL RESPECTS BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF SUCH STATE APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
SECTION 6.11. SERVICE OF PROCESS. This Subordination Agreement shall be
deemed made in the state in which the principal office of the Senior Creditor is
located, and all documents evidencing same, and all the rights and obligations
of the Subordinated Creditor and the Senior Creditor hereunder, shall in any
respects be governed by and construed in accordance with the laws of the state
in which the principal office of the Senior Creditor is located, including all
matters of construction, validity and performance. Without limitation of the
Senior Creditor's ability to exercise all its rights to protect or enforce the
Senior Loans and the
<PAGE>
Subordinated Obligations, the Subordinated Creditor and the Senior Creditor
agree that in any action or proceeding commenced by or on behalf of the parties
arising out of or relating to this Subordination Agreement and/or any documents
evidencing same, shall be commenced and maintained exclusively in the court of
applicable general jurisdiction located in the federal district court of
applicable general jurisdiction located in the federal district in which the
principal office of the Senior Creditor is located or any other courts of
applicable general jurisdiction located in the district where the Senior
Creditor is located. The Subordinated Creditor and the Senior Creditor also
agree that a summons and complaint commencing an action or proceeding in any
such courts by or on behalf of such parties shall be properly served and shall
confer personal jurisdiction on a party to which said party consents, if (a)
served personally or by certified mail to the party at any of its addresses
noted herein, or (b) as otherwise provided under the laws of the state in which
the principal office of the Senior Creditor is located. The loan(s) or other
financial accommodation(s) is in part related to the aforesaid provisions on
jurisdiction, which the Senior Creditor deems a vital part of this subordination
arrangement.
SECTION 6.12. WAIVER OF JURY TRIAL. To the extent not prohibited by
Applicable Law which cannot be waived, each of the parties hereto waives, and
covenants that it will not assert (whether as plaintiff, defendant or
otherwise), any right to trial by jury in any forum in respect of any issue,
claim, demand, action or cause of action arising out of or based upon this
Agreement or the subject matter hereof, in such case whether now existing or
hereafter arising and whether in contract or tort or otherwise. Each of the
parties hereto acknowledges that the provisions of this SECTION 6.12 constitute
a material inducement upon which the Senior Creditor is relying and will rely in
holding Senior Debt. Any party and the Senior Creditor may file an original
counterpart of a copy of this SECTION 6.12 with any court as written evidence of
the consent of each of the parties hereto to the waiver of its right to trial by
jury.
SECTION 6.13. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
SECTION 6.14. HEADINGS. The descriptive headings in this Agreement are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement or any provision hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the day and in the
year first above written.
POMEROY COMPUTER RESOURCES, INC.
By: /s/ Edwin S. Weinstein
------------------------------------
Title: CFO
---------------------------------
Address:
----------------------------------------
<PAGE>
----------------------------------------
Fax:
----------------------------------------
Attention:
----------------------------------------
STAR BANK, NATIONAL ASSOCIATION
By: /s/ Douglas V. Wyatt
-------------------------------------
Title: Vice President
----------------------------------
Address: 425 Walnut Street, ML 8160
----------------------------------------
Cincinnati, Ohio 45202
----------------------------------------
Fax: (513) 632-2068
----------------------------------------
Attention: Doug Wyatt
----------------------------------------
----------------------------------------
THE COMPUTER SUPPLY STORE, INC.
By: /s/ Richard Feaster
-------------------------------------
Title: President
----------------------------------
Address: 1408 Locust Street
----------------------------------------
Des Moines, Iowa 50309
----------------------------------------
Fax: (515) 241-3038
----------------------------------------
Attention: Rick Feaster
----------------------------------------
----------------------------------------
STATE OF OHIO )
: SS:
COUNTY OF HAMILTON )
On this 14th day of March, 1996, before me personally appeared Edwin S.
Weinstein, to me know, who, being by me duly sworn, declared that he is the CFO
of POMEROY COMPUTER RESOURCES, INC., a signatory of the foregoing Subordination
Agreement; and
<PAGE>
that, being duly authorized, he did execute the foregoing Subordination
Agreement on behalf of POMEROY COMPUTER RESOURCES, INC.; and that the foregoing
Subordination Agreement constitutes the free act and deed of POMEROY COMPUTER
RESOURCES, INC.
/s/ Margaret Geri Kippley
----------------------------------------
Notary Public
My Commission Expires:
---------------
STATE OF OHIO )
: SS:
COUNTY OF HAMILTON )
On this 18th day of March, 1996, before me personally appeared Douglas V.
Wyatt, to me know, who, being by me duly sworn, declared that he is the Vice
President of STAR BANK, NATIONAL ASSOCIATION, a signatory of the foregoing
Subordination Agreement; and that, being duly authorized, he did execute the
foregoing Subordination Agreement on behalf of STAR BANK, NATIONAL ASSOCIATION;
and that the foregoing Subordination Agreement constitutes the free act and deed
of STAR BANK, NATIONAL ASSOCIATION.
/s/ Margaret Geri Kippley
----------------------------------------
Notary Public
My Commission Expires:
---------------
<PAGE>
EXHIBIT A
No Permitted Increase shall be effected by Senior Creditor if, at the time of
the proposed making of the Permitted Increase or immediately after giving effect
thereto, the following ratios are not satisfied:
1. Latest twelve months EBITDA (earnings before interest, taxes,
depreciation and amortization)/Proforma next 12 months interest
expense greater than or equal to 2.75 x
and
2. Proforma interest bearing debt excluding floor-plan
financing/(Proforma interest bearing debt excluding floor plan
financing + total equity per the Company's balance sheet) less than or
equal to .67 x
Proforma to reflect debt issuance creating the need for the incurrence tests to
be applied.
<PAGE>
LEASE
THIS LEASE, made and entered into this 15th day of March , 1996, at Des
Moines, Iowa, by, between and among THE COMPUTER SUPPLY STORE, INC., an Iowa
corporation, hereinafter called "Landlord", whose mailing address is 1408 Locust
Street, Des Moines, Iowa 50309, and POMEROY COMPUTER RESOURCES, INC., an
Delaware corporation, hereinafter called "Tenant", whose mailing address is 1840
Airport Exchange Blvd., Suite 240, Erlanger, Kentucky 41018.
W I T N E S S E T H:
In consideration of the mutual covenants and agreements set forth in this
Lease, Landlord and Tenant do hereby covenant and agree as follows:
1. LEASED PREMISES.
Landlord does hereby lease to Tenant, and Tenant does hereby rent from
Landlord, upon and subject to the terms, conditions, covenants and agreements
set forth in this Lease, certain real property located at 1408 Locust Street,
Des Moines, Iowa 50309 together with the facility, building, fixtures and
improvements thereon, hereinafter referred to as the "Leased Premises"
consisting of approximately thirty-two thousand (32,000) square feet and more
particularly described on Exhibit "A", attached hereto and made a part hereof by
reference.
2. TERM.
The initial term of this Lease shall be for five (5) years, commencing
on March 15, 1996 and expiring on March 14, 2001 (unless sooner terminated as
provided herein).
3. RENT.
(a) Base Annual Rent - Tenant hereby covenants and agrees to pay to
Landlord as "Base Annual Rent" the sum of One Hundred Twenty-Eight Thousand
Dollars ($128,000.00) per year, payable in equal monthly installments of Ten
Thousand Six Hundred Sixty-Six and 66/100 Dollars ($10,666.66) in advance,
beginning on the first day of each and every calendar month throughout the term
of this Lease. All payments required to be made by Tenant to Landlord under
this Lease shall be made at Landlord's office, or at such other place as
Landlord may from time to time designate in writing. Payments not received by
the tenth (10th) day of each month shall bear interest at the rate of fifteen
percent (15%) per annum from the due dates thereof, and, at Landlord's option,
shall be subject to a late charge equal to five (5%) percent of the late
payment.
<PAGE>
4. OPTION TO RENEW.
(a) Provided that Tenant is not in default under any of its
obligations under this Lease, Tenant shall have the exclusive right, privilege
and option to renew this Lease for two (2) consecutive renewal terms of five (5)
years each. Notice of the exercise of said option shall be given in writing to
Landlord at least ninety (90) days before the expiration of the then current
term. All the terms and conditions of this Lease shall prevail during the
renewal terms except rent which shall be based on the then-current base rent per
rentable square foot per annum for similar space in Des Moines, Iowa, but in no
event less than the base rent for the last year of the original term or
applicable renewal term nor greater than One Hundred Fifteen Percent (115%) of
the base rent for the last year of the original term or applicable renewal term.
5. USE OF PREMISES.
(a) The Leased Premises shall be used and occupied by Tenant during
the entire term hereof, subject to the conditions herein contained for:
office/retail/warehouse use.
(b) Tenant agrees that the use of the Leased Premises, or any part
thereof will be primarily as set forth in Paragraph 5(a) herein.
(c) Tenant further agrees that in the use and occupation of the
Leased Premises and in the operation or conduct of its business therein, Tenant
will comply with all requirements of all laws, ordinances, orders and
regulations of the federal, state, county and municipal authorities now in
force, or which hereinafter may be in force. In the event that such law,
ordinance, order or regulation requires a renovation or improvement to the
Leased Premises due to Tenant's particular use of the Leased Premises which is
different from the prior use of The Computer Supply Store, Inc., Tenant shall
make such renovations or improvements at Tenant's sole cost and expense. Tenant
covenants and agrees that it will not use or permit to be used any part of the
Leased Premises for any dangerous, noxious or offensive trade or business and
will not cause or maintain any nuisance in, at or on the Leased Premises, and
the land upon which it is situated.
(d) Tenant shall use and occupy the Leased Premises in a careful,
safe and proper manner and shall keep the Leased Premises in a clean and safe
condition in accordance with this Lease and local ordinances and the lawful
directions of proper public officers. Tenant agrees that it will not do or
suffer to be done, or keep or suffer to be kept, anything in, upon or about the
Leased Premises which will contravene Landlord's policies insuring against loss
or damage by fire or other hazards, or which will prevent Landlord from
procuring such policies in companies acceptable to Landlord or cause
cancellation of insurance of Landlord, if any.
(e) Tenant shall not permit the accumulation of rubbish, trash,
garbage or other refuse around the Leased Premises. Tenant shall be responsible
for removing its own garbage, trash and debris, landscaping and maintenance of
the grounds, snow
-2-
<PAGE>
removal and maintaining (but not resurfacing) the parking lots adjacent to the
Leased Premises.
(f) Tenant shall permit no waste, damage or injury to the Leased
Premises.
6. HAZARDOUS WASTE.
(a) During the term of the Lease, including any renewals thereof,
Tenant shall not use, maintain or allow the use or maintenance of the Leased
Property or any part thereof to treat, store, dispose of, transfer, release,
convey or recover hazardous, toxic or infectious materials ("Hazardous
Materials", as hereinafter defined), nor shall Tenant otherwise possess or allow
the possession of any Hazardous Materials on, under or about the Leased
Premises; provided, however, any Hazardous Materials lawfully permitted and
generally recognized as necessary and appropriate for industry or commercial use
may be stored, used and disposed of on the Leased Premises, so long as (i) such
storage, use and disposal is in the ordinary course of Tenant's business
permitted under this Lease; (ii) such storage, use and disposal is performed in
compliance with all applicable laws and in compliance with customary standards
prevailing in the industry for the storage, use and disposal of such materials;
and (iii) Tenant shall obtain prior to use all necessary permits and licenses to
use, generate, treat, store and/or dispose of such Hazardous Materials, and will
comply fully with same. Landlord represents that to the best of its knowledge,
that as of the execution of this Lease, there are no Hazardous Materials on,
under or about the Leased Premises. Landlord shall indemnify, defend and hold
Tenant harmless from and against any and all claims, judgments, damages,
penalties, fines, costs, liabilities or losses which arise during or after the
expiration of the Lease term or any renewal thereof as a result of any Hazardous
Materials on, under or about the Leased Premises prior to the execution of this
Lease. Tenant shall indemnify, defend and hold Landlord harmless from and
against any and all claims, judgments, damages, penalties, fines, costs,
liabilities or losses (excluding diminution in value of the Leased Premises,
damage to the loss of the use of rentable or usable space or any amenity of the
Leased Premises, or damages arising from any adverse impact on marketing of such
space) which arise during or after the expiration of the Lease term or any
renewal thereof as a result of any breach of this section by Tenant. The
covenants and obligations of Tenant and Landlord hereunder shall survive the
expiration or earlier termination of the Lease as provided hereinabove.
(b) As used herein, the term "Hazardous Material" means any hazardous
or toxic substance, material or waste which is or becomes regulated by any local
governmental authority, the State of Iowa, the United States Government or any
other applicable governmental entities. "Hazardous Material" includes any and
all material or substances that are defined as "hazardous waste", "extremely
hazardous waste", or a "hazardous substance" pursuant to state, federal, or
local governmental laws, regulations, or ordinances, and shall include, without
limitation, hazardous substance and material described in the comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended; the
Resource Conservation and Recovery Act, as amended; and
-3-
<PAGE>
any other applicable federal, state or local laws along with all rules and
regulations promulgated under these statutes.
(c) Each party shall promptly provide the other with copies of any
notices of violation, notices of responsibility or demands for action received
from any federal, state or local authority or official in connection with the
presence of Hazardous Materials in or about the Leased Property.
7. UTILITIES.
Tenant shall be solely responsible for and promptly pay all charges
for heat, air conditioning, water, gas, electricity and other utilities used or
consumed on the Leased Premises. Landlord shall not be liable to Tenant for
interference in or interruption of any utility service nor shall any curtailment
or interruption constitute a constructive eviction or grounds for rental
abatement in whole or in part hereunder (except for interference in or
interruption of any utility service due to Landlord's willful or intentional
act).
8. MAINTENANCE.
(a) Landlord will at all times and at Landlord's own expense and cost
keep the roof, exterior walls, gutters and waterspouts of the building
containing the Leased Premises in good condition and repair, reasonable wear and
tear excepted, and will promptly make all structural repairs necessary during
the term hereof. Excepted from Landlord's obligations above shall be repairs
caused or necessitated by the negligence of Tenant, its sublessees, employees,
agents, solicitors and customers.
(b) Subject to the provisions of Paragraph 15 below and the other
specific provisions of this Paragraph 8, Tenant shall, at Tenant's sole cost and
expense, during the entire term of this Lease, keep the interior of the Leased
Premises in good condition and repair, except for all "major repairs" and
replacements to the interior plumbing, heating, electrical, and air conditioning
systems which shall be the responsibility of the Landlord with the exception of
any repairs or replacements thereto caused by negligence of routine and normal
maintenance by Tenant, its agents and employees. As used herein, the words
"major repair" shall include repair, replacement or renewals of any given item
the cost of which exceeds Five Hundred Dollars ($500.00).
(c) Landlord shall make all necessary repairs to utility lines, pipes
and cables during the term of the Lease, up to the point where such utilities
enter the building containing the Leased Premises. In addition, if either party
in its responsibilities hereunder fails to perform its obligations under this
Paragraph 8, the other party, at its option and upon prior notice to the non-
performing party (except in the case of an emergency) make may make such entry
as is required to carry out the required work and/or make such
replacements as are necessary, and in the event that Tenant has done such work,
the cost thereof shall be deducted from the rent, and in the case of Landlord
having done such
-4-
<PAGE>
work, the cost thereof shall be payable as additional rent by Tenant to
Landlord. Any entry by Landlord hereunder in such circumstances shall not be
deemed to be an eviction of Tenant.
9. TAXES AND INSURANCE.
(a) Taxes.
(1) Tenant covenants and agrees to pay all real estate taxes and
special assessments, which may be levied or assessed for each calendar year
during the term of this Lease, against the land and buildings comprising the
Leased Premises or relating to the operating or use thereof.
(2) Should the State of Iowa or any political subdivision
thereof or any governmental authority having jurisdiction over the Leased
Premises impose a tax or assessment (other than an income or franchise tax)
either upon or against the rentals payable by the Tenant in the Leased Premises
to Landlord either by way of substitution for the taxes and assessments levied
or assessed against such land and buildings, or in addition thereto, such tax or
assessment shall be deemed to constitute a tax or assessment against such land
and such buildings for the purpose of this section.
(3) Tenant's obligation for taxes and assessments during the
term of this Lease shall be paid to Landlord, as additional rent, within ten
(10) days after demand therefor by Landlord. A copy of a tax bill or assessment
bill submitted by Landlord to Tenant shall at all times be sufficient evidence
of the amount of taxes or assessments assessed or levied against the property to
which such bill relates. In the event that the Lease terminates prior to its
normal expiration date and Tenant has prepaid any tax or assessment, Landlord
shall reimburse Tenant, on demand, for the portion for which Tenant is not
responsible hereunder. Likewise, if at the termination of the Lease, Tenant
shall have any obligation to pay taxes at a future time for accruals during the
Lease Term, the amount shall be based on the most current previous billing and
Tenant shall pay the same immediately and simultaneously with the Lease
termination.
(4) Tenant shall have the option to contest any real estate tax
assessment and Landlord agrees to cooperate in any such contest. In the event
any such contest is successful, any tax savings shall be applied first to any
cost by Tenant incurred incident to such contest and next to any overage due
from Tenant to Landlord hereunder.
(b) Insurance.
(1) Tenant covenants and agrees to maintain at its cost at all
times the following types of insurance:
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(i) Public liability and property damage insurance insuring
Landlord against claims for personal injury, death or property damage occurring
upon, in or about the Leased Premises in such amounts as are set forth in
Paragraph 11 herein.
(2) Tenant agrees to pay insurance premiums in advance and
furnish to Landlord, in writing, evidence of coverage and indication that
Landlord is named as an additional insured under such insurance policies.
(3) Landlord covenants and agrees to maintain during the term of
the Lease at all times the following types of insurance:
(i) Fire, lightening, windstorm, hail, explosion and
extended coverage insurance in such amount as Landlord shall reasonably deem
sufficient (up to replacement value). Tenant covenants and agrees to reimburse
Landlord each year during the term of this Lease, as additional rent, for the
cost of such coverage. A copy of the insurance premium submitted by Landlord to
Tenant shall at all times be sufficient evidence of the amount of such
insurance.
10. EXAMINATION OF PREMISES.
(a) The Tenant has had or will have prior to the commencement date of
this Lease full opportunity to examine the herein Leased Premises, including
the sidewalks, driveways and grounds adjacent to said Leased Premises, and the
Tenant's occupancy shall be an acknowledgment that there is in and about them
nothing readily observable that appears to be dangerous to life, limb, health,
or property, and Tenant hereby waives any claim for damages that may arise from
defects of that character after occupancy if such defects were readily
observable prior to the commencement date.
(b) All personal property of any kind or description whatsoever in
the Leased Premises shall be at Tenant's sole risk, and Landlord shall not be
liable for any damage done to or loss to such personal property; from bursting,
overflowing or leaking of water, sewer or steam pipes, or from the heating, air
conditioning or plumbing fixtures, from electric wires, or from wall and roof
leaks, or from gas or odors or caused in any other manner whatsoever.
11. INDEMNIFICATION AND LIABILITY INSURANCE.
(a) In addition to Tenant's indemnification obligations under
Paragraph 6, Tenant agrees to indemnify and save harmless Landlord, its
officers, agents, employees and servants, from and against any and all claims by
or on behalf of any persons, firms or corporations, arising from Tenant's use,
occupancy, conduct, management of, or from any work or thing whatsoever done in
or about, the Leased Premises during the entire term of this Lease, and will
further indemnify and save harmless Landlord, its successors and assigns, from
and against any and all claims arising during the entire term of this Lease from
any condition of the Leased Premises arising after the date hereof (except for
conditions that are Landlord's obligations hereunder to maintain, rectify or
remedy), or
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arising from any breach or default on the part of Tenant in the performance of
any covenant or agreement on the part of Tenant to be performed pursuant to the
terms of this Lease, or arising from any act or negligence of Tenant, or any of
Tenant's agents, contractors, servants, employees or licensees, or arising from
any accident, injury or damage whatsoever caused to any person, firm or
corporation occurring during the entire term of this Lease (except as may be
caused by Landlord's failure to comply with its maintenance responsibilities
under Paragraph 8 hereof), in or about the Leased Premises and from and against
all costs, reasonable counsel fees, expenses and liabilities incurred in
connection with any such claim or action or proceeding brought thereon; and in
case any action or proceeding be brought against Landlord by reason of any such
claim, Tenant upon notice from Landlord covenants to resist or defend such
action or proceeding by counsel satisfactory to Tenant.
(b) Tenant agrees to carry at its own expense throughout the term of
this Lease comprehensive public liability insurance covering the Leased Premises
and Tenant's use thereof, in companies and in form satisfactory to Landlord, in
an amount of not less than Two Million ($2,000,000.00) Dollars Combined Single
Limit for both bodily injury and property damage, and to deposit said policy or
policies (or certificates thereof) with Landlord on the day of any use or
occupancy of the Leased Premises by Tenant and thereafter not less than thirty
(30) days prior to the expiration of any such policy; said policy or policies
shall name Landlord as an additional insured and shall bear endorsements to the
effect that the insurer agrees to notify Landlord not less than thirty (30) days
in advance of any modification or cancellation thereof. Should Tenant fail to
carry such public liability insurance, Landlord may at its option (but shall not
be required so to do) cause public liability insurance as aforesaid to be
issued, and in such event Tenant agrees to pay the premium for such insurance as
additional rent promptly upon Landlord's demand.
(c) Landlord agrees to defend, indemnify, and hold harmless Tenant
from and against any and all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation,
reasonable attorneys' fees and expenses) sustained by any person or any property
arising from any breach or default on the part of Landlord in the performance of
any covenant or agreement on the part of Landlord to be performed pursuant to
the terms of this Agreement or arising out of the negligence of Landlord, its
directors, officers, employees, or agents. Provided, however, to the extent
covered by insurance, the provisions of Section 23 shall control.
12. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS.
Tenant covenants and agrees that if Tenant shall at any time fail to
perform any of the covenants on its part to be made or performed under this
Lease, the Landlord may, but shall not be obligated, and upon reasonable prior
notice (except in an emergency) to Tenant, but without waiving or releasing the
Tenant from any obligation of the Tenant under this Lease, perform such act as
to the extent that the Landlord may deem desirable. However, Landlord shall not
interfere with Tenant in any bona fide dispute that Tenant may have which
affects Tenant's responsibilities and covenants under this Lease.
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All reasonable expenses incurred by Landlord in connection therewith shall be
deemed additional rent hereunder and be payable to the Landlord on demand and
the Landlord shall have the same rights and remedies for the nonpayment thereof
as in the case of default in the payment of any other rent or charges to be paid
by Tenant hereunder. Landlord shall have the right upon prior notice to Tenant
(except in the case of an emergency) to enter the Leased Premises for the
purpose of performing any maintenance or making repairs as Landlord may elect to
perform or make pursuant to this paragraph and such entry shall not constitute
an eviction of Tenant. Nothing in this paragraph shall be construed to or
deemed to impose any duties upon Landlord.
13. CONDEMNATION.
(a) If the whole, or any part of the Leased Premises shall be taken
by any public, or quasi-public authority under any statute or by power or right
of eminent domain, the term of this Lease shall cease on that part of the Leased
Premises so taken or conveyed (hereinafter referred to as the "Condemned
Portion") from the day the possession of the Condemned Portion shall be taken by
the condemning authority. Unless this Lease is cancelled as hereinafter
provided, the Base Annual Rent provided for herein commencing with the date
possession is acquired by the condemning authority, shall be reduced in
proportion to the amount of the Leased Premises taken. If less than the entire
Leased Premises shall be taken by such condemning authority, and in the event,
that the remainder of the Leased Premises not so taken is not reasonably fit or
suited to being used by Tenant to enable Tenant to discharge and satisfy the
purposes for which the Leased Premises are leased hereunder to Tenant and to
carry on its business therein, Tenant, may in such event terminate this Lease as
to the remainder of the Leased Premises by giving written notice to Landlord not
later than fifteen (15) days after the vesting of title in the condemning
authority or the date possession of the Condemned Portion shall be taken by the
condemning authority, whichever shall first occur, specifying as the date for
termination a date not later than thirty (30) days after the giving of such
notice. Upon the date specified in such notice, the term of this Lease and all
right, title, and interest of Tenant hereunder shall cease and come to an end,
provided Tenant is not in default in any manner economically detrimental to
Landlord under this Lease on such date, and Base Annual Rent and other charges
shall be apportioned as of the date of such termination.
(b) The entire compensation award for any taking shall belong to and
be the property of Landlord, including, but not limited to, all damages as
compensation for diminution in value of the leasehold, reversion, and fee,
without any deduction therefrom for any present or future estate of Tenant and
Tenant hereby assigns such award to Landlord, except that Tenant shall be
entitled to receive such portion thereof as may be allocated to compensation
paid for Tenant's trade fixtures, cost of removal of stock, moving expenses, and
other Tenant's loss due to condemnation payable to Tenant provided that Tenant
so proves in any such condemnation proceeding, so long as such award does not
reduce Landlord's award.
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(c) For the purpose of this Paragraph 13 a sale to such public or
quasi-public authority under threat of condemnation shall constitute a vesting
of title and shall be construed as a taking by such condemning authority.
14. QUIET ENJOYMENT.
Landlord covenants and agrees that the Tenant upon paying the Base
Annual Rent, and all other charges herein provided for and performing and
fulfilling the covenants, agreements, and conditions of this Lease on the
Tenant's part to be performed and fulfilled, shall peaceably and quietly hold,
occupy and enjoy the Leased Premises during the term of this Lease without
hindrance or molestation by the Landlord or any person(s) claiming under the
Landlord, subject, however, to the terms and conditions of this Lease.
15. DAMAGE OR DESTRUCTION.
(a) If the Leased Premises are damaged by fire or other casualty,
Base Annual Rent payments shall abate from the date thereof in proportion to
the part of the Leased Premises which is unusable by Tenant in the conduct of
its business. The damage shall be repaired by and at the expense of Landlord
provided such repairs can be made within one hundred twenty (120) days after the
occurrence of such damage without the payment of overtime or other premiums.
Landlord shall act diligently under this Paragraph 15.
(b) If such repairs cannot be made within one hundred twenty (120)
days, Landlord may, at its option, make them within a reasonable time, and in
such event this Lease shall continue in effect and the rent shall be abated in
the manner provided above. Provided, however, Tenant may elect to terminate
this Lease if the repairs are not completed within one hundred twenty (120) days
after the casualty. Landlord's election to make repairs must be evidenced by
written notice to Tenant within thirty (30) days after the occurrence of the
damage. If Landlord does not so elect to make such repairs which cannot be made
within one hundred twenty (120) days, then either party may, by written notice
to the other, cancel this Lease.
(c) Notwithstanding anything contained in Paragraph 15 to the
contrary, if the Leased Premises shall be substantially damaged or destroyed by
fire or otherwise, either party shall have the option to terminate this Lease as
of the date of such damage or destruction by written notice to the other party
within thirty (30) days after such damage or destruction.
16. SUBORDINATION TO MORTGAGE.
This Lease is and shall be subject and subordinate to any and all
mortgages, deeds of trust and land leases now existing upon or that may be
hereafter placed upon the Leased Premises and the real estate upon which they
are situated and to all advances made or to be made thereon and all renewals,
modifications, consolidations, replacements
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or extensions thereof and the lien of any such mortgages, deeds of trust and
land leases shall be superior to all rights hereby or hereunder vested in
Tenant, to the full extent of all sums secured thereby; provided however, that
any subsequent mortgage or deed of trust hereafter encumbering the Leased
Premises and real estate upon which they are situated shall provide by its terms
or the holder of such mortgage or deed of trust shall by a separate agreement
agree that in the event of foreclosure of such mortgage or deed of trust, Tenant
(as long as Tenant is not in default under this Lease) shall remain undisturbed
under this Lease so long as Tenant complies with all of the terms, obligations
and conditions hereunder. This provision shall be self-operative and no further
instrument of subordination shall be necessary to effectuate such subordination
and the recording of any such mortgage or deed of trust shall have preference
and precedence and be superior and prior in lien to this Lease, irrespective of
the date of recording. In confirmation of such subordination, Tenant shall on
request of Landlord or the holder of any such mortgage or deed of trust execute
and deliver to Landlord within ten (10) days any instrument that Landlord or
such holder may reasonably request. Notwithstanding anything contained herein
to the contrary, upon the execution of this Lease, Landlord, Tenant and
Landlord's current mortgagee shall enter into a non-disturbance agreement, a
copy of which is attached hereto as Exhibit B.
17. SURRENDER OF PREMISES.
At the expiration of the term of this Lease, whether by forfeiture or
expiration of time, Tenant shall surrender the Leased Premises to Landlord in
as good condition as when received by Tenant from Landlord except for ordinary
and reasonable use, wear and damage by fire or the elements. In addition,
Tenant shall comply with the provisions set forth in Paragraph 26.
18. DEFAULT BY TENANT.
(a) This Lease is made upon the condition that the Tenant shall
punctually and faithfully perform all of the covenants and agreements by it to
be performed as herein set forth. If any of the following events shall occur,
to-wit: (i) if any installment of Base Annual Rent or any other sums required
to be paid by Tenant hereunder, or any part thereof shall at any time be in
arrears and unpaid for ten (10) days after the due date and written notice
thereof to Tenant, or (ii) if there be any material default on the part of the
Tenant in the observance or performance of any of the other covenants,
agreements, or conditions of this Lease on the part of Tenant to be kept and
performed and said default shall continue for a period of fifteen (15) days
after written notice thereof from Landlord to Tenant (unless such default cannot
reasonably be cured within fifteen (15) days and in such case, Tenant shall have
commenced to cure said default within said fifteen (15) days and thereafter
continue diligently to pursue to completion the curing of same), or (iii) if
Tenant shall file a petition in bankruptcy or be adjudicated a bankrupt, or file
any petition or answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself under any
present or future Federal, State or other statute, law or regulation, or make an
assignment for the benefit of creditors, or (iv) if any trustee, receiver or
liquidator of Tenant or of all or any substantial part of its
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properties shall be appointed in any action, suit or proceeding by or against
Tenant and such proceeding or action shall not have been dismissed within sixty
(60) days after such appointment, or (v) if the leasehold estate hereby created
shall be taken on execution or by other process of law, or (vi) if Tenant fails
to pay Iowa sales tax or other taxes relative to the business within thirty (30)
days after the date the tax is due and payable (except for sales tax under
appeal by Tenant, which amount shall be paid upon exhaustion of all appeal),
then, in any such event, Landlord, at Landlord's option and without limiting
Landlord in the exercise of any other right or remedy Landlord may have on
account of any default by Tenant, may either
(1) re-enter the Leased Premises, take possession of all
buildings, improvements, additions, alterations, equipment and fixtures thereon,
and without terminating this Lease, at any time and from time to time relet the
Leased Premises or any part or parts thereof for the account of Tenant or
otherwise, receive and collect the rents therefor, applying the same first to
payment of such reasonable expenses as Landlord may have paid, assumed or
incurred in recovering possession of the Leased Premises, including costs,
expenses and reasonable attorney's fees and brokerage, paid, assumed or incurred
by Landlord in connection with reletting the Leased Premises, and then to the
fulfillment of the covenants of Tenant. Any such reletting as provided for
herein may be for the remainder of the term of this Lease as originally granted
or for a longer or shorter period. Landlord may execute any Lease made pursuant
to the terms hereof in Landlord's own name and Tenant shall have no right or
authority whatever to collect any rent whatever from such Subtenant. In any
case and whether or not the Leased Premises or any part thereof be relet, Tenant
shall pay to Landlord all sums required to be paid by Tenant up to the time of
re-entry by Landlord, and thereafter Tenant, shall, if required by Landlord, pay
to Landlord until the end of the term of this Lease the equivalent amount of all
rent and other charges required to be paid by Tenant under the terms of this
Lease, less the amounts received by Landlord by such reletting during the term
of this Lease, if any, after payment of the expenses of Landlord as aforesaid,
and the same shall be due and payable on the several rent days herein specified.
No such re-entry by Landlord shall constitute an election to terminate this
Lease unless and until Landlord thereafter gives Tenant notice of Landlord's
election to terminate; or
(2) Terminate this Lease in accordance with terms set forth
herein, and with process of law, expel and remove Tenant, or any other person or
persons in occupancy from the Leased Premises, together with their goods and
chattels, using such reasonable force as may be necessary in the judgment of
Landlord or its agents in so doing, and repossess and enjoy said Leased Premises
together with all improvements, additions, alterations, equipment and fixtures
thereon, and recover from Tenant all damages Landlord may incur by reason of
Tenant's default, including, without limitation, an amount equal to the Base
Annual Rent and other sums which would have been payable by Tenant during the
remaining term of this Lease, less the aggregate reasonable rental value of the
Leased Premises for the same period.
(b) Landlord shall act reasonably to mitigate damages hereunder.
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(c) All rights and remedies of Landlord herein enumerated shall be
cumulative, and none shall exclude any other remedies allowed at law or in
equity.
19. TENANT'S PROPERTY.
If for any reason Landlord obtains possession pursuant to the terms of
this Lease of the Leased Premises, Tenant's property not removed after thirty
(30) business days shall be deemed to have been abandoned and shall become the
property of the Landlord and may be used or disposed of by Landlord as it sees
fit. Landlord shall cooperate with Tenant in removal of Tenant's property.
20. HOLDING OVER.
No receipt of money by the Landlord from the Tenant after termination
of this Lease or after the service of any notice or after the commencement of
any suit, or after final judgment for possession of the Leased Premises shall
reinstate, continue or extend the term of this Lease or affect any such notice,
demand or suit or imply consent for any action for which Landlord's consent is
required. In the event Tenant remains in possession of the Leased Premises
after termination of this Lease or any renewal hereof, and without the execution
of a new lease, Tenant at the option of the Landlord, shall be deemed to be
occupying the Leased Premises as a Tenant from month to month, at one hundred
and ten percent (110%) of the Base Annual Rent for the immediately preceding
term, subject to all the other conditions, provisions and obligations of this
Lease in so far as the same are applicable to a month-to-month tenancy.
21. ACCESS FOR RE-LETTING.
The Landlord may at any time within ninety (90) days before the
expiration date of this Lease or any renewal hereof enter the Leased Premises at
all reasonable hours upon prior notice to Tenant for the purpose of offering the
same for rent. Landlord may not place and keep on the grounds of said Leased
Premises signs advertising the Leased Premises for rent or sale without Tenant's
consent, which consent shall not be unreasonably withheld or delayed.
22. DEFAULT OF LANDLORD - CURE PERIOD.
Landlord shall not be deemed to be in default in the observance or
performance of any covenants, conditions, agreements or provisions of this
Lease, on its part to be observed or performed, unless Landlord shall fail to
remedy such default within fifteen (15) days after written notice from Tenant
specifying the nature of any such default, or, if default cannot be reasonably
remedied within the said fifteen (15) day period, Landlord shall not be deemed
to be in default unless Landlord shall fail to initiate action to remedy such
default within fifteen (15) days after such written notice and to prosecute the
same to completion with due diligence. In the event Landlord fails to cure a
default hereunder, Tenant shall have available to it all remedies at law or in
equity and in addition
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may remedy such default and charge the reasonable cost thereof along with
interest to Landlord.
23. RELEASE AND WAIVER OF SUBROGATION.
Landlord shall not be liable for any damage or loss to fixtures,
equipment, merchandise or other personal property of Tenant located anywhere in
or on the Leased Premises caused by fire, water, explosion, sewer backup or any
other insurable hazards, regardless of the cause thereof, and Tenant does hereby
expressly release Landlord of and from any and all liability for such damages or
loss. Landlord shall not be liable for any damage or loss resulting from
business interruption at the Leased Premises arising out of or incident to the
occurrence of any of the perils which can be covered by a business interruption
policy and Tenant does hereby expressly release Landlord of and from any
liability for such damage or loss. Tenant shall not be liable for any damages
to the Leased Premises or any part thereof caused by fire, water, explosion,
sewer backup, or other insurable hazards, regardless of the cause thereof, and
Landlord does hereby expressly release Tenant of and from any and all liability
for such damages or loss. To the extent that any of the risks or perils
described in this Paragraph 23 are in fact covered by insurance, each party
shall cause its insurance carriers to waive all rights of subrogation against
the other party.
24. ESTOPPEL CERTIFICATES.
The Tenant shall, within ten (10) days after written request of
Landlord, execute, acknowledge and deliver to the Landlord or to Landlord's
mortgagee, proposed mortgagee, or proposed purchaser of the Leased Premises or
any part thereof, any estoppel certificates requested by Landlord, from time to
time, which estoppel certificates shall indicate whether the term of the Lease
has commenced and full rental is accruing; whether to Tenant's knowledge there
are any defaults by Landlord and, if so, the nature of such defaults; and
whether rent has been paid more than thirty (30) days in advance and whether
there are any liens, charges, or offsets against rental due or to become due and
that the address shown on such estoppel is accurate. The Landlord shall, within
ten (10) days after written request of Tenant, execute, acknowledge and deliver
to Tenant or to Tenant's mortgagee or proposed mortgagee, any estoppel
certificate(s) requested by Tenant from time to time, which estoppel
certificate(s) shall show whether the term of the Lease has commenced and full
rental is accruing, and whether there are any defaults by Tenant and, if so, the
nature of such defaults.
25. LIMITATION OF LANDLORD'S LIABILITY
The term "Landlord" as used in this Lease, so far as covenant or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner at the time in question of the fee simple title to the
building and Leased Premises, and in the event of a bona fide transfer of said
fee simple estate, then the party conveying said fee simple estate shall be
automatically relieved after the date of such transfer, of all personal
liability as respects the performance of any obligations on the part of Landlord
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contained in this Lease arising out of acts thereafter occurring or covenants
thereafter to be performed, it being intended hereby that all the obligations
contained in this Lease on the part of Landlord shall be binding upon Landlord,
its successors and assigns, only during and in respect of their respective
periods of ownership of said fee simple estate in the Leased Premises.
26. ALTERATIONS OR IMPROVEMENTS BY TENANT
Tenant covenants and agrees that it will not materially alter or
change the Leased Premises or any part thereof without the written consent of
Landlord which shall not be unreasonably withheld and Tenant agrees to indemnify
and save harmless Landlord for all liens, claims or demands arising out of any
work performed, materials furnished, or obligations incurred by or for Tenant
(with Landlord's consent) upon said Leased Premises during the term of this
Lease. Tenant shall obtain all necessary approvals and permits required for the
completion of any improvements made by it with Landlord's approval and shall
comply fully with all applicable laws, ordinances, codes and other governmental
requirements and regulations pertaining thereto and with the requirements of any
insurance underwriters. At the termination of this Lease, whether by expiration
of time or forfeiture, Tenant shall, if requested by Landlord in writing,
restore the Leased Premises, at Tenant's sole cost and expense, to the condition
that the Leased Premises were in prior to the making of any alterations or
improvements, normal wear and tear, fire and acts of God excepted. Landlord
shall notify Tenant at the time Landlord gives permission for the making of any
improvements as set forth above whether any future improvements made by Tenant
shall require restoration at the expiration of the Lease. At the termination of
this Lease, whether by expiration of time or forfeiture, Tenant shall remove all
of its personal property from the Leased Premises and upon failure to do so,
such property, shall be deemed to be abandoned and of no value to Tenant and
shall become the sole property of Landlord for disposal as it sees fit. Tenant
further agrees to pay to Landlord the cost of removal of any such property so
abandoned by Tenant.
27. ACCESS TO PREMISES.
The Landlord shall have the right if it so elects to enter upon the
Leased Premises at all reasonable hours, upon reasonable prior written notice to
Tenant (except in the case of emergency) for the purpose of inspecting the same
and for the purpose of maintenance and repair. Nothing in this paragraph shall
be construed to or deemed to impose any duties upon Landlord.
28. EXCEPTIONS TO DEMISE.
Notwithstanding anything to the contrary herein contained, this Lease
is subject to recorded utility easements, pertaining to or affecting the Leased
Premises or the real estate upon which the Leased Premises are situated; this
Lease is also subject to all governmental laws, ordinances, orders, regulations,
codes, directives, variances, permits, and all orders, permits, rules and
regulations issued by or at the direction of any such governmental agency or
authority or any board or instrumentality thereof. Landlord
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represents that there are no protective covenants, restrictions and/or other
recorded documents pertaining to the Leased Premises which affect Tenant's use
of the Leased Premises.
29. ATTORNMENT.
In the event any proceedings are brought for the foreclosure of, or in
the event of the exercise of the power of sale under any mortgage covering the
Leased Premises or in the event of any other transfer or sale of title to the
Leased Premises, Tenant shall attorn to the purchaser under any such sale,
transfer or foreclosure and recognize such purchaser or transferee as the
Landlord under this Lease.
30. PARTIAL INVALIDITY.
If any term, covenant or condition of this Lease or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Lease or the application of such term,
covenant or condition to persons or circumstances other than those as to which
it is invalid or unenforceable, shall not be affected thereby and each term,
covenant and condition of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
31. LEASE BINDING UPON ASSIGNEES.
This Lease and all covenants, provisions and conditions herein
contained shall inure to the benefit of and be binding upon the heirs,
executors, administrators, personal representatives, successors and assigns,
respectively of the parties hereto, provided however, that no sublease,
assignment or transfer by, from, through or under Tenant in violation of the
provisions hereof shall vest in the sublessee, assignee or transferee any right,
title or interest whatever.
32. PARTNERSHIP.
Nothing contained herein shall be deemed or construed by the parties
hereto, nor by any third party, as creating a relationship between the parties
hereto other than the relationship of Landlord and Tenant.
33. WAIVER.
The failure of either party to insist in any one or more cases upon
the strict performance or observance of any of the covenants, agreements or
conditions of this Lease or to exercise any option herein contained shall not be
construed as a waiver or a relinquishment for the future performance, observance
or exercise of such covenant, agreement, condition, or option. No waiver of any
default hereunder shall be implied from any omission by either Tenant or
Landlord to take any action on account of such default or to declare a
forfeiture if such default persists or is repeated, and no condition or covenant
shall be deemed waived by such party unless such waiver be in writing signed
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by such party. The acceptance by Landlord of rent with knowledge of the breach
of any of the covenants or conditions of this Lease by either party shall not be
deemed a waiver of any such breach. One or more waivers of any breach of any
covenant, term or condition of this Lease by Landlord shall not be construed as
a waiver of any subsequent breach of the same covenant, term or condition.
34. NO ACCORD AND SATISFACTION.
No acceptance by Landlord of a lesser sum than the Base Annual Rent or
any other charge then due shall be deemed to be other than on account of the
earliest installment of such rent or charge due, nor shall any endorsement on
any check or any letter accompanying any check or payment as rent or other
charge be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance of such
installment or charge or any other monies by Tenant or pursue any other remedy
in this Lease provided.
35. BANKRUPTCY.
Neither this Lease, nor any interest herein nor any estate hereby
created shall pass to any trustee or receiver in Bankruptcy, or to any other
receiver or assignee for the benefit of creditors or otherwise by operation of
law.
36. ASSIGNMENT AND SUBLETTING.
Tenant shall not sublet the Leased Premises or any part thereof nor
assign, transfer or mortgage this Lease or any right or interest therein,
without in each case the prior written consent of Landlord which consent shall
not be unreasonably withheld or delayed. Any transfer of this Lease from Tenant
by merger, consolidation, liquidation or otherwise by operation of law shall
constitute an assignment for the purpose of this Lease and shall require the
written consent of Landlord not to be unreasonably withheld or delayed. If this
Lease be assigned or if the Leased Premises or any part thereof be subleased or
occupied by anybody other than Tenant, Landlord may collect from the Assignee,
Sublessee or Occupant any rent or other charges payable by Tenant under this
Lease, and apply the amount collected to the rent and other charges herein
reserved, but such collection by Landlord shall not be deemed an acceptance of
the Assignee, Sublessee or Occupant as a Tenant nor a release of Tenant from the
performance by Tenant under this Lease. Any consent by Landlord to any
assignment or subletting, shall not constitute a waiver of the necessity for
such consent to any subsequent assignment or subletting. No assignment or
subletting shall relieve Tenant of its obligations hereunder and Tenant shall
continue to be liable as a principal, and not as a guarantor or surety, to the
same extent as though no assignment or sublease had been made, unless
specifically provided to the contrary in Landlord's consent. Notwithstanding
the foregoing, Tenant may assign its interest under this Lease to a corporation
or other entity or person which controls, is controlled by, or is under common
control with Tenant without requiring Landlord's consent, provided that Tenant
shall remain liable as a principal for the obligations of Tenant hereunder.
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<PAGE>
37. ENTIRE AGREEMENT AND MODIFICATIONS.
This Lease and the covenants and agreements set forth herein are and
shall constitute the entire agreement between the parties. Each party to this
Lease hereby acknowledges and agrees that the other party has made no
warranties, representations, covenants, or agreements, express or implied, to
such party other than those expressly set forth herein and that each party, in
entering into and executing this Lease, has relied upon no warranties,
representations, covenants or agreements, express or implied, to such party
other than those expressly set forth herein. None of the terms, covenants, and
agreements of this Lease shall in any manner be altered, waived or changed,
except by written instrument signed and delivered by the parties hereto.
38. SURVIVAL OF LANDLORD'S AND TENANT'S OBLIGATIONS.
All obligations of Landlord and Tenant which by their nature involve
performance, in any particular, after the end of the term or which cannot be
ascertained to have been fully performed until after the end of the term, shall
survive the expiration or sooner termination of the term.
39. BROKER'S COMMISSION.
Landlord and Tenant represent and warrant that there are no claims for
broker's commission or finder's fees in connection with Tenant's execution of
this Lease, other than to None______________. Tenant and Landlord agree to
indemnify and save each other harmless from any liability that may arise from
the claim of any other person for a brokerage commission including, but not
limited to, reasonable attorneys' fees, due to the acts of the indemnifying
party.
40. ATTORNEY'S FEES AND COSTS.
In the event either party shall have to file any proceeding, whether
at law or in equity, to enforce collection of any rent, charge or other payment
to be borne, kept or paid by or any obligation to perform by the other hereunder
then the prevailing party shall be entitled to recover reasonable attorney's
fees incurred by that party in enforcing the covenants hereof and securing to it
the performance of obligations of the other party hereunder, in addition to all
sums to which the other party shall otherwise be obligated hereunder.
41. NOTICES.
All written notices provided for in this Lease shall be in writing
deposited in the United States mail, registered or certified, return receipt
requested, postage prepaid, addressed to Landlord at the last known post office
address of Landlord, and to Tenant at the last known post office address of
Tenant or at Leased Premises, or at such other address as may be specified from
time to time in writing, delivered to or sent to the other
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<PAGE>
party as provided herein. Notice shall be deemed given three days after deposit
in the United States mail as aforesaid.
42. RECORDING.
Neither party shall record this Lease in its entirety. However upon
the request of either party, the other party shall join in the execution of a
memorandum or so called "short form" of this Lease for the purpose of
recordation.
43. HEADINGS AND INTERPRETATION.
The paragraph headings used throughout this instrument are for
convenience and reference only, and the words contained therein shall in no way
be held to explain, modify, amplify or aid in the interpretation, construction,
or meaning of the provisions of this Lease.
44. MISCELLANEOUS.
This Lease has been negotiated by Landlord and Tenant and this Lease,
together with all of the terms and provisions hereof shall not be deemed to
have been prepared by either Landlord or Tenant, but by both equally. Wherever
in this Lease any printed portion or part thereof, has been stricken, whether or
not any relative provisions have been added, this Lease shall be read and
construed as if the material stricken was never included herein, and no
implication shall be drawn from the text of the material so stricken, which
would be inconsistent in any way with the construction or interpretation which
would be appropriate if such material were never contained herein.
45. AUTHORIZATION.
Each individual executing this Lease on behalf of a Corporation
represents and warrants that he has been authorized to do so by the Board of
Directors of such corporation.
46. PARKING.
During the term of this Lease and any extension thereof, Tenant, its
employees, customers and visitors shall be entitled to use the entire parking
area of the real property comprising the Leased Premises at no additional cost
to the Tenant.
47. SIGN PROVISION.
Tenant shall place a sign upon the Leased Premises only with the prior
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. Any signage implemented by Tenant that is similar to Landlord's
present signage shall be deemed to be approved. Any signage erected by Tenant
in the future shall comply with all zoning and other municipal and county
regulations. Tenant agrees to maintain such
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sign in a first class condition and in compliance with all zoning and building
codes throughout the Lease term. Upon the expiration of the Lease, including
any renewal terms, Tenant shall remove the sign and repair all damage to the
Leased Premises caused thereby.
48. AMERICANS WITH DISABILITIES ACT.
(a) Landlord will be solely responsible for all alterations or
modifications to the exterior of the Leased Premises, parking areas, sidewalks
and walkways and all areas appurtenant thereto (which, for purposes of this
Paragraph, shall include all exterior windows, doors, doorways or ramping to or
from such doorways) which may be required by (a) Title III of the Americans with
Disabilities Act of 1990 (the "ADA"), 42 U.S.C. 12101, ET SEQ., (b) the
Department of Justice regulations promulgated thereunder, as they may be amended
from time to time, (c) any similar federal, state or local laws, regulations
imposing accessibility standards or (d) any governmental order pertaining
thereto (all such laws, regulations and orders collectively, the "Accessibility
Requirements"). Landlord shall indemnify and hold Tenant harmless from and
against any liabilities, claims, costs or expenses arising out of or relating to
the failure of the exterior of the Leased Premises to comply with the
Accessibility Requirements.
(b) Landlord represents that the interior of the Leased Premises
currently complies with all Accessibility Requirements under ADA.
(c) The allocation of responsibility for ADA compliance shall
supersede any other provisions of the Lease that may contradict or otherwise
differ from the requirements of this Section.
IN WITNESS WHEREOF, Landlord and Tenant have signed this Lease on the day
and year first above written.
Signed in the presence of: LANDLORD:
THE COMPUTER SUPPLY STORE, INC.
\s\ Anna K. Pugh
- -----------------------------------
\s\ James H. Smith By: \s\ Richard Feaster
- ----------------------------------- -------------------------
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<PAGE>
TENANT:
POMEROY COMPUTER RESOURCES, INC.
/s/ Anna K. Pugh
- -----------------------------------
/s/ James H. Smith By: \s\ Edwin S. Weinstein CFO
- ----------------------------------- --------------------------
STATE OF OHIO )
-------------
) SS:
COUNTY OF HAMILTON )
------------
BE IT REMEMBERED, that on this 15th day of March, 1996, before me the
subscriber, a Notary Public in and for said County and State, personally
appeared Richard Feaster, the President of The Computer Supply Store, Inc., the
corporation whose name is subscribed to and which executed the foregoing
instrument and for himself and as such officer, and for and on behalf of said
corporation, acknowledged the signing and execution of said instrument; and
acknowledged that he executed said instrument by authority of the Board of
Directors, and on behalf of said corporation; and that the signing and execution
of said instrument is his free and voluntary act and deed, his free act and deed
as such officer, and the free and voluntary act and deed of said corporation,
for the uses and purposes in said instrument mentioned.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
Notarial Seal, on the day and year last aforesaid.
/s/ James H. Smith
--------------------------------
Notary Public
My Commission Expires:
- --------------------------
STATE OF OHIO )
-------------
) SS:
COUNTY OF HAMILTON )
------------
BE IT REMEMBERED, that on this 15th day of March, 1996, before me the
subscriber, a Notary Public in and for said County and State, personally
appeared Edwin S. Weinstein, the Chief Financial Officer of Pomeroy Computer
Resources, Inc., the corporation whose name is subscribed to and which executed
the foregoing instrument and for himself and as such officer, and for and on
behalf of said corporation, acknowledged the signing and execution of said
instrument; and acknowledged that he executed said
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<PAGE>
instrument by authority of the Board of Directors, and on behalf of said
corporation; and that the signing and execution of said instrument is his free
and voluntary act and deed, his free act and deed as such officer, and the free
and voluntary act and deed of said corporation, for the uses and purposes in
said instrument mentioned.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
Notarial Seal, on the day and year last aforesaid.
/s/ James H. Smith
--------------------------------
Notary Public
My Commission Expires:
- --------------------------
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<PAGE>
LEASE-BUSINESS PROPERTY
THIS LEASE AGREEMENT, executed in duplicate, made and entered into this 1st
day of July, 1994, by and between Arthur K. Jones Trust, Firstar Bank Des
Moines, N.A., and William A. Jones, Trustees (hereinafter called the
"LANDLORD"), whose address for the purpose of this lease is 6th and Walnut
Streets, P.O. Box 906, Des Moines, Iowa 50304, and Computer Supply Store, Inc.
(hereinafter called the "TENANT"), whose address for the purpose of this lease
is 1408 Locust Street, Box 4834, Des Moines, Iowa 50313.
The parties agree as follows:
1. PREMISES AND TERM. The Landlord, in consideration of the rents herein
reserved and of the agreements and conditions herein contained, on the part of
the Tenant to be kept and performed, leases unto the Tenant and Tenant hereby
rents and leases from Landlord, according to the terms and provisions herein,
the following described real estate, situated in Polk County, Iowa:
Lots 10, 11 and 12, Block 2 in Allen's Addition, an official
plat now in and forming a part of the City of Des Moines,
Polk County, Iowa, and locally known as 1310, 1312 and 1314
Locust Street, Des Moines, Iowa,
with the improvements thereon and all rights, easements and appurtenances
thereto belonging, for a term of sixty (60) months, commencing on the 1st day of
July, 1994, and ending on the 30th day of June, 1999, upon the condition that
the Tenant pays rent therefor, and otherwise performs as provided herein. The
Tenant shall have the option to extend this lease, upon the terms set forth in
paragraph 2, for an additional term of five (5) years. The option is to be
exercised in writing by the Tenant not later than six (6) months prior to the
expiration of the initial term.
2. RENTAL. The Tenant shall pay to the Landlord as rent the sum of Two
Thousand Six Hundred Twenty-three and 75/100 Dollars ($2,623.75) per month, in
advance, commencing on July 1, 1994, payable upon the first day of each month
throughout the remainder of the initial term of this lease.
In the event Tenant exercises its option to extend the term of this lease,
the rent which the Tenant shall pay during the extended term (the "ADJUSTED
RENT") shall be Two Thousand Eight Hundred Eight-six Dollars and 13/100
($2,886.13) per month.
3. POSSESSION. Tenant shall be entitled to possession on the first day
of the term of this lease, and shall yield possession to the Landlord at the
time and date of the close of this lease term, except as herein otherwise
expressly provided. Should Landlord be unable to give possession on said date,
Tenant's only damages shall be a rebating of the pro rata rental.
4. USE OF PREMISES. Tenant covenants and agrees during the term of this
lease to use and to occupy the leased premises for a computer supply business
and associated products.
<PAGE>
5. LANDLORD'S INTEREST IN PREMISES. Landlord shall have the right to
mortgage, sell, or otherwise encumber or dispose of all or part of its right,
title, and interest in said premises at any time without notice, subject to this
lease.
6. CARE AND MAINTENANCE OF PREMISES. (a) Tenant takes said premises in
their present condition.
(b) Tenant shall, after taking possession of said premises and until the
termination of this lease and the actual removal from the premises, at its own
expense, care for and maintain said premises in a reasonably safe and
serviceable condition. Tenant will keep the roof, structural part of the floor,
walls and other structural parts of the building in good repair. Tenant will
furnish its own interior and exterior decorating. Tenant will not permit or
allow said premises to be damaged or depreciated in value by any act or
negligence of the Tenant, its agents or employees. Without limiting the
generality of the foregoing, Tenant will make necessary repairs to the sewer,
the plumbing, the water pipes and electrical wiring, and Tenant agrees to keep
faucets closed so as to prevent waste of water and flooding of premises; to
promptly take care of any leakage or stoppage in any of the water, gas or waste
pipes. The Tenant agrees to maintain adequate heat to prevent freezing of
pipes. Tenant at its own expense may install floor covering and will maintain
such floor covering in good condition. Tenant will be responsible for the plate
glass in the windows of the leased premises and for maintaining the parking
area, driveways and sidewalks on and abutting the leased premises. Tenant shall
make no structural alterations or improvements without the prior written
approval of the Landlord of the plans and specifications therefor.
(c) Tenant will make no unlawful use of said premises and agrees to comply
with all valid regulations of the Board of Health, Ordinances of City or
applicable municipality, and the law of the State of Iowa and the Federal
government, but this provision shall not be construed as creating any duty by
Tenant to members of the general public. Tenant will not allow trash of any
kind to accumulate on said premises, in the halls, if any, or the alley or yard
in front, side or rear thereof, and it will remove same from the premises at its
own expense. Tenant also agrees to remove snow and ice arid other obstacles
from the sidewalk on or abutting the premises.
(d) Tenant shall not install any underground storage tanks or pipelines on
the property and shall take appropriate action to guard against hazardous
materials contamination. Tenant shall permit Landlord to conduct environmental
assessments and audits of the premises and Tenant's operations during the term
of the Lease. This Lease shall terminate immediately if it is determined that
Tenant's operations or activities violate the environmental laws.
(e) If Tenant chooses not to use the elevator, it shall have no obligation
to maintain it. However, Tenant shall not dismantle or otherwise take action
which causes the elevator not to function properly, without the written consent
of the Landlord.
7. (a) UTILITIES AND SERVICES. Tenant, during the term of this lease,
shall
2
<PAGE>
pay, before delinquency, all charges for use of telephone, water, sewer, gas,
heat, electricity, power, air conditioning, garbage disposal, trash disposal
and, not limited by the foregoing, all other utilities and services of whatever
kind and nature which may be used in or upon the demised premises.
(b) AIR CONDITIONING equipment shall be furnished at the expense of Tenant
and maintenance thereof at the expense of Tenant.
(c) JANITOR SERVICE shall be furnished at the expense of Tenant.
(d) HEATING shall be furnished at the expense of Tenant.
8. (a) SURRENDER OF PREMISES AT END OF TERM. Tenant agrees that upon the
termination of this lease, it will surrender, yield up and deliver the leased
premises in good and clean condition, except the effects of ordinary wear and
tear and depreciation arising from lapse of time or damage without fault or
liability of Tenant.
(b) REMOVAL OF FIXTURES. Tenant may, at the expiration of the term of
this lease, or renewal or renewals thereof or at a reasonable time thereafter,
if Tenant is not in default hereunder, remove any fixtures or equipment which
said Tenant has installed in the leased premises, providing Tenant repairs any
and all damages caused by removal.
(c) HOLDING OVER. Continued possession, beyond the expiration date of the
term of this lease, by the Tenant, coupled with the receipt of the specified
rental by the Landlord (and absent a written agreement by both parties for an
extension of this lease, or for a new lease) shall constitute a month-to-month
extension of this lease.
9. ASSIGNMENT AND SUBLETTING. ANY ASSIGNMENT OF THIS LEASE OR SUBLETTING
OF THE PREMISES OR ANY PART THEREOF, WITHOUT THE LANDLORD'S WRITTEN PERMISSION
SHALL, AT THE OPTION OF THE LANDLORD, MAKE THE RENTAL FOR THE BALANCE OF THE
LEASE TERM DUE AND PAYABLE AT ONCE. Such written permission shall not be
unreasonably withheld.
10. (a) ALL REAL ESTATE TAXES levied or assessed by lawful authority (but
reasonably preserving Landlord's rights of appeal) against said real property
shall be timely paid by the Tenant.
(b) PERSONAL PROPERTY TAXES. Tenant agrees to timely pay all taxes,
assessments or other public charges levied or assessed by lawful authority (but
reasonably preserving Tenant's rights of appeal) against its personal property
on the premises during the term of this lease.
(c) SPECIAL ASSESSMENTS. Special assessments shall be timely paid by the
Tenant.
11. LIABILITY INSURANCE. Tenant shall, at its own expense, during the
term hereof, maintain and deliver to Landlord public liability and property
damage insurance policies with respect
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<PAGE>
to the premises, including, but not limited to, the parking lot, in which both
Landlord and Tenant shall be named as insureds, with limits of at -least One
Million Dollars ($1,000,000.00) for injury or death to any one person and Two
Million Dollars ($2,000,000.00) for any one accident, and Two Hundred Fifty
Thousand Dollars ($250,000.00) with respect to damage to property. Such policy
or policies shall be in such form and with such insurance companies as shall be
reasonably satisfactory to Landlord with provisions for at least ten (10) days'
notice to Landlord of cancellation. At least ten (10) days before the
expiration of any such policy, Tenant shall supply Landlord with evidence of
renewal of such policy or evidence of a substitute therefor with evidence of
payment of the premiums thereof. If such premium shall not be so paid or the
policy or policies therefor shall not be so delivered, then Landlord may procure
or pay for the same and the amounts so paid by Landlord, with interest thereon
at the rate determined under Section 19 from time of payment, shall be added to
the installment of monthly rent becoming due on the first of the next succeeding
month and shall be collected as additional rent.
12. FIRE AND CASUALTY INSURANCE. Tenant agrees throughout the term of
this lease, for the benefit of both Landlord and Tenant as named insureds, to
maintain insurance of at least Two Hundred Fifty Thousand Dollars ($250,000.00)
against loss or damage by fire, and such other risks and hazards as are
insurable under present and future standard forms of fire and extended coverage
insurance policies on the building in which the premises are located and on the
personal property furniture, furnishings, and fixtures belonging to Tenant
located in the premises. Such policy or policies shall be in such form and with
such insurance companies as shall be reasonably satisfactory to Landlord with
provision for at least ten (10) days' notice to Landlord of cancellation. At
least ten (10) days before the expiration of any such policy, Tenant shall
supply Landlord with evidence of renewal of such policy or evidence of obtaining
a substitute thereof with evidence of payment or the premiums thereof. If such
premium shall not be so paid or the policy or policies therefor shall not be so
delivered, then Landlord may procure or pay for the same and the amounts so paid
by Landlord, with interest thereon at the rate determined under Section 19 from
time of payment, shall be added to the installment of monthly rent becoming due
on the first of the next succeeding month and shall be collected as additional
rent.
Landlord, at the time of the occurrence of any fire or other casualty
insured against by Tenant's policies shall, when called upon to do so by Tenant
by an appropriate written instrument, assign to Tenant all of Landlord's right,
title, and interest in and to the insurance proceeds. Upon payment of such
insurance proceeds, Tenant agrees to accept such payment as payment in full for
any loss or damage to Tenant's property, and riot to make any claim against, or
seek to recover from Landlord, any other sum for such loss or damage whether or
not the loss or damage was due to carelessness or negligence of Landlord or its
servants, agents, or employees. Upon the occurrence of any casualty insured
against, Tenant shall have full authority to, and shall take all necessary
measures to negotiate, compromise, or adjust any loss under Tenant's policy that
directly relates to Tenant's property.
13. EVIDENCE OF INSURANCE/DUTIES OF TENANT. A certificate evidencing the
issuance of all policy or policies required by this lease, together with
evidence of the payment of
4
<PAGE>
premiums. shall be delivered to Landlord before the commencement of the term of
this Lease. Tenant will not do or omit the doing of any act which would violate
any insurance, or increase the insurance rates in force upon the real estate
improvements on the premises or upon any personal property of the Tenant upon
which the Landlord by law or by the terms of this lease, has or shall have a
lien.
14. WAIVER OF SUBROGATION. So long as their respective insurers so permit
Landlord and Ten ant each hereby waive any and every claim for recovery from the
other for any and all loss of or damage to building or premises or the contents
thereof, which loss or damage is covered by valid and collectible fire and
extended coverage insurance policies, to the extent that such loss or damage is
recoverable under such insurance policies. Inasmuch as this mutual waiver will
preclude the assignment of any such claim by subrogation (or otherwise) to an
insurance company (or any other person), Landlord and Tenant each agree to give
each insurance company which has issued, or in the future may issue, to it
policies of insurance, written notice of the terms of this mutual waiver, and to
have said insurance policies properly endorsed, if necessary, to prevent the
invalidation of said insurance coverage by reason of said waiver.
15. FIRE AND CASUALTY. DESTRUCTION OF PREMISES. (a) In the event of
destruction or damage to the premises by fire or other casualty, the Tenant, at
its sole expense, shall promptly restore the premises as nearly as possible to
its condition prior to such damage or destruction, or at Tenant's option
demolish what remains of the building, level and fill the area to grade, and pay
the Landlord the sum of Two Hundred Fifty- Thousand Dollars ($250,000.00) for
the loss of the building. All insurance proceeds received by the Landlord
pursuant to the provisions of this lease, less the Cost if any of such recovery,
shall be applied by the Landlord to reimburse Tenant for such restoration or
demolition, as such restoration or demolition progresses. Landlord's obligation
to reimburse Tenant is limited to the insurance proceeds received by Landlord
pursuant to the provisions of this lease. If the proceeds of insurance are
insufficient to pay the full cost of repair or restoration, the Tenant shall pay
the deficiency if the Tenant elects to restore the building. If the proceeds of
insurance are insufficient to pay the Landlord Two Hundred Fifty Thousand
Dollars ($250,000.00) upon demolition, the tenant shall pay the deficiency. If
the insurance proceeds exceed such costs, the excess shall be retained by
Tenant.
(b) Should the zoning ordinance of the city or municipality in which this
property is located make it impossible for Tenant, using diligent and timely
effort to obtain necessary permits and to repair and/or rebuild so that Tenant
is not able to conduct its business on these premises, then such partial
destruction shall be treated as a total destruction as in the next paragraph
provided.
(c) In the event of a destruction or damage of the leased premises
including the parking area so that Tenant is not able to conduct its business on
the premises for the then current legal use for which the premises are being
used and which damages cannot be repaired within sixty (60) days, this lease may
be terminated at the option of either the Landlord or Tenant. Such termination
in such event shall be effected by written notice of one party to the other,
within twenty (20) days after such destruction. Tenant shall surrender
possession within ten (10) days after such notice issues, and each party shall
be released from all future obligations hereunder, Tenant paying rental pro rata
only to the
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<PAGE>
date of such destruction. In the event of such termination of this lease,
Landlord at its option, may rebuild or not, according to its own wishes and
needs. Termination under this paragraph in the event of total destruction is
subject to the Tenant paying the Landlord Two Hundred Fifty Thousand Dollars
($250,000.00) for loss of the building.
16. CONDEMNATION. If the leased property, or such a substantial part
thereof, is taken by eminent domain such that the Tenant's continued use of the
leased property is no longer practicable, this lease shall expire on the date
when the leased property shall be so taken, and the rent shall be apportioned as
of that date. Tenant shall have the option to terminate the lease after receipt
of notice of condemnation by giving the Landlord thirty (30) days' written
notice. In the event the condemnation proceedings are terminated, Tenant's
option to terminate the lease shall expire. No part of any award shall belong
to the Tenant. Notwithstanding the provisions of this lease, Tenant shall have
the right to make a separate claim with the condemning authority for the value
of Tenant's property and/or moving and relocation expenses; provided, however,
that such separate claim shall not reduce or adversely affect the amount of
Landlord's award.
17. INDEMNIFICATION. Tenant will indemnify and hold the Landlord harmless
from and against any expense or liability, including attorneys' fees, arising
from the Tenant's use of and activities on the property or the violation of any
provision of this Lease.
18. TERMINATION OF LEASE AND DEFAULTS OF TENANT.
(a) TERMINATION UPON EXPIRATION OR UPON NOTICE OF DEFAULT. This lease
shall terminate upon expiration of the demised term; or if the option provided
for in paragraph 1 is exercised by the Tenant, then this lease will terminate at
the expiration of the option term or terms. Upon default in payment of rental
herein or upon any other default by Tenant in accordance with the terms and
provisions of this lease, this lease may at the option of the Landlord be
cancelled and forfeited, PROVIDED, HOWEVER, before any such cancellation and
forfeiture, except as provided in 6(d) above and 18(d) below, Landlord shall
give Tenant a written notice specifying the default, or defaults, and stating
that this lease will be cancelled and forfeited ten (10) days after the giving
of such notice, unless such default, or defaults, are remedied within such grace
period. As an additional optional procedure or as an alternative to the
foregoing (and neither exclusive of the other) Landlord may proceed as in
paragraph 24, below.
(b) BANKRUPTCY OR INSOLVENCY OF TENANT. In the event Tenant is
adjudicated a bankrupt or in the event of a judicial sale or other transfer of
Tenant's leasehold interest by reason by any bankruptcy or insolvency
proceedings or by other operation of law, and such bankruptcy, judicial sale or
transfer has not been vacated or set aside within ten (10) days from the giving
of notice thereof by Landlord to Tenant, then and in any such events, Landlord
may, at its option, immediately terminate this lease, re-enter said premises,
upon giving of ten (10) days' written notice by Landlord to Tenant, all to the
extent permitted by applicable law.
(c) In (a) and (b) above, waiver as to any default shall not constitute
a waiver of any
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<PAGE>
subsequent default of defaults.
(d) Acceptance of keys, advertising and re-renting by the Landlord upon
the Tenant's default shall be construed only as an effort to mitigate damages by
the Landlord, and not as an agreement to terminate this lease.
19. RIGHT OF EITHER PARTY TO MAKE GOOD ANY DEFAULT OF THE OTHER. If
default shall be made by either party in the performance of, or compliance with,
any of the terms, covenants or conditions of this lease, and such default shall
have continued for thirty (30) days after written notice thereof from one party
to the other, the person aggrieved, in addition to all other remedies now or
hereafter provided by law, may, but need not, perform such term, covenant or
condition, or make good such default and any amount advanced shall be repaid
forthwith on demand, together with interest at the rate of 1 2% per annum, from
date of advance.
20. SIGNS. (a) Tenant shall have the right and privilege of attaching,
affixing, painting or exhibiting signs on the leased premises, provided only (i)
that any and all signs shall comply with the ordinances of the city or
municipality in which the property is located and the laws of the State of Iowa;
(ii) such signs shall not change the structure of the building; (iii) such signs
if and when taken down shall not damage the building; and (iv) such -signs shall
be subject to the written approval of the Landlord, which approval shall not be
unreasonably withheld.
(b) Landlord, during the last ninety (90) days of this lease, or
extension, shall have the right to maintain in the windows or on the building or
on the premises either or both a "For Rent" or "For Sale" sign and Tenant will
permit, at such time, prospective tenants or buyers to enter and examine the
premises.
21. MECHANIC'S LIENS. Neither the Tenant nor anyone claiming by, through,
or under the Tenant, shall have the right to file or place any mechanic's lien
or other lien of any kind or character whatsoever, upon said premises or upon
any building or improvement thereon, or upon the leasehold interest of the
Tenant therein, and notice is hereby given that no contractor, sub-contractor,
or anyone else who may furnish any material, service or labor for any building,
improvements, alteration, repairs or any part thereof, shall at any time be or
become entitled to any lien thereon, and for the further security of the
Landlord, the Tenant covenants and agrees to give actual notice thereof in
advance, to any and all contractors and sub-contractors who may furnish or agree
to furnish any such material, service or labor.
22. LANDLORD'S LIEN AND SECURITY INTEREST. (a) Landlord shall have, in
addition to the lien given by law, a security interest as provided by the
Uniform Commercial Code of Iowa upon all personal property and all substitutions
therefor, kept and used on said premises by Tenant. Landlord may proceed at law
or in equity with any remedy provided by law or by this lease for the recovery
of rent, or for termination of this lease because of Tenant's default in its
performance.
23. SUBSTITUTION OF EQUIPMENT, MERCHANDISE, ETC. (a) The Tenant
7
<PAGE>
shall have the right, from time to time, during the term of this lease, or
renewal thereof, to sell or otherwise dispose of any personal property of the
Tenant situated on the said demised premises when in the judgment of the Tenant
it shall have become obsolete, outworn or unnecessary in connection with the
operation ' of the business on said premises; provided, however, that the Tenant
shall, in such instance (unless no substituted article or item is necessary) at
its own expense, substitute for such items of personal property so sold or
otherwise disposed of, a new or other item in substitution thereof, in like or
greater value and adapted to the affixed operation of the business upon the
demised premises.
(b) Nothing herein contained shall be construed as denying to Tenant the
right to dispose of inventoried merchandise in the ordinary course of the
Tenant's trade or business.
24. RIGHTS CUMULATIVE. The various rights, powers, options, elections and
remedies of either party provided in this lease shall be construed as cumulative
and no one of them as exclusive of the others, or exclusive of any rights,
remedies or priorities allowed either party by law, and shall in no way affect
or impair the right-of either party to pursue any other equitable or legal
remedy to which either party may be entitled as long as any default remains in
any way unremedied, unsatisfied or undischarged.
25. NOTICES AND DEMANDS. Notices as provided for in this lease shall be
given to the respective parties hereto at the respective addresses designated on
page one of this lease unless either party notifies the other, in writing, of a
different address. Without prejudice to any other method of notifying a party
in writing or making a demand or other communication, such message shall be
considered given under the terms of this lease when sent, addressed as above
designated, postage prepaid, by registered or certified mail, return receipt
requested, by the United States mail and so deposited in a United States
mailbox.
26. PROVISIONS TO BIND AND BENEFIT SUCCESSORS, ASSIGNS, ETC. Each and
every covenant and agreement herein contained shall extend to and be binding
upon the respective successors, heirs, administrators, executors and assigns of
the parties hereto; except that if any part of this lease is held in joint
tenancy, the successor in interest shall be the surviving joint tenant.
27. CHANGES TO BE IN WRITING. None of the covenants, provisions, terms or
conditions of this lease to be kept or performed by Landlord or Tenant shall be
in any manner modified, waived or abandoned, except by a written instrument duly
signed by the parties and delivered to the Landlord and Tenant. This lease
contains the whole agreement of the parties.
28. CONSTRUCTION. Words and phrases herein, including acknowledgment
hereof, shall be construed as in the singular or plural number, and as
masculine, feminine or neuter gender according to the context.
IN WITNESS WHEREOF, the parties hereto have duly executed this lease in
duplicate the day and
8
<PAGE>
year first above written.
COMPUTER SUPPLY STORE, INC., TENANT
By: /s/ Rick Feaster
--------------------------------
Rick Feaster
ARTHUR K. JONES TRUST, LANDLORD
FIRSTAR BANK DES MOINES, N.A.
CO-TRUSTEE
Title: President By: /s/ Margaret A. Wilcox
----------------------------- ------------------------------
Trust Officer
------------------------------
Title
By: /s/ Susan P. Cramer
---------------------------
Vice President
------------------------------
Title
/s/ William A. Jones
------------------------------
WILLIAM A. JONES, TRUSTEE
9
<PAGE>
STATE OF IOWA )
)SS.
COUNTY OF POLK )
On this 1st day of July, 1994, before me, the undersigned, a Notary Public
in and for said County and State, personally appeared Margaret A. Wilcox and
Susan P. Cramer to me personally known, who, being by me duty sworn, did say
that s/he is the Trust Office and Vice Pres. of said corporation executing the
foregoing instrument, that no seal has been procured by the said corporation;
that said instrument was signed on behalf of said corporation by authority of
its Board of Directors; and that the said Margaret A. Wilcox and Susan P. Cramer
is such officer acknowledged the execution of said instrument to be the
voluntary act and deed of said corporation and of the fiduciary, by it, by
him/her and as the fiduciary voluntarily executed.
/s/ Sheila R. Bickel
---------------------------------------------
Notary Public in and for said County and
State
STATE OF IOWA )
)SS.
COUNTY OF POLK )
On this day of 5 day of July, 1994, before me, the undersigned, a Notary
Public in and for the State of Iowa, personally appeared Rick Feaster, to me
personally known, who being by me duly sworn, did say that he is the President
of said corporation executing the within and foregoing instrument; that no seal
has been procured by the said corporation; that said instrument was signed on
behalf of said corporation by authority of its Board of Directors; and that the
said President, as such officer, acknowledged the execution of said instrument
to be the voluntary act and deed of said corporation, by it and by him
voluntarily executed.
/s/ Kathy B. Hoefling
---------------------------------------------
Notary Public in and for said County and
State
STATE OF ILLINOIS)
)ss:
COUNTY OF COOK )
On this 28 day of July, 1994, before me, the undersigned, a Notary Public
in and for said state, personally appeared William A. Jones, to me known to be
the person named in and who executed the foregoing instrument and acknowledged
that he, as the fiduciary, executed the instrument as his voluntary act and deed
and of the fiduciary.
/s/ Patricia FitzGibbons
---------------------------------------------
Notary Public in and for the
State of IL
10
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered into
as of March 14, 1996, by and between POMEROY COMPUTER RESOURCES, INC., a
Delaware corporation (the "Company") and THE COMPUTER SUPPLY STORE, INC., an
Iowa corporation ("CSS").
The Company and CSS are parties to that certain Asset Purchase Agreement of
even date herewith ("Purchase Agreement"). In order to induce CSS to enter into
the Purchase Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement concerning the 100,000 shares of the
Company's common stock (the "Shares") issued to CSS pursuant to the terms of the
Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. DEFINITIONS.
"APPLICABLE HOLDERS" shall mean (i) in the case of a registration
pursuant to Section 2 hereof, those Holders signing a Request who desire to
register and sell some or all of their Shares pursuant to such Request, together
with any additional Holders who, not later than fifteen (15) days after receipt
of notice of a Request, elect in writing to Company to join in such Request or
(ii) in the case of a registration pursuant to Section 3 hereof, those Holders
requesting inclusion of Shares in such registration whose Shares will be
included in such registration.
"AUTHORIZED HOLDER" shall mean a Holder designated in a Request for
the purpose of signing any Certificates of Applicable Holders and who shall be
deemed an agent for service of any notices required to be given under this
Agreement to the Applicable Holders.
"CERTIFICATE OF APPLICABLE HOLDERS" shall mean (i) in the case of a
registration pursuant to Section 2 hereof, a resolution signed by the holders of
a majority of the Shares designated in a particular Request and certified by the
Authorized Holder or (ii) in the case of a registration pursuant to Section 3
hereof, a resolution signed by the holders of a majority of the Shares that will
be or were included in such registration.
"HOLDER" shall mean CSS and its successors and assigns including any
shareholders of CSS to whom the shares are transferred.
<PAGE>
"REQUEST" shall mean a request to register up to thirty-three and
one-third percent (33 1/3%) of the Shares then held collectively by the
Holders pursuant to Section 2 hereof and signed by the Holders of such Shares
and containing any and all information required by Sections 2 and 4 hereof,
PROVIDED, HOWEVER, that in no case may the Company be required to register
shares under Section 2 of this Agreement more than once per year.
"SHARES" shall mean (i) any shares of common stock, par value $.01 (the
"Common Stock") held as of the date hereof by CSS and (ii) any shares of Company
Common Stock issuable to CSS, its successors and assigns with respect to the
Common Stock referred to in clause (i) by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, provided it shall not mean any securities
previously sold to the public.
2. DEMAND REGISTRATION RIGHTS.
2.1 At any time after the first year anniversary of the closing under
the Purchase Agreement (the "Closing"), upon receipt of a Request on or before
four (4) years from the date of the Closing, the Company will prepare and file
with The Securities and Exchange Commission (the "Commission"), promptly after
such Request and in no case more than ninety (90) days after receipt of such
Request, and thereafter will use its best efforts to cause to become effective a
registration statement ("Registration Statement") on such form selected by the
Company and complying with the Securities Act of 1933, as amended (the "Act").
If, for any reason other than the Applicable Holders' failure to perform their
obligations under Section 4 hereof, the Registration Statement does not become
effective, the Request shall be withdrawn and shall not count as a "Request"
made pursuant to this Agreement. Notwithstanding the foregoing, the number of
shares with respect to which CSS may exercise its demand Registration Rights
shall be as follows:
(i) after the first year anniversary of the Closing, but prior
to the second year anniversary of the Closing, 33,334 Shares;
(ii) after the second year anniversary of the Closing, but prior
to the third year anniversary of the Closing, any shares not previously
registered plus an additional 33,333 Shares;
(iii) after the third year anniversary of the Closing, but prior
to the four year anniversary of the Closing, any shares not previously
registered plus an additional 33,333 Shares.
2.1.1 Notwithstanding the foregoing, if the Company does not
complete a public offering of its common stock within six (6) months of the
Closing, CSS shall immediately have Demand Registration Rights with respect to
50,000 of the Shares. The
<PAGE>
balance of the Shares would remain subject to Demand Registration Rights of
Twenty-five Thousand (25,000.00) per year upon the second and third
anniversaries of the Closing.
2.2 If the Request so states, the offering or distribution of Shares
under this Section shall be pursuant to a firm underwriting. The managing
underwriter shall be a regionally recognized investment banking firm selected by
the Applicable Holders and evidenced in a Certificate of Applicable Holders but
the selection shall be subject to the Company's approval, which approval shall
not be unreasonably withheld. The Company will enter into an underwriting
agreement containing representations, warranties and agreements not
substantially different from those customarily included by an issuer in
underwriting agreements with respect to secondary distributions; PROVIDED,
HOWEVER, that the Applicable Holders shall be entitled to negotiate and shall be
responsible to pay the underwriting discounts and commission and other fees of
such underwriter.
2.3 No securities to be sold by the Company or any security holder of
the Company other than CSS and its successors and assigns shall be included in
any Registration Statement filed pursuant to this Section, unless (i) the
Company shall have received a Certificate of Applicable Holders consenting to
the inclusion of such other securities; (ii) in the case of a firm underwriting,
the managing or principal underwriter shall have consented to the inclusion of
such other securities and (iii) all the Shares requested to be included in the
Request shall be so included.
2.4 The Company shall be entitled to postpone the filing of any
Registration Statement otherwise required to be prepared and filed by it
pursuant to this Section if, at the time it receives a Request, counsel for the
Company is reasonably of the opinion (which opinion shall be expressed in
writing) that (i) such registration will require preparation of audited
financial information for the Company as of a date or for a period which
preparation will not otherwise be required or (ii) any material pending
transaction of the Company or any of its subsidiaries renders the effecting of
such Registration Statement inappropriate at the time; PROVIDED, that in the
case of an event referred to in clause (ii) above, the duration of such delay
shall not exceed 90 days from the date the Company became aware of such material
business information; PROVIDED FURTHER, that the Company shall promptly make
such filing as soon as the conditions which permit it to delay such filing no
longer exist and notwithstanding the time periods referred to in Section 2.1
above; and PROVIDED FURTHER that in the event of any such deferral, the
Applicable Holders shall have the right to withdraw the Request by way of a
Certificate of Applicable Holders and such withdrawn Request shall not be
considered as a Request.
3. PIGGYBACK REGISTRATIONS.
- 3 -
<PAGE>
3.1 If at any time prior to the four year anniversary of the Closing,
the Company shall propose to file a Registration Statement for the purpose of a
secondary offering for the Company or any security holder under the Act, on form
S-1, S-2 or S-3 or any equivalent general form for registration of Common Stock
under the Act with respect to a public offering of Common Stock, the Company
shall as promptly as practicable, but in no event later than thirty (30) days
prior to the proposed filing date, give notice of such intention to each Holder
and shall include in such Registration Statement all Shares as each Holder shall
request, within ten (10) days of the giving of such notice, subject to the
following limitations:
3.1.1 If the offering to be made pursuant to this Section is initiated
by the Company, the Company shall not be obligated to register fewer than the
lesser of (i) Shares with a market value of $250,000, market value to be
measured as of that date of such notice to Holders, or (ii) the aggregate number
of Shares still held by the Holders, and the inclusion of such Shares may be
conditioned or restricted if, in the good faith opinion of the managing
underwriter (or underwriters) of the Common Stock to be sold (or in the absence
thereof, of the principal investment banker acting on behalf of the Company in
effecting such sale) for which such Registration Statement is being filed, such
inclusion will have a material adverse impact on the offering of the securities
being so registered. If the number of Shares is so restricted, then no shares
or securities of any other security holders shall be included in the offering
unless all securities being sold by the Company are included therein, and any
reduction required thereafter shall be made pro rata among the selling security
holders, including the Holders.
4. COVENANTS OF THE HOLDER.
Any Request shall specify the number of Shares as to which such Request
relates, express the Applicable Holders' present intention to offer such Shares
for distribution and contain an undertaking to provide all such information and
materials and take all such actions and execute all such documents as may be
required in order to permit the Company to comply with all applicable
requirements of the Commission or other regulatory authorities and to obtain
acceleration of the effective date of the Registration Statement. Any Request
shall designate an Authorized Holder and such Authorized Holder's address for
the purpose of delivering notices under this Agreement to the Applicable
Holders. The Request shall also contain any other information required to be
set forth under Section 2.
5. COVENANTS OF THE COMPANY.
So long as the Company is under an obligation pursuant to the provisions of
Section 2 or 3, the Company shall:
- 4 -
<PAGE>
5.1 Prepare and file with the Commission such amendments and
supplements to such Registration Statements and any prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective for such period as shall be necessary to complete the marketing of the
Shares included therein, but in no event longer than 120 days after the
effective date of such Registration Statement;
5.2 Furnish to the Applicable Holders such number of copies of a
prospectus, including, without limitation, a preliminary prospectus, conforming
with the requirements of the Act, and such other documents as the Applicable
Holders may reasonably request in order to facilitate the public sale or other
disposition of such Shares;
5.3 Use its best efforts to register or qualify, not later than the
effective date of any Registration Statement filed pursuant to this Agreement,
the Shares covered by such Registration Statement under the securities or Blue
Sky laws of such jurisdictions within the United States as any Applicable Holder
may reasonably request and do any and all other acts or things which may be
necessary or advisable to enable such Applicable Holder to consummate the public
sale or other disposition in such jurisdiction of such Shares;
5.4 Promptly notify the Applicable Holders, at any time when a
prospectus relating to the Shares being distributed is required to be delivered
under the Act, of the happening of any event as a result of which the prospectus
included in such Registration Statement, as then in effect, includes an untrue
statement of material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing and, at the request of the Applicable
Holder, evidenced by a Certificate of Applicable Holders, promptly prepare, file
with the Commission and furnish to the Applicable Holders a reasonable number of
copies of a supplement to, or an amendment of, such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Shares,
such prospectus shall not include 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 in light of the circumstances then existing;
5.5 Use its best efforts to furnish, at the request of any Applicable
Holder or any underwriter of any distribution of the Shares, an opinion of legal
counsel to the Company, covering such matters as are typically covered by
opinions of issuer's counsel in underwritten offerings under the Act and are
similar in form and substance to that furnished in connection with the Company's
most recent underwritten public offering of Common Stock, as any Applicable
Holders or the underwriter of any distribution of the Shares request;
5.6 Use its best efforts to cause all of the Shares in the Request to
be listed on any recognized securities exchange, including, without limitation,
the National
- 5 -
<PAGE>
Association of Securities Dealers Automated Quotation System, on which the
Common Stock is then listed and to maintain the currency and effectiveness of
any such listings;
5.7 Enter into an agreement with the underwriters for such offering
in which the Company shall provide indemnities similar to those described in
Section 7 hereof to the underwriters and in which the Company shall make the
usual representations and warranties made by issuers of equity securities to
underwriters, similar in form and substance to those made to the underwriters of
the most recent underwritten public offering of Company Stock; and
5.8 Maintain its registration under Section 12 of the Securities
Exchange Act of 1934 and prepare and file on a timely basis all reports required
to be filed by the Company under Section 13 of the Securities Exchange Act of
1934.
6. COSTS AND EXPENSES.
Except for expenses referred to in the following sentence, the Company
shall bear the entire cost and expense of any registration made pursuant to
Section 2 or 3 of this Agreement, including, without limitation, all
registration and filing fees, printing expenses, the fees and expenses of the
Company's counsel and its independent accountants and all other out-of-pocket
expenses of the Company incident to the preparation, printing and filing under
the Act of the Registration Statement and all amendments and supplements
thereto, the cost of furnishing copies of each preliminary prospectus, each
final prospectus and each amendment or supplement thereto to underwriters,
brokers and dealers and other purchasers of the securities so registered, and
the costs and expenses incurred in connection with the qualification of the
securities so registered under "blue sky" or other state securities laws (all
such expenses are herein called "Registration Expenses"). Notwithstanding the
foregoing, the Company shall not be liable or responsible for the following
fees: (i) the fees and expenses of counsel and accountants of the Holders;
(ii) all underwriting discounts and commission attributable to Shares registered
at the request of the Holder; and (iii) in any registration made pursuant to
Section 3 hereof, all filing fees attributable to Shares registered at the
request of the Holders. All such fees and expenses not paid by the Company
shall be paid by the Holders or, if appropriate, prorated among all selling
Holders.
7. INDEMNIFICATION.
7.1 INDEMNITY TO THE HOLDERS. The Company will indemnify the
Applicable Holders and each underwriter of the Shares against all claims,
losses, damages, liabilities and expenses resulting from any untrue statement or
alleged untrue statement of a material fact contained in a prospectus or in any
related Registration Statement, notification or similar filing under securities
laws of any jurisdiction or from any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same may
- 6 -
<PAGE>
have been based upon information furnished to the Company by any Holder or such
underwriter expressly for use therein.
7.2 INDEMNITY TO THE COMPANY. The Applicable Holders, jointly and
severally, (i) by requesting any such registration pursuant to Section 2 or (ii)
having their Shares included in a registration pursuant to Section 3 hereof,
agree to furnish to the Company such information concerning them as may be
requested by the Company and which is necessary in connection with any
registration or qualification of the Shares and to indemnify the Company against
all claims, losses, damages, liabilities and expenses resulting from the
utilization of such information furnished in writing to the Company expressly
for use therein and used in accordance with such writing.
7.3 INDEMNIFICATION PROCEDURES. If any action is brought or any
claim is made against any party indemnified pursuant to this Section 7 is
respect of which indemnity may be sought against the indemnitor pursuant to this
Section 7, such party shall promptly notify the indemnitor in writing of the
institution of such action or the making of such claim and the indemnitor shall
assume the defense of such action or claim, including the employment of counsel
and payment of expenses. Such party shall have the right to employ its or their
own counsel in any such case, but the fees and expenses of such counsel shall be
at the expense of such party unless the employment of such counsel shall have
been authorized in writing by the indemnitor by a resolution of the Board of
Directors of the Company or by a Certificate of Applicable Holders, whichever
the case may be, in connection with the defense of such action or claim or such
indemnified party or the parties shall have reasonably concluded that there are
defenses available to it or them which are in conflict with those available to
the indemnitor (in which case the indemnitor shall not have the right to
interpose such conflicting defense but otherwise shall retain control of such
action or claim on behalf of the indemnified party or parties), in any of which
events such fees and expenses of not more than one additional counsel for the
indemnified parties shall be borne by the indemnitor. Except as expressly
provided above, in the event that the indemnitor shall not previously have
assumed the defense of any such action or claim, at such time as the indemnitor
does not assume the defense of such action or claim, the indemnitor shall
thereafter be liable to any person indemnified pursuant to this Agreement for
any reasonable legal or other expenses subsequently incurred by such person in
investigating, preparing or defending against such action or claim. Anything in
this paragraph to the contrary notwithstanding, the indemnitor shall not be
liable for any settlement of any such claim or action effected without its
written consent.
8. RULE 144.
The Company shall take such action as any Holder of Shares may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Shares without registration under the Act pursuant to and in
accordance with (x) Rule 144 under the Act, as such Rule may be amended from
time to time, or (y) any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any Holder, the
- 7 -
<PAGE>
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
9. TERMINATION.
The obligations of the Company hereunder shall terminate as to each
Share subject to this Agreement on the earlier to occur of:
9.1 At such time as such Share ceases to be considered a "restricted
security" as defined in Securities and Exchange Commission Rule 144; or
9.2 At such time as such Share has been sold or transferred pursuant
to registration under the Securities Act of 1933, or in a transaction exempt
from such registration pursuant to Securities and Exchange Commission Rule 144
or Rules of similar import; save and except for transfers of such shares from
CSS to its shareholders.
10. MISCELLANEOUS.
10.1 NOTICES. Notices given under this Agreement shall be deemed
given when received at the addresses for the parties set forth below; PROVIDED,
that in the case of a notice given regarding a registration pursuant to Section
2 hereof notice shall be given as designated in a Request relating to such
registration, and may be delivered by telecopy or other telecommunications
device producing a document setting forth such notice. Such notices shall be
deemed given to all of the Holders if sent to the Authorized Holder designated
in a particular Request.
Pomeroy Computer Resources, Inc.
Telephone:
Telecopy:
Attention:
With a copy to:
Lindhorst & Dreidame
312 Walnut Street, Suite 2300
Cincinnati, Ohio 45202-4091
Telephone: (513) 421-6630
Telecopy: (513) 421-0212
Attention: James H. Smith III
If to CSS:
Computer Supply Store, Inc.
- 8 -
<PAGE>
Telephone:
Telecopy:
Attention:
With a copy to:
Frank J. Carroll
Telephone:
Telecopy:
Attention:
and to Holders at the address set forth on the stock records of the Company or
to such other address or to the attention of such other person as the recipient
party has specified by prior written notice to the sending party.
10.2 BINDING AGREEMENT. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns.
10.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware.
10.4 ASSIGNABILITY. The rights and obligations of any Holder
hereunder may be assigned by it to any corporation or other entity controlled by
it or controlling it or to its shareholders.
10.5 SUCCEEDING SECURITIES. In the event the Shares are converted
into any other security of the Company or any other corporation, the terms of
this Agreement shall apply with full force and effect to any such other security
and the obligations of the Company to effect registration shall include such
other filings, qualifications, notices and similar acts as may be necessary to
enable the Holders to realize the benefits of registration provided by this
Agreement.
10.6 COUNTERPARTS. 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 agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
POMEROY COMPUTER RESOURCES, INC.
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<PAGE>
By \S\ EDWIN S. WEINSTEIN
--------------------------------
Its: PRESIDENT
--------------------------------
THE COMPUTER SUPPLY STORE, INC.
By \S\ RICHARD FEASTER
--------------------------------
Its: PRESIDENT
--------------------------------
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<PAGE>
POMEROY COMPUTER RESOURCES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of this 14th day of March, 1996, by and between POMEROY
COMPUTER RESOURCES, INC., a Delaware corporation ("Company"), and RICHARD
FEASTER ("Employee").
W I T N E S S E T H:
WHEREAS, the Company entered into an Asset Purchase Agreement ("Purchase
Agreement") of even date pursuant to which it purchased substantially all of the
assets of The Computer Supply Store, Inc. ("CSS"); and
WHEREAS, Employee owns forty-one percent (41%) of the outstanding stock of CSS;
and
WHEREAS, Employee, as inducement for and in consideration of Company entering
into the Purchase Agreement, has agreed to enter into and executed this
Employment Agreement pursuant to Section 5 thereof; and
WHEREAS, Company desires to engage the services of Employee, pursuant to the
terms, conditions and provisions as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein set forth, the parties hereby covenant and agree as follows:
1. EMPLOYMENT. The Company agrees to employ the Employee, and the Employee
agrees to be employed by the Company, upon the following terms and
conditions.
2. TERM. The initial term of Employee's employment pursuant to this Agreement
shall begin on the 15th day of March, 1996, and shall continue for a period
of five (5) years unless earlier terminated pursuant to the provisions of
Section 10, provided that Sections 8, 9, 10(b), (c) and (d), if applicable,
and 11, if applicable, shall survive the termination of such employment and
shall expire in accordance with the terms set forth therein.
3. RENEWAL TERM. The term of Employee's employment shall automatically renew
for additional consecutive renewal terms of one (1) year unless either
party gives written notice of his/its intent not to renew the terms of the
Agreement thirty (30) days prior to the expiration of the then expiring
term. Employee's base salary for each renewal term shall be determined by
the Board of Directors of Company or by the Compensation Committee of the
Board of Directors, if any.
4. DUTIES. Employee shall serve as Vice President/Operations for the
Company's Des Moines, Iowa division. Employee shall be responsible to and
report directly to the
<PAGE>
President of the Company. Employee shall devote his best efforts and
substantially all his time during normal business hours to the diligent,
faithful and loyal discharge of the duties of his employment and towards
the proper, efficient and successful conduct of the Company's affairs.
Employee shall have veto power over the dismissal of key employees of the
Des Moines, Iowa division of Company, except for key employees dismissed
for cause. For purposes of this Section, "for cause" shall be as defined
in Section 10(a)(iv), except the cure period set forth therein shall not be
applicable. Existing key employees will be mutually agreed upon by
Employee and Company upon the execution of this Agreement and disclosed on
Exhibit A attached hereto, and subsequent key employees will be identified
as promoted and hired, at which time such Exhibit A will be supplemented.
Employee and Company agree to discuss the respective roles and
responsibilities of all such key employees. Company agrees to offer
employment agreements to such key employees within sixty (60) days of
Closing. Employee further agrees to refrain during the term of this
Agreement from making any sales of competing services or products or from
profiting from any transaction involving computer services or products for
his account without the express written consent of Company.
5. COMPENSATION. For all services rendered by the Employee under this
Agreement (in addition to other monetary or other benefits referred to
herein), compensation shall be paid to Employee as follows:
(a) BASE SALARY: During each year of the initial term of this
Agreement, Employee shall be paid an annual base salary of Two
Hundred Thousand ($200,000.00) Dollars. Said base salary shall be
payable in accordance with the historical payroll practices of the
Company.
(b) PRIMARY ANNUAL CASH BONUS: In addition to Employee's base
compensation as set forth in paragraph 5(a) above, Employee shall be
entitled (in the event certain criteria as defined below are
satisfied) to an annual primary cash bonus to be determined as
follows:
(i) For the period commencing March 1, 1996 and ending January
5, 1997 and for the subsequent 1997, 1998, 1999 and 2000
fiscal years of the Company (January 6, 1997 through January
5, 1998, etc.) and for the period commencing January 6, 2001
and ending March 13, 2001, Employee shall be entitled to a
cash bonus equal to fifty percent (50%) of the pre-tax
income of the Company's Des Moines, Iowa division in excess
of One Million Eight Hundred Thousand ($1,800,000.00)
Dollars subject to an annual cap of Two Hundred Thousand
($200,000.00) Dollars. Provided, however, for the period
commencing March 1, 1996 and ending January 5, 1997, the
threshold amount shall be One Million Five Hundred Thirty-
Three Thousand Seven Hundred Eighty ($1,533,780) Dollars
and the annual cap shall be One Hundred Seventy thousand
Four Hundred Twenty ($170,420.00) Dollars and for the period
commencing
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<PAGE>
January 6, 2001 and ending March 13, 2001, the threshold
amount shall be Three Hundred Thirty Thousand Four Hundred
Eighty ($330,480.00) Dollars and the cap shall be Thirty-
Nine Thousand Seven Hundred Twenty ($39,720.00) Dollars.
(ii) For purposes of this Section, the term "pre-tax income"
shall mean the net income before taxes which the Company's
Des Moines, Iowa division shall earn from its operations
during the pertinent period. In making said determination,
all gains or losses realized by the Des Moines, Iowa
division of Company on the sale or other disposition of its
assets (other than in the ordinary course of business) shall
be excluded. The Company's Des Moines, Iowa division's pre-
tax income will be calculated on a basis consistent with
Employee's former employer, CSS's December 31, 1995
financial statements, utilizing the same methodologies,
judgments and estimates employed by CSS in preparing its
year-end financial statements, all in accordance with
generally accepted accounting principles. In determining
the Company's Des Moines, Iowa division's net pre-tax income
for purposes of this Section 5(b), any bonus earned
hereunder or any incentive deferred compensation earned
under the provisions of Section 5(c) shall not be included
in determining net pre-tax income of the Des Moines, Iowa
division for the applicable year. For purposes of
calculating the Company's Des Moines, Iowa division's pre-
tax income, no overhead allocation of Company's other
operations will be charged by Company to such division
during fiscal year 1996. For subsequent years, Company will
allocate to its Des Moines, Iowa division, an overhead
charge (for purchasing, administration, etc.) of one and
one-half percent (1-1/2%) of net revenues of the Des Moines,
Iowa division. Any decrease in the Company's Iowa
division's SG&A expenses shall inure to benefit of such
division, including the elimination of certain corporate
professional expenses such as auditing to be borne by the
Company. Provided, however, Company shall charge interest
to the Des Moines, Iowa division for utilizing the Company's
working capital line of credit at Company's borrowing rate,
if and as required.
(iii) The Company's Des Moines, Iowa division's 1996 pre-tax
income shall be reduced on a dollar-for-dollar basis to
reflect any net additional liabilities determined by Seller
and Purchaser as having arisen from items improperly
recognized or accrued on or otherwise omitted from the
February 29, 1996 Pro Forma Balance Sheet. Any such
reduction in 1996 pre-tax income shall relate solely to Pro
Forma Balance Sheet items not specifically listed on Exhibit
"O" to the Purchase Agreement, and shall be determined by
Company and CSS and mutually agreed upon in nature and
amount within thirty (30)
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<PAGE>
days of Closing. Any such adjustment to the Company's Des
Moines, Iowa division's 1996 pre-tax income shall be taken
into account only in the calculation of Employee's 1996
Primary Annual Cash Bonus described in 5(b)(i) above and his
1996 Incentive Deferred Compensation as described in 5(c)(i)
below.
(iv) Any amounts due Employee hereunder shall be payable upon the
earlier of ninety (90) days following the end of the fiscal
year of the Company or the date on which annual bonuses are
distributed by Company to its employees, except for the
period ending March 13, 2001, when such payment shall be
made within sixty (60) days of the expiration of such
period. In the event such financial statements are not
issued within said applicable period, then the Company shall
make any payments due hereunder (if any) based on its best
reasonable estimate of any liability hereunder, which shall
be then reconciled by both parties once the financial
statements are issued. The determination of the Des Moines,
Iowa division's net pre-tax income shall be determined based
on the internally-generated financial statements of Company
based on the criteria set forth above.
(c) INCENTIVE DEFERRED COMPENSATION. In addition to Employee's base
salary as set forth in Section 5(a) above and primary annual cash
bonuses that Employee may be entitled to receive as set forth in
Section 5(b) above, Employee shall be entitled (in the event certain
criteria as defined below are satisfied) to incentive deferred
compensation as follows:
(i) For the period commencing March 1, 1996 and ending January
5, 1997 and for the subsequent 1997, 1998, 1999 and 2000
fiscal years of the Company (January 6, 1997 through January
5, 1998, etc.) and for the period commencing January 6, 2001
and ending March 13, 2001, Employee shall be entitled to
incentive deferred compensation of One Hundred Thousand
($100,000.00) Dollars per year in the event that the
Company's Des Moines, Iowa division's pre-tax income exceeds
Two Million Five Hundred Thousand (2,500,000.00) Dollars for
such year. Provided, however, for the period commencing
March 1, 1996 and ending January 5, 1997, the threshold
amount and the amount of incentive deferred compensation
that can be earned shall be Two Million One Hundred Thirty
Thousand Fifty ($2,130,050.00) Dollars and Eighty-Five
Thousand Two Hundred Ten ($85,210.00) Dollars, respectively.
For the period commencing January 6, 2001 and ending March
13, 2001, the threshold amount and the amount of incentive
deferred compensation that can be earned upon achieving such
totals shall be Four Hundred Fifty-Nine Thousand
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<PAGE>
($459,000.00) Dollars and Eighteen Thousand Three Hundred
Sixty ($18,360.00) Dollars, respectively.
(ii) For purposes of this Section, the term "pre-tax income,"
shall have the meaning set forth in Section 5(b)(ii) and
shall be determined based on the internally-generated
financial statements of Company based on the criteria set
forth in Section 5(b)(ii).
(iii) Any supplemental incentive deferred compensation earned
hereunder shall be fully vested over a three (3) year period
(vesting 33-1/3% per year) of employment from the effective
date of the earning of such incentive deferred compensation
and shall be payable pursuant to and be subject to the terms
of an Incentive Deferred Compensation Agreement attached
hereto as Exhibit B.
(iv) Within fifteen (15) days following delivery to Employee of
the determination of the applicable pre-tax income of the
Des Moines, Iowa division, Employee shall have the right to
object in writing to the results contained in such
internally-generated financial statements. If timely
objection is not made by the Employee to such determination,
such determination shall become final and binding for
purposes of such Section. If timely objection is made by
the Employee to Company and Employee and Company are able to
resolve their differences in writing within thirty (30) days
following the expiration of the fifteen (15) day period,
then the determination shall become final and binding as it
regards such Section. If timely objection is made by
Employee and Employee and Company are unable to resolve
their differences relating thereto within thirty (30) days
following the expiration of the fifteen (15) day period,
then all disputed matters pertaining to the internally-
generated financial statements determination of such
criteria shall be submitted to and be reviewed by an
arbitrator (the "Arbitrator"), which shall be an accounting
firm selected by Company and Employee. If Employee and
Company are unable to agree promptly on an accounting firm
to serve as Arbitrator, each shall select by no later than
fifteen (15) days following the expiration of the forty-five
(45) day period, another accounting firm and the selected
firm shall be instructed to select promptly another
accounting firm, the firm to serve as Arbitrator. The
Arbitrator shall consider only the disputed matters
pertaining to the determination and shall act promptly to
resolve all disputed matters and its decision with respect
to all disputed matters shall be final and binding upon the
Employee and Company. Expenses of the arbitration
(including reasonable attorney and accounting fees) shall be
borne by Employee, unless the arbitration panel determines
that the net pre-tax income of the Des Moines, Iowa division
is greater by Twenty-Five
-5-
<PAGE>
Thousand Dollars ($25,000.00) or more than the determination
made by the Company, in which case, the expenses of the
arbitration (including reasonable attorney and accounting
fees) shall be borne by Company.
6. FRINGE BENEFITS. During the term of this Agreement, Employee shall be
entitled to the following benefits:
(a) Health Insurance - During the term of this Agreement, Employee shall
be provided with the standard medical health and insurance coverage
maintained by Company on its employees. Company and Employee shall
each pay fifty percent (50%) of the cost of such coverage.
(b) Vacation - Employee shall be entitled each year to a vacation of
four (4) weeks during which time his compensation will be paid in
full. Provided, however, such weeks may not be taken consecutively
without the written consent of the President of the Company.
(c) Insurance - During the term of this Agreement, Company shall
maintain on the life of Employee, provided he is insurable at
standard rates, a declining term life insurance policy in the amount
set forth on Exhibit C attached hereto. Employee shall be the owner
of such policy and shall designate the beneficiary thereof.
Employee agrees to take any and all physicals that are necessary
incident to the issuance and/or renewal of said policy. In
addition, Employee agrees to take any and all physicals that are
necessary incident to the procurement of key person insurance upon
his life by Company. In the event that Employee is not insurable at
standard rates during the term of this Agreement, but Employee is
able to procure rated coverage, Employee shall have the right to
procure coverage for a lower amount of insurance, the cost of which
is equivalent to the standard term rate cost of the coverage set
forth on Exhibit C or to contribute to the cost of insurance to
maintain the applicable coverage. Said determination shall be at
Employee's sole discretion. In the event Employee is not insurable,
then Company shall pay Employee an amount equal to the projected
cost of the contemplated term insurance coverage set forth on
Exhibit C at standard rates. The cost of this insurance coverage
shall be a charge against the net pre-tax income of the Des Moines,
Iowa division for purposes of Sections 5(b) and 5(c). In the event
that Employee should die prior to the insurance being obtained
hereunder or in the event insurance cannot be obtained for medical
reasons, Company shall have no obligation to Employee or his
beneficiary for payment of any of the amounts set forth on Exhibit C
upon Employee's death.
(d) Other Benefits - Employee shall participate, after meeting
eligibility requirements, in any qualified retirement plans, welfare
plans and any other
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<PAGE>
plans or programs implemented by the Company for its employees
during the term of this Agreement.
(e) Automobile - Company shall have available for Employee's use a van
comparable to the Toyota Previa minivan being acquired by Company
from CSS of even date. Company shall directly pay for all
maintenance, repairs, gasoline and insurance costs related to said
van. Company shall reimburse Employee for any cost of gasoline or
any other reasonable item that he expends on behalf of the Company
incident to its business use within thirty (30) days of Employee
incurring such cost.
(f) Employee shall be responsible for any and all taxes, owed, if any,
on the fringe benefits provided to his pursuant to this Section 6.
7. EXPENSES. During the term of Employee's employment hereunder, Employee
shall be entitled to receive prompt reimbursement for all other reasonable
and customary expenses incurred by Employee, in fulfilling Employee's
duties and responsibilities hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by Company.
8. NON-COMPETITION. Employee expressly acknowledges the provisions of the
Purchase Agreement relating to Employee's covenant not to compete with
Company. Accordingly, such provisions of Section 9 of the Purchase
Agreement are incorporated herein by reference to the extent as if
restated in full herein. In addition to the consideration received under
this Agreement, Employee acknowledges that as one of three owners of the
common stock of CSS, he has received substantial consideration pursuant to
such Purchase Agreement and that as an inducement for, and in consideration
of, Company entering into the Purchase Agreement and Company entering into
this Agreement, Employee has agreed to be bound by such provisions of
Section 9 of the Purchase Agreement. Accordingly, such provisions of
Section 9 and Exhibit B-3 and the restrictions on Employee thereby imposed
shall apply as stated therein.
9. NON-DISCLOSURE AND ASSIGNMENT OF CONFIDENTIAL INFORMATION. The Employee
acknowledges that the Company's trade secrets and confidential and
proprietary information, including without limitation:
(a) unpublished information concerning the Company's:
(i) research activities and plans,
(ii) marketing or sales plans,
(iii) pricing or pricing strategies,
(iv) operational techniques,
(v) customer and supplier lists, and
(vi) strategic plans;
-7-
<PAGE>
(b) unpublished financial information, including unpublished information
concerning revenues, profits and profit margins;
(c) internal confidential manuals; and
(d) any "material inside information" as such phrase is used for
purposes of the Securities Exchange Act of 1934, as amended;
all constitute valuable, special and unique proprietary and trade secret
information of the Company. In recognition of this fact, the Employee agrees
that the Employee will not disclose any such trade secrets or confidential or
proprietary information (except (i) information which becomes publicly available
without violation of this Employment Agreement, (ii) information of which the
Employee did not know and should not have known was disclosed to the Employee in
violation of any other person's confidentiality obligation, and (iii) disclosure
required in connection with any legal process), nor shall the Employee make use
of any such information for the benefit of any person, firm, operation or other
entity except the Company and its subsidiaries or affiliates. The Employee's
obligation to keep all of such information confidential shall be in effect
during and for a period of five (5) years after the termination of his
employment in those states where Company has business offices; provided,
however, that the Employee will keep confidential and will not disclose any
trade secret or similar information protected under law as intangible property
(subject to the same exceptions set forth in the parenthetical clause above) for
so long as such protection under law is extended.
10. TERMINATION.
(a) The Employee's employment with the Company may be terminated at any
time as follows:
(i) By the Employee at his discretion, upon sixty (60) days written
notice to Company;
(ii) By Employee's death;
(iii) By Employee's physical or mental disability which renders
Employee unable to perform his duties hereunder for a consecutive
period of one hundred twenty (120) days or for an aggregate of
one hundred eighty (180) days or more during any twelve-month
period.
(iv) By the Company, for cause upon fifteen (15) day's written notice
to Employee. For purposes of this Agreement, the term "cause"
shall mean termination upon: (i) the continuous failure by
Employee to substantially perform his duties with the Company
(other than any such failure resulting from his incapacity due to
physical or mental illness), after a written demand for
substantial performance is
-8-
<PAGE>
delivered to his by the Company, which demand specifically
identifies the manner in which the Company believes that he has
not continuously substantially performed his duties; (ii) the
engaging by Employee in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise,
including but not limited to any material misrepresentation
related to the performance of his duties; (iii) the conviction of
Employee of a felony or other crime involving theft or fraud,
(iv) Employee's gross neglect or gross misconduct in carrying out
his duties hereunder resulting, in either case, in material harm
to the Company; or (v) any material breach by Employee of this
Agreement. Notwithstanding the foregoing, Employee shall not be
deemed to have been terminated for cause unless and until there
shall have been delivered to his a copy of a resolution of the
Board of Directors of the Company or any appropriately designated
committee of the Board, finding that he has engaged in the
conduct set forth above in this Section 10(a)(iv) and specifying
the particulars thereof in detail, and Employee shall not have
cured such conduct to the reasonable satisfaction of the Board
within thirty (30) days of receipt of such resolution.
(v) By the Company at its discretion, without cause, upon thirty (30)
days written notice to Employee; provided that Company complies
with the provisions of Section 10(c).
(vi) By the Employee within ninety (90) days following a "Change in
Control" as defined in Exhibit C attached hereto, unless Employee
has accepted employment with the successor entity and such
successor entity has assumed this Employment Agreement pursuant
to the provisions of Section 17(b).
(b) Compensation upon Termination: In the event of termination of
employment, the Employee or his estate, in the event of death, shall
be entitled to his annual base salary and other benefits provided
hereunder to the date of his termination. In addition, Employee
shall be entitled to receive any bonus accrued to the date of his
termination of employment as provided in Section 5(b) and any vested
incentive compensation that may be due Employee pursuant to the
provisions of Exhibit B, which shall be payable (if applicable)
pursuant to the terms thereof. In the event of Employee's death,
Employee's designated beneficiary shall also be entitled to all life
insurance benefits as referenced in Paragraph 6(c).
(c) In the event that Company would terminate Employee's employment
hereunder without cause pursuant to Section 10(a)(v), Company shall
be obligated to pay Employee, as severance pay, Employee's annual
base salary in effect prior to such termination for the remaining
term of the
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<PAGE>
Agreement (as set forth in Section 2, as due) and all bonus and
incentive deferred compensation set forth in Sections 5(b) and (c)
based on the formula set forth on Exhibit E attached hereto.
(d) In the event that a change in control as defined in Exhibit C has
occurred, and such successor entity has not assumed this Agreement
pursuant to the provisions of Section 17(b), the Company shall pay
Employee his full base salary for the remaining term of this
Agreement, at the time such payments are due, and all bonus and
incentive deferred compensation set forth in Sections 5(b) and (c)
shall be paid to Employee based on the formula set forth in Exhibit
D attached hereto.
In addition, if the Employee becomes entitled to any payment or
benefit pursuant to (d) above in this Section 10 (all such payments
being called "Severance Payments") from the Company (or any person
whose actions result in a Change in Control or any person affiliated
with Company or any such person) in connection with any termination
of the Employee's employment hereunder following a Change in
Control, which Severance Payment is subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code") (or any successor provision), Company shall
pay Employee pursuant to the provisions set forth below an
additional amount (the "Gross Up Payment") such that the net amount
retained by Employee, after deduction of any Excise Tax on the
Severance Payment and any federal and state and local income taxes
and excise tax upon such Gross Up Payment shall be equal to the
Severance Payment.
11. DISABILITY. In the event that Employee becomes temporarily disabled and/or
totally and permanently disabled, physically or mentally, which renders him
unable to perform his duties hereunder, Employee shall receive one hundred
percent (100%) of his base annual salary (in effect at the time of such
disability) for a period of one (1) year following the termination of this
agreement pursuant to the provisions of Section 10(a)(iii) (offset by any
payments to the Employee received pursuant to disability benefit plans, if
any, maintained by the Company.) Such payments shall be payable in twelve
consecutive equal monthly installments and shall commence thirty (30) days
after the determination by the physicians of such disability as set forth
below.
For purposes of this Agreement, Employee shall be deemed to be temporarily
disabled and/or totally and permanently disabled if attested to by two
qualified physicians, (one to be selected by Company and the other by
Employee) competent to give opinions in the area of the disabled Employee's
physical and/or mental condition. If the two physicians disagree, they
shall select a third physician, whose opinion shall control. Employee
shall be deemed to be temporarily disabled and/or totally and permanently
disabled if he shall become disabled as a result of any
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<PAGE>
medically determinable impairment of mind or body which renders it
impossible for such Employee to perform satisfactorily his duties
hereunder, and the qualified physician(s) referred to above certify that
such disability does, in fact, exist. The opinion of the qualified
physician(s) shall be given by such physician(s), in writing directed to
the Company and to Employee. The physician(s) decision shall include the
date that disability began, if possible, and the 120th day of such
disability, if possible. The decision of such physician(s) shall be final
and conclusive and the cost of such examinations shall be paid by Company.
12. SEVERABILITY. In case any one (1) or more of the provisions or part of a
provision contained in this Agreement shall be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a
provision of this Agreement. In such a situation, this Agreement shall be
reformed and construed as if such invalid, illegal or unenforceable
provision, or part of a provision, had never been contained herein, and
such provision or part shall be reformed so that it will be valid, legal
and enforceable to the maximum extent possible.
13. GOVERNING LAW. This Agreement shall be governed and construed under the
laws of the State of Kentucky and shall not be modified or discharged, in
whole or in part, except by an agreement in writing signed by the parties.
14. NOTICES. All notices, requests, demands and other communications relating
to this Agreement shall be in writing and shall be deemed to have been duly
given if delivered personally or mailed by certified or registered mail,
return receipt requested, postage prepaid:
If to Company, to: Pomeroy Computer Resources, Inc.
1840 Airport Exchange Blvd, Suite 240
Erlanger, Kentucky 41018
With a copy to: James H. Smith III
Lindhorst & Dreidame Co., L.P.A.
312 Walnut Street, Suite 2300
Cincinnati, Ohio 45202
If to Employee, to the Employee's residential address, as set forth in the
Company's records.
15. ENFORCEMENT OF RIGHTS. The parties expressly recognize that any breach of
this Agreement by either party is likely to result in irrevocable injury to
the other party and agree that such other party shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to obtain damages for any breach
of this Agreement, or to enforce the
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<PAGE>
specific performance of this Agreement by each party or to enjoin any party
from activities in violation of this Agreement.
16. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the
parties with respect to the subject matter contained herein and may be
altered, amended or superseded only by an agreement in writing, signed by
the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
17. PARTIES IN INTEREST.
(a) This Agreement is personal to each of the parties hereto. No party
may assign or delegate any rights or obligations hereunder without
first obtaining the written consent of the other party hereto;
provided, however, that nothing in this Section 17 shall preclude
(i) Employee from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (ii) executors, administrators,
or legal representatives of Employee or his estate from assigning
any rights hereunder to person or persons entitled thereto.
Notwithstanding the foregoing, this Agreement shall be binding upon
and inure to the benefit of any successor corporation of Company
(b) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets of the Company or the business with
respect to which the duties and responsibilities of Employee are
principally related, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that Company
would have been required to perform it if no such succession had
taken place. As used in this Agreement "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which executes and delivers the
assumption agreement provided for in this Section 17 or which
otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
18. REPRESENTATIONS OF EMPLOYEE. Employee represents and warrants that he is
not party to or bound by any agreement or contract or subject to any
restrictions including without limitation any restriction imposed in
connection with previous employment which prevents Employee from entering
into and performing his obligations under this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed effective as of the day and
year first above written.
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<PAGE>
WITNESSES: POMEROY COMPUTER RESOURCES, INC.
/s/ Margret Kippley By:\s\ Edwin S. Weinstein
- ------------------------- -------------------------------------------
Edwin S. Weinstein, Chief Financial Officer
/s/ James H. Smith
- -------------------------
/s/ Margret Kippley \s\ Richard Feaster
- ------------------------- ---------------------------------------------
RICHARD FEASTER, Employee
/s/ James H. Smith
- -------------------------
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<PAGE>
Exhibit A
1. Atul Gupta
2. Scott Huseman
3. Todd Bogenrief
4. Greg Lorenzen
5. Don Cue
6. Mark Hunter
7. Jeff Reynolds
8. Todd Frederes
9. Tom Snyder
10. Mark Hotovec
11. Finance Director
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Exhibit C
Year 1 2 3 4 5 6 7 8
--- --- --- --- --- --- --- ---
RF Base 200 200 200 200 200
Bonus 200 200 200 200 200
Suppl. Bonus 34 33 33
34 33 33
34 33 33
34 33 33
34 33 33
--- --- --- --- --- --- --- ---
400 434 467 500 500 100 66 33
Present value 2,060,000 1,784,000 1,666,000 1,199,000 699,000
of life insurance
coverage
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<PAGE>
Change of Control - Exhibit C
For purposes of this Agreement, a "Change in Control" shall occur (i) upon
the sale or other disposition to a person, entity or group (as such term is used
in Rule 13d-5 promulgated under the Securities Exchange Act of 1934, as amended)
(such a person, entity or group being referred to as an "Outside Party" of fifty
percent (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 group (as such term is used in Rule
13d-5) of persons other than the holders of the Common Stock of the Company on
March 14, 1996.
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<PAGE>
EXHIBIT 10.52
POMEROY COMPUTER RESOURCES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of this 14th day of March, 1996, by and between POMEROY
COMPUTER RESOURCES, INC., a Delaware corporation ("Company"), and VICTORIA
FEASTER ("Employee").
W I T N E S S E T H:
WHEREAS, the Company entered into an Asset Purchase Agreement ("Purchase
Agreement") of even date pursuant to which it purchased substantially all of the
assets of The Computer Supply Store, Inc. ("CSS"); and
WHEREAS, Employee owns ten percent (10%) of the outstanding stock of CSS; and
WHEREAS, Employee, as inducement for and in consideration of Company entering
into the Purchase Agreement, has agreed to enter into and executed this
Employment Agreement pursuant to Section 5 thereof; and
WHEREAS, Company desires to engage the services of Employee, pursuant to the
terms, conditions and provisions as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein set forth, the parties hereby covenant and agree as follows:
1. EMPLOYMENT. The Company agrees to employ the Employee, and the Employee
agrees to be employed by the Company, upon the following terms and
conditions.
2. TERM. The initial term of Employee's employment pursuant to this Agreement
shall begin on the 15th day of March, 1996, and shall continue for a period
of five (5) years unless earlier terminated pursuant to the provisions of
Section 10, provided that Sections 8, 9, 10(b), (c) and (d), if applicable,
and 11, if applicable, shall survive the termination of such employment and
shall expire in accordance with the terms set forth therein.
3. RENEWAL TERM. The term of Employee's employment shall automatically renew
for additional consecutive renewal terms of one (1) year unless either
party gives written notice of her/its intent not to renew the terms of the
Agreement thirty (30) days prior to the expiration of the then expiring
term. Employee's base salary for each renewal term shall be determined by
the Board of Directors of Company or by the Compensation Committee of the
Board of Directors, if any.
4. DUTIES. Employee shall serve as Vice President/Sales of the Company's Des
Moines, Iowa division. Employee shall be responsible to and report
directly to the
<PAGE>
Vice President/Operations of the Company's Des Moines, Iowa division. Employee
shall devote her best efforts and substantially all her time during normal
business hours to the diligent, faithful and loyal discharge of the duties of
her employment and towards the proper, efficient and successful conduct of the
Company's affairs. Employee's responsibilities shall include both internal
Company management and account management divided on an equal basis. Employee
further agrees to refrain during the term of this Agreement from making any
sales of competing services or products or from profiting from any transaction
involving computer services or products for her accounts without the express
written consent of Company. Employee shall have the authority to hire, at her
discretion and timing, at a compensation level that is reasonable to the duties
to be performed, a hand-picked sales assistant to provide support on sales
related administrative duties so as to allow for consistent account management
and new business development activities.
5. COMPENSATION. For all services rendered by the Employee under this
Agreement (in addition to other monetary or other benefits referred to
herein), compensation shall be paid to Employee as follows:
(a) BASE SALARY: During each year of the initial term of this
Agreement, Employee shall be paid an annual base salary of One
Hundred Thousand ($100,000.00) Dollars. Said base salary shall be
payable in accordance with the historical payroll practices of the
Company.
(b) ANNUAL CASH BONUS: In addition to Employee's base salary as set
forth in paragraph 5(a) above, Employee shall be entitled (in the
event certain criteria as defined below are satisfied) to an annual
cash bonus to be determined as follows:
(i) For the period commencing March 1, 1996 and ending January 5,
1997, for the subsequent 1997, 1998, 1999 and 2000 fiscal
years of the Company (January 6, 1997 through January 5,
1998, etc.) and for the period commencing January 6, 2001 and
ending March 13, 2001, Employee shall receive a cash bonus
equal to five percent (5%) of the gross profit on Company's
accounts handled by Employee, designated on Exhibit A
attached hereto as well as any and all new customers
developed and serviced by Employee. Employee shall provide
Company with a current customer list every thirty (30) days.
Said amount shall be paid provided that the gross profit
margin on all of such accounts, in the aggregate, is greater
than five percent (5%) for each applicable period. The
annual cash bonus amount shall be subject to a cap of
Seventy-Five Thousand ($75,000.00) Dollars, except that for
the first period commencing March 1, 1996 and ending January
5, 1997, the cap shall be Sixty-Three Thousand Nine Hundred
($63,900.00) Dollars and for the last period beginning
January 6, 2001 and ending March 13, 2001, the cap shall be
Thirteen Thousand Seven Hundred Seventy (13,770.00) Dollars.
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<PAGE>
(ii) For purposes of this Section, the term "gross profits" shall
mean the gross sales of equipment, software, services and
manufacturer's rebates of Company effectuated by Employee to
the accounts set forth on Exhibit A and any and all new
customers developed and serviced by Employee during the
applicable period less the cost of goods sold and cost of
services rendered during such period. Employee shall provide
Company with an updated customer list every thirty (30) days.
In making said gross profit determination, all refunds or
returns which are made during such annual period shall be
subtracted along with all accounts receivable derived from
such sales that are written off in such applicable period.
For purposes of this Section, the term "gross profit margin"
shall mean the gross profits as defined above divided by the
gross sales of equipment, software, services and
manufacturer's rebates of Company effectuated by Employee to
the accounts described on Exhibit A during the applicable
period. For the purpose of calculating gross profit and
gross profit margin on Employee's accounts, transfer pricing
from Company to its Des Moines, Iowa division will not be
"packed." The Des Moines, Iowa division of Company material
cost of sales shall not be greater than Company's material
cost of sales on a direct pass-through basis. Company's Des
Moines, Iowa division's gross profit margins and component
cost of sales for such accounts will be calculated on a basis
consistent with the financial statements of CSS's December
31, 1995 financial statements, utilizing the same
methodologies, judgments and estimates employed by CSS in
preparing such year-end financial statements, all in
accordance with generally accepted accounting principles.
(iii) Any amounts due Employee hereunder shall be payable upon the
earlier of ninety (90) days following the end of the fiscal
year of the Company or the date on which annual bonuses are
distributed by Company to its other employees, except for the
period ending March 13, 2001, when such payment shall be made
within sixty (60) days of the expiration of such period. In
event such financial statements are not issued within said
applicable period, then the Company shall make any payments
due hereunder (if any) based on its best reasonable estimate
of any liability hereunder, which amount shall then be
reconciled by both parties once the financial statements are
issued. The determination of applicable gross profit and
gross profit margins on all such accounts shall be based on
the internally-generated financial statements of Company
based on the criteria set forth above.
(iv) For purposes of the period March 1, 1996 through the Closing,
the five percent (5%) of the gross profit on Company accounts
and gross
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<PAGE>
profit margin determination shall integrate such gross
profit/gross profit margin of The Computer Supply Store, Inc.
(c) ANNUAL SUPPLEMENTAL STOCK OPTION BONUS. In addition to Employee's
base salary as set forth in Section 5(a) above and annual cash
bonuses that Employee may be entitled to receive as set forth in
Section 5(b) above, Employee shall be entitled (in the event certain
criteria as defined below are satisfied) to annual supplemental
option share bonuses to be determined as follows:
(i) For the period commencing March 1, 1996 and ending January 5,
1997, for the subsequent 1997, 1998, 1999 and 2000 fiscal
years of the Company and for the period commencing January 6,
2001 and ending March 13, 2001, to the extent the annual
gross profit on Company's accounts handled by Employee set
forth on Exhibit A is greater than one million six hundred
thousand dollars ($1,600,000.00), Employee shall be granted
an option to acquire five thousand (5,000) shares of the
common stock of Company and in the event the gross profit on
Company's accounts handled by Employee as set forth in
Exhibit A as may be supplemented exceeds one million eight
hundred thousand dollars ($1,800,000.00), Employee shall be
granted the option to acquire an additional five thousand
(5,000) shares of the common stock of Company. Provided,
however, for the period commencing March 1, 1996 and ending
January 5, 1997, the respective threshold amounts shall be
One Million Three Hundred Sixty-Three Thousand Two Hundred
($1,363,200.00) Dollars and One Million Five Hundred Thirty-
Three Thousand Six Hundred ($1,533,600.00) Dollars,
respectively, and the number of option shares that can be
issued upon achieving such totals shall be Four Thousand Two
Hundred Sixty (4260) and Four Thousand Two Hundred Sixty
(4,260), respectively. For the period commencing January 6,
2001 and ending March 13, 2001, the threshold amount shall be
Two Hundred Ninety-Three Thousand Six Hundred Ninety-Eight
($293,698.00) Dollars and Three Hundred Thirty Thousand Four
Hundred Ten ($330,410.00) Dollars, respectively, and the
number of option shares that can be issued upon achieving
such totals shall be Nine Hundred Eighteen (918) and Nine
Hundred Eighteen (918), respectively.
(ii) Any award of an option to acquire the common stock of Company
earned hereunder shall be at the fair market value of such
stock as of the last day of the applicable period and shall
be subject to all conditions contained in the Company's Non-
Qualified Incentive Stock Option Plan. The fair market value
of said shares shall be determined as the average of the high
and low bid and ask price for such shares on the over-the-
counter market on the applicable date.
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<PAGE>
(iii) Any option to acquire shares to be issued hereunder shall be
issued upon the earlier of ninety (90) days after the
completion of the Company's fiscal year end or the date on
which annual bonuses are distributed by Employer to its other
employees, except for the last short period, in which case
such stock options shall be issued within sixty (60) days of
the end of the applicable period. In the event such
financial statements are not issued within such ninety (90)
day period, then the Company shall issue any stock option
awards due hereunder (if any) based on its reasonable best
estimate of any liability hereunder, which amount shall then
be reconciled by both parties once the financial statements
are issued. The determination of applicable gross profits
shall be based on the internally-generated financial
statements of the Company based on the criteria set forth
below.
(iv) For purposes of this Section, the term "gross profits" shall
mean the gross sales of equipment, software and services of
Company effectuated by Employee to the named accounts on
Exhibit A, as supplemented, during the applicable period less
the cost of goods sold and cost of services rendered during
such period. In making said gross profit determination, all
refunds, returns or rebates which are made during such annual
period shall be subtracted along with all accounts receivable
derived from such sales that are written off in such
applicable period. For the purpose of calculating gross
profit on Employee's accounts, transfer pricing from Company
to its Des Moines, Iowa division will not be "packed." The
Des Moines, Iowa division of Company material cost of sales
shall not be greater than Company's material cost of sales on
a direct pass-through basis. Company's Des Moines, Iowa
division's gross profit on such accounts will be calculated
on a basis consistent with the financial statements of CSS's
December 31, 1995 financial statements, utilizing the same
methodologies, judgments and estimates employed by CSS in
preparing such year-end financial statements, all in
accordance with generally accepted accounting principles.
For purposes of the period of the period March 1, 1996
through the Closing, the gross profit determination for
Section 5(c) shall include the gross profit of The Computer
Supply Store, Inc. for such period.
Within fifteen (15) days following delivery to Employee of
the determination of the applicable gross profit and gross
profit margin to be determined in Section 5(b)(ii) and/or the
gross profit to be determined in Section 5(c)(i), Employee
shall have the right to object in writing to the results
contained in such internally-generated financial statements.
If timely objection is not made by the Employee to such
determination, such determination shall become final and
-5-
<PAGE>
binding for purposes of such Section. If timely objection is
made by the Employee to Company and Employee and Company are
able to resolve their differences in writing within thirty
(30) days following the expiration of the fifteen (15) day
period, then the determination shall become final and binding
as it regards such Section. If timely objection is made by
Employee and Employee and Company are unable to resolve their
differences relating thereto within thirty (30) days
following the expiration of the fifteen (15) day period, then
all disputed matters pertaining to the internally-generated
financial statements determination of such criteria shall be
submitted to and be reviewed by an arbitrator (the
"Arbitrator"), which shall be an accounting firm selected by
Company and Employee. If Employee and Company are unable to
agree promptly on an accounting firm to serve as Arbitrator,
each shall select by no later than fifteen (15) days
following the expiration of the forty-five (45) day period,
another accounting firm and the selected firm shall be
instructed to select promptly another accounting firm, the
firm to serve as Arbitrator. The Arbitrator shall consider
only the disputed matters pertaining to the determination and
shall act promptly to resolve all disputed matters and its
decision with respect to all disputed matters shall be final
and binding upon the Employee and Company. Expenses of the
arbitration (including reasonable attorney and accounting
fees) shall be borne by Employee, unless the arbitration
panel determines that the gross profit or gross profit margin
is greater by Fifty Thousand Dollars ($50,000.00) or more
than the determination made by the Company, in which case,
the expenses of the arbitration (including reasonable
attorney and accounting fees) shall be borne by Company.
6. FRINGE BENEFITS. During the term of this Agreement, Employee shall be
entitled to the following benefits:
(a) Health Insurance - During the term of this Agreement, Employee shall
be provided with the standard medical health and insurance coverage
maintained by Company on its employees. Company and Employee shall
each pay fifty percent (50%) of the cost of such coverage.
(b) Vacation - Employee shall be entitled each year to a vacation of
four (4) weeks during which time her compensation will be paid in
full. Provided, however, such weeks may not be taken consecutively
without the written consent of the President of the Company.
(c) Insurance - During the term of this Agreement, Company shall
maintain on the life of Employee, provided she is insurable at
standard rates, a declining term life insurance policy in the amount
set forth on Exhibit B attached hereto. Employee shall be the owner
of such policy and shall designate the
-6-
<PAGE>
beneficiary thereof. Employee agrees to take any and all physicals
that are necessary incident to the issuance and/or renewal of said
policy. In addition, Employee agrees to take any and all physicals
that are necessary incident to the procurement of key person
insurance upon her life by Company. In the event that Employee is
not insurable at standard rates during the term of this Agreement,
but Employee is able to procure rated coverage, Employee shall have
the right to procure coverage for a lower amount of insurance, the
cost of which is equivalent to the standard term rate cost of the
coverage set forth on Exhibit B or to contribute to the cost of
insurance to maintain applicable coverage. Said determination shall
be at the Employee's discretion. In the event Employee is not
insurable, then Company shall pay Employee an amount equal to the
projected cost of the contemplated term insurance coverage set forth
on Exhibit B at standard rates. In the event that Employee should
die prior to the insurance being obtained hereunder or in the event
insurance cannot be obtained for medical reasons, Company shall have
no obligation to Employee or her beneficiary for payment of any of
the amounts set forth on Exhibit B upon Employee's death.
(d) Other Benefits - Employee shall participate, after meeting
eligibility requirements, in any qualified retirement plans, welfare
plans and any other plans or programs implemented by the Company for
its employees during the term of this Agreement.
(e) Automobile - Employee shall receive reimbursement for any gasoline
expenses or mileage related to Company business. .
(f) Employee shall be responsible for any and all taxes owed, if any, on
the fringe benefits provided to her pursuant to this Section 6.
7. EXPENSES. During the term of Employee's employment hereunder, Employee
shall be entitled to receive prompt reimbursement for all other reasonable
and customary expenses incurred by Employee in fulfilling Employee's duties
and responsibilities hereunder, provided that such expenses are incurred
and accounted for in accordance with the policies and procedures
established by Company.
8. NON-COMPETITION. Employee expressly acknowledges the provisions of the
Purchase Agreement relating to Employee's covenant not to compete with
Company. Accordingly, such provisions of Section 9 of the Purchase
Agreement are incorporated herein by reference to the extent as if restated
in full herein. In addition to the consideration received under this
Agreement, Employee acknowledges that as one of three owners of the common
stock of CSS, she has received substantial consideration pursuant to such
Purchase Agreement and that as an inducement for, and in consideration of,
Company entering into the Purchase Agreement and Company entering into this
Agreement, Employee has agreed to be bound by such provisions of Section 9
of the Purchase Agreement. Accordingly,
-7-
<PAGE>
such provisions of Section 9 and Exhibit B-2 and the restrictions on
Employee thereby imposed shall apply as stated therein.
9. NON-DISCLOSURE AND ASSIGNMENT OF CONFIDENTIAL INFORMATION. The Employee
acknowledges that the Company's trade secrets and confidential and
proprietary information, including without limitation:
(a) unpublished information concerning the Company's:
(i) research activities and plans,
(ii) marketing or sales plans,
(iii) pricing or pricing strategies,
(iv) operational techniques,
(v) customer and supplier lists, and
(vi) strategic plans;
(b) unpublished financial information, including unpublished information
concerning revenues, profits and profit margins;
(c) internal confidential manuals; and
(d) any "material inside information" as such phrase is used for
purposes of the Securities Exchange Act of 1934, as amended;
all constitute valuable, special and unique proprietary and trade secret
information of the Company. In recognition of this fact, the Employee agrees
that the Employee will not disclose any such trade secrets or confidential or
proprietary information (except (i) information which becomes publicly available
without violation of this Employment Agreement, (ii) information of which the
Employee did not know and should not have known was disclosed to the Employee in
violation of any other person's confidentiality obligation, and (iii) disclosure
required in connection with any legal process), nor shall the Employee make use
of any such information for the benefit of any person, firm, operation or other
entity except the Company and its subsidiaries or affiliates. The Employee's
obligation to keep all of such information confidential shall be in effect
during and for a period of five (5) years after the termination of her
employment in those states where Company has business offices; provided,
however, that the Employee will keep confidential and will not disclose any
trade secret or similar information protected under law as intangible property
(subject to the same exceptions set forth in the parenthetical clause above) for
so long as such protection under law is extended.
10. TERMINATION.
(a) The Employee's employment with the Company may be terminated at any
time as follows:
(i) By the Employee at her discretion, upon sixty (60) days written
notice to Company;
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<PAGE>
(ii) By Employee's death;
(iii) By Employee's physical or mental disability which renders
Employee unable to perform her duties hereunder for a
consecutive period of one hundred twenty (120) days or for an
aggregate of one hundred eighty (180) days or more during any
twelve-month period.
(iv) By the Company, for cause upon fifteen (15) days' written notice
to Employee. For purposes of this Agreement, the term "cause"
shall mean termination upon: (i) the continuous failure by
Employee to substantially perform her duties with the Company
(other than such failure resulting from her incapacity due to
physical or mental illness), after a written demand for
substantial performance is delivered to her by the Company,
which demand specifically identifies the manner in which the
Company believes that she has continuously not substantially
performed her duties; (ii) the engaging by Employee in conduct
which is demonstrably and materially injurious to the Company,
monetarily or otherwise, including but not limited to any
material misrepresentation relating to the performance of her
duties; (iii) the conviction of Employee of a felony or other
crime involving theft or fraud, (iv) Employee's gross neglect or
gross misconduct in carrying out her duties hereunder resulting,
in either case, in material harm to the Company; or (v) any
material breach by Employee of this Agreement. Notwithstanding
the foregoing, Employee shall not be deemed to have been
terminated for cause unless and until there shall have been
delivered to her a copy of a resolution of the Board of
Directors of the Company or any appropriately designated
committee of the Board, finding that she has engaged in the
conduct set forth above in this Section 10(a)(iv) and specifying
the particulars thereof in detail, and Employee shall not have
cured such conduct to the reasonable satisfaction of the Board
within thirty (30) days of receipt of such resolution.
(v) By the Company at its discretion, without cause, upon thirty
(30) days written notice to Employee; provided that Company
complies with the provisions of Section 10(c).
(vi) By the Employee within ninety (90) days following a "Change in
Control" as defined in Exhibit C attached hereto, unless
Employee has accepted employment with the successor entity and
such successor entity has assumed this Employment Agreement
pursuant to the provisions of Section 17(b).
(b) Compensation upon Termination: In the event of termination of
employment, the Employee or her estate, in the event of death, shall
be entitled to her
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<PAGE>
annual base salary and other benefits provided hereunder to the date
of her termination. In addition, Employee shall be entitled to
receive any bonus accrued to the date of her termination as provided
in Sections 5(b) and (c). In the event of Employee's death, the
designated beneficiary shall also be entitled to all insurance
benefits as reference in Paragraph 6(c).
(c) In the event that Company would terminate Employee's employment
hereunder without cause pursuant to Section 10(a)(v), Company shall
be obligated to pay Employee, as severance pay, Employee's annual
base salary in effect prior to such termination for the remaining
term of the Agreement (as set forth in Section 2, as due) and all
bonus and stock option awards set forth in Sections 5(b) and (c)
based on the formula set forth on Exhibit D attached hereto.
(d) In the event that a change in control as defined in Exhibit C has
occurred, and such successor entity has not assumed this Agreement
pursuant to the provisions of Section 17(b), the Company shall pay
Employee her full base salary for the remaining term of this
Agreement, at the time such payments are due, and all bonus and
stock options incentives set forth in Sections 5(b) and (c) shall be
paid to Employee based on the formula set forth in Exhibit D
attached hereto.
In addition, if the Employee becomes entitled to any payment or
benefit pursuant to (d) above in this Section 10 (all such payments
being called "Severance Payments") from the Company (or any person
whose actions result in a Change in Control or any person affiliated
with Company or any such person) in connection with any termination
of the Employee's employment hereunder following a Change in
Control, which Severance Payment is subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code") (or any successor provision), Company shall
pay Employee pursuant to the provisions set forth below an
additional amount (the "Gross Up Payment") such that the net amount
retained by Employee, after deduction of any Excise Tax on the
Severance Payment and any federal and state and local income taxes
and excise tax upon such Gross Up Payment shall be equal to the
Severance Payment.
11. DISABILITY. In the event that Employee becomes temporarily disabled and/or
totally and permanently disabled, physically or mentally, which renders her
unable to perform her duties hereunder, Employee shall receive one hundred
percent (100%) of her base annual salary (in effect at the time of such
disability) for a period of one (1) year following the termination of this
agreement pursuant to the provisions of Section 10(a)(iii) (offset by any
payments to the Employee received pursuant to disability benefit plans, if
any, maintained by the Company.) Such payments shall be payable in twelve
consecutive equal monthly installments and shall commence
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<PAGE>
thirty (30) days after the determination by the physicians of such
disability as set forth below.
For purposes of this Agreement, Employee shall be deemed to be temporarily
disabled and/or totally and permanently disabled if attested to by two
qualified physicians, (one to be selected by Company and the other by
Employee) competent to give opinions in the area of the disabled Employee's
physical and/or mental condition. If the two physicians disagree, they
shall select a third physician, whose opinion shall control. Employee
shall be deemed to be temporarily disabled and/or totally and permanently
disabled if she shall become disabled as a result of any medically
determinable impairment of mind or body which renders it impossible for
such Employee to perform satisfactorily her duties hereunder, and the
qualified physician(s) referred to above certify that such disability does,
in fact, exist. The opinion of the qualified physician(s) shall be given
by such physician(s), in writing directed to the Company and to Employee.
The physician(s) decision shall include the date that disability began, if
possible, and the 120th day of such disability, if possible. The decision
of such physician(s) shall be final and conclusive and the cost of such
examinations shall be paid by Company.
12. SEVERABILITY. In case any one (1) or more of the provisions or part of a
provision contained in this Agreement shall be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a
provision of this Agreement. In such a situation, this Agreement shall be
reformed and construed as if such invalid, illegal or unenforceable
provision, or part of a provision, had never been contained herein, and
such provision or part shall be reformed so that it will be valid, legal
and enforceable to the maximum extent possible.
13. GOVERNING LAW. This Agreement shall be governed and construed under the
laws of the State of Kentucky and shall not be modified or discharged, in
whole or in part, except by an agreement in writing signed by the parties.
14. NOTICES. All notices, requests, demands and other communications relating
to this Agreement shall be in writing and shall be deemed to have been duly
given if delivered personally or mailed by certified or registered mail,
return receipt requested, postage prepaid:
If to Company, to: Pomeroy Computer Resources, Inc.
1840 Airport Exchange Blvd, Suite 240
Erlanger, Kentucky 41018
With a copy to: James H. Smith III
Lindhorst & Dreidame Co., L.P.A.
312 Walnut Street, Suite 2300
Cincinnati, Ohio 45202
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<PAGE>
If to Employee, to the Employee's residential address, as set forth in the
Company's records.
15. ENFORCEMENT OF RIGHTS. The parties expressly recognize that any breach of
this Agreement by either party is likely to result in irrevocable injury to
the other party and agree that such other party shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to obtain damages for any breach
of this Agreement, or to enforce the specific performance of this Agreement
by each party or to enjoin any party from activities in violation of this
Agreement.
16. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the
parties with respect to the subject matter contained herein and may be
altered, amended or superseded only by an agreement in writing, signed by
the party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
17. PARTIES IN INTEREST.
(a) This Agreement is personal to each of the parties hereto. No party
may assign or delegate any rights or obligations hereunder without
first obtaining the written consent of the other party hereto;
provided, however, that nothing in this Section 17 shall preclude
(i) Employee from designating a beneficiary to receive any benefit
payable hereunder upon her death, or (ii) executors, administrators,
or legal representatives of Employee or her estate from assigning
any rights hereunder to person or persons entitled thereto.
Notwithstanding the foregoing, this Agreement shall be binding upon
and inure to the benefit of any successor corporation of Company
(b) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets of the Company or the business with
respect to which the duties and responsibilities of Employee are
principally related, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that Company
would have been required to perform it if no such succession had
taken place. As used in this Agreement "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which executes and delivers the
assumption agreement provided for in this Section 17 or which
otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
18. REPRESENTATIONS OF EMPLOYEE. Employee represents and warrants that she is
not party to or bound by any agreement or contract or subject to any
restrictions including without limitation any restriction imposed in
connection with previous employment which prevents Employee from entering
into and performing her obligations under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed effective as of the day and
year first above written.
WITNESSES: POMEROY COMPUTER RESOURCES, INC.
/s/ Margret Kippley By:\s\ Edwin S. Weinstein
- ------------------------- -------------------------------------------
Edwin S. Weinstein, Chief Financial Officer
/s/ James H. Smith
- -------------------------
/s/ Margret Kippley \s\ Victoria Feaster
- ------------------------- ---------------------------------------------
VICTORIA FEASTER, Employee
/s/ James H. Smith
- -------------------------
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<PAGE>
Exhibit A
Customer List
1. Principal Mutual Life and other Principal Accts
2. PFS - Principal Financial Securities
3. PHC Principal Health Care
4. All Pioneer Accts
5. Allied Mutual
6. Freedom Group
7. IMMC
BACKUP ON: 30% percentage calculation for each of these
to be determined by Steve and Vickey
(backup only)
1. Farm Bureau
2. KVI
3. Mid American Energy
4. BCBS
5. CDS
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<PAGE>
EXHIBIT D:
VF Base 100 100 100 100 100
Bonus 75 75 75 75 75
--- --- --- --- ---
175 175 175 175 175
EXHIBIT B:PV= 737K 606K 467K 320K 165K - Present value of
declining term life
insurance policies.
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<PAGE>
EXHIBIT C
For purposes of this Agreement, a "Change in Control" shall occur (i) upon
the sale or other disposition to a person, entity or group (as such term is used
in Rule 13d-5 promulgated under the Securities Exchange Act of 1934, as amended)
(such a person, entity or group being referred to as an "Outside Party" of fifty
percent (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 group (as such term is used in Rule
13d-5) of persons other than the holders of the Common Stock of the Company on
March 14, 1996.
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<PAGE>
POMEROY COMPUTER RESOURCES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of this 26th day of February, 1996, effective
September 18, 1995, by and between POMEROY COMPUTER RESOURCES, INC., a Delaware
corporation ("Company"), and JAMES ECK ("Employee").
W I T N E S S E T H:
WHEREAS, the parties desire to provide for Employee's employment by the
Company and to provide him compensation incident thereto;
NOW, THEREFORE, in consideration of the foregoing premise and the mutual
covenants herein set forth, the parties hereby covenant and agree as follows:
1. EMPLOYMENT. The Company agrees to employ the Employee, and the
Employee agrees to be employed by the Company, upon the following terms and
conditions.
2. TERM. The initial term of Employee's employment pursuant to this
Agreement shall begin on the 18th day of September, 1995, and shall continue for
a period of three (3) years, three (3) months, and eighteen (18) days (September
18, 1995 to January 5, 1999) unless terminated earlier pursuant to the
provisions of Section 10, provided that Sections 8, 9, 10(b), 10(c), if
applicable, 11, if applicable, and 12, if applicable, shall survive the
termination of such employment and shall expire in accordance with the terms set
forth therein.
3. Renewal TERM. The term of Employee's employment shall automatically
renew for additional consecutive renewal terms of one (1) year unless either
party gives written notice of his/its intent not to renew the terms of the
Agreement thirty (30) days prior to the expiration of the then expiring term.
Employee's base salary for each renewal term shall be determined by the Board of
Directors of Company or by the Compensation Committee of the Board of Directors,
if any, provided, however, Employee's annual base salary for any renewal term
shall not be less than $150,000.00 per year.
4. DUTIES. Employee shall serve as Vice President of Sales/Services of
the Company upon execution hereof and appropriate action by the Board of
Directors. Employee shall be responsible to and report directly to the
President of the Company. Employee shall devote his best efforts and
substantially all his time during normal business hours to the diligent,
faithful and loyal discharge of the duties of his employment and towards the
proper, efficient and successful conduct of the Company's affairs. Employee
further agrees to refrain during the term of this Agreement from making any
sales of competing services or products or from profiting from any transaction
involving
<PAGE>
computer services or products for his account without the express written
consent of Company.
5. COMPENSATION. For all services rendered by the Employee under this
Agreement (in addition to other monetary or other benefits referred to herein),
compensation shall be paid to Employee as follows:
(a) BASE SALARY:
(i) During the period September 18, 1995 through January 5,
1996, Employee shall be paid the sum of Twelve Thousand ($12,000.00) Dollars per
month. Compensation due for a period of less than one (1) month shall be
prorated for such short period on the basis of a thirty-day month.
(ii) Employee shall be paid an annual base salary of One Hundred
Fifty Thousand Dollars ($150,000.00) during the first calendar year (January 6,
1996 through January 5, 1997) of this Agreement. Provided, however, in the
event that Company's gross revenues in the fourth quarter of its 1995 fiscal
year exceeds Seventy-Five Million Dollars ($75,000,000.00) or in the event that
the Company would close an acquisition of a company that has achieved Thirty
Million Dollars ($30,000,000.00) in sales for its previous twelve-month period,
then Employee's base salary during the first calendar year of this Agreement
shall be One Hundred Seventy-Five Thousand ($175,000.00) Dollars.
(iii) Employee's base annual salary for the second and third
calendar years of the initial term of this Agreement shall be determined by
increasing the previous year's base annual salary from ten percent (10%) to
fifteen percent (15%) based upon Company's meeting or exceeding the budgeted net
profit before taxes criteria to be established for the calendar years 1996 and
1997. Within sixty (60) days after the conclusion of the 1995 and 1996 fiscal
years, Company and Employee will establish net profit before taxes criteria upon
which potential increases to Employee's base annual salary for the second and
third calendar years of this Agreement will be predicated.
(iv) For purposes of this Section, the term "gross revenues"
shall mean the gross sales of equipment, software and services by Company on a
consolidated basis during the applicable quarter set forth above. In making
said gross sales determination, all gains and losses realized on the sale or
other disposition of Company's assets not in the ordinary course of business
shall be excluded; all refunds, returns or rebates which are made during such
quarter shall be subtracted along with all accounts receivable derived from such
sales that are written off in such quarter in accordance with Company's
accounting system. Company's quarterly gross revenue determination shall be
based on Company's internally generated financial statements.
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(b) BONUS AND INCENTIVE DEFERRED COMPENSATION: The parties agree
that in January of 1996, 1997 and 1998, they will negotiate in good faith the
implementation of a bonus and incentive deferred compensation plan for Employee
for each calendar year of this Agreement, which will be predicated upon the
attainment of Company's goals, projections and budgets established at the outset
of such calendar year.
(i) Fifty percent (50%) of the amount that may be payable as a
bonus hereunder will be payable to Employee annually during the term of this
Agreement and the remaining fifty percent (50%) will constitute incentive
deferred compensation which shall be payable to Employee according to the terms
of an Incentive Deferred Compensation Agreement, which is attached hereto and
incorporated herein as Exhibit A.
6. Fringe BENEFITS. During the term of this Agreement, Employee shall be
entitled to the following benefits:
(a) Health Insurance - During the term of this Agreement, Employee
shall be provided with the standard medical health and insurance coverage
maintained by Company on its employees. Company and Employee shall each pay
fifty percent (50%) of the cost of such coverage.
(b) Vacation - Employee shall be entitled each year to a vacation of
two (2) weeks during which time his compensation will be paid in full.
Provided, however, such weeks may not be taken consecutively without the written
consent of Company.
(c) Insurance - During the term of this Agreement, Company shall
maintain on the life of Employee, provided he is insurable at standard rates, a
term life insurance policy in the amount of $300,000.00. Employee shall have
the right to designate the beneficiary of such policy. Employee agrees to take
any and all physicals that are necessary incident to the issuance and/or renewal
of said policy. In addition, Employee agrees to take any and all physicals that
are necessary incident to the procurement of key person insurance upon his life
by Company. In the event that Employee is not insurable at standard rates
during the term of this Agreement, but Employee is able to procure rated
coverage, Employee shall have the right to procure coverage for a lower amount
of insurance, the cost of which is equivalent to the standard term rate cost of
$300,000.00 of coverage. In the event Employee is not insurable, then Company
shall pay Employee an amount equal to the projected cost of the contemplated
term insurance of $300,000.00 at standard rates.
(d) Automobile Use - Company shall provide Employee with an
automobile allowance of $700.00 per month during the term of this Agreement.
Company shall also reimburse Employee for all standard car insurance premiums
during said term.
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Employee shall be responsible for all maintenance and repair to such vehicle and
for any deductible under such insurance coverage.
(e) Expenses - Company shall reimburse Employee for all reasonable
gas expenses incurred by him incident to the business use and operation of his
automobile. Employee shall provide Company, upon request, with any
documentation substantiating such expenditures hereunder.
(f) Retirement Plan - Employee shall participate, after meeting
eligibility requirements, in any qualified retirement plans and/or welfare plans
maintained by the Company during the term of this Agreement.
Employee shall be responsible for any and all taxes, owed, if any, on
the fringe benefits provided to him pursuant to this Section 6.
7. EXPENSES. During the term of Employee's employment hereunder,
Employee shall be entitled to receive prompt reimbursement for all other
reasonable and customary expenses incurred by Employee in fulfilling Employee's
duties and responsibilities hereunder, provided that such expenses are incurred
and accounted for in accordance with the policies and procedures established by
Company.
8. Non-COMPETITION. In connection with the diligent, faithful and loyal
discharge of the duties of Employee's employment under this Agreement, Employee
agrees that so long as he is employed by the Company (whether or not pursuant to
the provisions of this Agreement) he will not, directly or indirectly, be
employed by, or otherwise give assistance to or be affiliated with (as an
employee, consultant, independent contractor of any type, director or otherwise)
any person, firm, corporation or entity which is directly or indirectly engaged
in a competitive business with that carried on by the Company or any of its
subsidiaries. Employee agrees that so long as he is employed by the Company, he
will not own, engage in, conduct, manage, operate, participate in, be employed
by or be connected in any manner whatsoever with any competitive business with
that carried on by Company or any of its subsidiaries or become associated with,
in any capacity, or solicit or sell to, customers of the Company or any its
subsidiaries or employ or attempt to employ any current or future employee of
the Company or any of its subsidiaries or induce any employee of the Company or
of any of its subsidiaries to leave its employ.
In addition, as an inducement for and as additional consideration for
the Company entering into this Agreement (and by virtue of Employee's unique and
sensitive position and special background, and in recognition that the
employment of the Employee by a competitor of the Company represents a serious
competitive danger to the Company, and the use of Employee's talent and
knowledge and information about the Company's business, strategies and plans can
and would constitute a valuable competitive advantage over the Company),
Employee agrees that for a period of one (1) year commencing on the
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termination of employment, he will not with any other person, corporation or
entity, directly or indirectly, by stock or other ownership, investment,
employment, or otherwise, or in any relation whatsoever:
(1) solicit, divert or take away or attempt to solicit, divert or
take away any of the business, customers or patronage of the Company or of any
of its subsidiaries;
(2) attempt to seek or cause any customers of the Company or any of
its subsidiaries thereof, to refrain from continuing their patronage;
(3) engage in any competitive business with that carried on by the
Company or any of its subsidiaries on the date of Employee's termination in any
state in which Company or its subsidiaries do business;
(4) knowingly employ or attempt to employ in any capacity any
employee or agent of Company, or any of its subsidiaries.
(5) perform services for, either as an employee or as a consultant,
any of the companies listed on Exhibit B which is attached hereto and
incorporated herein by reference within any of the states set forth in Section
8(3) above.
For purposes of this Section 8, a competitive business shall mean any
person, corporation, partnership or other legal entity engaged, directly or
indirectly, through subsidiaries or affiliates, in any of the following business
activities:
(i) distributing of computer hardware, software, peripheral
devices, and related products and services;
(ii) sale or servicing, whether at the wholesale or retail level,
or leasing or renting, of computer hardware, software, peripheral devices or
related products;
(iii) any other business activity which can reasonably be
determined to be competitive with the principal business activity being engaged
in by the Company or any of its subsidiaries; and
(iv) any other business activity which Company or any of its
subsidiaries subsequently become involved in after the date of this Agreement.
This one-year non-competition provision commencing on the date of
Employee's termination of employment shall not be applicable if the Employee is
terminated by the Company without cause pursuant to Section 10(a)(v) or if
Company does not renew this Agreement after the expiration of the initial term
of this Agreement or any renewal term. Provided, however, such twelve-month
non-competition provision shall be applicable in
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any of such instances in the event Company elects in writing to compensate
Employee pursuant to Section 11 of this Agreement.
Employee has carefully read and has given careful consideration to all the
terms and conditions of this Agreement and agrees that they are necessary for
the reasonable and proper protection of the Company's business. The Employee
acknowledges that the Company has entered into this Agreement because of
Employee's promise that he will abide by and be bound by each of the terms
contained in Sections 8 and 9. The Employee agrees that Company shall be
entitled to injunctive relief to enforce these terms in addition to all other
legal remedies. Employee acknowledges that each and every one of the terms of
this provision is reasonable in all respects including their subject matter,
duration, scope and the geographical area embraced herein and waives any and all
right to compensation and/or benefits herein mentioned or referred to if
Employee violates the provisions of Sections 8 or 9.
9. NON-DISCLOSURE AND ASSIGNMENT OF CONFIDENTIAL INFORMATION. The
Employee acknowledges that the Company's trade secrets and confidential and
proprietary information, including without limitation:
(a) unpublished information concerning the Company's:
(i) research activities and plans,
(ii) marketing or sales plans,
(iii) pricing or pricing strategies,
(iv) operational techniques,
(v) customer and supplier lists, and
(vi) strategic plans;
(b) unpublished financial information, including unpublished
information concerning revenues, profits and profit margins;
(c) internal confidential manuals; and
(d) any "material inside information" as such phrase is used for
purposes of the Securities Exchange Act of 1934, as amended;
all constitute valuable, special and unique proprietary and trade secret
information of the Company. In recognition of this fact, the Employee agrees
that the Employee will not disclose any such trade secrets or confidential or
proprietary information (except (i) information which becomes publicly available
without violation of this Employment Agreement, (ii) information of which the
Employee did not know and should not have known was disclosed to the Employee in
violation of any other person's confidentiality obligation, and (iii) disclosure
required in connection with any legal process), nor shall the
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<PAGE>
Employee make use of any such information for the benefit of any person, firm,
operation or other entity except the Company and its subsidiaries or affiliates.
The Employee's obligation to keep all of such information confidential shall be
in effect during and for a period of five (5) years after the termination of his
employment; provided, however, that the Employee will keep confidential and will
not disclose any trade secret or similar information protected under law as
intangible property (subject to the same exceptions set forth in the
parenthetical clause above) for so long as such protection under law is
extended.
10. TERMINATION.
(a) The Employee's employment with the Company may be terminated at any
time as follows:
(i) By the Employee at his discretion, upon sixty (60) days
written notice to Company;
(ii) By Employee's death;
(iii) By Employee's physical or mental disability which renders
Employee unable to perform his duties hereunder.
(iv) By the Company, for cause upon three (3) day's written
notice to Employee. For purposes of this Agreement, the term "cause" shall mean
termination upon: (i) the failure by Employee to substantially perform his
duties with the Company (other than any such failure resulting from his
incapacity due to physical or mental illness), after a written demand for
substantial performance is delivered to him by the Company, which demand
specifically identifies the manner in which the Company believes that he has not
substantially performed his duties; (ii) the engaging by Employee in conduct
which is demonstrably and materially injurious to the Company, monetarily or
otherwise, including but not limited to any material misrepresentation related
to the performance of his duties; (iii) the conviction of Employee of a felony
or other crime involving theft or fraud, (iv) Employee's gross neglect or gross
misconduct in carrying out his duties hereunder resulting, in either case, in
material harm to the Company; or (v) any material breach by Employee of this
Agreement. Notwithstanding the foregoing, Employee shall not be deemed to have
been terminated for cause unless and until there shall have been delivered to
him a copy of a resolution of the Board of Directors of the Company or any
appropriately designated committee of the Board, finding that he has engaged in
the conduct set forth above in this Section 10(a)(iv) and specifying the
particulars thereof in detail, and Employee shall not have cured such conduct to
the reasonable satisfaction of the Board within thirty (30) days of receipt of
such resolution.
(v) By the Company at its discretion, without cause, upon thirty
(30) days written notice to Employee; provided that Company complies with the
provisions of Section 10 (c).
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<PAGE>
(b) Compensation upon Termination: In the event of termination of
employment, the Employee or his estate, in the event of death, shall be entitled
to his annual base salary and other benefits provided hereunder to the date of
his termination. In addition, Employee shall be entitled to receive any bonuses
accrued to the date of his termination of employment as provided in Section
5(b), and any vested incentive compensation that may be due Employee pursuant to
the provisions of Exhibit A, which shall be payable (if applicable) pursuant to
the terms thereof.
(c) In the event that Company would terminate Employee's employment
hereunder without cause pursuant to Section 10 (a)(v), Company shall be
obligated to pay Employee, as severance pay, Employee's annual base salary in
effect prior to such termination for the remaining term of the Agreement (as
originally set forth in Section 2), as due.
11. PAYMENTS TO EXTEND COVENANT NOT TO COMPETE OF EMPLOYEE. In the event
Company does not renew this Agreement upon the expiration of the initial term of
this Agreement or any renewal term, Company shall have the option to pay
Employee an amount equal to his base annual salary that was in effect prior to
such non-renewal of his Employment Agreement in twelve (12) consecutive equal
monthly installments commencing thirty (30) days after the date of termination
of employment in consideration of Employee not competing with Company for a
period of twelve (12) months from the date of the termination of his employment
for any of the reasons set forth above, as applicable.
12. DISABILITY. In the event that Employee becomes temporarily disabled
and/or totally and permanently disabled, physically or mentally, which renders
him unable to perform his duties hereunder, Employee shall receive one hundred
percent (100%) of his base annual salary (in effect at the time of such
disability) for a period of one (1) year following the initial date of such
disability (offset by any payments to the Employee received pursuant to
disability benefit plans, if any, maintained by the Company.) Such payments
shall be payable in twelve consecutive equal monthly installments and shall
commence thirty (30) days after the determination by the physicians of such
disability as set forth below.
For purposes of this Agreement, Employee shall be deemed to be temporarily
disabled and/or totally and permanently disabled if attested to by two qualified
physicians, (one to be selected by Company and the other by Employee) competent
to give opinions in the area of the disabled Employee's physical and/or mental
condition. If the two physicians disagree, they shall select a third physician,
whose opinion shall control. Employee shall be deemed to be temporarily
disabled and/or totally and permanently disabled if he shall become disabled as
a result of any medically determinable impairment of mind or body which renders
it impossible for such Employee to perform satisfactorily his duties hereunder,
and the qualified physician(s) referred to above certify that such
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<PAGE>
disability does, in fact, exist. The opinion of the qualified physician(s)
shall be given by such physician(s), in writing directed to the Company and to
Employee. The physician(s) decision shall include the date that disability
began, if possible, and the 12th month of such disability, if possible. The
decision of such physician(s) shall be final and conclusive and the cost of such
examination shall be paid by Employer.
13. SEVERABILITY. In case any one (1) or more of the provisions or part
of a provision contained in this Agreement shall be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement.
In such a situation, this Agreement shall be reformed and construed as if such
invalid, illegal or unenforceable provision, or part of a provision, had never
been contained herein, and such provision or part shall be reformed so that it
will be valid, legal and enforceable to the maximum extent possible.
14. Governing LAW. This Agreement shall be governed and construed under
the laws of the State of Ohio and shall not be modified or discharged, in whole
or in part, except by an agreement in writing signed by the parties.
15. NOTICES. All notices, requests, demands and other communications
relating to this Agreement shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed by certified or registered mail,
return receipt requested, postage prepaid:
If to Company, to: Pomeroy Computer Resources, Inc.
1840 Airport Exchange Blvd, Suite 240
Erlanger, Kentucky 41018
With a copy to: James H. Smith III
Lindhorst & Dreidame Co., L.P.A.
312 Walnut Street, Suite 2300
Cincinnati, Ohio 45202
If to Employee, to the Employee's residential address, as set forth in the
Company's records.
16. ENFORCEMENT OF RIGHTS. The parties expressly recognize that any
breach of this Agreement by either party is likely to result in irrevocable
injury to the other party and agree that such other party shall be entitled, if
it so elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to obtain damages for any breach of
this Agreement, or to enforce the specific performance of this Agreement by each
party or to enjoin any party from activities in violation of this Agreement.
Should either party engage in any activities prohibited by this Agreement, such
party agrees to pay over to the other party all compensation, remuneration,
monies
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or property of any sort received in connection with such activities. Such
payment shall not impair any rights or remedies of any non-breaching party or
obligations or liabilities of any breaching party pursuant to this Agreement or
any applicable law.
17. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties with respect to the subject matter contained herein and may be
altered, amended or superseded only by an agreement in writing, signed by the
party against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
18. PARTIES IN INTEREST.
(a) This Agreement is personal to each of the parties hereto. No
party may assign or delegate any rights or obligations hereunder without first
obtaining the written consent of the other party hereto; provided, however, that
nothing in this Section 18 shall preclude (i) Employee from designating a
beneficiary to receive any benefit payable hereunder upon his death, or (ii)
executors, administrators, or legal representatives of Employee or his estate
from assigning any rights hereunder to person or persons entitled thereto.
Notwithstanding the foregoing, this Agreement shall be binding upon and inure to
the benefit of any successor corporation of the Company.
(b) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets of the Company or the business with respect to
which the duties and responsibilities of Employee are principally related, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which executes and delivers the assumption agreement provided for
in this Section 18 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
19. REPRESENTATIONS OF EMPLOYEE. Employee represents and warrants that he
is not party to or bound by any agreement or contract or subject to any
restrictions including without limitation any restriction imposed in connection
with previous employment which prevents Employee from entering into and
performing his obligations under this Agreement.
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IN WITNESS WHEREOF, this Agreement has been executed effective as of the
day and year first above written.
WITNESSES: POMEROY COMPUTER RESOURCES, INC.
Rick Mills By:\s\ David B. Pomeroy II, Pres.
- ------------------------------ -----------------------------------
David B. Pomeroy II, President
James H. Smith
- ------------------------------
Rick Mills \s\ James Eck
- ------------------------------ --------------------------------------
JAMES ECK, Employee
James H. Smith
- ------------------------------
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<PAGE>
A. (i) MONTHLY COMMISSION. Commencing January 6, 1996 and during each
month thereafter during the first year of the initial term of this
Agreement, Employee shall be entitled to a monthly commission in the
event Employee satisfies the following economic criteria:
GROSS SALES OF COMPANY FOR APPLICABLE MONTH
>$24,000,000 but < or equal to $26,000,000 = $1,000.00
>$26,000,000 but < or equal to $28,000,000 = $1,500.00
>$28,000,000 = $2,400.00
(ii) For purposes of this section, the term "gross sales" shall mean the
gross sales of equipment, software and services by Company and its
Subsidiaries on a consolidated basis during the applicable month set
forth above. In making said gross sales determination, all gains
and losses realized on the sale or other disposition of Company's
assets not in the ordinary course of business shall be excluded; all
refunds, returns or rebates which are made during such month shall
be subtracted along with all accounts receivable derived from such
sales that are written off in such month in accordance with
Company's accounting system. The Company's monthly gross sales
determination shall be based on Company's internally generated
financial statements. Any amount due hereunder shall be paid within
thirty (30) days of the termination of such month.
B. (i) QUARTERLY BONUS. Commencing January 6, 1996 and during each quarter
thereafter during the first year of the initial term of this
Agreement, Employee shall be entitled to a quarterly bonus in the
event Employee satisfies the following economic criteria:
QUARTERLY BONUS BASED ON GROSS PROFIT MARGINS AND SELLING EXPENSES
MUST BE LESS THAN SIX AND THREE-TENTHS PERCENT
>14.5%, but < or equal to 15% and selling expenses < 6.3% =
$2,000.00
>15%, but < or equal to 15.5% and selling expenses < 6.3% =
$5,000.00
>15.5% and selling expenses < 6.3% = $7,500.00
(ii) For purposes of this section, the term "Gross Profit Margin" shall
mean the gross sales of equipment, software and services of Company
and its Subsidiaries on a consolidated basis during the applicable
quarter divided by the cost of goods sold and the cost of the
services rendered during such quarter. In making said Gross Profit
Margin determination, all gains and losses realized on the sale or
other disposition of Company's assets not in the ordinary course of
business shall be excluded; all refunds, returns or
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rebates which are made during such quarter shall be subtracted along
with all accounts receivable derived from such sales that are
written off in such quarter in accordance with Company's accounting
system. The Company's quarterly Gross Profit Margin determination
shall be based on Company's internally generated financial
statements. Any amount due hereunder shall be paid within thirty
(30) days of the termination of such quarter. The determination of
whether Selling Expenses of the Company are less than six and three-
tenths percent (6.3%) shall be based on Company's internally-
generated financial statements.
(iii) For purposes of this section, the term "Selling Expenses" shall be
determined by reference to the line item containing such item in the
Company's internally-generated financial statements.
C. (i) ANNUAL BONUS AND DEFERRED COMPENSATION. Commencing January 6, 1996,
for the first year of the initial term of this Agreement, Employee
shall be entitled to a bonus and deferred compensation in the event
Employee satisfies the economic criteria set forth as follows:
GROSS SALES OF COMPANY IN EXCESS OF $280,000,000.00
>$280,000,000.00 with a pre-tax margin > three percent (3%) but < or
equal to three and one-quarter percent (3.25%) = $50,000.00
>$280,000,000.00 with a pre-tax margin > three and one-quarter
percent (3.25%) but < or equal to three and one-half percent (3.5%)
= $75,000.00
>$280,000,000.00 with a pre-tax margin > three and one-half percent
(3.5%) = $100,000.00
(ii) For purposes of this section, the term "gross sales of the Company"
shall mean the gross sales of equipment and software and services by
Company and its Subsidiaries on a consolidated basis during the
applicable period. In making said gross sales determination, all
gains and losses realized on the sale or other disposition of
Company's assets not in the ordinary course shall be excluded; all
refunds, returns or rebates which are made during such period shall
be subtracted along with all accounts receivable derived from such
sales that are written off during such period in accordance with
Company's accounting system. Such gross sales and net pre-tax
profit margin of Company shall be determined by the independent
accountant regularly retained by Company in accordance with
generally accepted accounting principles and the determination by
the accountant shall be final, binding and conclusive upon all
parties hereto. Fifty percent (50%) of the
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amount determined under this section shall be payable to Employee
within ninety (90) days of the close of the Company's fiscal year as
a bonus and the remaining fifty percent (50%) will constitute
incentive deferred compensation which shall be payable to Employee
according to the terms of the Incentive Deferred Compensation
Agreement attached hereto and incorporated herein as Exhibit A. Any
incentive deferred compensation shall be fully vested over a three
(3) year period (vesting thirty-three and one-third percent (33.33%)
per year of employment from the effective date of this Agreement).
GROSS SALES OF COMPANY IN EXCESS OF $280,000,000.00
D. (i) STOCK OPTIONS OF POMEROY COMPUTER RESOURCES, INC. Commencing
January 6, 1996 for the first year of the initial term of this
Agreement, to the extent Employee satisfies the economic criteria
set forth below, Employee shall be awarded options to acquire the
common stock of Company as follows:
>$280,000,000.00 with a pre-tax margin > three percent (3%) but < or
equal to three and one-quarter percent (3.25%) = 5,000 shares
>$280,000,000.00 with a pre-tax margin > three and one-quarter
percent (3.25%) but < or equal to three and one-half percent (3.5%)
= 7,500 shares
>$280,000,000.00 with a pre-tax margin > three and one-half percent
(3.5%) = 10,000 shares
(ii) Any award of common stock of Company earned hereunder shall be at
the fair market value of such common stock as of January 5, 1997,
shall be subject to a three-year vesting period (thirty-three and
one-third percent (33-1/3%) each year) and shall be subject to all
conditions contained in the Company's Non-Qualified and Incentive
Stock Option Plan.
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INCENTIVE DEFERRED COMPENSATION AGREEMENT
This Incentive Deferred Compensation Agreement is made effective as of the 18th
day of September, 1995, by and between POMEROY COMPUTER RESOURCES, INC., a
Delaware corporation (the "Company") and JAMES ECK ("Eck").
WITNESSETH:
WHEREAS, simultaneously with the execution of this Agreement, the Company and
Eck have entered into an Employment Agreement for the employment of Eck by the
Company;
WHEREAS, pursuant to Section 5(b) of said Employment Agreement, Eck may be
entitled to incentive deferred compensation in the event certain economic
criteria are satisfied;
WHEREAS, the parties wish to define the terms governing the incentive deferred
compensation in the event the economic criteria and the terms and conditions of
the Employment Agreement are satisfied.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein set forth, the parties hereby covenant and agree as follows:
1. In the event Eck satisfies the economic criteria set forth in the
Employment Agreement for such year and is entitled to incentive deferred
compensation, the incentive deferred compensation shall be governed by the
terms of this Agreement.
2. In the event Eck should die or become disabled during the term of the
Employment Agreement or any renewal thereof, or if the Employment Agreement
is not renewed at the expiration of the initial term or any renewal term,
or in the event Company would terminate the Employment Agreement without
cause pursuant to Section 10(a)(v), all incentive deferred compensation
shall be vested in full and shall be payable to Eck and/or his designated
beneficiary at that time.
3. In the event Eck discontinues employment with the Company at the expiration
of the initial term, or any renewal thereof, or if Eck discontinues
employment with the Company during the term of the Employment Agreement,
the vested portion of his deferred compensation account will be paid to him
at said time and all non-vested amounts will be forfeited. The incentive
deferred compensation shall vest according to the following schedule:
YEARS OF SERVICE WITH COMPANY OR ITS PERCENTAGE OF VESTED
SUBSIDIARIES FROM THE EFFECTIVE DATE INTEREST
OF THIS AGREEMENT
-15-
<PAGE>
Less than 1 year 0%
One year 33.33%
Two years 66.66%
Three years 100%
This vesting schedule shall apply separately to each year that incentive
deferred compensation is earned by Eck upon the satisfaction of the economic
criteria set forth in the Employment Agreement.
By way of illustration, if Eck satisfied the economic criteria for years 1 and 2
of the Agreement, at the end of year 2, Eck would be 66.66% vested as to the
incentive deferred compensation credited in year 1 and 33.33% vested as to the
incentive deferred compensation credited in year 2.
4. Notwithstanding anything contained herein to the contrary, Company may, if
its stock is publicly traded at the time of payment, deliver, in lieu of a
portion of the cash to be paid to Eck hereunder, common stock of Company
having a fair market value equal to fifty percent (50%) of the amount due
Eck hereunder. For purposes of this Section, the fair market value of the
stock shall be deemed to be the average of its bid and asked price on the
date of distribution. Any remaining amount not paid in stock shall be paid
in cash.
If Company's stock is not publicly traded at the time of such payment, such
payment shall be in cash.
5. No deferred compensation shall be paid under the terms of this Agreement in
the event Eck is discharged from the service of the Company for cause. For
purposes of this Paragraph, the term "cause" shall have the meaning set
forth in Section 10(a)(iv) of said Employment Agreement.
6. Eck shall not have the right to commute, sell, transfer assign or otherwise
convey the right to receive any payments under the terms of this Agreement.
Any such attempted assignment or transfer shall terminate this Agreement
and the Company shall have no further liability hereunder.
7. It is the intention of the parties that the incentive deferred compensation
to be payable to Eck hereunder (if applicable) shall be includable for
Federal Income Tax purposes in his, or such beneficiary's gross income only
in the taxable year in which he or the beneficiary actually receives that
payment and Company shall be entitled to deduct such incentive deferred
compensation as a business expense in its Federal Income Tax return in the
taxable year in which such payment is made to Eck or his beneficiary.
-16-
<PAGE>
8. Nothing contained in this Agreement shall in any way affect or interfere
with the right of Eck to share or participate in a retirement plan of the
Company or any profit sharing, bonus or similar plan in which he may be
entitled to share or participate as an employee of the Company.
9. This Agreement shall be binding upon the heirs, administrators, executors,
successors and assigns of Eck. This Agreement shall not be modified or
amended except in writing signed by both parties.
10. This Agreement shall be subject to and construed under the laws of the
State of Ohio.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the day and year first above written.
POMEROY COMPUTER RESOURCES, INC.
By: \s\ David B. Pomeroy II Pres.
----------------------------------
David B. Pomeroy II, President
\s\ James Eck
--------------------------------------
JAMES ECK
-17-
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made and entered into on this 28th day of March,
1996 by and between Pomeroy Computer Resources, Inc., a Delaware corporation, of
250 Grandview Drive, Suite 10, Ft. Mitchell, Kentucky 41017 (hereinafter
referred to as "Buyer") and First of Michigan Corporation, a Michigan
corporation, of 100 Renaissance Center, Suite 264, Detroit, Michigan 48248
(hereinafter collectively referred to as "Seller").
RECITALS:
A. Seller is the owner of a certain Warrant dated April 10, 1992 to
purchase 27,500 shares of the common stock of Buyer for a purchase price of
approximately $8.73 per share (the "Warrant").
B. Under paragraph (i) of the Warrant, Buyer is obligated to register the
shares of common stock subject to the Warrant (the "Shares") if a written
request for such registration is received by holders of at least fifty percent
of the then outstanding Warrant Shares (as such term is defined in the Warrant)
after April 10, 1993 but prior to April 10, 1997.
C. Holders of more than fifty percent of the Warrant Shares have
requested Buyer to register the Shares subject to the Warrant and a dispute has
arisen between Buyer and Seller as to such registration and Seller may have
certain claims against Buyer arising from Buyer's failure to promptly register
the Shares.
D. The parties desire to settle any and all disputes between themselves
with regard to the Warrant and the failure of Buyer to register the Shares and
have agreed that Seller will convey the Warrant to Buyer and release any and all
claims Seller may have against Buyer in exchange for the payment by Buyer of
$165,000, on terms and conditions provided for herein.
NOW THEREFORE, in consideration of the premises and promises set forth
herein, the parties hereto, intending to be legally bound, agree as follows:
1. CONVEYANCE OF WARRANT. On or before March 29, 1996, Seller shall
convey, transfer and sell the Warrant to Buyer and deliver the original document
evidencing the Warrant to the Buyer's address set forth above. Upon the
consummation of the transactions comtemplated by this Agreement, Seller
surrenders to Buyer all rights and privileges arising under the Warrant.
2. CONSIDERATION. In consideration for the conveyance, transfer and sale
of the Warrant to Buyer by Seller and the mutual releases provided herein, Buyer
shall deliver to Seller the amount of $165,000 in the form of immediately
available funds.
3. CLOSING PROCEDURE. On or before March 29, 1996 (the "Closing Date"),
Seller shall deliver the Warrant to Buyer's counsel in Cincinnati, Ohio.
Immediately after such delivery Buyer shall deliver the consideration set forth
in Section 2 by wire transfer to a bank account number supplied to Buyer by
Seller.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby makes the
following representations and warranties to Buyer, which representations and
warranties shall survive the execution and delivery of this Agreement and the
closing and shall not be deemed to be affected by an investigation or
examination of the subject matter by Buyer:
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not require
any consent, authorization or approval of any person, entity or
government authority; or violates or constitutes a default under any
note, indenture, mortgage, deed of trust or other contract, agreement,
instrument or commitment of Seller, and all necessary corporate action
for approval of this Agreement has been taken by Seller.
(b) This Agreement constitutes the valid and binding obligation
of Seller, enforceable against it in accordance with its terms except
as such enforceability may be limited to applicable bankruptcy,
insolvency, reorganization or similar laws from time to time in effect
that affect creditor's rights generally and by legal and equitable
limitations on the availability of specific remedies.
(c) Seller acknowledges that it has been provided access to
Buyer's financial records and has had the opportunity to ask questions
of representatives of Buyer relative to the financial prospects of
Buyer and Buyer has responded to such questions to Seller's
satisfaction. Seller has knowledge and experience in financial and
business matters and is capable of evaluating the financial potential
of Buyer as it relates to the Warrant and the Shares and Seller
acknowledges that the value of the Warrant and Shares main increase
after the transactions contemplated by this Agreement.
(d) Seller is the sole owner of the Warrant, and has not
transferred or encumbered the Warrant in any way since its receipt by
Seller. The Warrant is free and clear of all adverse claims.
(e) Seller makes no representations or warranties to Buyer
regarding the value of the Warrant or the underlying Warrant shares.
5. REPRESENTATIONS OF BUYER: Buyer makes the following representations to
Seller, which representations shall survive the execution and delivery of this
Agreement and the closing and which representations shall not be deemed to be
affected by an investigation or examination of the subject matter thereof by
Seller:
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not require
any consent, authorization or approval of any person, entity or
government authority; or violates or constitutes a default under any
note, indenture, mortgage, deed of trust or other contract,
2
<PAGE>
agreement, instrument or commitment of Buyer and has been approved by the
Board of Directors of Buyer.
(b) This Agreement constitutes the valid and binding obligation
of Buyer, enforceable against it in accordance with its terms except
as such enforceability may be limited to applicable bankruptcy,
insolvency, reorganization or similar laws from time to time in effect
that affect creditor's rights generally and by legal and equitable
limitations on the availability of specific remedies.
(c) There are no bona fide negotations or offers under
consideration between Buyer and any third parties relating to a
potential merger, acquisition, sale, or other transaction which would
result in a change of control of Buyer.
6. RELEASE BY SELLER. Seller, on its own behalf and on behalf of its
administrators, trustees, successors and assigns, hereby releases and forever
discharges, effective as of the Closing Date, Buyer and all of its
administrators, heirs, directors, officers, trustees, employees, agents,
successors and assigns, from any and all manner of actions, causes of action of
whatsoever kind or nature, suits, liabilities, claims, demands, damages, losses
and costs of any nature whatsoever, known or unknown, fixed or contingent, which
Seller, its administrators, trustees, successors and assigns now have, may have
or have ever had through the Closing Date by reason of any matter, cause, claim,
or thing whatsoever arising under the Warrant and any failure of Buyer related
thereto.
7. RELEASE BY BUYER. Buyer, on its own behalf and on behalf of its
administrators, trustees, successors and assigns, hereby releases and forever
discharges, effective as of the Closing Date, Seller and all of its
administrators, heirs, directors, officers, trustees, employees, agents,
successors and assigns, from any and all manner of actions, causes of action of
whatsoever kind or nature, suits, liabilities, claims, demands, damages, losses
and costs of any nature whatsoever, known or unknown, fixed or contingent, which
Buyer, its administrators, trustees, successors and assigns now have, may have
or have ever had through the Closing Date by reason of any matter, cause, claim,
or thing whatsoever arising under the Warrant and any failure of Seller related
thereto.
8. CONTINGENCY TO BUYER'S OBLIGATIONS. Buyers' obligations under this
Agreement are conditioned upon Buyer entering into binding agreements with DAN
B. FRENCH, JR., JOHN C. DONNELLY AND JAMES C. PENMAN to purchase the warrants
for Buyer's common stock owned by each of them on substantially the same terms,
except for the consideration to be paid, as those contained in this Agreement
and the consummation of such agreements in accordance with their terms.
9. MISCELLANEOUS.
(a) This Agreement and all questions relating to its validity,
interpretation, performance and enforcement, will be governed by and
construed in accordance with the internal laws of the State of Ohio.
3
<PAGE>
(b) This Agreement, together with the instruments referred to
herein, contains the entire understanding between the parties hereto
with respect to the subject matter hereof, and supersedes all prior
agreements and understandings, inducements or conditions, express or
implied, oral or written, except as herein contained. This Agreement
will be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
(c) This Agreement shall not be altered, amended or supplemented
except by written instruments. Any amendment or waiver so approved
shall be binding upon all parties hereto. Any waiver of any term,
covenant, agreement or condition contained in this Agreement shall not
be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any default in any such term, covenant or
condition shall not be deemed a waiver of any later default thereof or
of any default of any other term, covenant, agreement or condition.
(d) If any court or governmental authority or agency declares
any part of this Agreement to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any other
part of this Agreement.
(e) The paragraph headings in this Agreement are for convenience
only; they form no part of this Agreement and shall not affect its
interpretation. When used in this Agreement, the number and gender of
each pronoun shall be construed to mean such number and gender as the
context and circumstances may require.
(f) This Agreement may be executed in several counterparts, each
of which shall be deemed to constitute an original document and all of
which together shall be deemed to constitute on instrument.
(g) Each of the parties hereto agrees to execute all such other
documents and to perform such other acts as shall be necessary to
consummate the transactions contemplated by this Agreement.
(h) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors,
assigns, heirs and executors.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
BUYER:
POMEROY COMPUTER RESOURCES, INC.
By: \s\ Edwin S. Weinstein
-----------------------------------
Title: Sec'y, Treas
--------------------------------
SELLER:
FIRST OF MICHIGAN CORPORATION
By: \s\ Urban A. MacDonald
-----------------------------------
Its: Sr. V. P.
----------------------------------
5
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made and entered into on this 28th day of March,
1996 by and between Pomeroy Computer Resources, Inc., a Delaware corporation, of
250 Grandview Drive, Suite 10, Ft. Mitchell, Kentucky 41017 (hereinafter
referred to as "Buyer") and John C. Donnelly (hereinafter collectively referred
to as "Seller").
RECITALS:
A. Seller is the owner of a certain Warrant dated April 10, 1992 to
purchase 11,000 shares of the common stock of Buyer for a purchase price of
approximately $8.73 per share (the "Warrant").
B. Under paragraph (i) of the Warrant, Buyer is obligated to register the
shares of common stock subject to the Warrant (the "Shares") if a written
request for such registration is received by holders of at least fifty percent
of the then outstanding Warrant Shares (as such term is defined in the Warrant)
after April 10, 1993 but prior to April 10, 1997.
C. Holders of more than fifty percent of the Warrant Shares have
requested Buyer to register the Shares subject to the Warrant and a dispute has
arisen between Buyer and Seller as to such registration and Seller may have
certain claims against Buyer arising from Buyer's failure to promptly register
the Shares.
D. The parties desire to settle any and all disputes between themselves
with regard to the Warrant and the failure of Buyer to register the Shares and
have agreed that Seller will convey the Warrant to Buyer and release any and all
claims Seller may have against Buyer in exchange for the payment by Buyer of
$66,000, on terms and conditions provided for herein.
NOW THEREFORE, in consideration of the premises and promises set forth
herein, the parties hereto, intending to be legally bound, agree as follows:
1. CONVEYANCE OF WARRANT. On or before March 29, 1996, Seller shall
convey, transfer and sell the Warrant to Buyer and deliver the original document
evidencing the Warrant to the Buyer's address set forth above. Upon the
consummation of the transactions comtemplated by this Agreement, Seller
surrenders to Buyer all rights and privileges arising under the Warrant.
2. CONSIDERATION. In consideration for the conveyance, transfer and sale
of the Warrant to Buyer by Seller and the mutual releases provided herein, Buyer
shall deliver to Seller the amount of $66,000 in the form of immediately
available funds.
3. CLOSING PROCEDURE. On or before March 29, 1996 (the "Closing Date"),
Seller shall deliver the Warrant to Buyer's counsel in Cincinnati, Ohio.
Immediately after such delivery Buyer shall deliver the consideration set forth
in Section 2 by wire transfer to a bank account number supplied to Buyer by
Seller.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby makes the
following representations and warranties to Buyer, which representations and
warranties shall survive the execution and delivery of this Agreement and the
closing and shall not be deemed to be affected by an investigation or
examination of the subject matter by Buyer:
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not require
any consent, authorization or approval of any person, entity or
government authority; or violates or constitutes a default under any
note, indenture, mortgage, deed of trust or other contract, agreement,
instrument or commitment of Seller.
(b) This Agreement constitutes the valid and binding obligation
of Seller, enforceable against it in accordance with its terms except
as such enforceability may be limited to applicable bankruptcy,
insolvency, reorganization or similar laws from time to time in effect
that affect creditor's rights generally and by legal and equitable
limitations on the availability of specific remedies.
(c) Seller acknowledges that it has been provided access to
Buyer's financial records and has had the opportunity to ask questions
of representatives of Buyer relative to the financial prospects of
Buyer and Buyer has responded to such questions to Seller's
satisfaction. Seller has knowledge and experience in financial and
business matters and is capable of evaluating the financial potential
of Buyer as it relates to the Warrant and the Shares and Seller
acknowledges that the value of the Warrant and Shares main increase
after the transactions contemplated by this Agreement.
(d) Seller is the sole owner of the Warrant, and has not
transferred or encumbered the Warrant in any way since its receipt by
Seller. The Warrant is free and clear of all adverse claims.
(e) Seller makes no representations or warranties to Buyer
regarding the value of the Warrant or the underlying Warrant shares.
5. REPRESENTATIONS OF BUYER: Buyer makes the following representations to
Seller, which representations shall survive the execution and delivery of this
Agreement and the closing and which representations shall not be deemed to be
affected by an investigation or examination of the subject matter thereof by
Seller:
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not require
any consent, authorization or
2
<PAGE>
approval of any person, entity or government authority; or violates or
constitutes a default under any note, indenture, mortgage, deed of trust or
other contract, agreement, instrument or commitment of Buyer and has been
approved by the Board of Directors of Buyer.
(b) This Agreement constitutes the valid and binding obligation
of Buyer, enforceable against it in accordance with its terms except
as such enforceability may be limited to applicable bankruptcy,
insolvency, reorganization or similar laws from time to time in effect
that affect creditor's rights generally and by legal and equitable
limitations on the availability of specific remedies.
(c) There are no bona fide negotations or offers under
consideration between Buyer and any third parties relating to a
potential merger, acquisition, sale, or other transaction which would
result in a change of control of Buyer.
6. RELEASE BY SELLER. Seller, on his own behalf and on behalf of his
heirs, administrators, trustees, successors and assigns, hereby releases and
forever discharges, effective as of the Closing Date, Buyer and all of his
heirs, administrators, heirs, directors, officers, trustees, employees, agents,
successors and assigns, from any and all manner of actions, causes of action of
whatsoever kind or nature, suits, liabilities, claims, demands, damages, losses
and costs of any nature whatsoever, known or unknown, fixed or contingent, which
Seller, his heirs, administrators, trustees, successors and assigns now have,
may have or have ever had through the Closing Date by reason of any matter,
cause, claim, or thing whatsoever arising under the Warrant and any failure of
Buyer related thereto.
7. RELEASE BY BUYER. Buyer, on its own behalf and on behalf of its
administrators, trustees, successors and assigns, hereby releases and forever
discharges, effective as of the Closing Date, Seller and all of his
administrators, heirs, trustees, successors and assigns, from any and all manner
of actions, causes of action of whatsoever kind or nature, suits, liabilities,
claims, demands, damages, losses and costs of any nature whatsoever, known or
unknown, fixed or contingent, which Buyer, its administrators, trustees,
successors and assigns now have, may have or have ever had through the Closing
Date by reason of any matter, cause, claim, or thing whatsoever arising under
the Warrant and any failure of Seller related thereto.
8. CONTINGENCY TO BUYER'S OBLIGATIONS. Buyers' obligations under this
Agreement are conditioned upon Buyer entering into binding agreements with FIRST
OF MICHIGAN CORPORATION, DAN B. FRENCH, JR. AND JAMES C. PENMAN to purchase the
warrants for Buyer's common stock owned by each of them on substantially the
same terms, except for the consideration to be paid, as those contained in this
Agreement and the consummation of such agreements in accordance with their
terms.
3
<PAGE>
9. MISCELLANEOUS.
(a) This Agreement and all questions relating to its validity,
interpretation, performance and enforcement, will be governed by and
construed in accordance with the internal laws of the State of Ohio.
(b) This Agreement, together with the instruments referred to
herein, contains the entire understanding between the parties hereto
with respect to the subject matter hereof, and supersedes all prior
agreements and understandings, inducements or conditions, express or
implied, oral or written, except as herein contained. This Agreement
will be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
(c) This Agreement shall not be altered, amended or supplemented
except by written instruments. Any amendment or waiver so approved
shall be binding upon all parties hereto. Any waiver of any term,
covenant, agreement or condition contained in this Agreement shall not
be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any default in any such term, covenant or
condition shall not be deemed a waiver of any later default thereof or
of any default of any other term, covenant, agreement or condition.
(d) If any court or governmental authority or agency declares
any part of this Agreement to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any other
part of this Agreement.
(e) The paragraph headings in this Agreement are for convenience
only; they form no part of this Agreement and shall not affect its
interpretation. When used in this Agreement, the number and gender of
each pronoun shall be construed to mean such number and gender as the
context and circumstances may require.
(f) This Agreement may be executed in several counterparts, each
of which shall be deemed to constitute an original document and all of
which together shall be deemed to constitute on instrument.
(g) Each of the parties hereto agrees to execute all such other
documents and to perform such other acts as shall be necessary to
consummate the transactions contemplated by this Agreement.
(h) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors,
assigns, heirs and executors.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
BUYER:
POMEROY COMPUTER RESOURCES, INC.
By: \s\ Edwin S. Weinstein
-----------------------------------
Title: Sec'y, Treas
--------------------------------
SELLER:
By: \s\ John C. Donnelly
-----------------------------------
John C. Donnelly
5
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made and entered into on this 28th day of March,
1996 by and between Pomeroy Computer Resources, Inc., a Delaware corporation, of
250 Grandview Drive, Suite 10, Ft. Mitchell, Kentucky 41017 (hereinafter
referred to as "Buyer") and Dan B. French, Jr. (hereinafter collectively
referred to as "Seller").
RECITALS:
A. Seller is the owner of a certain Warrant dated April 10, 1992 to
purchase 5,500 shares of the common stock of Buyer for a purchase price of
approximately $8.73 per share (the "Warrant").
B. Under paragraph (i) of the Warrant, Buyer is obligated to register the
shares of common stock subject to the Warrant (the "Shares") if a written
request for such registration is received by holders of at least fifty percent
of the then outstanding Warrant Shares (as such term is defined in the Warrant)
after April 10, 1993 but prior to April 10, 1997.
C. Holders of more than fifty percent of the Warrant Shares have
requested Buyer to register the Shares subject to the Warrant and a dispute has
arisen between Buyer and Seller as to such registration and Seller may have
certain claims against Buyer arising from Buyer's failure to promptly register
the Shares.
D. The parties desire to settle any and all disputes between themselves
with regard to the Warrant and the failure of Buyer to register the Shares and
have agreed that Seller will convey the Warrant to Buyer and release any and all
claims Seller may have against Buyer in exchange for the payment by Buyer of
$33,000, on terms and conditions provided for herein.
NOW THEREFORE, in consideration of the premises and promises set forth
herein, the parties hereto, intending to be legally bound, agree as follows:
1. CONVEYANCE OF WARRANT. On or before March 29, 1996, Seller shall
convey, transfer and sell the Warrant to Buyer and deliver the original document
evidencing the Warrant to the Buyer's address set forth above. Upon the
consummation of the transactions comtemplated by this Agreement, Seller
surrenders to Buyer all rights and privileges arising under the Warrant.
2. CONSIDERATION. In consideration for the conveyance, transfer and sale
of the Warrant to Buyer by Seller and the mutual releases provided herein, Buyer
shall deliver to Seller the amount of $33,000 in the form of immediately
available funds.
3. CLOSING PROCEDURE. On or before March 29, 1996 (the "Closing Date"),
Seller shall deliver the Warrant to Buyer's counsel in Cincinnati, Ohio.
Immediately after such delivery Buyer shall deliver the consideration set forth
in Section 2 by wire transfer to a bank account number supplied to Buyer by
Seller.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby makes the
following representations and warranties to Buyer, which representations and
warranties shall survive the execution and delivery of this Agreement and the
closing and shall not be deemed to be affected by an investigation or
examination of the subject matter by Buyer:
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not require
any consent, authorization or approval of any person, entity or
government authority; or violates or constitutes a default under any
note, indenture, mortgage, deed of trust or other contract, agreement,
instrument or commitment of Seller.
(b) This Agreement constitutes the valid and binding obligation
of Seller, enforceable against it in accordance with its terms except
as such enforceability may be limited to applicable bankruptcy,
insolvency, reorganization or similar laws from time to time in effect
that affect creditor's rights generally and by legal and equitable
limitations on the availability of specific remedies.
(c) Seller acknowledges that it has been provided access to
Buyer's financial records and has had the opportunity to ask questions
of representatives of Buyer relative to the financial prospects of
Buyer and Buyer has responded to such questions to Seller's
satisfaction. Seller has knowledge and experience in financial and
business matters and is capable of evaluating the financial potential
of Buyer as it relates to the Warrant and the Shares and Seller
acknowledges that the value of the Warrant and Shares main increase
after the transactions contemplated by this Agreement.
(d) Seller is the sole owner of the Warrant, and has not
transferred or encumbered the Warrant in any way since its receipt by
Seller. The Warrant is free and clear of all adverse claims.
(e) Seller makes no representations or warranties to Buyer
regarding the value of the Warrant or the underlying Warrant shares.
5. REPRESENTATIONS OF BUYER: Buyer makes the following representations to
Seller, which representations shall survive the execution and delivery of this
Agreement and the closing and which representations shall not be deemed to be
affected by an investigation or examination of the subject matter thereof by
Seller:
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not require
any consent, authorization or approval of any person, entity or
government authority; or violates or constitutes a
2
<PAGE>
default under any note, indenture, mortgage, deed of trust or other
contract, agreement, instrument or commitment of Buyer and has been
approved by the Board of Directors of Buyer.
(b) This Agreement constitutes the valid and binding obligation
of Buyer, enforceable against it in accordance with its terms except
as such enforceability may be limited to applicable bankruptcy,
insolvency, reorganization or similar laws from time to time in effect
that affect creditor's rights generally and by legal and equitable
limitations on the availability of specific remedies.
(c) There are no bona fide negotations or offers under
consideration between Buyer and any third parties relating to a
potential merger, acquisition, sale, or other transaction which would
result in a change of control of Buyer.
6. RELEASE BY SELLER. Seller, on his own behalf and on behalf of his
heirs, administrators, trustees, successors and assigns, hereby releases and
forever discharges, effective as of the Closing Date, Buyer and all of his
heirs, administrators, heirs, directors, officers, trustees, employees, agents,
successors and assigns, from any and all manner of actions, causes of action of
whatsoever kind or nature, suits, liabilities, claims, demands, damages, losses
and costs of any nature whatsoever, known or unknown, fixed or contingent, which
Seller, his heirs, administrators, trustees, successors and assigns now have,
may have or have ever had through the Closing Date by reason of any matter,
cause, claim, or thing whatsoever arising under the Warrant and any failure of
Buyer related thereto.
7. RELEASE BY BUYER. Buyer, on its own behalf and on behalf of its
administrators, trustees, successors and assigns, hereby releases and forever
discharges, effective as of the Closing Date, Seller and all of his
administrators, heirs, trustees, successors and assigns, from any and all manner
of actions, causes of action of whatsoever kind or nature, suits, liabilities,
claims, demands, damages, losses and costs of any nature whatsoever, known or
unknown, fixed or contingent, which Buyer, its administrators, trustees,
successors and assigns now have, may have or have ever had through the Closing
Date by reason of any matter, cause, claim, or thing whatsoever arising under
the Warrant and any failure of Seller related thereto.
8. CONTINGENCY TO BUYER'S OBLIGATIONS. Buyers' obligations under this
Agreement are conditioned upon Buyer entering into binding agreements with FIRST
OF MICHIGAN CORPORATION, JOHN C. DONNELLY AND JAMES C. PENMAN to purchase the
warrants for Buyer's common stock owned by each of them on substantially the
same terms, except for the consideration to be paid, as those contained in this
Agreement and the consummation of such agreements in accordance with their
terms.
3
<PAGE>
9. MISCELLANEOUS.
(a) This Agreement and all questions relating to its validity,
interpretation, performance and enforcement, will be governed by and
construed in accordance with the internal laws of the State of Ohio.
(b) This Agreement, together with the instruments referred to
herein, contains the entire understanding between the parties hereto
with respect to the subject matter hereof, and supersedes all prior
agreements and understandings, inducements or conditions, express or
implied, oral or written, except as herein contained. This Agreement
will be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
(c) This Agreement shall not be altered, amended or supplemented
except by written instruments. Any amendment or waiver so approved
shall be binding upon all parties hereto. Any waiver of any term,
covenant, agreement or condition contained in this Agreement shall not
be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any default in any such term, covenant or
condition shall not be deemed a waiver of any later default thereof or
of any default of any other term, covenant, agreement or condition.
(d) If any court or governmental authority or agency declares
any part of this Agreement to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any other
part of this Agreement.
(e) The paragraph headings in this Agreement are for convenience
only; they form no part of this Agreement and shall not affect its
interpretation. When used in this Agreement, the number and gender of
each pronoun shall be construed to mean such number and gender as the
context and circumstances may require.
(f) This Agreement may be executed in several counterparts, each
of which shall be deemed to constitute an original document and all of
which together shall be deemed to constitute on instrument.
(g) Each of the parties hereto agrees to execute all such other
documents and to perform such other acts as shall be necessary to
consummate the transactions contemplated by this Agreement.
(h) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors,
assigns, heirs and executors.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
BUYER:
POMEROY COMPUTER RESOURCES, INC.
By: \s\ Edwin S. Weinstein
-----------------------------------
Title: Sec'y, Treas
--------------------------------
SELLER:
By: \s\ Dan B. French, Jr.
-----------------------------------
Dan B. French, Jr.
5
<PAGE>
EXHIBIT 10.89
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made and entered into on this 28th day of March,
1996 by and between Pomeroy Computer Resources, Inc., a Delaware corporation, of
250 Grandview Drive, Suite 10, Ft. Mitchell, Kentucky 41017 (hereinafter
referred to as "Buyer") and James C. Penman (hereinafter collectively referred
to as "Seller").
RECITALS:
A. Seller is the owner of a certain Warrant dated April 10, 1992 to
purchase 11,000 shares of the common stock of Buyer for a purchase price of
approximately $8.73 per share (the "Warrant").
B. Under paragraph (i) of the Warrant, Buyer is obligated to register the
shares of common stock subject to the Warrant (the "Shares") if a written
request for such registration is received by holders of at least fifty percent
of the then outstanding Warrant Shares (as such term is defined in the Warrant)
after April 10, 1993 but prior to April 10, 1997.
C. Holders of more than fifty percent of the Warrant Shares have
requested Buyer to register the Shares subject to the Warrant and a dispute has
arisen between Buyer and Seller as to such registration and Seller may have
certain claims against Buyer arising from Buyer's failure to promptly register
the Shares.
D. The parties desire to settle any and all disputes between themselves
with regard to the Warrant and the failure of Buyer to register the Shares and
have agreed that Seller will convey the Warrant to Buyer and release any and all
claims Seller may have against Buyer in exchange for the payment by Buyer of
$66,000, on terms and conditions provided for herein.
NOW THEREFORE, in consideration of the premises and promises set forth
herein, the parties hereto, intending to be legally bound, agree as follows:
1. CONVEYANCE OF WARRANT. On or before March 29, 1996, Seller shall
convey, transfer and sell the Warrant to Buyer and deliver the original document
evidencing the Warrant to the Buyer's address set forth above. Upon the
consummation of the transactions comtemplated by this Agreement, Seller
surrenders to Buyer all rights and privileges arising under the Warrant.
2. CONSIDERATION. In consideration for the conveyance, transfer and sale
of the Warrant to Buyer by Seller and the mutual releases provided herein, Buyer
shall deliver to Seller the amount of $66,000 in the form of immediately
available funds.
3. CLOSING PROCEDURE. On or before March 29, 1996 (the "Closing Date"),
Seller shall deliver the Warrant to Buyer's counsel in Cincinnati, Ohio.
Immediately after such delivery Buyer shall deliver the consideration set forth
in Section 2 by wire transfer to a bank account number supplied to Buyer by
Seller.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby makes the
following representations and warranties to Buyer, which representations and
warranties shall survive the execution and delivery of this Agreement and the
closing and shall not be deemed to be affected by an investigation or
examination of the subject matter by Buyer:
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not require
any consent, authorization or approval of any person, entity or
government authority; or violates or constitutes a default under any
note, indenture, mortgage, deed of trust or other contract, agreement,
instrument or commitment of Seller.
(b) This Agreement constitutes the valid and binding obligation
of Seller, enforceable against it in accordance with its terms except
as such enforceability may be limited to applicable bankruptcy,
insolvency, reorganization or similar laws from time to time in effect
that affect creditor's rights generally and by legal and equitable
limitations on the availability of specific remedies.
(c) Seller acknowledges that it has been provided access to
Buyer's financial records and has had the opportunity to ask questions
of representatives of Buyer relative to the financial prospects of
Buyer and Buyer has responded to such questions to Seller's
satisfaction. Seller has knowledge and experience in financial and
business matters and is capable of evaluating the financial potential
of Buyer as it relates to the Warrant and the Shares and Seller
acknowledges that the value of the Warrant and Shares main increase
after the transactions contemplated by this Agreement.
(d) Seller is the sole owner of the Warrant, and has not
transferred or encumbered the Warrant in any way since its receipt by
Seller. The Warrant is free and clear of all adverse claims.
(e) Seller makes no representations or warranties to Buyer
regarding the value of the Warrant or the underlying Warrant shares.
5. REPRESENTATIONS OF BUYER: Buyer makes the following representations to
Seller, which representations shall survive the execution and delivery of this
Agreement and the closing and which representations shall not be deemed to be
affected by an investigation or examination of the subject matter thereof by
Seller:
(a) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not require
any consent, authorization or
2
<PAGE>
approval of any person, entity or government authority; or violates or
constitutes a default under any note, indenture, mortgage, deed of trust or
other contract, agreement, instrument or commitment of Buyer and has been
approved by the Board of Directors of Buyer.
(b) This Agreement constitutes the valid and binding obligation
of Buyer, enforceable against it in accordance with its terms except
as such enforceability may be limited to applicable bankruptcy,
insolvency, reorganization or similar laws from time to time in effect
that affect creditor's rights generally and by legal and equitable
limitations on the availability of specific remedies.
(c) There are no bona fide negotations or offers under
consideration between Buyer and any third parties relating to a
potential merger, acquisition, sale, or other transaction which would
result in a change of control of Buyer.
6. RELEASE BY SELLER. Seller, on his own behalf and on behalf of his
heirs, administrators, trustees, successors and assigns, hereby releases and
forever discharges, effective as of the Closing Date, Buyer and all of his
heirs, administrators, heirs, directors, officers, trustees, employees, agents,
successors and assigns, from any and all manner of actions, causes of action of
whatsoever kind or nature, suits, liabilities, claims, demands, damages, losses
and costs of any nature whatsoever, known or unknown, fixed or contingent, which
Seller, his heirs, administrators, trustees, successors and assigns now have,
may have or have ever had through the Closing Date by reason of any matter,
cause, claim, or thing whatsoever arising under the Warrant and any failure of
Buyer related thereto.
7. RELEASE BY BUYER. Buyer, on its own behalf and on behalf of its
administrators, trustees, successors and assigns, hereby releases and forever
discharges, effective as of the Closing Date, Seller and all of his
administrators, heirs, trustees, successors and assigns, from any and all manner
of actions, causes of action of whatsoever kind or nature, suits, liabilities,
claims, demands, damages, losses and costs of any nature whatsoever, known or
unknown, fixed or contingent, which Buyer, its administrators, trustees,
successors and assigns now have, may have or have ever had through the Closing
Date by reason of any matter, cause, claim, or thing whatsoever arising under
the Warrant and any failure of Seller related thereto.
8. CONTINGENCY TO BUYER'S OBLIGATIONS. Buyers' obligations under this
Agreement are conditioned upon Buyer entering into binding agreements with FIRST
OF MICHIGAN CORPORATION, DAN B. FRENCH, JR. AND JOHN C. DONNELLY to purchase
the warrants for Buyer's common stock owned by each of them on substantially the
same terms, except for the consideration to be paid, as those contained in this
Agreement and the consummation of such agreements in accordance with their
terms.
3
<PAGE>
9. MISCELLANEOUS.
(a) This Agreement and all questions relating to its validity,
interpretation, performance and enforcement, will be governed by and
construed in accordance with the internal laws of the State of Ohio.
(b) This Agreement, together with the instruments referred to
herein, contains the entire understanding between the parties hereto
with respect to the subject matter hereof, and supersedes all prior
agreements and understandings, inducements or conditions, express or
implied, oral or written, except as herein contained. This Agreement
will be binding upon and inure to the benefit of the parties and their
respective successors and assigns.
(c) This Agreement shall not be altered, amended or supplemented
except by written instruments. Any amendment or waiver so approved
shall be binding upon all parties hereto. Any waiver of any term,
covenant, agreement or condition contained in this Agreement shall not
be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any default in any such term, covenant or
condition shall not be deemed a waiver of any later default thereof or
of any default of any other term, covenant, agreement or condition.
(d) If any court or governmental authority or agency declares
any part of this Agreement to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any other
part of this Agreement.
(e) The paragraph headings in this Agreement are for convenience
only; they form no part of this Agreement and shall not affect its
interpretation. When used in this Agreement, the number and gender of
each pronoun shall be construed to mean such number and gender as the
context and circumstances may require.
(f) This Agreement may be executed in several counterparts, each
of which shall be deemed to constitute an original document and all of
which together shall be deemed to constitute on instrument.
(g) Each of the parties hereto agrees to execute all such other
documents and to perform such other acts as shall be necessary to
consummate the transactions contemplated by this Agreement.
(h) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors,
assigns, heirs and executors.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
BUYER:
POMEROY COMPUTER RESOURCES, INC.
By: \s\ Edwin S. Weinstein
-----------------------------------
Title: Sec'y, Treas
--------------------------------
SELLER:
By: \s\ James C. Penman
-----------------------------------
James C. Penman
5
<PAGE>
EXHIBIT 10.96
AGREEMENT
THIS AGREEMENT is dated as of April 29, 1996, by and between DAVID B. POMEROY
("D. Pomeroy") POMEROY COMPUTER RESOURCES, INC., a Delaware corporation ("PCR").
WITNESSETH:
WHEREAS, PCR has entered into a Settlement Agreement of even date with Vanstar
Cor-corporation, et al.;
WHEREAS, incident to such Settlement Agreement, PCR is indebted to Vanstar
Corporation in the amount of $1,650,000.00 under the terms of a Promissory Note
of even date. Such note is due and payable within 120 days of the execution of
such note;
WHEREAS, to facilitate such Settlement Agreement between PCR and Vanstar
Corporation, D. Pomeroy has agreed to pledge 100,000 shares of the common stock
of PCR owned by D. Pomeroy;
WHEREAS, PCR has agreed to indemnify D. Pomeroy in the event D. Pomeroy would
incur any loss incident to the pledging of such stock as security for PCR's
obligation to Vanstar Corporation;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreement hereinafter set forth, the parties hereto agree as follows:
1. In consideration of D. Pomeroy pledging 100,000 shares of the common stock
of PCR to Vanstar Corporation, PCR hereby agrees to indemnify and hold
harmless D. Pomeroy, his successors, heirs and assigns, from any loss,
including reasonable attorney's fees incurred by D. Pomeroy, as a result of
D. Pomeroy's pledging of 100,000 shares of PCR's stock to Vanstar
Corporation.
2. This Agreement shall binding upon the successors, heirs and assigns of the
parties hereto.
IN WITNESS WHEREOF, that the parties hereto have executed this Agreement as of
the date first set forth above.
DAVID B. POMEROY
/s/ David B. Pomeroy
--------------------------------------
POMEROY COMPUTER RESOURCES, INC.
<PAGE>
By: \s\ Edwin S. Weinstein
-----------------------------------
Edwin S. Weinstein, Chief Financial
Officer
<PAGE>
EXHIBIT 23.1
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 6, 1996, accompanying the financial
statements and schedules of Pomeroy Computer Resources, Inc. contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned reports in the Registration Statement and Prospectus, and to
the use of our name as it appears under the caption "Experts".
GRANT THORNTON LLP
\s\ Grant Thornton LLP
Cincinnati, Ohio
May 30, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Pomeroy Computer
Resources, Inc. on Form S-1 of our report dated March 24, 1994, with respect to
the financial statements of Pomeroy Computer Resources, Inc. for the year ended
January 5, 1994, appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
\s\ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
May 30, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Pomeroy Computer
Resources, Inc. on Form S-1 of our report dated February 26, 1996, with respect
to the financial statements of The Computer Supply Store, Inc., for the year
ended December 31, 1995, appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
\s\ Deloitte & Touche LLP
Deloitte & Touche LLP
Des Moines, Iowa
May 30, 1996
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-1) and related Prospectus of Pomeroy Computer
Resources, Inc. for the registration of shares of common stock and to the
incorporation therein of our report dated February 21, 1995, with respect to the
financial statements of The Computer Supply Store, Inc., for the year ended
December 31, 1994.
\s\ Northup, Haines, Kaduce, Schmid, Macklin, P.C.
Northup, Haines, Kaduce, Schmid, Macklin, P.C.
West Des Moines, Iowa
May 30, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-05-1997
<PERIOD-START> JAN-06-1996
<PERIOD-END> APR-05-1996
<CASH> 1,098,882
<SECURITIES> 0
<RECEIVABLES> 44,931,661
<ALLOWANCES> 243,241
<INVENTORY> 18,684,588
<CURRENT-ASSETS> 65,243,748
<PP&E> 9,845,988
<DEPRECIATION> 3,260,724
<TOTAL-ASSETS> 82,403,041
<CURRENT-LIABILITIES> 60,577,545
<BONDS> 0
0
0
<COMMON> 27,460
<OTHER-SE> 18,923,017
<TOTAL-LIABILITY-AND-EQUITY> 82,403,041
<SALES> 62,729,477
<TOTAL-REVENUES> 63,224,091
<CGS> 53,623,778
<TOTAL-COSTS> 53,623,778
<OTHER-EXPENSES> 4,392,102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 435,039
<INCOME-PRETAX> (2,276,992)
<INCOME-TAX> (922,000)
<INCOME-CONTINUING> (1,354,992)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,354,992)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
