<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 3, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
POMEROY COMPUTER RESOURCES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 31-1227808
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) Number)
</TABLE>
1020 PETERSBURG ROAD
HEBRON, KENTUCKY 41048
(606) 586-0600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
DAVID B. POMEROY, II
Chairman of the Board, President and Chief Executive Officer
Pomeroy Computer Resources, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
(606) 586-0600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
WILLIAM G. KOHLHEPP, ESQ. 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
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box [ ].
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,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box [ ].
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 PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share........... 1,265,000 shares $34.75 $43,958,750 $13,321
</TABLE>
(1) Includes 165,000 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.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
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>
SUBJECT TO COMPLETION, DATED JANUARY 3, 1997
PROSPECTUS
1,100,000 SHARES
QRSTUVWXY
COMMON STOCK
Of the 1,100,000 shares of $.01 par value common stock (the "Common Stock")
offered hereby, 1,020,000 shares are being sold by Pomeroy Computer Resources,
Inc. ("Pomeroy Computer Resources" or the "Company") and 80,000 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 January 2,
1997, the last reported sale price for the Common Stock on the Nasdaq National
Market was $34.75 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
----------------
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
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDER
<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 $600,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 165,000 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 and Proceeds to Company 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 , 1997.
------------------
<TABLE>
<S> <C>
[LOGO] [LOGO]
</TABLE>
, 1997
<PAGE>
1. Photo of technicians in configuration room performing configuration and
packaging activity.
- -- Text below photo: "Configuration Services"
2. Picture of man sitting in front of a computer and monitor and another man
leaning over the computer.
- -- Text above photo: "On-site Services"
3. Photo of three people facing computers and monitors, with one leading
discussion.
- -- Text beside photo: "User Support Services"
4. Photo of a man working with computer cables.
- -- Text above photo: "Local & Wide Area Network Design, Integration and Support"
5. Photo of two men standing facing a projection screen with an Internet page
displayed.
- -- Text below photo: "Internet & Electronic Commerce 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 ON THE NASDAQ NATIONAL MARKET, 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 OR INCORPORATED BY REFERENCE HEREIN. PROSPECTIVE
INVESTORS SHOULD ALSO REVIEW CAREFULLY THE INFORMATION SET FORTH UNDER "RISK
FACTORS." UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I)
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND (II) HAS BEEN
ADJUSTED TO REFLECT A THREE-FOR-TWO SPLIT OF COMMON STOCK IN THE FORM OF A STOCK
DIVIDEND EFFECTED ON OCTOBER 4, 1996, AND A 10% STOCK DIVIDEND EFFECTED ON MAY
22, 1995. 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") is one of the ten largest network value-added resellers in the United
States, as calculated by Network VAR Magazine based on 1995 local area
networking revenues. As such, the Company offers a broad range of microcomputers
and related products and provides a comprehensive selection of integration and
support services including network and system design, equipment selection,
procurement, complex network configuration, integration, Internet and electronic
commerce services, depot repair, on-site maintenance, staffing and network
management. The Company provides its products and services to a wide variety of
commercial, health care, governmental, financial and educational customers. The
Company's operating strategy is to provide its customers with cost-efficient
comprehensive solutions that satisfy their information technology requirements.
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 value-added services.
The Company offers microcomputer products from an array of manufacturers
including Compaq, Hewlett-Packard, IBM, Lexmark 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, headquartered in northern Kentucky near Cincinnati, Ohio,
services and supports its customers through its 204 direct sales and sales
support representatives located in 15 regional offices in Kentucky, Iowa,
Tennessee, Florida, Alabama, Indiana, North Carolina and South Carolina. Pomeroy
Computer Resources has more than 12,000 customers, the largest of which include
Barnett Bank, Columbia/HCA, Commonwealth of Kentucky, GE, Principal Insurance
and Providian. As of October 5, 1996, the Company had approximately 3,300
service contracts in effect (one customer may have multiple contracts) and
employed approximately 451 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 (such as Windows 95 and Windows NT); the reduced price and
increased power of PCs; the increasing usage of intranets, the Internet and the
World Wide Web; 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 information technology
requirements.
3
<PAGE>
ACQUISITIONS
Acquisitions have contributed significantly to the Company's growth. The
Company believes that acquisitions are one method of increasing its presence in
existing markets, expanding into new geographic markets, adding experienced
service personnel, gaining new product offerings and services, obtaining more
competitive pricing as a result of increased purchasing volumes of particular
products and improving operating efficiencies through economies of scale. In
recent years, there has been consolidation among providers of microcomputer
products and services and the Company believes that this consolidation will
continue, which, in turn, may present additional opportunities for the Company
to grow through acquisitions.
The following table provides a summary of the Company's acquisitions since
its initial public offering in April 1992.
<TABLE>
<CAPTION>
Name of Acquired Company Location(s) Date Acquired
- ----------------------------------------------------- ------------------ --------------
<S> <C> <C>
C&N Corp............................................. Knoxville, TN December 1992
Jacksonville, FL
The Computer Store of Kentucky....................... Louisville, KY July 1993
d/b/a Connecting Point
Xenas Communications Corp............................ Cincinnati, OH November 1994
d/b/a Envision
Cabling Unlimited, Inc............................... Indianapolis, IN October 1995
The Computer Supply Store, Inc....................... Des Moines, IA March 1996
AA Microsystems, Inc................................. Birmingham, AL August 1996
Communications Technology, Inc. ..................... Hickory, NC October 1996
d/b/a DILAN Charlotte, NC
Raleigh, NC
Winston-Salem, NC
Greenville, SC
</TABLE>
The Company is currently engaged in preliminary discussions with potential
acquisition candidates. Although it has no binding commitments to acquire such
candidates, management believes that the Company may acquire one or more of
these candidates in the future. See "Risk Factors--Rapid Growth" and
"Business--Acquisitions."
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company............................... 1,020,000 shares
Common Stock offered by the Selling Stockholder................... 80,000 shares
Common Stock to be outstanding after the offering................. 7,488,518 shares (1)
Use of proceeds................................................... Reduce indebtedness; general business
purposes and acquisitions. See "Use of
Proceeds."
Nasdaq National Market symbol..................................... PMRY
</TABLE>
- ------------------
(1) Excludes 291,975 shares subject to outstanding options at December 27, 1996
at a weighted average exercise price of $7.27 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) NINE MONTHS ENDED OCTOBER 5,
---------------------------------------------- ------------------------------------
1995 1996
---------------------- ------------------------
PRO FORMA PRO FORMA
1993 1994 ACTUAL (2) 1995 ACTUAL (2)(3)
---------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales and revenues................ $ 112,178 $ 144,575 $ 230,710 $ 291,209 $ 171,458 $ 234,035 $ 245,852
Gross profit.......................... 18,027 23,674 33,536 41,531 24,399 37,113 38,588
Income from operations................ 4,053 5,557 9,285 10,735 6,595 11,097 11,538
Net income............................ 1,900 2,727 4,367 4,794 3,048 3,117 3,371
Net income per share
(fully diluted)...................... $ 0.52 $ 0.75 $ 1.08 $ 1.14 $ 0.76 $ 0.61 $ 0.65
Weighted average shares outstanding
(fully diluted) (4).................. 3,651 3,644 4,044 4,194 4,019 5,086 5,236
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 5, 1996
--------------------------
AS ADJUSTED
ACTUAL (5)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................................... $ 26,675 $ 59,482
Total assets......................................................................... 108,081 124,307
Total debt (6)....................................................................... 18,711 2,130
Stockholders' equity................................................................. 42,697 75,504
</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
and Operating Data" and "Business--Acquisitions."
(3) The first nine months of 1996 actual and pro forma results reflect the
Vanstar litigation settlement and related costs of $4,392. Without this
charge, net income and fully diluted net income per share for the first nine
months of 1996, actual and pro forma, would have been $5,730 and $1.13, and
$5,984 and $1.15, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(4) Reflects a 10% stock dividend effected on May 22, 1995 and a three-for-two
stock split effected as a stock dividend on October 4, 1996.
(5) Adjusted to reflect the sale by the Company of 1,020,000 shares of Common
Stock offered hereby at an assumed offering price of $34.75 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
(6) Total debt excludes floor plan financing, which is classified as accounts
payable. See Note 6 of the Notes to Consolidated Financial Statements.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the captions "Prospectus Summary,"
"Risk Factors," "Selected Pro Forma Consolidated Financial and Operating Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this Prospectus and in documents
incorporated herein by reference may constitute forward-looking statements for
purposes of the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements. Important factors that could cause the actual results, performance
or achievements of the Company to differ materially from the Company's
expectations are disclosed in this Prospectus and in documents incorporated
herein by reference ("Cautionary Statements"), including, without limitation,
those statements made in conjunction with the forward-looking statements
included under "Risk Factors" and otherwise herein. All written or oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by the Cautionary 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.
DEPENDENCE ON MAJOR CUSTOMERS
For fiscal years 1994 and 1995, and the first nine months of fiscal 1996,
approximately 44%, 42% and 41% of the Company's total net sales and revenues,
respectively, were derived from its top 10 customers and four of the Company's
top 10 customers were the same during each of those periods. Sales in those
periods to the single largest customer of each period comprised approximately
9%, 19%, and 13% of the Company's total net sales and revenues, 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."
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 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 discontinues
direct sales of its products to the Company, the Company would be required to
purchase the product from an aggregator or distributor. This could materially
and adversely affect the Company's ability to obtain products that are in great
demand or to obtain products at current costs. See "Business--Products."
RAPID GROWTH
The Company has experienced rapid growth both internally and 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. In 1996, the Company completed three acquisitions and continues to
evaluate expansion and acquisition opportunities that would complement its
ongoing operations. There can be no assurance that the Company will be able to
identify, acquire or profitably manage additional companies or successfully
integrate such additional companies into the Company without substantial costs,
delays or other problems. In addition, there can be no assurance that companies
acquired in the future will be profitable at the time of their acquisition or
will achieve levels of profitability that justify the investment therein.
Acquisitions may involve a number of special risks, including, but not limited
to, adverse short-term effects on the Company's reported operating results,
diversion of management's attention, dependence on retaining, hiring and
training key personnel, risks associated with unanticipated problems or legal
liabilities and amortization of acquired intangible assets, some or all of which
could have a material adverse effect on the Company's operations and financial
results. See "Business--Acquisitions" and "--Operating and Growth Strategy."
VENDOR REBATES AND VOLUME DISCOUNTS
The Company's profitability has been favorably affected by its ability to
obtain rebates and volume discounts from manufacturers and through aggregators
and distributors. Any change in the level of
6
<PAGE>
rebates, volume discount schedules or other marketing programs offered by
manufacturers that results in the reduction or elimination of rebates or
discounts currently received by the Company could have a material adverse effect
on the Company's operations and financial results. In particular, a reduction or
elimination of rebates related to government and educational customers could
adversely affect the Company's ability to serve those customers profitably. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General."
MANUFACTURER MARKET DEVELOPMENT FUNDS
Several manufacturers offer market development funds, cooperative
advertising and other promotional programs to computer resellers. These funds
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. The dollar amount of funds awarded to the Company for fiscal years
1994 and 1995, and the first nine months of fiscal 1996, represented 1.3%, 1.3%
and 0.9% of total net sales and revenues, respectively. The dollar amount of
these funds decreased during the first nine months of 1996 due to the Company's
purchasing patterns and other pricing concessions being granted by
manufacturers, aggregators and distributors in lieu of market development funds.
Any discontinuance or material reduction of these programs could have an adverse
effect on the Company's operations and financial results. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General."
MANAGEMENT INFORMATION SYSTEM
The Company relies upon the accuracy and proper utilization of its
management information system to provide timely distribution services, manage
its inventory and track its financial information. To manage its growth, the
Company is continually evaluating the adequacy of its existing systems and
procedures and has recently implemented a new, integrated management information
system and continues to integrate additional functions. The Company anticipates
that it will regularly need to make capital expenditures to upgrade and modify
its management information system, including software and hardware, as the
Company grows and the needs of its business change. There can be no assurance
that the Company will anticipate all of the demands which its expanding
operations will place on its management information system. The occurrence of a
significant system failure or the Company's failure to expand or successfully
implement its systems could have a material adverse effect on the Company's
operations and financial results. See "Business--Operations."
MARKET CONDITIONS; POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock has risen substantially since the
Company's public offering in June 1996. The Common Stock has experienced
substantial price volatility and such volatility may occur in the future,
particularly as a result of quarter to quarter variations in the actual or
anticipated financial results of the Company or other companies in its industry
or in the markets served by the Company. In addition, in recent years the stock
market has experienced extreme price and volume fluctuations. This volatility
has had a significant effect on the market prices of securities issued by many
companies for reasons unrelated to their operating performance. See "Price Range
of Common Stock."
DEPENDENCE ON 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 competitive labor
markets. 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 technical personnel in the future could have
7
<PAGE>
a material adverse effect on the Company's operations and financial results. See
"Business--Services" and "--Employees."
COMPETITION
The microcomputer market is highly competitive based on performance, quality
and price. The Company directly competes with local, regional, national and
international resellers and distributors and mail order providers of
microcomputer products and services, including but not limited to network
integrators and corporate divisions of superstores. While the Company's
competitors vary depending upon the particular market, some of the competitors
of the Company include CompuCom, Dataflex, Entex, InaCom, MicroAge, Sarcom and
Vanstar as to product sales and Andersen Consulting, EDS, ISSC, MicroAge,
Vanstar and XLConnect as to services. Also, the computer industry continues to
experience a significant amount of consolidation. 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, and 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."
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 1994 and 1995 and the first
nine months of fiscal 1996, collectively comprised approximately 74%, 68% and
58% respectively, of the Company's total sales of equipment and supplies. The
loss of a significant manufacturer's authorization or the deterioration of the
Company's relationship with a significant manufacturer could have a material
adverse effect on the Company's operations and financial results. There can be
no assurance that the Company will continue as an authorized reseller for any
manufacturer or that the current terms offered by any manufacturer, including
pricing terms, will not adversely change in the future. Substantially all of the
Company's agreements may be terminated by the manufacturer without cause upon 30
to 90 days' notice or immediately upon the occurrence of certain events. See
"Business--Products."
RAPID TECHNOLOGICAL CHANGE
The microcomputer products market is characterized by rapidly changing
technology and frequent introductions of new products and product enhancements.
The Company's continued success will depend on its ability to keep pace with
technological developments of new products and services and its ability to
fulfill increasingly sophisticated customer requirements. There can be no
assurance that the Company's current manufacturers, suppliers and technical
employees will be able to provide the products and support necessary to remain
competitive. In addition, there can be no assurance that the Company will be
able to obtain authorizations from new manufacturers or for new products that
gain market acceptance. If the
8
<PAGE>
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."
INVENTORY MANAGEMENT
The PC industry is characterized by rapid product improvement and
technological change resulting in relatively short product life cycles and rapid
product obsolescence. While most of the inventory stocked by the Company is for
specific customer orders, inventory devaluation or obsolescence could have a
material adverse effect on the Company's operations and financial results.
Current industry practice among manufacturers is to provide price protection
intended to reduce the risk of inventory devaluation, although such policies are
subject to change at any time and there can be no assurance that such price
protection will be available to the Company in the future. Also, the Company
currently has the option of returning inventory to certain manufacturers and
distributors, subject to certain limitations. The amount of inventory that can
be returned to manufacturers without a restocking fee varies under the Company's
agreements and such return policies may provide only limited protection against
excess inventory. There can be no assurance that new product developments will
not have a material adverse effect on the value of the Company's inventory or
that the Company will successfully manage its existing and future inventory. In
addition, the Company stocks parts inventory for its services business. Parts
inventory is more likely to experience a decrease in valuation as a result of
technological change and obsolescence and there are no price protection
practices offered by manufacturers with respect to parts. See
"Business--Operations."
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."
INDUSTRY CONDITIONS
The microcomputer industry has experienced volatility in recent years.
Although the current industry climate is generally favorable, in the past,
distributors and resellers in the industry have faced a number of adverse
business conditions, including pricing pressures, evolving distribution
channels, market consolidation and a decline in the rate of growth in sales of
microcomputers. In the past, these factors have caused a reduction in sales
growth and per unit revenue and a decline in gross profit margins for many
microcomputer resellers, including the Company. The recurrence of such adverse
business conditions could have a material adverse effect on the Company's
operations and financial results. See "Business--General" and "--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.
Acquisitions may also have a significant impact on quarterly results. 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.
9
<PAGE>
The Company's inability to obtain rebates, other favorable pricing terms, or
market development funds also could have a material adverse effect on the
Company's gross profit margins or operating profit margins. 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."
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 21.8% of
the outstanding Common Stock (approximately 21.3% if the Underwriters'
over-allotment option is exercised in full). As a result, Mr. Pomeroy will have
significant influence over the affairs of the Company. See "Principal and
Selling Stockholders."
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 stockholders 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.
10
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of 1,020,000 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
$32.8 million (approximately $38.2 million if the Underwriters' over-allotment
option is exercised in full). The Company currently intends to use a portion of
the proceeds to pay the entire outstanding indebtedness under the Company's
credit arrangements with Star Bank (the "Credit Facility"), which indebtedness
totalled $16.6 million at October 5, 1996. The Credit Facility carries a
variable interest rate based on (i) Star Bank's prime rate less an incentive
pricing spread (the "Incentive Pricing Spread") based on certain financial
ratios of the Company or (ii) LIBOR plus the Incentive Pricing Spread, at the
Company's election. The Incentive Pricing Spread is adjusted quarterly. The
Credit Facility 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, a total of
$3.3 million was borrowed in April and August 1996 to finance the settlement
payments to Vanstar and $5.4 million was borrowed in October 1996 to finance the
Company's acquisition of DILAN. See "Business--Acquisitions." The reduction in
indebtedness will increase the availability of bank credit for general business
purposes and possible future acquisitions.
The Company also intends to use certain of the net proceeds of this offering
for general business purposes. In addition, the Company may use a portion of the
proceeds of this offering for the acquisition of businesses, products, or
technologies of strategic importance to the Company. No portion of the proceeds
of this offering has been allocated to any specific acquisition, and the Company
has not 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 "Risk Factors--Rapid Growth" and
"Business--Operating and Growth Strategy." The Company will not receive any of
the proceeds from the sale of the 80,000 shares of Common Stock by the Selling
Stockholder. See "Principal and Selling Stockholders."
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at October
5, 1996 and as adjusted to give effect to the receipt of the net proceeds from
the sale of 1,020,000 shares of Common Stock offered by the Company hereby at an
assumed offering price of $34.75 per share. This table should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included herein.
<TABLE>
<CAPTION>
OCTOBER 5, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (1)....................................................................... $ 17,187 $ 606
Long-term debt............................................................................ 1,524 1,524
Stockholders' equity:
Preferred stock: 2,000,000 shares authorized; none issued............................... -- --
Common stock: 10,000,000 shares authorized: 6,397,346 shares issued and outstanding and
7,417,346 shares issued and outstanding, pro forma as adjusted (2).................... 64 74
Additional paid-in capital................................................................ 33,622 66,419
Retained earnings......................................................................... 9,215 9,215
Less treasury stock, at cost (20,900 shares at October 5, 1996)........................... (204) (204)
--------- -----------
Total stockholders' equity............................................................ 42,697 75,504
--------- -----------
Total capitalization (3).............................................................. $ 61,408 $ 77,634
--------- -----------
--------- -----------
</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 311,853 shares reserved for additional option grants under the
Company's stock option plans and excludes 363,147 shares subject to
outstanding options at October 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.
12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The following table sets forth, for the periods indicated, the high and low
sales price 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 effected on May 22, 1995 and a three-for-two stock split in
the form of a stock dividend effected on October 4, 1996.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1994
First Quarter............................................................. $ 8.33 $ 5.91
Second Quarter............................................................ 6.97 5.45
Third Quarter............................................................. 6.21 4.55
Fourth Quarter............................................................ 7.12 4.85
FISCAL 1995
First Quarter............................................................. $ 9.24 $ 5.61
Second Quarter............................................................ 12.67 7.88
Third Quarter............................................................. 13.83 10.50
Fourth Quarter............................................................ 12.33 7.50
FISCAL 1996
First Quarter............................................................. $ 10.50 $ 8.00
Second Quarter............................................................ 11.33 8.67
Third Quarter............................................................. 22.75 9.17
Fourth Quarter (through January 2, 1997).................................. 38.00 20.38
</TABLE>
On January 2, 1997, the last reported sales price of the Common Stock on the
Nasdaq National Market was $34.75. As of December 27, 1996, there were
approximately 215 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 Credit Facility prohibits the payment of
cash dividends.
13
<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 and for the nine months ended
October 5, 1996 derived from the Consolidated Financial Statements of the
Company. The selected consolidated financial information for the nine months
ended October 5, 1995 is derived from the unaudited financial statements of the
Company. In the opinion of management, the unaudited results of operations for
the nine months ended October 5, 1995 include all adjustments, consisting only
of normal recurring accruals necessary for a fair presentation of such
information. The results of operations for the nine months ended October 5, 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 or incorporated by reference
herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS (1) OCTOBER 5,
------------------------------------------------------- --------------------
1991 1992 (2) 1993 1994 (3) 1995 1995 1996 (4)
--------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales and revenues:
Equipment and supplies......................... $ 43,492 $ 53,752 $ 102,442 $ 130,270 $ 211,150 $ 157,418 $ 214,092
Services and other............................. 6,464 7,637 9,736 14,305 19,560 14,040 19,943
--------- ----------- --------- --------- --------- --------- ---------
Total net sales and revenues..................... 49,956 61,389 112,178 144,575 230,710 171,458 234,035
Cost of equipment and supplies................... 36,217 46,839 92,358 117,594 192,839 143,736 192,541
Cost of services and other....................... 1,371 1,337 1,793 3,307 4,335 3,324 4,381
--------- ----------- --------- --------- --------- --------- ---------
Total cost of sales and revenues............. 37,588 48,176 94,151 120,901 197,174 147,060 196,922
--------- ----------- --------- --------- --------- --------- ---------
Gross profit..................................... 12,368 13,213 18,027 23,674 33,536 24,398 37,113
Operating expenses:
Selling, general and administrative............ 8,653 9,225 12,969 17,231 23,247 17,130 24,313
Royalty expense................................ 1,485 1,732 605 -- -- -- --
Depreciation and amortization.................. 149 203 400 886 1,004 673 1,703
--------- ----------- --------- --------- --------- --------- ---------
Total operating expense...................... 10,287 11,160 13,974 18,117 24,251 17,803 26,016
--------- ----------- --------- --------- --------- --------- ---------
Income from operations........................... 2,081 2,053 4,053 5,557 9,285 6,595 11,097
Other expense (income):
Interest expense............................... 754 604 850 1,031 1,999 1,507 1,594
Litigation settlement and related costs........ -- -- -- -- -- -- 4,392
Miscellaneous.................................. 26 (54) (57) (57) (64) (34) (133)
--------- ----------- --------- --------- --------- --------- ---------
Total other expense.......................... 780 550 793 974 1,935 1,473 5,853
--------- ----------- --------- --------- --------- --------- ---------
Income from continuing operations before income
taxes (5)........................................ 1,301 1,503 3,260 4,583 7,350 5,122 5,244
Income tax expense................................. 40 523 1,360 1,856 2,983 2,074 2,127
--------- ----------- --------- --------- --------- --------- ---------
Net income from continuing operations.............. $ 1,261 $ 980 $ 1,900 $ 2,727 $ 4,367 $ 3,048 $ 3,117
--------- ----------- --------- --------- --------- --------- ---------
--------- ----------- --------- --------- --------- --------- ---------
Net income from continuing operations per share
(fully diluted) (6).............................. $ 0.57 $ 0.31 $ 0.52 $ 0.75 $ 1.08 $ 0.76 $ 0.61
--------- ----------- --------- --------- --------- --------- ---------
--------- ----------- --------- --------- --------- --------- ---------
Pro forma income from continuing operations
(7)............................................ $ 702 $ 917 $ 1,900 $ 2,727 $ 4,367 $ 3,048 $ 3,117
Pro forma net income (7)......................... 684 702 1,900 2,727 4,367 3,048 3,117
Pro forma net income per share
(fully diluted) (6)(7)......................... $ 0.31 $ 0.22 $ 0.52 $ 0.75 $ 1.08 $ 0.76 $ 0.61
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR END AS OF OCTOBER 5,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................ $ 301 $ 5,768 $ 6,522 $ 6,556 $ 10,340 $ 10,233 $ 26,675
Total assets................................... 18,852 26,813 34,086 57,061 63,985 72,895 108,081
Total debt (8)................................. 6,729 7,053 9,124 16,031 17,386 16,807 18,711
Stockholders' equity........................... 2,766 8,616 10,594 13,130 19,200 17,550 42,697
</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 12 of Notes
to Consolidated Financial Statements.
(5) The first nine months of 1996 reflect the Vanstar litigation settlement and
related costs of $4,392. Without this charge, net income would have been
$5,730 and fully diluted net income per share would have been $1.13 for the
first nine 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 three-for-two stock split in the form of a stock dividend
effective on October 4, 1996.
(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 Notes to Consolidated Financial Statements.
15
<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING 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 or incorporated by referenced herein, as
adjusted to give effect to the acquisition of TCSS. See "Business--
Acquisitions." 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 would actually have been
had the acquisition of TCSS in fact occurred on such date, 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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business-- Acquisitions," the Company's Consolidated Financial Statements and
the Notes thereto appearing elsewhere in this Prospectus or incorporated by
reference herein and the Pro Forma Consolidated Condensed Statement of Income.
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED
FINANCIAL AND OPERATING DATA
------------------------------
YEAR ENDED NINE MONTHS
JANUARY 5, ENDED OCTOBER
1996 5, 1996
-------------- --------------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net sales and revenues:
Equipment and supplies....................................................... $ 270,532 $ 225,669
Services and other........................................................... 20,677 20,183
-------------- --------------
Total net sales and revenues............................................... 291,209 245,852
Cost of equipment and supplies................................................. 245,068 202,836
Cost of services and other..................................................... 4,610 4,428
-------------- --------------
Total cost of sales and revenues........................................... 249,678 207,264
-------------- --------------
Gross profit................................................................... 41,531 38,588
Operating expenses:
Selling, general and administrative.......................................... 29,050 25,194
Depreciation and amortization................................................ 1,746 1,856
-------------- --------------
Total operating expenses................................................... 30,796 27,050
-------------- --------------
Income from operations......................................................... 10,735 11,538
Other expenses (income):
Interest expense............................................................. 2,724 1,609
Litigation settlement and related costs...................................... -- 4,392
Miscellaneous................................................................ (59) (131)
-------------- --------------
Total other expenses....................................................... 2,665 5,870
-------------- --------------
Income from continuing operations before income taxes............................ 8,070 5,668
Income tax expense............................................................... 3,276 2,297
-------------- --------------
Net income from continuing operations............................................ $ 4,794 $ 3,371(1)
-------------- --------------
-------------- --------------
Net income from continuing operations per share (fully diluted).................. $ 1.14 $ 0.65(1)
-------------- --------------
-------------- --------------
</TABLE>
- ------------------
(1) The first nine 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 $5,984 and pro forma fully diluted net
income per share would have been $1.15.
16
<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 $293.3 million for the twelve months ended
October 5, 1996 from $50.0 million in fiscal 1991, a compound annual growth rate
of 44.8%. During the same period, net income increased to $7.0 million
(excluding the impact of the Vanstar litigation settlement) from $1.3 million, a
compound annual growth rate of 43.4%. During the first nine months of 1996,
total net sales and revenues were $234.0 million, which represents an increase
of $62.6 million, or 36.5%, over total net sales and revenues from the same
period in 1995. During the first nine months of 1996, the Company had net income
of $3.1 million which represents an increase of $0.1 million from net income of
$3.0 million in the same period in 1995. Excluding the effect of the Vanstar
litigation settlement in 1996, net income would have been $5.7 million which
represents an increase of $2.7 million or 90.0% 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 1994 and 1995, and the first nine months of fiscal
1996, the gross profit margin on equipment and supplies sales was 9.7%, 8.7% and
10.1%, respectively, while the gross profit margin on service revenues was
76.9%, 77.8% and 78.0%, respectively.
In fiscal 1995 and 1994, total net sales and revenue growth benefited 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, Long John Silvers',
Providian, and Western-Southern. In the first nine months of fiscal 1996, there
was only one small roll-out project. However, in December 1996, the Company was
awarded two contracts which the Company estimates will result in approximately
$45 million of sales and revenues over the immediately following 18-month
period.
Another major component of revenue growth has been the opening of new
branches by either internal expansion or acquisition. In fiscal 1994, the
Company opened two new branches, accounting for $5.5 million, $50.6 million and
$60.8 million of net sales and revenues in fiscal 1994 and 1995 and the first
nine months of 1996, respectively. In fiscal 1994 and 1995, the Company made two
acquisitions which contributed $0.3 million, $2.1 million and $2.8 million to
total net sales and revenues for the same periods since their dates of
acquisition. In the first nine months of 1996, the Company acquired two
companies, TCSS, a computer reseller based in Des Moines, Iowa (1995 total
revenue of $60.5 million) and AA Microsystems, Inc., a network systems
integrator in Birmingham, Alabama (1995 total revenue of $2.9 million).
Combined, these two acquisitions contributed $47.2 million to the Company's
total net sales and revenues for the first nine months of 1996. On October 11,
1996, the Company acquired DILAN, a network integrator based in Hickory, North
Carolina (fiscal year ended March 31, 1996 total revenue of $19.3 million). See
"Business--Acquisitions."
Gross profit margins can vary significantly on a quarterly basis and are
affected by a number of factors including: the timing of large roll-out
projects; increased competition; changes in pricing policies by the Company, its
competitors or manufacturers; manufacturers' rebate programs; the timing of new
product
17
<PAGE>
introductions by manufacturers; changes in the mix of revenues derived from the
sale of products as compared to service revenues and general economic
conditions. Manufacturers' 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 manufacturers are accounted for as a reduction in the cost of goods sold.
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.
RESULTS OF OPERATIONS
The following table presents, for the period indicated, the components of
the Company's statement of income as a percentage of total net sales and
revenues.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS OCTOBER 5,
------------------------ ------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales and revenues:
Equipment and supplies............................................. 90.1% 91.5% 91.8% 91.5%
Services and other................................................. 9.9 8.5 8.2 8.5
----- ----- ----- -----
Total net sales and revenues..................................... 100.0 100.0 100.0 100.0
Cost of equipment and supplies....................................... 81.3 83.6 83.9 82.3
Cost of services and other........................................... 2.3 1.9 1.9 1.8
----- ----- ----- -----
Total cost of sales and revenues................................. 83.6 85.5 85.8 84.1
----- ----- ----- -----
Gross profit......................................................... 16.4 14.5 14.2 15.9
Operating expenses:
Selling, general and administrative................................ 11.9 10.1 10.0 10.4
Depreciation and amortization...................................... 0.6 0.4 0.4 0.7
----- ----- ----- -----
Total operating expenses......................................... 12.5 10.5 10.4 11.1
----- ----- ----- -----
Income from operations............................................... 3.9 4.0 3.8 4.8
Other expense:
Interest expense................................................... 0.7 0.8 0.8 0.7
Litigation settlement and related costs............................ -- -- -- 1.9
----- ----- ----- -----
Total other expense.............................................. 0.7 0.8 0.8 2.6
----- ----- ----- -----
Income before income taxes............................................. 3.2 3.2 3.0 2.2
Income tax expense..................................................... 1.3 1.3 1.2 0.9
----- ----- ----- -----
Net income............................................................. 1.9% 1.9% 1.8% 1.3%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
18
<PAGE>
NINE MONTHS ENDED OCTOBER 5, 1996 COMPARED TO NINE MONTHS ENDED OCTOBER 5, 1995
TOTAL NET SALES AND REVENUES. Total net sales and revenues increased $62.6
million, or 36.5%, to $234.0 million in the first nine months of 1996 from
$171.5 million in the first nine months of 1995. This increase was attributable
to the acquisition of TCSS and increased sales to existing and new customers.
After eliminating (i) fiscal 1995 revenues relating to the Kingsport, Tennessee
branch which was closed in September 1995, and P&G, which ceased to purchase
products and services from the Company in September 1995, and (ii) fiscal 1996
revenues from the acquisition of TCSS which was acquired in March 1996, total
net sales and revenues increased 25.2%. Sales of equipment and supplies
increased $56.7, million or 36.0%, to $214.1 million in the first nine months of
1996 from $157.4 million in the first nine months of 1995. After elimination of
the revenues described above, sales of equipment and supplies increased 22.9%.
Service revenues increased $5.9 million, or 42.1%, to $19.9 million in the first
nine months of 1996 from $14.0 million in the first nine months of 1995. After
elimination of the revenues described above, service revenues increased 50.2%.
GROSS PROFIT. Gross profit margin was 15.9% in the first nine months of
1996 compared to 14.2% in the first nine months of 1995. This increase was
primarily attributable to a lesser number of lower margin, high volume equipment
roll-outs, larger vendor rebates and the increase in the margin for service
revenues. Provided there are no changes in rebate programs, the level of vendor
rebates is expected to continue into the fourth quarter as volume purchases with
major manufacturers continue to increase.
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 10.4% in the first nine
months of 1996 from 10.0% in the first nine months of 1995. This increase is
primarily attributable to the addition of technical personnel as a result of the
growth of the Company's service business. As the personnel reach full
productivity, their costs as a percentage of services revenues should decrease.
In addition, market development funds, which reduce selling, general and
administrative expenses, have declined during the first nine months of 1996 as a
percentage of total net sales and revenues primarily as a result of vendors
shifting funds to rebates. Total operating expenses expressed as a percentage of
total net sales and revenues increased to 11.1% in the first nine months of 1996
from 10.4% in the first nine months of 1995, due to the reduction of market
development funds and the increase in depreciation related to the new
headquarters and distribution facilities and amortization of goodwill related to
the acquisition of TCSS.
INCOME FROM OPERATIONS. Income from operations increased $4.5 million, or
68.3%, to $11.1 million in the first nine months of 1996 from $6.6 million in
the first nine months of 1995. The Company's operating margin increased to 4.8%
in the first nine months of 1996 from 3.9% in the first nine months of 1995
because the increase in gross margin more than offset the increase in operating
expenses as a percentage of net sales and revenues.
INTEREST EXPENSE. Interest expense was $1.6 million in the first nine
months of 1996 compared to $1.5 million in the first nine months of 1995.
INCOME TAXES. The Company's effective tax rate was 40.6% in the first nine
months of 1996 compared to 40.5% in the first nine months 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 which was paid on August 27, 1996. The
settlement agreement also provided for mutual forgiveness of any and all claims
or obligations of the parties, resulting in a write-off of $0.5 million of
receivables from Vanstar and additional expenses of $0.5 million for costs
related to the litigation.
19
<PAGE>
NET INCOME. Net income increased $0.1 million, or 2.3%, to $3.1 million in
the first nine months of 1996 from $3.0 million in the first nine months of 1995
due to the factors described above. Excluding the impact of the Vanstar
settlement, net income in the first nine months of 1996 would have been $5.7
million, an increase of 90.0% over the comparable period in 1995.
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
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. Services revenues 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 proposition 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 to $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
20
<PAGE>
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 1994. 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 60.1%, to $4.3 million in
fiscal 1995 from $2.7 million in fiscal 1994. The increase was a result of the
factors described above.
QUARTERLY RESULTS
The following table presents unaudited consolidated quarterly operating data
for each of the Company's last 11 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 or incorporated by reference herein.
<TABLE>
<CAPTION>
1994 1995
-------------------------------------------------- --------------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND MARGIN DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales and revenues..... $ 28,013 $ 30,566 $ 41,905 $ 44,101 $ 47,990 $ 58,487 $ 64,982 $ 59,252
Gross profit............... 4,587 5,492 6,033 7,562 7,753 7,882 8,765 9,137
Income from operations..... 897 1,281 1,403 1,976 1,988 2,277 2,332 2,688
Net income................. 422 634 716 955 906 1,055 1,088 1,319
Earnings per share
(fully diluted).......... $ 0.12 $ 0.18 $ 0.20 $ 0.26 $ 0.24 $ 0.27 $ 0.26 $ 0.32
Gross profit margin........ 16.4% 18.0% 14.4% 17.1% 16.2% 13.5% 13.5% 15.4%
Operating profit margin.... 3.2 4.2 3.3 4.5 4.1 3.9 3.6 4.5
Net income margin.......... 1.5 2.1 1.7 2.2 1.9 1.8 1.7 2.2
<CAPTION>
1996
-------------------------------------
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
----------- ----------- -----------
<S> <C> <C> <C>
Net sales and revenues..... $ 63,224 $ 77,836 $ 92,975
Gross profit............... 9,600 12,846 14,667
Income from operations..... 2,457 3,749 4,891
Net income................. (1,355) 1,853 2,619
Earnings per share
(fully diluted).......... $ (0.33) $ 0.43 $ 0.40
Gross profit margin........ 15.2% 16.5% 15.8%
Operating profit margin.... 3.9 4.8 5.3
Net income margin.......... (2.1) 2.4 2.8
</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 product roll-out
projects since the gross profit margins on the sales of products 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. Acquisitions may
also have a significant impact on quarterly results. 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 used in operating activities was $5.5 million in the first nine months
of 1996. Cash used in investing activities included $4.5 million for
acquisitions and $2.8 million for capital expenditures. Cash provided by
financing activities included $17.9 million of net proceeds from the issuance of
1.4 million shares of Common Stock in July 1996 and $1.3 million from the
exercise of stock options less $1.1 million of repayments on bank notes payable,
$2.3 million of repayments on various notes payable and $0.3 million for the
redemption of warrants.
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<PAGE>
Cash used in operating activities was $0.4 million in fiscal 1995. Cash used
in investing activities included $1.5 million for capital expenditures including
furniture, office equipment, leasehold improvements and 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 is financed by floor plan
arrangements with third parties. At October 5, 1996, these lines of credit
totaled $37.0 million, including $12.0 million with ICC and $25.0 million with
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.
Financing on many of the arrangements which are subsidized by manufacturers is
interest free. The average rate on the plans overall is less than 2.1%. The
Company classifies amounts outstanding under the floor plan arrangements as
accounts payable.
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
or an amount based upon a formula of eligible trade receivables. The Credit
Facility carries a variable interest rate based on (i) Star Bank's prime rate
less the Incentive Pricing Spread or (ii) LIBOR plus the Incentive Pricing
Spread, at the Company's election. The Incentive Pricing Spread is adjusted
quarterly. At October 5, 1996, the amount outstanding was $16.6 million and the
interest rate charged was 7.5%. The 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 believes that the net proceeds of this offering, together with
the anticipated cash flow from operations and current financing arrangements,
will be sufficient to satisfy the Company's capital requirements for the next 12
months.
22
<PAGE>
BUSINESS
GENERAL
Pomeroy Computer Resources is one of the ten largest network value-added
resellers in the United States, as calculated by Network VAR Magazine based on
1995 local area networking revenues. As such, the Company offers a broad range
of microcomputers and related products and provides a comprehensive selection of
integration and support services including network and system design, equipment
selection and procurement, complex network configuration, integration, Internet
and electronic commerce services, depot repair, on-site maintenance, staffing
and network management. The Company provides products and services to a wide
variety of commercial, health care, governmental, financial and educational
customers. The Company's operating strategy is to provide its customers with
cost-efficient comprehensive solutions that satisfy their information technology
requirements. 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 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 is a Delaware corporation with its principal executive office
located at 1020 Petersburg Road, Hebron, KY 41048; its telephone number is (606)
586-0600. The Company maintains a web site which may be found at http:/
/www.pomeroy.com. The information contained in the Company's web site is not a
part of this Prospectus.
INDUSTRY TRENDS
In recent years, the ease of use and relatively low cost of PCs in
conjunction with the development of personal productivity software and the
emergence of increased usage of intranets, the Internet and the World Wide Web
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 design 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 queuing for multiple "client" PCs on the LAN. 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
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<PAGE>
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 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 technology requirements. 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) allow sales people access to up-to-date product
availability and pricing information and (iii) tightly control inventory and
accounts receivable.
PROVIDE COMPLEMENTARY PROFESSIONAL SERVICES. In addition to cost and
selection, customers demand a full range of professional computer services from
a single source. The Company seeks to form broad-based relationships with its
customers by providing a comprehensive range of services that allows a customer
to outsource 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
November 21, 1996, the Company employed approximately 451 service and technical
personnel.
PURSUE ACQUISITION AND EXPANSION OPPORTUNITIES. Acquisitions have
contributed significantly to the Company's growth. The Company believes that
acquisitions are one method of increasing its presence in existing markets,
expanding into new geographic markets, adding experienced service personnel,
gaining new product offerings and services, obtaining more competitive pricing
as a result of increased purchasing volumes of particular products and improving
operating efficiencies through economies of scale. In recent years, there has
been consolidation among providers of microcomputer products and services and
the Company believes that this consolidation will continue, which, in turn, may
present additional opportunities for the Company to grow through acquisitions.
24
<PAGE>
ACQUISITIONS
The following table provides a summary of the acquisitions made by the
Company since its initial public offering in April 1992. A more detailed
description of the acquisitions follows the table.
<TABLE>
<CAPTION>
DATE STRATEGIC VALUE OF ACQUISITION TO THE
NAME OF ACQUIRED COMPANY ACQUIRED LOCATION(S) COMPANY
- ---------------------------------------- ----------- ------------------ ----------------------------------------
<S> <C> <C> <C>
C&N Corp. .............................. 12/92 Knoxville, TN * Expanded geographic markets
Jacksonville, FL *Expanded customer base
* Customer base allowed the Company to
provide incremental value-added
services
The Computer Store of Kentucky ......... 7/93 Louisville, KY * Increased market share in existing
d/b/a Connecting Point market
* Added experienced technical personnel
* Expanded customer base
Xenas Communications Corp. ............. 11/94 Cincinnati, OH * Added new products and services
d/b/a Envision (multi- media/video conferencing)
Cabling Unlimited, Inc. ................ 10/95 Indianapolis, IN * Enhanced services (cabling)
* Expanded geographic markets
* Added experienced technical and
operational personnel
The Computer Supply Store, Inc. ........ 3/96 Des Moines, IA * Expanded geographic markets
* Expanded customer base
* Customer base allowed the Company to
continue to provide incremental value-
added services
AA Microsystems, Inc. .................. 8/96 Birmingham, AL * Increased market share in existing
market
* Added experienced technical personnel
* Increased service offerings
Communications Technology, Inc. ........ 10/96 Hickory, NC * Added new services capabilities
d/b/a DILAN Charlotte, NC (Internet/ electronic commerce)
Raleigh, NC * Added experienced technical personnel,
Winston-Salem, NC in particular, WAN networking expertise
Greenville, SC * Expanded geographic markets
</TABLE>
C&N CORP. In December 1992, the Company acquired C&N Corp., a computer
reseller headquartered in Knoxville, Tennessee with a branch office in
Jacksonville, Florida. Through this acquisition, the Company expanded into the
Tennessee and Florida markets, expanded its customer base, and obtained the
opportunity to offer to C&N's customers value-added services to complement the
sale of products. Sales for these two branches have increased from $13.5 million
in fiscal 1993 to $29.3 million in fiscal 1995 and $34.9 million for the first
nine months of fiscal 1996.
CONNECTING POINT. In July 1993, the Company expanded its existing
Louisville branch office by acquiring certain assets of Connecting Point, a
major competitor of the Company in the Louisville market, and hiring 20
employees from Connecting Point. One of these employees currently serves as the
Company's Vice President of Operations.
XENAS. In November 1994, the Company acquired Xenas Communications Corp.,
based in Cincinnati, Ohio. Xenas is a provider of multimedia,
video-conferencing, audio visual, and presentation technologies, including
rental and staging services. Xenas is operated as the Envision division of the
Company and is currently located at the Company's headquarters facility in
Hebron, Kentucky. Sales for Xenas were $1.4 million in fiscal 1995 and $1.8
million for the first nine months of fiscal 1996; however, to date, the
operations of Xenas have not been profitable.
CABLING UNLIMITED. In October 1995, the Company acquired Cabling Unlimited,
a provider of communication cable installation services, located in
Indianapolis, Indiana. In addition to facilitating the
25
<PAGE>
Company's expansion into Indiana, this acquisition added technical personnel who
increased the Company's expertise in cabling installation services. Sales for
Cabling Unlimited were $0.7 million for fiscal 1995 and $1.0 million for the
first nine months of fiscal 1996.
TCSS. In March 1996, the Company acquired certain assets of TCSS, a
computer reseller based in Des Moines, Iowa, whose primary geographic market
area is central Iowa. The operations acquired from TCSS now constitute the
Company's Des Moines branch office. The Des Moines branch provides a broad range
of microcomputer products and related professional services to a variety of
business and other organizations. The purchase price consisted of approximately
$4.5 million in cash, $2.7 million in a subordinated note, the assumption of
certain liabilities and 150,000 unregistered shares of Common Stock. In
addition, the Company entered into 5-year employment agreements with key
employees of TCSS.
For its fiscal year ended December 31, 1995 and the first nine months of
fiscal 1996, TCSS had total revenues of $60.5 million and $58.0 million,
respectively. TCSS' service revenues have historically accounted for a smaller
percentage of total revenues (1.8% in 1995) than the percentage of service
revenues of the Company, thus affording the Company an opportunity to provide
additional value-added services to TCSS' customers. As of October 5, 1996, the
Des Moines branch had approximately 117 service contracts in effect. As of
October 5, 1996, the Des Moines branch had more than 4,800 customers, the
largest of which included Principal Insurance, Pioneer HiBred, Norwest Mortgage,
Iowa Medical Center and Blue Cross/Blue Shield of Iowa. As part of its growth
strategy, the Company recently opened a branch office in Cedar Rapids, Iowa and
intends to expand its presence to the entire state of Iowa.
AA MICROSYSTEMS, INC. In August 1996, the Company acquired certain assets
of AA Microsystems, Inc., a network service provider located in Birmingham,
Alabama. This acquisition enabled the Company to expand the operations of its
existing branch office in Birmingham and increase the number, and enhance the
expertise, of its technical and service personnel. The purchase price consisted
of $67,464 in cash, a $200,000 note payable, and 19,974 unregistered shares of
Common Stock. In addition, the Company has entered into a three year employment
contract with the former president. For its fiscal year ended December 31, 1995,
AA Microsystems, Inc. had total revenues of $2.9 million.
DILAN. In October 1996, the Company acquired certain assets of DILAN, a
network integrator headquartered in Hickory, North Carolina. Through this
acquisition, the Company expanded into the North Carolina and South Carolina
markets, added Internet and electronic commerce services capabilities and
enhanced its technical expertise, in particular WAN services and complex network
integration. Historically, DILAN's business focused on network integration
products and services with limited sales of microcomputers. The Company believes
there exists an opportunity to expand sales of desktop and laptop PCs and
related products to DILAN's current customer base as well as other companies in
DILAN's markets. The purchase price consisted of approximately $2.6 million in
cash, a $1.1 million subordinated note and the assumption of $5.5 million of
liabilities. The purchase price is subject to adjustment based on DILAN's
operating income for the fiscal year ending March 31, 1997.
The Company has entered into a three year employment agreement with one
employee and a one year employment agreement with another employee, both of whom
were key employees of DILAN. For its fiscal year ended March 31, 1996 and the
first six months of fiscal 1997, DILAN had total revenues of $19.3 million and
$10.8 million, respectively.
26
<PAGE>
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:
Apple
AST
Bay Networks
Canon
Cheyenne
Compaq
Epson
Genicom
Hayes
Hewlett-Packard
IBM
Intel
Lexmark
Lotus
Microsoft
NEC
Novell
Sco-Unix
3Com
Toshiba
For the fiscal years 1994 and 1995, and the first nine months of fiscal
1996, sales by the Company of products manufactured by Compaq, Hewlett-Packard
and IBM, accounted for approximately 74%, 68%, and 58% respectively, of the
Company's total sales of equipment and supplies. The total dollar volume of
products purchased directly from these manufacturers was $69.6 million, $69.4
million and $53.5 million for fiscal years 1994 and 1995, and the first nine
months of fiscal 1996, respectively, and as a percentage of total purchases was
54%, 35% and 28%, 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.
For the fiscal years 1994 and 1995, and the first nine months of fiscal
1996, inventories as a percentage of total assets were 30.4%, 29.7%, and 20.8%,
respectively. In general, most of the inventory stocked by the Company (other
than parts/service inventory) is for specific customer orders and, consequently,
these inventories do not remain at the Company for an extended period of time. A
significant part of the Company's inventories are financed by floor plan
arrangements with third parties. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SERVICES
The Company provides expertise in (i) selecting and evaluating new equipment
and technologies, (ii) technical and project management for implementation and
ongoing support, (iii) advanced network/ connectivity problem diagnosis and (iv)
training.
NETWORKING. The Company provides network design and consulting services
related to LANs and WANs. Technical expertise provided by the Company's system
engineers ("SEs") includes consultation regarding microcomputer communications
requirements, configuring proposed solutions, system integration, installation,
training and ongoing technical support of customers. Each of the markets served
by the Company has SEs available for technical support. Since 1993, the number
of the Company's SEs has increased from 19 to 100 to support the growth in this
aspect of the Company's business.
ON-SITE STAFFING AND OUTSOURCING. A growing part of the Company's business
is to provide on-site staffing services to commercial, health care, governmental
and educational customers. The Company's on-site staffing and outsourcing
capabilities include project management, hardware and facilities management,
network consulting, manufacturer negotiations and support and training. The
Company believes that the demand for on-site services is being driven, in part,
by the increasing complexity of microcomputer systems and networks. As of
November 21, 1996, approximately 11% of the Company's
27
<PAGE>
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/Blue Shield of Kentucky, Champion, Jergens, and Ohio
National Life.
HARDWARE MAINTENANCE AND MANAGEMENT. The Company offers customers on-site
repair and warranty service as well as centralized off-site repair service from
the Company's depot repair center. Hardware service agreements sold by the
Company generally have terms of one or more years and have various coverage
options ranging from all encompassing on-site coverage to less expensive, less
comprehensive programs. The Company also offers time and material service
coverage for those customers who do not purchase a service agreement.
At its depot repair center, the Company provides repairs including component
level repairs, upgrades, refurbishment and redeployment services that can
minimize computer-related downtime for customers who have geographically
dispersed field personnel. Customers may deliver their hardware to the Company's
depot repair center or arrange scheduled or as-required pickups for their
hardware. The depot repair center currently has the capability to process more
than 75,000 desktop and laptop PCs, monitors and printers annually. The Company
intends to relocate its depot repair center, currently located in the former
distribution center, to an expansion of the current distribution center which is
owned by Pomeroy Investments, LLC ("Pomeroy Investments"), a company controlled
by David B. Pomeroy, II, the Chairman of the Board, President and Chief
Executive Officer of the Company. The expansion of the existing distribution
center is expected to be completed in mid 1997. Pomeroy Investments will
purchase the additional land and will finance and own the improvements thereon.
The estimated cost of the land and improvements is $260,000 and $1.5 million,
respectively. The addition is expected to expand the Company's depot repair
center capacity. See "Certain Transactions."
The Company also offers warehousing for customers' products not currently in
use and hardware management services, which include asset tagging, identifying
and tracking inventory. In addition, the Company provides software support
agreements that typically provide for "blocks of time" during which the
Company's SEs may be called upon by customers for installation of additional
equipment, training and problem resolution. As of October 5, 1996, the Company
had approximately 3,300 service contracts in effect (one customer can have
multiple contracts).
INTERNET SERVICES. The Company offers Internet services and electronic
commerce applications which enable its customers to effectively use the World
Wide Web in their businesses. These services include firewall security services
and audits, graphic conversions, HTML markups, home page development and
maintenance, web site hosting, remote connection administration and turnkey
installations. The Company believes that the demand for this type of expertise
will increase as usage of the World Wide Web by businesses becomes more
prevalent.
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 204 person direct sales force and sales
support personnel located in 15 regional offices in Kentucky, Iowa, Tennessee,
Florida, Alabama, Indiana, North Carolina and South Carolina. The Company's
marketing representatives typically have college degrees and three or more years
of sales experience in the microcomputer and
28
<PAGE>
related services industry. Territory assignments are based on skill, experience,
and demonstrated sales results. Compensation programs for marketing
representatives include salary, commission and other incentive compensation
awards. Commissions are based on volume, gross profit, service content and
strategic importance of the sale. The Company provides additional incentives in
the form of contests to encourage the representatives to sell various products.
The Company currently has more than 12,000 customers. In fiscal 1995, sales
to Columbia/HCA accounted for 19% of total net sales and revenues. In the first
nine months of 1996, the largest customers of Pomeroy Computer Resources
included:
Alliant
Bank of Mississippi
Barnett Bank
Champion
Columbia/HCA
Commonwealth of Kentucky
Iowa Medical Center
Kroger
Milacron
Norwest Mortgage
Physician Sales
Pioneer HiBred
Principal Insurance
Providian
Square D
Star Bank
State of Tennessee
Toyota
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 may include
support capabilities such as project management, product scheduling, central
receiving, software loading and testing, coordination of shipments to multiple
sites and overall quality control. Roll-out projects, which frequently utilize
highly complex and sophisticated hardware and software configurations, are often
accompanied by other services offered by the Company.
The Company has a return policy for customers which generally allows
customers to return hardware and unopened software, without restocking charges,
within 30 days of the original invoice date subject to advance approval and
certain other conditions.
The Company grants credit to certain well-established customers that 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."
29
<PAGE>
OPERATIONS
The Company's business is operated through its headquarters facility and
distribution center located in Hebron, Kentucky and 15 regional offices located
in eight states. Most of its inventory is maintained at the distribution center
although small amounts of inventory, including parts, are located at some branch
offices. The Company also coordinates purchasing on a centralized basis. Rebate,
payment, discount and volume purchase programs are negotiated directly by the
Company with its major vendors.
The Company believes that one of the key elements of its strategy is its
commitment to provide prompt response and service to its customers including
accurate and complete order fulfillment and reliable and consistent deliveries
of its products and services. The Company has implemented a national sales/order
desk to service customers who order large volumes of standardized products. Each
participating customer is given a unique toll-free telephone number and may
place orders directly through the order desk. The Company expects to expand the
availability of this system in the future.
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 and provides timely data transmission to and from major
customers and suppliers in order for the Company to manage its inventory,
receivables and collections. Through ASTEA, a comprehensive management
information system, the Company is able to control and monitor inventory levels,
perform invoicing and order entry and establish delivery routes and schedules.
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 ASTEA in July 1994. As of December 5,
1996, ASTEA was fully implemented except for the management of inventory of one
customer of the Des Moines branch and the DILAN acquisition which are expected
to be complete by April 1997. This new system tracks all products shipped into
and out of the Company and allows all branches to obtain up-to-date information
about product pricing and availability. In particular, the system is intended to
allow the Company to increase sales volume without increasing the number of
employees needed to manage the inventory to support the increase in sales. Based
in part on the uniform implementation of ASTEA throughout the Company and its
branches, the Company intends to apply for ISO certification in the first
quarter of 1997.
The Company is in the process of integrating a warehouse management system
into its management information system. The purpose of this system is to better
manage inventory while it is located in the Company's facilities by optimizing
the positioning of inventory in the warehouse and the utilization of personnel
in the handling of the inventory. The Company anticipates that it will
continually need to refine and modify its management information system as the
Company grows and the needs of its business change.
The Company has also established EDI trading partnerships with a number of
its major suppliers and key customers. When fully utilized, EDI allows the
Company to electronically 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.
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 Company has been using ILC as its principal leasing company. Pursuant to
a Remarketing and Agency Agreement (the "Agency Agreement") with ILC, the
Company obtains rights to 50% of the proceeds from the release 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
30
<PAGE>
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 1994
and 1995, and the first nine months of fiscal 1996, the Company sold equipment
and related support services to ILC, for lease to ILC's customers, in the
amounts of $4.2 million, $23.7 million and $6.1 million, respectively. The term
of the Agency Agreement expires in May 1997. In addition, Provident Bancorp, a
bank holding company based in Cincinnati, Ohio, acquired ILC in December 1996.
In the event the Agency Agreement is not renewed, the Company believes that
alternative leasing options are available.
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, national and
international distributors and resellers such as CompuCom, Dataflex, Entex,
InaCom, MicroAge, Sarcom and Vanstar. In addition, the Company competes with
microcomputer manufacturers that sell their product 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 Andersen Consulting, EDS, ISSC, MicroAge, Vanstar and
XLConnect, among others. See "Risk Factors--Competition."
EMPLOYEES
As of November 21, 1996, the Company had 899 full-time employees consisting
of the following: 451 service and technical personnel including 100 systems
engineers; 111 direct sales representatives and 93 sales support personnel; 53
management personnel; and 191 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 trade names for marketing
purposes. The Company considers the use of these trademarks and trade names in
its marketing efforts to be important to its business.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to each
person who is a director, a person to become a director or executive officer of
the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ----------------------------------------------------------------
<S> <C> <C>
David B. Pomeroy, II (1)(2)............... 47 Chairman of the Board, President and Chief Executive Officer
Edwin S. Weinstein........................ 50 Director, Chief Financial Officer, Treasurer and Secretary
Richard C. Mills.......................... 41 Vice President of Operations
Carol Teufel Weinstein.................... 44 Vice President of Finance and Administration
James C. Eck.............................. 48 Vice President of Sales and Services
Stephen E. Pomeroy........................ 27 Vice President of Marketing and Corporate Development
James H. Smith, III (1)(2)(3)............. 46 Director
Dr. David W. Rosenthal (3)................ 44 Director
Michael E. Rohrkemper (1)(2)(3)........... 50 Director
Kenneth R. Waters (4)..................... 45 Proposed New Director
</TABLE>
- ------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Stock Option Committee.
(4) Mr. Waters has agreed to become a director of the Company after the
completion of this offering.
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 the 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 Division Office Equipment Group for Canon since 1991.
STEPHEN E. POMEROY has been the Vice President of Marketing and Corporate
Development since September 1996. Prior to that time, Mr. Pomeroy was the
Director of New Market Development of the
32
<PAGE>
Company from 1994 to September 1996 and Account Executive from 1991 to 1994.
From 1985 to 1991, Mr. Pomeroy was employed by the Company on a part-time basis.
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., LPA,
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.
KENNETH R. WATERS has agreed to become a director of the Company after the
completion of this offering. Mr. Waters has worked in the computer industry
since 1977. Most recently, he has been an industry consultant, serving as such
from February 1995 until present as well as from April 1993 to August 1993 and
January 1991 to August 1992. From September 1993 to January 1995, Mr. Waters was
the President of MicroAge Inc., a computer reseller. From September 1992 to
March 1993, Mr. Waters was the President and CEO of Power Up Software, a
software manufacturer. From July 1978 to September 1988, Mr. Waters was employed
by Vanstar (then known as ComputerLand), holding various management positions,
with his last position being CEO. Mr. Waters was also a director of Vanstar from
September 1987 to July 1989.
Stephen E. Pomeroy is the son of David B. Pomeroy, II and 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.
CERTAIN TRANSACTIONS
The Company intends to expand its existing distribution center to include a
new depot repair facility that will replace the Company's existing depot repair
facility. The distribution center is owned by Pomeroy Investments LLC ("Pomeroy
Investments"), a limited liability company controlled by David B. Pomeroy, II,
the Chairman of the Board, President and Chief Executive Officer of the Company.
Pomeroy Investments intends to finance, purchase and own the land and
improvements necessary to accommodate the new depot repair facility. The
estimated cost of the additional land and improvements is expected to be $1.8
million. The Company will lease the additional space from Pomeroy Investments at
an annual base rent no less to the Company or more favorable than can be
obtained from unaffiliated third parties. The expansion of the existing
distribution center to accommodate the new depot repair facility is expected to
be completed in mid 1997.
The Company from time to time has made advances to Pomeroy Investments to
satisfy Pomeroy Investments' working capital needs. In July 1996, the Company
made two advances to Pomeroy Investments in the amounts of $100,000 and
$150,000, respectively. In September and October 1996, the Company made two
additional advances in the amounts of $20,000 and $25,000, respectively. The
largest amount of advances outstanding at any time during fiscal 1996 was
$295,000. No interest was charged on the advanced funds, which were repaid in
full on December 20, 1996.
In September 1996, Stephen E. Pomeroy was appointed as the Vice President of
Marketing and Corporate Development of the Company and in November 1996, Mr.
Pomeroy entered into an employment agreement with the Company. The employment
agreement extends to December 31, 1999, and thereafter may be extended on a
daily basis unless either party gives 60 days written notice of termination (or
three days written notice if the Company terminates Mr. Pomeroy's employment for
cause).
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<PAGE>
Mr. Pomeroy's compensation under the agreement consists of a base salary at a
rate of $100,000 for fiscal 1996 and an annual bonus, to be negotiated annually.
Mr. Pomeroy's base salary will increase to $115,000 for fiscal 1997 and is
subject to increases in subsequent fiscal years at the discretion of the Board
of Directors. The amount of any annual bonus will be paid 50% in cash and 50% as
incentive deferred compensation.
Kenneth R. Waters, who has agreed to become a director of the Company after
the completion of this offering, served as a consultant to the Company from June
1996 through November 1996. Mr. Waters was paid $1,500 per month for his
services for a total of $9,000 during the term of the consulting arrangement.
Although the Company may utilize his services in the future, it is not presently
anticipated that Mr. Waters will provide additional consulting services to the
Company.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
Based solely on information provided to the Company, the following table
sets forth certain information with respect to the beneficial ownership of the
Company's Common Stock as of December 5, 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 executive 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 BENEFICIAL OWNERSHIP
PRIOR TO OFFERING NUMBER OF AFTER OFFERING(1)
-------------------- SHARES --------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
David B. Pomeroy, II............... 1,725,877(1) 26.4% 80,000 1,648,352 21.8%
Edwin S. Weinstein................. 68,436(2) 1.1 -- 68,436 *
Richard C. Mills................... 89,642(3) 1.4 -- 89,642 1.2
Carol Teufel Weinstein............. 6,293(4) * -- 6,293 *
James C. Eck....................... 1,500 * -- 1,500 *
Stephen E. Pomeroy................. 33,326(5) * -- 33,326 *
James H. Smith..................... 9,075(6) * -- 9,075 *
Dr. David W. Rosenthal............. 6,605(7) * -- 6,605 *
Michael E. Rohrkemper.............. 19,276(8) * -- 19,276 *
Pomeroy Computer Resources, ESOP... 57,129(9) * -- 57,129 *
All directors and executive
officers as a group (10
persons)......................... 1,904,633(10) 28.1% 80,000 1,824,633 23.4%
</TABLE>
- ------------------
* Less than one percent
(1) Includes 15,091 shares of Common Stock owned by his spouse as to which Mr.
Pomeroy disclaims beneficial ownership. Also includes 78,750 shares of
Common Stock issuable upon exercise of stock options and 57,129 shares owned
by ESOP. See Note (9) below. Of the 57,129 shares owned by ESOP, Mr. Pomeroy
disclaims beneficial ownership except as to the 23,983 shares allocated to
the account of Mr. Pomeroy which shares he has the right to vote under the
Plan with respect to certain matters. Beneficial ownership after the
offering excludes the 80,000 shares of Common Stock to be sold in this
offering. Mr. Pomeroy's address is 1020 Petersburg Road, Hebron, KY 41048.
(2) Includes 6,000 shares of Common Stock issuable upon exercise of stock
options, 57,129 shares owned by the ESOP, and excludes 6,293 shares owned by
his spouse as to which he disclaims beneficial ownership. See Note (9)
below. Of the 57,129 shares owned by the ESOP, Mr. Weinstein disclaims
beneficial ownership except as to the 3,174 shares allocated to Mr.
Weinstein which shares he has the right to vote under the Plan with respect
to certain matters.
(3) Includes 89,497 shares of Common Stock issuable upon exercise of stock
options and 145 shares held by the ESOP allocated to the account of Mr.
Mills which shares he has the right to vote under the Plan with respect to
certain matters.
(4) Excludes 68,436 shares owned by her spouse as to which she disclaims
beneficial ownership. Includes 3,000 shares of Common Stock issuable upon
exercise of stock options and 428 shares held by the ESOP allocated to the
account of Mrs. Weinstein which shares she has the right to vote under the
Plan with respect to certain matters.
(5) Includes 27,750 shares of Common Stock issuable upon exercise of stock
options and 131 shares held by the ESOP allocated to the account of Mr.
Pomeroy which shares he has the right to vote under the Plan with respect to
certain matters.
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<PAGE>
(6) Includes 8,250 shares of Common Stock issuable upon exercise of stock
options.
(7) Includes 1,500 shares of Common Stock owned by his spouse, and 39 shares
held by the ESOP allocated to the account of his spouse (which shares she
has the right to vote under the Plan with respect to certain matters), as to
which Dr. Rosenthal disclaims beneficial ownership and 1,302 shares of
Common Stock issuable upon exercise of stock options.
(8) Includes 165 shares of Common Stock held by Rohrkemper & Ossege Ltd., a
partnership in which Mr. Rohrkemper has a 60% interest and 17,500 shares of
Common Stock issuable upon exercise of stock options.
(9) David Pomeroy, II and Edwin S. Weinstein, both officers of the Company, are
trustees of the ESOP and may have voting control over the 57,129 shares of
Common Stock held in the ESOP in certain situations.
(10) Includes all of the shares owned by Pomeroy Computer Resources ESOP.
36
<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 OF
NAME OF UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
J.C. Bradford & Co...............................................................
Tucker Anthony Incorporated......................................................
----------
Total........................................................................ 1,100,000
----------
----------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions contained therein, to purchase all of 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 165,000
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 1,100,000, 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 1,100,000 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.
37
<PAGE>
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 marking 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
generally are prohibited during a specified time (the "qualifying period")
determined in light of the timing of the distribution, from bidding for or
purchasing the Common Stock or a related security except to the extent permitted
under applicable rules, primarily Rules 10b-6 and 10b-6A. Rule 10b-6A allows,
among other things, an underwriter or member of the selling group for the Common
Stock to effect "passive market making" transactions on the Nasdaq National
Market in the Common Stock during the qualifying period at a price that does not
exceed the highest independent bid for that security at the time of the
transaction. Such a passive market maker must not display a bid for the subject
security at a price in excess of the highest independent bid, and generally must
lower its bid if all independent bids are lowered. Moreover, the passive market
maker's net purchases of such security on each day of the qualifying period
shall not exceed 30% of its average daily trading volume during a reference
period preceding the distribution.
LEGAL MATTERS
The legality of the shares of Common Stock and certain other legal matters
offered hereby will be passed upon for the Company and the Selling Stockholder
by Cors & Bassett, Cincinnati, Ohio and Lindhorst & Dreidame Co., L.P.A.,
Cincinnati, Ohio. Certain legal matters related to this 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 have been audited by
Grant Thornton LLP, independent certified public accountants, as set forth in
their report thereon included therein and incorporated herein by reference, and
are incorporated herein by reference 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, incorporated in this Prospectus by reference from the
Company's Annual Report on Form 10-K for the year ended January 5, 1996 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which is incorporated herein by reference, and has been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of TCSS for the fiscal year ended December 31,
1995, appearing in the Company's Current Report on Form 8-K dated March 28,
1996, as amended by the Company's Current Report on Form 8-K/A dated May 13,
1996, incorporated by reference in this Prospectus and Registration Statement
have been audited by Deloitte & Touche LLP, independent certified public
accountants, as set forth in their report thereon incorporated by reference
herein, and are incorporated by reference 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 the Company's Current Report on Form 8-K dated March 28,
1996, as amended by the Company's Current Report on Form 8-K/A dated May 13,
1996, incorporated by reference 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 incorporated
by reference herein, and are incorporated by reference herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
38
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 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 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,
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. The Commission maintains a web site that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission. Such reports, proxy statements and other information may be
found at the Commission site address (http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-20022) are hereby incorporated by reference into this Prospectus:
(1) Annual Report on Form 10-K for the fiscal year ended January 5,
1996, as amended by Form 10-K/A dated May 3, 1996;
(2) Quarterly Reports on Form 10-Q for the quarters ended April 5, 1996;
July 5, 1996 and October 5, 1996;
(3) Current Report on Form 8-K dated March 28, 1996 as amended by Form
8-K/A dated May 13, 1996;
(4) Current Report on Form 8-K dated May 13, 1996;
(5) Current Report on Form 8-K dated October 24, 1996; and
(6) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, effective as of April 3, 1992,
including any amendment filed for the purpose of updating such information.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference in this prospectus and to be a part hereof from the respective
dates of the filing of such documents. See "Available Information." Any
statement or information contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed modified or superseded for
purposes of this prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
39
<PAGE>
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or all of
the documents incorporated herein by reference (other than exhibits to such
documents not specifically incorporated by reference). Requests should be
directed to Pomeroy Computer Resources, Inc., 1020 Petersburg Road, Hebron,
Kentucky, 41048, Attention: Edwin S. Weinstein, Chief Financial Officer and
Treasurer.
40
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Financial Statements of the Company:
Report of Independent Certified Public Accountants......................................................... F-3
Consolidated Balance Sheets as of January 5, 1995 and 1996 and October 5, 1996........................... F-4
Consolidated Statements of Income for the Years Ended January 5, 1995 and 1996 and for the Nine Months
Ended October 5, 1995 (Unaudited) and 1996............................................................. F-6
Consolidated Statements of Cash Flows for the Years Ended January 5, 1995 and 1996 and for the Nine
Months Ended October 5, 1995 (Unaudited) and 1996...................................................... F-7
Consolidated Statements of Equity for the Years Ended January 5, 1995 and 1996 and for the Nine Months
Ended October 5, 1996.................................................................................. F-8
Notes to Consolidated Financial Statements............................................................... F-9
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
Nine Months Ended October 5, 1996...................................................................... F-21
</TABLE>
F-1
<PAGE>
(This page has been left blank intentionally.)
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Pomeroy Computer Resources, Inc.
We have audited the accompanying consolidated balance sheets of Pomeroy
Computer Resources, Inc. as of January 5, 1995, 1996, and October 5, 1996 and
the related consolidated statements of income, equity, and cash flows for each
of the two years in the period ended January 5, 1996 and the nine months ended
October 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, 1995, 1996 and October 5, 1996
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 and the nine
months ended October 5, 1996 in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Cincinnati, Ohio
December 19, 1996
F-3
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 5, JANUARY 5, OCTOBER 5,
1995 1996 1996
------------- ------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ 73,620 $ 596,321 $ 3,168,257
Accounts receivable:
Trade, less allowance of $65,000, $200,737 and $406,688 at
January 5, 1995 and 1996 and October 5, 1996, respectively... 26,631,488 27,098,141 51,714,717
Vendor product returns, less allowance of $225,000, $210,000
and $80,423 at January 5, 1995 and 1996 and October 5, 1996,
respectively................................................. 3,542,761 3,484,709 4,330,187
Vendor incentive rebates....................................... 1,551,121 3,141,847 5,054,262
Amount due from stockholder.................................... 140,633 205,525 270,000
Other.......................................................... 129,360 389,336 182,300
------------- ------------- --------------
Total receivables............................................ 31,995,363 34,319,558 61,551,466
------------- ------------- --------------
Inventories...................................................... 17,326,486 18,986,807 24,452,710
Other............................................................ 624,344 487,515 735,915
------------- ------------- --------------
Total current assets......................................... 50,019,813 54,390,201 89,908,348
------------- ------------- --------------
Equipment and leasehold improvements:
Furniture, fixtures and equipment................................ 4,213,290 5,407,799 6,692,500
Leasehold improvements........................................... 1,073,079 1,151,606 4,041,152
------------- ------------- --------------
Total........................................................ 5,286,369 6,559,405 10,733,652
Less accumulated depreciation.................................... 1,079,677 1,968,271 3,229,358
------------- ------------- --------------
Net equipment and leasehold improvements..................... 4,206,692 4,591,134 7,504,294
------------- ------------- --------------
Investment in lease residuals.................................... 1,302,117 2,596,499 2,946,462
Goodwill and other intangible assets............................. 953,172 1,445,994 7,091,301
Other assets..................................................... 578,866 961,581 630,500
------------- ------------- --------------
Total assets................................................. $ 57,060,660 $ 63,985,409 $ 108,080,905
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
JANUARY 5, JANUARY 5, OCTOBER 5,
1995 1996 1996
------------- ------------- --------------
<S> <C> <C> <C>
LIABILITIES AND EQUITY
Current liabilities:
Notes payable.................................................... $ 422,175 $ 408,864 $ 606,550
Accounts payable:
Floor plan financing........................................... 18,974,900 17,676,926 26,407,542
Trade.......................................................... 4,631,468 3,966,820 12,507,843
------------- ------------- --------------
Total accounts payable..................................... 23,606,368 21,643,746 38,915,385
Bank notes payable................................................. 15,441,901 16,877,040 16,580,965
Deferred revenue................................................... 1,700,412 2,286,390 2,215,974
Accrued liabilities:
Employee compensation and benefits............................... 785,276 800,629 1,732,077
Income taxes..................................................... 1,051,009 1,117,855 2,595,188
Interest......................................................... 56,137 41,995 70,716
Miscellaneous.................................................... 400,848 874,038 516,638
------------- ------------- --------------
Total current liabilities.................................. 43,464,126 44,050,557 63,233,493
------------- ------------- --------------
Note payable....................................................... 166,800 100,000 1,523,800
Deferred income taxes.............................................. 300,000 635,000 627,000
Equity:
Preferred stock (no shares issued or outstanding)................ -- -- --
Common stock (2,228,908, 2,625,917 and 6,397,346 shares issued
and outstanding at January 5, 1995 and 1996, and October 5,
1996, respectively)............................................ 22,289 26,259 63,973
Paid-in capital.................................................. 8,158,080 13,279,697 33,621,933
Retained earnings................................................ 5,153,371 6,097,902 9,214,712
------------- ------------- --------------
13,333,740 19,403,858 42,900,618
Less treasury stock, at cost (20,900 shares at January 5, 1995
and 1996, and October 5, 1996, respectively)................... 204,006 204,006 204,006
------------- ------------- --------------
Total equity............................................... 13,129,734 19,199,852 42,696,612
------------- ------------- --------------
Total liabilities and equity............................... $ 57,060,660 $ 63,985,409 $ 108,080,905
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY 5, NINE MONTHS ENDED OCTOBER 5,
------------------------------ ------------------------------
1995 1996 1996
-------------- -------------- 1995 --------------
--------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales and revenues:
Sales--equipment and supplies................ $ 130,270,342 $ 211,149,458 $ 157,418,085 $ 214,091,570
Service...................................... 13,409,559 17,939,868 12,794,940 18,367,793
Other........................................ 895,085 1,620,516 1,245,304 1,575,640
-------------- -------------- -------------- --------------
Total net sales and revenues............. 144,574,986 230,709,842 171,458,329 234,035,003
-------------- -------------- -------------- --------------
Cost of sales and service:
Equipment and supplies....................... 117,594,334 192,838,684 143,735,839 192,540,997
Service...................................... 3,306,736 4,334,806 3,324,484 4,380,818
-------------- -------------- -------------- --------------
Total cost of sales and service.......... 120,901,070 197,173,490 147,060,323 196,921,815
-------------- -------------- -------------- --------------
Gross profit................................. 23,673,916 33,536,352 24,398,006 37,113,188
-------------- -------------- -------------- --------------
Operating expenses:
Selling, general and administrative.......... 16,268,236 21,862,576 16,179,864 23,052,149
Rent expense................................. 699,341 894,258 664,531 1,016,400
Depreciation................................. 330,628 770,540 509,089 1,277,586
Amortization................................. 555,259 233,916 164,135 425,516
Provision for doubtful accounts.............. 263,289 489,813 285,669 244,356
-------------- -------------- -------------- --------------
Total operating expenses................. 18,116,753 24,251,103 17,803,288 26,016,007
-------------- -------------- -------------- --------------
Income from operations......................... 5,557,163 9,285,249 6,594,718 11,097,181
-------------- -------------- -------------- --------------
Other expense (income):
Interest expense............................. 1,030,892 1,999,399 1,506,547 1,593,553
Litigation settlement and related costs...... -- -- -- 4,392,102
Miscellaneous................................ (56,718) (64,083) (34,151) (132,841)
-------------- -------------- -------------- --------------
Total other expense...................... 974,174 1,935,316 1,472,396 5,852,814
-------------- -------------- -------------- --------------
Income before income tax....................... 4,582,989 7,349,933 5,122,322 5,244,367
Income tax expense............................. 1,856,000 2,983,000 2,074,000 2,127,000
-------------- -------------- -------------- --------------
Net income..................................... $ 2,726,989 $ 4,366,933 $ 3,048,322 $ 3,117,367
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average shares outstanding:
Primary...................................... 3,644,253 4,004,781 3,972,387 4,984,804
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Fully diluted................................ 3,644,253 4,043,829 4,019,425 5,085,845
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Net income per common share:
Primary...................................... $ 0.75 $ 1.09 $ 0.77 $ 0.63
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Fully diluted................................ $ 0.75 $ 1.08 $ 0.76 $ 0.61
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY 5, NINE MONTHS ENDED OCTOBER 5,
----------------------------- -----------------------------
1995 1996 1996
-------------- ------------- 1995 --------------
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.............................................. $ 2,726,989 $ 4,366,933 $ 3,048,322 $ 3,117,367
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation.......................................... 330,628 770,540 509,089 1,277,586
Amortization.......................................... 555,259 233,916 164,135 425,516
Deferred income taxes................................. 112,000 258,000 189,000 (38,000)
Net acquisition of lease residuals.................... (252,518) (1,294,382) (1,040,823) (311,163)
Issuance of common shares of stock awards............. 40,000 40,000 40,000 40,000
Changes in working capital accounts, net of effects of
subsidiary companies purchased:
Accounts receivable................................. (12,611,901) (2,129,559) (7,786,244) (21,028,124)
Inventories......................................... (8,619,599) (1,814,197) (6,215,520) (4,024,561)
Floor plan financing................................ 11,398,614 (1,297,974) 5,512,054 8,730,616
Trade payables...................................... 457,791 (687,885) 3,755,043 4,657,964
Deferred revenue.................................... 503,311 585,978 711,255 (151,890)
Income tax payable.................................. 177,006 66,846 (11,042) 1,477,333
Other, net.......................................... 166,117 487,414 313,067 303,816
-------------- ------------- ------------- --------------
Net operating activities.............................. (5,016,303) (414,370) (811,664) (5,523,540)
-------------- ------------- ------------- --------------
Cash Flows from Investing Activities:
Capital expenditures.................................. (1,242,771) (1,070,424) (743,782) (2,763,762)
Payments for covenants not to compete................. (219,750) (238,250) (143,250) --
Acquisition of subsidiary companies, net of cash
acquired............................................ (113,803) (19,514) (19,514) --
Acquisition of reseller assets........................ -- (424,695) (75,000) (4,527,558)
-------------- ------------- ------------- --------------
Net investing activities.............................. (1,576,324) (1,752,883) (981,546) (7,291,320)
-------------- ------------- ------------- --------------
Cash Flows from Financing Activities:
Payments on notes payable............................. (57,600) (305,111) (214,200) (2,332,079)
Net proceeds of stock offering........................ -- -- -- 17,924,439
Net proceeds (payments) under bank notes payable...... 6,302,644 1,435,139 915,508 (1,146,075)
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 1,332,428 1,270,511
Retirement of stock warrants.......................... -- -- -- (330,000)
-------------- ------------- ------------- --------------
Net financing activities.............................. 6,372,465 2,689,954 2,033,736 15,386,796
-------------- ------------- ------------- --------------
Increase (decrease) in cash............................... (220,162) 522,701 240,526 2,571,936
Cash:
Beginning of period................................... 293,782 73,620 73,620 596,321
-------------- ------------- ------------- --------------
End of period......................................... $ 73,620 $ 596,321 $ 314,146 $ 3,168,257
-------------- ------------- ------------- --------------
-------------- ------------- ------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL EQUITY
--------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
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 associates 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.................................... 3,117,367 3,117,367
3,076 common shares issued for stock awards... 31 39,969 40,000
113,316 common shares issued for
acquisitions................................ 1,133 1,473,867 1,475,000
Stock options exercised and related tax
benefit..................................... 1,270 1,269,241 1,270,511
Retirement of stock warrants.................. (330,000) (330,000)
Effect of 3 for 2 stock split................. 21,255 (21,255) (557) (557)
1,402,500 common shares issued by public
offering.................................... 14,025 17,910,414 17,924,439
--------- ------------- ------------ ----------- -------------
Balance at October 5, 1996...................... $ 63,973 $ 33,621,933 $ 9,214,712 $ (204,006) $ 42,696,612
--------- ------------- ------------ ----------- -------------
--------- ------------- ------------ ----------- -------------
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 5, 1995 AND JANUARY 5, 1996
AND
NINE MONTHS ENDED OCTOBER 5, 1996
1. COMPANY DESCRIPTION
On 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 6.4 million shares outstanding. The Company is also authorized to issue 2
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 12). 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 government
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 ten branch
offices in Kentucky, Iowa, Indiana, Tennessee, Florida and Alabama 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 1994 and 1995 are for the fiscal years ended 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. In accordance
with SFAS No. 121 "Accounting for The Impairment of Long-Lived Assets," the
Company evaluates its goodwill on an ongoing basis to determine potential
impairment by comparing the carrying value to the undiscounted estimated
expected future cash flows of the related assets. Other intangible assets are
amortized using the straight-line method over periods up to ten years.
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 deductible
F-9
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 5, 1995 AND JANUARY 5, 1996
AND
NINE MONTHS ENDED OCTOBER 5, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
INVENTORIES--Inventories are stated at the lower of cost or market. Cost is
determined by 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-BASED COMPENSATION--The Financial Accounting Standards Board issued
SFAS No. 123-- Accounting for Stock-Based Compensation in the Fall of 1995. The
statement encourages, but does not require, companies to record compensation
cost for stock-based employee compensation plans at fair value beginning in
fiscal 1996. The Company elected to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25--Accounting for Stock Issued to Employees--and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's common stock at the date of
grant over the amount an employee must pay to acquire the stock. The Company has
adopted SFAS No. 123 for disclosure purposes and for non-employee stock options.
This has no material effect on the results of operations or financial position
of the Company.
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.
F-10
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 5, 1995 AND JANUARY 5, 1996
AND
NINE MONTHS ENDED OCTOBER 5, 1996
3. ACCOUNTS RECEIVABLE
The following table summarizes the activity in the allowance for doubtful
accounts for fiscal 1994 and 1995, and the first nine months of fiscal 1996.
<TABLE>
<CAPTION>
TRADE OTHER
---------- -----------
<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
Provision 1996..................................................... 250,000 30,675
Accounts written-off............................................... (97,045) (588,474)
Recoveries......................................................... 52,996 428,222
---------- -----------
Balance October 5, 1996.............................................. $ 406,688 $ 80,423
---------- -----------
---------- -----------
</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 October 5,
1996:
<TABLE>
<CAPTION>
OCTOBER 5,
1994 1995 1996
------------- ------------- --------------
<S> <C> <C> <C>
Equipment and supplies......................... $ 16,738,759 $ 17,926,478 $ 23,288,825
Service parts.................................. 587,727 1,060,329 1,163,885
------------- ------------- --------------
Total...................................... $ 17,326,486 $ 18,986,807 $ 24,452,710
------------- ------------- --------------
------------- ------------- --------------
</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 nine months ended October 5, 1996, net of accumulated
amortization of $442,232 (1994), $489,348 (1995) and $913,551 (October 5, 1996),
respectively:
<TABLE>
<CAPTION>
OCTOBER 5,
1994 1995 1996
---------- ------------ --------------
<S> <C> <C> <C>
Goodwill........................................... $ 458,886 $ 450,729 $ 6,299,750
Covenants not to compete........................... 311,782 394,029 249,940
Customer lists..................................... 182,504 601,236 541,611
---------- ------------ --------------
$ 953,172 $ 1,445,994 $ 7,091,301
---------- ------------ --------------
---------- ------------ --------------
</TABLE>
F-11
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 5, 1995 AND JANUARY 5, 1996
AND
NINE MONTHS ENDED OCTOBER 5, 1996
5. GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
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 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.
In the first nine months of 1996, the Company acquired The Computer Supply
Store, Inc. ("TCSS") a privately held computer reseller located in Des Moines,
Iowa and AA Microsystems, Inc. ("AA Micro"), a network service provider located
in Birmingham, Alabama (See Note 12). The Company recorded $5,690,000 and
$402,000 of goodwill in connection with those acquisitions, respectively.
6. BORROWING ARRANGEMENTS
The Company has an available line of credit up to the lesser of $25,000,000
(or an amount based upon a formula of eligible trade receivables at an interest
rate that varies based on the prime rate of the bank or the LIBOR rate at the
Company's election. At January 5, 1995 and 1996 and October 5, 1996, bank notes
payable include $2,301,000, $624,000 and $880,965, 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 7.5% at January 5, 1995 and 1996 and October 5, 1996,
respectively. The agreement, which expires in April 1997, calls for the payment
of a .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 AVERAGE
AMOUNT AMOUNT
PERIOD ENDING OUSTANDING OUSTANDING
- --------------------------------------------------------------- ------------- -------------
<S> <C> <C>
January 5, 1995................................................ $ 15,442,000 $ 9,382,000
January 5, 1996................................................ $ 19,000,000 $ 14,741,000
October 5, 1996................................................ $ 26,687,000 $ 17,408,000
</TABLE>
The above average amounts outstanding are calculated by dividing the sum of
the average daily balances for each month by the number of months in the period.
The weighted average interest rate on the bank revolving credit agreements was
7.1%, 8.7% and 8.2% in fiscal 1994 and 1995 and the nine months ended October 5,
1996, respectively.
F-12
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 5, 1995 AND JANUARY 5, 1996
AND
NINE MONTHS ENDED OCTOBER 5, 1996
6. BORROWING ARRANGEMENTS (CONTINUED)
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 term note matured July 31, 1996 and
was paid off. The interest rate charged was 8.5% at January 5, 1996. As of
October 5, 1996, the term note was paid in full.
The Company finances inventory through floor plan arrangements with two
finance companies. As of October 5, 1996 the floor plan lines of credit were
$12,000,000 with IBM Credit Corporation ("ICC") and $25,000,000 with Deutsche
Financial Services ("DFS"). Borrowings are made on sixty day notes, with one-
half of the note amount due in thirty days. Financing on many of the
arrangements which are subsidized by manufacturers is interest free. The average
rate on the plans overall is less than 2.1%.
The maximum amount outstanding and the average amount outstanding on each of
the floor plan arrangements were as follows:
<TABLE>
<CAPTION>
ICC DFS
-------------------------- ----------------------------
MAXIMUM AVERAGE MAXIMUM AVERAGE
AMOUNT AMOUNT AMOUNT AMOUNT
PERIOD ENDING OUSTANDING OUSTANDING OUSTANDING OUSTANDING
- ----------------------------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
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
October 5, 1996.................... $ 8,066,000 $ 5,371,000 $ 25,508,000 $ 16,979,000
</TABLE>
The average amount outstanding 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.
At October 5, 1996 subordinated debt in the amount of $1,700,000 was
outstanding related to the acquisition of TCSS as described in Note 12.
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
1994 1995 OCTOBER 5, 1996
------------ ------------ ------------------
<S> <C> <C> <C>
Current:
Federal.................................... $ 1,403,000 $ 2,071,000 $ 1,645,000
State...................................... 406,000 654,000 520,000
------------ ------------ ------------------
Total current............................ 1,809,000 2,725,000 2,165,000
------------ ------------ ------------------
Deferred:
Federal.................................... 35,000 206,000 (30,000)
State...................................... 12,000 52,000 (8,000)
------------ ------------ ------------------
Total deferred........................... 47,000 258,000 (38,000)
------------ ------------ ------------------
Total income tax provision................... $ 1,856,000 $ 2,983,000 $ 2,127,000
------------ ------------ ------------------
------------ ------------ ------------------
</TABLE>
F-13
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 5, 1995 AND JANUARY 5, 1996
AND
NINE MONTHS ENDED OCTOBER 5, 1996
7. INCOME TAXES (CONTINUED)
The approximate tax effect of the temporary differences giving rise to the
Company's deferred income tax assets (liabilities) are:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
1994 1995 OCTOBER 5, 1996
----------- ----------- ------------------
<S> <C> <C> <C>
Deferred Tax Asset:
Bad debt provision........................... $ 90,000 $ 167,000 $ 197,000
----------- ----------- ----------
Deferred Tax Liability:
Acquisition of lease residuals............... (314,000) (609,000) (702,000)
Other temporary differences.................. 14,000 (26,000) 75,000
----------- ----------- ----------
(300,000) (635,000) (627,000)
----------- ----------- ----------
Net deferred tax liability................... $ (210,000) $ (468,000) $ (430,000)
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
The Company's effective income tax rate differs from the Federal statutory
rate as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
1994 1995 OCTOBER 5, 1996
--------- --------- ---------------------
<S> <C> <C> <C>
Tax at Federal statutory rate........................... 34.0% 34.0% 34.0%
State taxes........................................... 6.0 6.3 6.4
Other................................................. 0.5 0.3 0.2
--- --- ---
Effective tax rate.................................. 40.5% 40.6% 40.6%
--- --- ---
--- --- ---
</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 October 5, 1996 are
as follows:
<TABLE>
<CAPTION>
12 MONTHS ENDED OCTOBER 5,
- --------------------------------------------------------------------------------
<S> <C>
1997.......................................................................... $ 1,977,000
1998.......................................................................... 1,480,000
1999.......................................................................... 1,194,000
2000.......................................................................... 1,045,000
2001.......................................................................... 857,000
Thereafter.................................................................... 2,576,000
------------
Total minimum lease payments.................................................... $ 9,129,000
------------
------------
</TABLE>
F-14
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 5, 1995 AND JANUARY 5, 1996
AND
NINE MONTHS ENDED OCTOBER 5, 1996
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 October 5, 1996, the ESOP held 57,129 shares of Company stock. No
contributions were accrued in fiscal 1995 and the nine months ended October 5,
1996. 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 1994, 1995 and the first nine months of 1996, the Company sold
equipment and related support services to ILC, for lease to ILC's customers, in
amounts of $4,188,000, $23,661,000 and $6,072,000, respectively. The Company
also obtained rights to lease residuals from ILC in the amount of $300,000,
$875,000 and $325,000 in 1994, 1995 and the first nine months 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.
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 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 nine months of 1996, sales to the largest customer totaled
approximately $29,452,000.
12. ACQUISITIONS
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
F-15
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 5, 1995 AND JANUARY 5, 1996
AND
NINE MONTHS ENDED OCTOBER 5, 1996
12. ACQUISITIONS (CONTINUED)
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.
On March 14, 1996, the Company acquired substantially all of the assets and
assumed substantially all of the liabilities of 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 was accounted for as a purchase, accordingly the purchase price was
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, adjusted to reflect a three-
for-two split of the Company's common stock in the form of a stock dividend paid
on October 4, 1996 and a 10% stock dividend paid on May 22, 1995, 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>
FISCAL YEAR
1995
---------------
<S> <C>
Net sales and revenues....................................................... $ 291,209,000
Net income................................................................... $ 4,794,000
Net income per common share:
Primary.................................................................... $ 1.15
Fully Diluted.............................................................. $ 1.14
</TABLE>
In August 1996, the Company acquired certain assets of AA Micro, a network
service provider located in Birmingham, Alabama. The purchase price consisted of
$67,464 in cash, a $200,000 note payable and 19,974 unregistered shares of the
Company's common stock with an approximate value of $200,000. Interest on the
note, which is calculated at 8.25%, is payable quarterly and principal is
payable in three equal annual installments of $66,667. In addition, the Company
has entered into a three-year employment contract with the former president. The
acquisition was accounted for as a purchase, accordingly the purchase price was
allocated to assets based on their estimated value as of the date of
acquisition. The results of AA Micro's operations will be included in the
consolidated statement of income from the date of acquisition.
F-16
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 5, 1995 AND JANUARY 5, 1996
AND
NINE MONTHS ENDED OCTOBER 5, 1996
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 was evidenced by a promissory note with an annual interest rate of 1%
over the prime rate. In addition, a total of $106,000 was advanced to the
officer in fiscal years 1993 through 1995. The note plus accrued interest and
the advance were repaid during the nine months ended October 5, 1996.
During the nine months ended October 5, 1996, the Company made periodic
advances to a company that is controlled by the Chief Executive Officer of the
Company. At October 5, 1996, the amount advanced by the Company was $270,000. No
interest was charged on the advances which were repaid in December 1996.
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>
NINE MONTHS ENDED
1994 1995 OCTOBER 5, 1996
------------ ------------ ------------------
<S> <C> <C> <C>
Interest paid.................................................... $ 998,000 $ 2,037,000 $ 1,565,000
------------ ------------ ------------------
------------ ------------ ------------------
Income taxes paid................................................ $ 1,719,000 $ 2,658,000 $ 688,000
------------ ------------ ------------------
------------ ------------ ------------------
Business combination accounted for as purchase:
Assets acquired................................................ $ 680,000 $ 774,000 $ 15,298,000
Liabilities assumed............................................ (355,000) (24,000) (6,395,000)
Note payable................................................... (136,000) (225,000) (2,900,000)
Stock issued................................................... (137,000) (100,000) (1,475,000)
------------ ------------ ------------------
Net cash paid.................................................. $ 52,000 $ 425,000 $ 4,528,000
------------ ------------ ------------------
------------ ------------ ------------------
</TABLE>
15. STOCK OPTION PLANS
The Company's 1992 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.
F-17
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 5, 1995 AND JANUARY 5, 1996
AND
NINE MONTHS ENDED OCTOBER 5, 1996
15. STOCK OPTION PLANS (CONTINUED)
The Company's 1992 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 market 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.
The following summarizes the stock option transactions under the plans for
the fiscal years ended January 5, 1995 and 1996 and the nine months ended
October 5, 1996:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE OPTION
SHARES EXERCISE PRICE PRICE RANGE
---------- ----------------- -----------------
<S> <C> <C> <C>
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 $ 10.95
Stock dividend................................................. 33,383 8.32
Exercised...................................................... (164,975) 8.27
----------
Options outstanding January 5, 1996.............................. 218,540 8.32
Granted........................................................ 149,600 13.83
Exercised...................................................... (126,075) 10.08
Stock split effect............................................. 121,082 7.21
----------
Options outstanding October 5, 1996.............................. 363,147 $ 7.21
----------
----------
</TABLE>
The following summarizes options outstanding and exercisable at October 5,
1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ------------------------------
NUMBER WEIGHTED AVERAGE NUMBER
OUTSTANDING REMAINING CONTRACTUAL WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES AT 10/5/96 LIFE EXERCISE PRICE AT 10/5/96 EXERCISE PRICE
- -------------------------------- ----------- --------------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$4.01 to $5.99................. 166,747 1.7 $ 5.15 165,372 $ 5.14
$6.41 to $8.50................. 113,900 1.9 $ 7.47 105,599 $ 7.63
$9.50 to $11.92................. 82,500 3.5 $ 10.07 68,750 $ 9.98
----------- -----------
363,147 2.1 $ 7.21 339,721 $ 6.90
----------- -----------
----------- -----------
</TABLE>
F-18
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 5, 1995 AND JANUARY 5, 1996
AND
NINE MONTHS ENDED OCTOBER 5, 1996
15. STOCK OPTION PLANS (CONTINUED)
The weighted average fair value at date of grant for options granted during
fiscal 1995 and the first nine months of fiscal 1996 was $2.42 and $2.75,
respectively. The fair value of options at the date of grant was estimated using
the Black-Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL 1995 OCTOBER 5, 1996
--------------- -----------------------
<S> <C> <C>
Expected life (years)........................................ 2.4 1.7
Interest rate................................................ 7.3% 5.8%
Volatility................................................... 50% 55%
Dividend yield............................................... 0% 0%
</TABLE>
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards in fiscal 1995 and the
first nine months of fiscal 1996 consistent with the provisions of SFAS No. 123,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL 1995 OCTOBER 5, 1996
------------ ------------------
<S> <C> <C>
Net income--as reported..................................... $ 4,366,933 $ 3,117,367
Net income--pro forma....................................... $ 4,195,923 $ 2,647,572
Net income per common share--as reported
Primary................................................... $ 1.09 $ 0.63
Fully diluted............................................. $ 1.08 $ 0.61
Net income per common share--pro forma
Primary................................................... $ 1.05 $ 0.53
Fully diluted............................................. $ 1.04 $ 0.52
</TABLE>
The initial application of SFAS No. 123 for pro forma disclosure may not be
representative of the future effects of applying the statement.
In 1994 and 1995 and the first nine months of 1996, shares of common stock
were awarded to officers of the Company totalling 3,168, 4,000 and 3,076,
respectively. Compensation expense resulting from the awards was $40,000 in each
of fiscal years 1994 and 1995, and $30,000 for the first nine months 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.
17. RISK OF LOSS FROM CONCENTRATIONS
During fiscal 1995 and the first nine months of 1996, approximately 42% and
41%, respectively, of the Company's total net sales and revenues were derived
from its top ten customers, including one customer which accounted for 19% and
13%, respectively, 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.
F-19
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FISCAL YEARS ENDED JANUARY 5, 1995 AND JANUARY 5, 1996
AND
NINE MONTHS ENDED OCTOBER 5, 1996
17. RISK OF LOSS FROM CONCENTRATIONS (CONTINUED)
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. SUBSEQUENT EVENT
On October 11, 1996 the Company acquired substantially all of the assets and
assumed substantially all of the liabilities of Communications Technology, Inc.,
d/b/a DILAN ("DILAN"), a privately held network integrator located in Hickory,
North Carolina. The purchase price consisted of $2.6 million in cash, a $1.1
million subordinated note and $5.5 million of assumed liabilities. Interest on
the subordinated note, which is calculated at 10% per annum, is payable
quarterly and principal is payable in three equal annual installments of
$365,000. 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 DILAN'S
operations will be included in the consolidated statement of income from the
date of acquisition.
F-20
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
YEAR ENDED JANUARY 5, 1996 AND NINE MONTHS ENDED OCTOBER 5, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JANUARY 5, 1996 OCTOBER 5, 1996
----------------------------------------------- ---------------------
HISTORICAL (1) HISTORICAL (2)
--------------------- PRO FORMA ---------------------
COMPANY TCSS ADJUSTMENTS PRO FORMA COMPANY TCSS
---------- --------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales and revenues.............................. $ 230,710 $ 60,499 $ 291,209 $ 234,035 $ 11,817
Cost of sales and service........................... 197,174 52,504 (3) 249,678 196,922 10,342
---------- --------- ----------- ---------- ---------
Gross profit...................................... 33,536 7,995 41,531 37,113 1,475
Operating expenses.................................. 24,251 5,931 $ 614(4) 30,796 26,016 951
---------- --------- ----------- ----------- ---------- ---------
Income from operations............................ 9,285 2,064 (614) 10,735 11,097 524
Interest expense.................................... 1,999 107 618(5) 2,724 1,594 15
Litigation settlement and related costs............. -- -- -- -- 4,392 --
Miscellaneous income................................ (64) 5 (59) (133) 2
---------- --------- ----------- ----------- ---------- ---------
Income before income taxes........................ 7,350 1,952 (1,232) 8,070 5,244 507
Income tax expense.................................. 2,983 -- (293) (6) 3,276 2,127 203
---------- --------- ----------- ----------- ---------- ---------
Net income.......................................... $ 4,367 $ 1,952 $ (1,525) $ 4,794 $ 3,117 $ 304
---------- --------- ----------- ----------- ---------- ---------
---------- --------- ----------- ----------- ---------- ---------
Weighted average shares outstanding................. 4,005 4,155 4,985
---------- ----------- ----------
---------- ----------- ----------
Primary net income per common share................. $ 1.09 $ 1.15 $ 0.63
---------- ----------- ----------
---------- ----------- ----------
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
--------------- -----------
<S> <C> <C>
Net sales and revenues.............................. $ 245,852
Cost of sales and service........................... 207,264
-----------
Gross profit...................................... $ 38,588
Operating expenses.................................. $ 83 27,050
--- -----------
Income from operations............................ (83) 11,538
Interest expense.................................... 1,609
Litigation settlement and related costs............. -- 4,392
Miscellaneous income................................ (131)
--- -----------
Income before income taxes........................ (83) 5,668
Income tax expense.................................. (33) 2,297
--- -----------
Net income.......................................... $ (50) $ 3,371
--- -----------
--- -----------
Weighted average shares outstanding................. 5,023
-----------
-----------
Primary net income per common share................. $ 0.67
-----------
-----------
</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 nine months ended
October 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-21
<PAGE>
GLOSSARY
<TABLE>
<CAPTION>
COMPANY NAMES
- ---------------------------------------------
<S> <C>
3Com......................................... 3Com Corporation
AA Microsystems.............................. AA Microsystems, Inc.
AST.......................................... AST Research, Inc.
ASTEA........................................ ASTEA International Inc.
Alliant...................................... Alliant Health Systems, Inc.
Andersen Consulting.......................... Andersen Consulting Corp.
Apple........................................ Apple Computer, Inc.
Bank of Mississippi.......................... Bank of Mississippi
Barnett Bank................................. Barnett Bank, Inc.
Bay Networks................................. Bay Networks, Inc.
Belcan Engineering........................... Belcan Corp.
Blue Cross/ Blue Shield of Iowa.............. Blue Cross/Blue Shield of Iowa
Blue Cross/Blue Shield of Kentucky........... Blue Cross/Blue Shield of Kentucky
Canon........................................ Canon America, Inc.
Champion..................................... Champion International
Cheyenne..................................... Cheyenne Software, Inc., a division of Computer Associates
International, Inc.
Columbia/HCA................................. Columbia/Healthcare Corporation of America
Compaq....................................... Compaq Computer Corporation
CompuCom..................................... CompuCom Systems, Inc.
DataFlex..................................... DataFlex Corporation
DFS.......................................... Deutsche Financial Services
DILAN........................................ Communications Technology, Inc. d/b/a DILAN
EDS.......................................... Electronic Data Systems, Inc.
Entex........................................ Entex Information Services
Epson........................................ Epson America, Inc.
GE........................................... General Electric Corporation
Genicom...................................... Genicom Corporation
Hayes........................................ Hayes Microcomputer Products, Inc.
Hewlett-Packard.............................. Hewlett-Packard Company
IBM.......................................... International Business Machines Corporation
ICC.......................................... IBM Credit Corporation
ILC.......................................... Information Leasing Corporation
ISO.......................................... International Standards Organization
ISSC......................................... Integrated Services Solutions Corp.
InaCom....................................... InaCom Corp.
Intel........................................ Intel Corporation
Iowa Medical Center.......................... Iowa Medical Center
Jergens...................................... Andrew Jergens Co.
Kroger....................................... The Kroger Company
Lexmark...................................... Lexmark International, Inc.
</TABLE>
G-1
<PAGE>
<TABLE>
<CAPTION>
COMPANY NAMES
- ---------------------------------------------
<S> <C>
Long John Silvers............................ Long John Silver, Inc.
Lotus........................................ Lotus Development Corp., a division of International Business
Machines Corporation
MicroAge..................................... MicroAge Inc.
Microsoft.................................... Microsoft Corporation
Milacron..................................... Cincinnati Milacron, Inc.
NEC.......................................... NEC Technologies, Inc.
Norwest Mortgage............................. Norwest Mortgage, Inc.
Novell....................................... Novell, Inc.
P&G.......................................... The Procter & Gamble Company
Physician Sales.............................. Physician Sales & Service, Inc.
Pioneer HiBred............................... Pioneer HiBred International
Principal Insurance.......................... Principal Mutual Life Insurance Company
Provident Bancorp............................ Provident Bancorp, Inc.
Providian.................................... Providian Insurance Corp.
Ohio National Life........................... The Ohio National Life Insurance Co.
Sarcom....................................... Sarcom Technologies, Inc.
Sco-Unix..................................... Sco-Unix
Square D..................................... Square D Company
Star Bank.................................... Star Bank Corporation
TCSS......................................... The Computer Supply Store, Inc.
Toshiba...................................... Toshiba America Information Systems, Inc.
Toyota....................................... Toyota Motor Manufacturing North America Inc.
Vanstar...................................... Vanstar Corporation
Western-Southern............................. Western-Southern Life Insurance Company
XLConnect.................................... XLConnect Solutions, Inc.
</TABLE>
- ------------------
* The trademarks, service marks and trade names of other companies including
those listed above to which reference is made in this Prospectus are the
property of their respective owners. Such owners have all applicable rights
with respect to their respective trademarks, service marks and trade names.
G-2
<PAGE>
<TABLE>
<CAPTION>
TECHNICAL TERMS
- ---------------------------------------------
<S> <C>
Aggregator................................... 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
HTML......................................... HyperText Markup Language. The coding language used to create
Hypertext (text containing links to other documents) documents for
use on the World Wide Web
EDI (Electronic Data Interchange)............ The connecting of computer systems at different companies so that
information may be directly exchanged between them
Internet..................................... An open global network of interconnected commercial, educational
and governmental computer networks that utilize a common
communications protocol
LAN.......................................... Local area network
PC........................................... Personal computer
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
World Wide Web............................... A network of computer servers that uses a special communications
protocol to link different servers throughout the Internet and
permits communications of graphics, video and sound
</TABLE>
G-3
<PAGE>
1. Photo of a man working on the inside of an open computer.
-- Text above photo: "Electronic Testing & Redeploy Services"
2. Photo of Compaq computer box with bar code sticker affixed. A hand with an
infrared scanner is shown scanning the sticker.
-- Text below photo: "Product Procurement & Distribution Services"
3. Photo of product on conveyor belts with computers and monitors arranged on
repair desks in the background.
-- Text below photo: "Depot Repair"
4. Photo of disassembled computer with hand inside depicting maintenance or
repair.
-- Text below photo: "Maintenance Services"
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY 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 BY ANY OF THE UNDERWRITERS. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF
COMMON STOCK OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 11
Capitalization............................................................ 12
Price Range of Common Stock and Dividend Policy........................... 13
Selected Consolidated Financial and Operating Data........................ 14
Selected Pro Forma Consolidated Financial and Operating Data.............. 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 23
Management................................................................ 32
Certain Transactions...................................................... 33
Principal and Selling Stockholders........................................ 35
Underwriting.............................................................. 37
Legal Matters............................................................. 38
Experts................................................................... 38
Available Information..................................................... 39
Incorporation of Certain Documents by Reference........................... 39
Index to Consolidated Financial Statements................................ F-1
Glossary.................................................................. G-1
</TABLE>
1,100,000 SHARES
[LOGO]
COMMON STOCK
----------------
P R O S P E C T U S
----------------
[LOGO]
[LOGO]
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. 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............... $ 13,321
NASD filing fee................................................... 4,896
Nasdaq Stock Market's National Market listing fee................. 17,500
Accounting Fees and Expenses...................................... 65,000
Transfer Agent's Fees and Expenses................................ 5,000
Legal Fees and Expenses........................................... 60,000
Blue Sky Fees and Expenses........................................ 10,000
Printing and Engraving Expenses................................... 115,000
Miscellaneous..................................................... 309,283
---------
Total Expenses................................................ $ 600,000
---------
---------
</TABLE>
ITEM 15. 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, 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 in effect an insurance policy that covers any negligent act,
error or omission of a director or officer, subject to certain exclusions. The
limit of liability under the policy is $5,000,000 in the aggregate annually for
coverage in excess of deductibles and covers only 30% of securities claims.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement among the Company, the Selling Stockholder
and J.C. Bradford & Co. and Tucker Anthony Incorporated, as the
Representatives of the several Underwriters.
5* Opinion of Cors & Bassett regarding legality of Common Stock being
registered.
10.1 Amendment to Loan Agreement by Letter Agreement dated June 27, 1996 by and
among Star Bank, N.A., the Company, C&N Corp., Xenas Communications
Corp. and Pomeroy Computer Leasing Company, Inc.
10.2 Amendment to Loan Agreement by Letter Agreement dated December 20, 1996 by
and among Star Bank, N.A., the Company, C&N Corp., Xenas Communications
Corp. and Pomeroy Computer Leasing Company, Inc.
10.3 Employment Agreement between the Company and Stephen E. Pomeroy dated
November 13, 1996.
10.4 Incentive Deferred Compensation Agreement between the Company and Stephen
E. Pomeroy dated November 13, 1996
10.5 Asset Purchase Agreement among the Company, AA Microsystems, Inc. and
Stuart Raburn dated August 2, 1996.
10.6 Promissory Note dated August 2, 1996 of the Company in favor of AA
Microsystems, Inc.
10.7 Asset Purchase Agreement among the Company, Communications Technology,
Inc. d/b/a DILAN and Robert Martin dated October 11, 1996.
10.8 Subordinated Promissory Note dated October 11, 1996 of the Company in
favor Communications Technology, Inc.
10.9 Subordination Agreement among the Company, Communications Technology, Inc.
d/b/a DILAN and Star Bank, National Association dated October 11, 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, P.C.--West Des Moines
23.5* Consent of Cors & Bassett (contained in the opinion of counsel to be filed
as Exhibit 5 hereto)
23.6 Consent of Kenneth R. Waters
24 Power 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 forgoing 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
II-2
<PAGE>
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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement 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.
(2) 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.
(3) 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-3
<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 Hebron, Commonwealth of
Kentucky, January 2, 1997.
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, II 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.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board of
/s/ DAVID B. POMEROY, II Directors, President and
- ------------------------------ Chief Executive Officer January 2, 1997
David B. Pomeroy, II (Principal Executive
Officer)
Director, Chief Financial
/s/ EDWIN S. WEINSTEIN Officer, Treasurer and
- ------------------------------ Secretary (Principal January 2, 1997
Edwin S. Weinstein Financial and Accounting
Officer)
/s/ JAMES H. SMITH, III
- ------------------------------ Director January 2, 1997
James H. Smith, III
/s/ DAVID W. ROSENTHAL
- ------------------------------ Director January 2, 1997
David W. Rosenthal
/s/ MICHAEL E. ROHRKEMPER
- ------------------------------ Director January 2, 1997
Michael E. Rohrkemper
II-4
<PAGE>
Exhibit 1.1
POMEROY COMPUTER RESOURCES, INC.
1,100,000 Shares
of
Common Stock
UNDERWRITING AGREEMENT
___________, 1997
J. C. BRADFORD & CO.
TUCKER ANTHONY INCORPORATED
As Representatives of the Several Underwriters
c/o J. C. Bradford & Co.
J. C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201
Ladies and Gentlemen:
Pomeroy Computer Resources, Inc., a Delaware corporation (the "Company"),
proposes to sell to the underwriters named in Schedule I hereto (the
"Underwriters") for whom you are acting as the representatives (the
"Representatives") 1,020,000 shares of the common stock, par value $.01 per
share ("Common Stock"), of the Company (the "Company Shares"), and David B.
Pomeroy, II (the "Selling Stockholder") proposes to sell to the Underwriters
80,000 shares of Common Stock (the "Selling Stockholder Shares"). The
Company Shares and the Selling Stockholder Shares are hereinafter referred to as
the "Firm Shares". The Firm Shares are to be sold to the Underwriters, acting
severally and not jointly, in such amounts as are set forth on Schedule I
attached hereto. The Company has granted the Underwriters an option to purchase
up to 165,000 additional shares of Common Stock as provided for in Section 3
of this Agreement for the purpose of covering over-allotments in connection with
the distribution and sale of the Firm Shares (the "Option Shares"). The Firm
Shares and the Option Shares are herein called the "Shares."
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to each Underwriter and agrees as follows:
(a) The Company has filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), a registration statement on Form S-3 (Registration No. 333-_____),
including the related preliminary prospectus relating to the Shares, and has
filed one or more amendments related thereto. Copies of such registration
statement and any amendments, including any post-effective amendments, and all
forms of the related prospectuses contained therein and any supplements thereto,
have been delivered to you. Such registration statement, including the
prospectus, Part II, all financial schedules and exhibits thereto, all documents
incorporated by reference therein filed under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and all information deemed to be a part of
such registration statement pursuant to Rule 430A under the Securities Act, as
amended, at the time when it shall become effective (including any registration
statement for the same offering that becomes effective upon filing pursuant to
Rule 462(b) of the Securities Act), is herein referred to as the "Registration
Statement"; and the prospectus included as part of the Registration Statement on
<PAGE>
file with the Commission that discloses all the information that was omitted
from the prospectus on the effective date pursuant to Rule 430A of the Rules and
Regulations (as defined below) and in the form filed pursuant to Rule 424(b)
(including all documents incorporated by reference therein filed under the
Exchange Act and any Term Sheet (as defined herein) if the Company relied on
Rule 434) under the Securities Act is herein referred to as the "Final
Prospectus." The prospectus included as part of the Registration Statement on
the date when the Registration Statement became effective (including all
documents incorporated by reference therein filed under the Exchange Act, and
the information deemed to be a part of thereof pursuant to Rule 430A and Rule
434, if applicable) is referred to herein as the "Effective Prospectus." Any
prospectus included in the Registration Statement and in any amendment thereto
prior to the effective date of the Registration Statement is referred to herein
as a "Preliminary Prospectus." For purposes of this Agreement, "Rules and
Regulations" means the rules and regulations promulgated by the Commission under
either the Securities Act or the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as applicable. "Term Sheet" means any term sheet that
satisfies the requirements of Rule 434 under the Securities Act. Any reference
in this Agreement to an "amendment or supplement" to any Preliminary Prospectus,
the Final Prospectus or the Effective Prospectus or an "amendment" to any
registration statement (including the Registration Statement) shall be deemed to
include any document incorporated by reference therein and filed with the
Commission under the Exchange Act after the date of such Preliminary Prospectus,
Final Prospectus, Effective Prospectus or Registration Statement, as the case
may be. For purposes of the preceding sentence, any reference to the "effective
date" of an amendment to a registration statement shall, if such amendment is
effected by means of the filing with the Commission under the Exchange Act of a
document incorporated by reference in such registration statement, be deemed to
refer to the date on which such document was so filed with the Commission. As
used herein, any reference to any statement or information as being "made",
"included", "contained", "disclosed", or "set forth" in any Preliminary
Prospectus, Final Prospectus, Effective Prospectus or any amendment or
supplement thereto, or the Registration Statement or any amendment thereto (or
other similar references) shall refer both to information and statements
actually appearing in such document as well as information and statements
incorporated by reference therein.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and each Preliminary Prospectus, at the time
of filing thereof, complied with the requirements of the Securities Act and the
Rules and Regulations, and did not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; except that the foregoing does not
apply to statements or omissions made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter specifically for
use therein (it being understood that the only information so provided is the
information included in the last paragraph on the cover page, the two paragraphs
relating to stabilization practices on the inside front cover and under the
caption "Underwriting" in the Final Prospectus). When the Registration
Statement becomes effective and at all times subsequent thereto up to and
including the First Closing Date (as hereinafter defined), (i) the Registration
Statement, the Effective Prospectus and Final Prospectus and any amendments or
supplements thereto will contain all statements which are required to be stated
therein in accordance with the Securities Act, the Exchange Act and the Rules
and Regulations and will comply with the requirements of the Securities Act, the
Exchange Act and the Rules and Regulations, and (ii) neither the Registration
Statement, the Effective Prospectus nor the Final Prospectus nor any amendment
or supplement thereto will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they are
made, not misleading; except that the foregoing does not apply to statements or
omissions made in reliance upon and in conformity with written information
furnished to the Company by any Underwriter specifically for use therein (it
being understood that the only information so provided is the information
included in the last paragraph on the cover page, the two paragraphs relating to
stabilization practices on the inside front cover and under the caption
"Underwriting" in the Final Prospectus).
(c) The Company and each subsidiary of the Company (as used herein, the
term "subsidiary" includes any corporation, joint venture or partnership in
which the Company or any subsidiary of the Company has a ten percent ownership
interest) is duly organized and validly existing and in good standing under the
laws of the respective jurisdictions of their organization or incorporation, as
the case may be, with full corporate power and authority to own their properties
and conduct their businesses as now conducted and are duly qualified or
authorized to do business and
<PAGE>
are in good standing in all jurisdictions wherein the nature of their business
or the character of property owned or leased may require them to be qualified or
authorized to do business, where the failure to so qualify would have a material
adverse effect on the Company and its subsidiaries, taken as a whole. The
Company and its subsidiaries hold all licenses, consents and approvals, and have
satisfied all eligibility and other similar requirements imposed by federal and
state regulatory bodies, administrative agencies or other governmental bodies,
agencies or officials, in each case as material to the conduct of the respective
businesses in which they are engaged. Each of the Company's subsidiaries is set
forth on Exhibit 21 to the Registration Statement.
(d) The outstanding stock of each of the Company's corporate subsidiaries
is duly authorized, validly issued, fully paid and nonassessable. All of the
outstanding stock of each of the Company's corporate subsidiaries is owned by
the Company, clear of any lien, encumbrance, pledge, equity or claim of any kind
other than the pledge of the shares of each such subsidiary to Star Bank. No
options or warrants or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into any shares of capital
stock or of ownership interests in any of the Company's subsidiaries are
outstanding. Other than as disclosed in the Effective Prospectus and the Final
Prospectus, neither the Company nor any of its subsidiaries is a partner or
joint venturer in any partnership or joint venture.
(e) The capitalization of the Company is as set forth under the caption
"Capitalization" in the Effective Prospectus and the Final Prospectus, and
the Company's Common Stock conforms to the description thereof contained
under the caption "Description of Capital Stock" in the final prospectus
dated June 26, 1996, relating to the offering and sale of 1,350,000 shares of
Common Stock. All the issued shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable.
None of the issued shares of capital stock of the Company have been issued in
violation of any preemptive or similar rights. The Shares have been duly and
validly authorized and, upon issuance and delivery and payment therefor in
the manner herein described, will be validly issued, fully paid and
nonassessable. There are no preemptive rights or other rights to subscribe
for or to purchase, or any restriction upon the transfer of, any shares of
Common Stock pursuant to the Company's Certificate of Incorporation, bylaws
or other governing documents or any agreement or other instrument to which
the Company is a party or by which it may be bound except as described in the
Effective Prospectus and the Final Prospectus and except for restrictions on
transfer imposed under applicable securities laws. Neither the filing of the
Registration Statement nor the offer or sale of the Shares as contemplated by
this Agreement gives rise to any rights for or relating to the registration
of any shares of Common Stock or any other securities of the Company. The
Underwriters will receive good and marketable title to the Shares to be
issued and delivered by the Company hereunder, free and clear of all liens,
encumbrances, claims, security interests, restrictions, shareholders'
agreements and voting trusts whatsoever.
(f) All offers and sales of the Company's securities prior to the date
hereof were at all relevant times either registered under the Securities Act or
exempt from the registration requirements of the Securities Act and were duly
registered or the subject of an available exemption from the registration
requirements of the applicable state securities or Blue Sky laws.
(g) The Company has full legal right, power and authority to enter into
this Agreement and to sell and deliver the Shares to the Underwriters as
provided herein, and this Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency and other laws affecting
creditors' rights generally or general principles of equity. No consent,
approval, authorization or order of any court or governmental agency or body or
third party is required for the performance of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, except
such as have been obtained and such as may be required by the National
Association of Securities Dealers, Inc. ("NASD") or under the Securities Act, or
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters. The issue and sale of the
Shares by the Company, the Company's performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in a breach
or violation of, or conflict with, any of the terms and provisions of, or
constitute a default by the Company or any of its subsidiaries under, any
<PAGE>
indenture, mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party or to
which the Company or any of its subsidiaries or any of their respective
properties is subject, the Certificate of Incorporation or bylaws of the Company
or any of its subsidiaries or any statute or any judgment, decree, order, rule
or regulation of any court or governmental agency or body applicable to the
Company, or any subsidiary or any of their respective properties. Neither the
Company nor any subsidiary is in violation of its Articles or Certificate of
Incorporation or bylaws or any law, administrative rule or regulation or
arbitrators' or administrative or court decree, judgment or order or in
violation or default (there being no existing state of facts which with notice
or lapse of time or both would constitute a default) in the performance or
observance of any obligation, agreement, covenant or condition contained in any
material contract, indenture, deed of trust, mortgage, loan agreement, note,
lease, agreement or other instrument or permit to which it is a party or by
which it or any of its properties is or may be bound, which such violation or
default could have a material and adverse effect on the Company and its
subsidiaries, taken as a whole.
(h) The financial statements and the related notes and schedules of (A)
the Company and its consolidated subsidiaries and (B) The Computer Supply
Store, Inc. (the "Acquired Company") included or incorporated by reference in
the Registration Statement, the Effective Prospectus and the Final Prospectus
present fairly the financial position, results of operations and changes in
financial position and cash flow of the Company and its consolidated
subsidiaries and the Acquired Company, at the dates and for the periods to
which they relate and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated. The unaudited pro forma financial information of the Company
included in the Registration Statement, the Effective Prospectus and the Final
Prospectus have been prepared in accordance with the Commission's rules and
regulations and guidelines with respect to pro forma financial statements and
the assumptions used in the preparation thereof are, in the Company's opinion,
reasonable and made in good faith. The financial and statistical data set
forth in the Effective Prospectus and the Final Prospectus under the captions
"Prospectus Summary," "Use of Proceeds," "Capitalization," "Selected
Consolidated Financial and Operating Data," "Selected Pro Forma Consolidated
Financial and Operating Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business," "Principal and
Selling Stockholders" and "Certain Transactions" present fairly the
information set forth therein on the basis stated in the Effective Prospectus
and the Final Prospectus. Grant Thornton LLP has certified the financial
statements of the Company for the year ended January 5, 1996 and January 5,
1995 and the nine month period ended October 5, 1996. Deloitte & Touche LLP
has certified the financial statements of the Company for the year ended
January 5, 1994. Deloitte & Touche LLP has certified the financial
statements of the Acquired Company for the year ended December 31, 1995 and
Northrup, Haines, Kaduce, Schmid, Macklin, P.C. has certified the financial
statements of the Acquired Company for the year ended December 31, 1994. Each
of Grant Thornton LLP, Deloitte & Touche LLP and Northrup, Haines, Kaduce,
Schmid, Macklin, P.C. is a firm of independent public accountants as required
by the Securities Act and the Rules and Regulations.
(i) Subsequent to January 5, 1996, neither the Company nor any subsidiary
has sustained any material loss or interference with its business or properties
from fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, which is not disclosed in the Effective Prospectus and the Final
Prospectus; and subsequent to the respective dates as of which information is
given in the Registration Statement, the Effective Prospectus and the Final
Prospectus, (i) neither the Company nor any of its subsidiaries has incurred any
material liabilities or obligations, direct or contingent, or entered into any
material transactions not in the ordinary course of business and (ii) there has
not been any (a) change in the capital stock, partnership interests, joint
venture interests, or obligations under capital leases of the Company and its
subsidiaries or (b) material change in the long-term debt or short- term
borrowings of the Company and its subsidiaries or any issuance of options,
warrants or rights to purchase the capital stock of the Company, or any material
adverse change, or any development involving a prospective material adverse
change, in the general affairs, management, business, prospects, financial
position, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, except in each case as described in or
contemplated by the Effective Prospectus and the Final Prospectus.
(j) Except as described in the Effective Prospectus and the Final
Prospectus or as previously disclosed in writing to you, there is not pending,
or to the knowledge of the Company threatened, any action, suit, proceeding,
inquiry or investigation, to which the Company, any of its subsidiaries or to
their knowledge any of their officers or directors is a party, or to which the
property of the Company or any subsidiary is subject, before or brought by any
court or governmental agency or body, wherein an unfavorable decision, ruling or
finding could prevent or materially hinder
<PAGE>
the consummation of this Agreement or result in a material adverse change in the
business condition (financial or other), prospects, financial position, net
worth or results of operations of the Company and its subsidiaries, taken as a
whole.
(k) There are no contracts or other documents required by the Securities
Act or by the Rules and Regulations to be described in the Registration
Statement, the Effective Prospectus or the Final Prospectus or to be filed as
exhibits to the Registration Statement which have not been described or filed as
required.
(l) Except as described in the Effective Prospectus and the Final
Prospectus, the Company and each of its subsidiaries have good and marketable
title to all real and material personal property owned by them, free and clear
of all material liens, charges, encumbrances or defects, except those reflected
in the financial statements hereinabove described. The real and personal
property and buildings referred to in the Effective Prospectus and the Final
Prospectus which are leased from others by the Company are held under valid,
subsisting and enforceable leases. The Company or its subsidiaries owns or
leases all such properties as are necessary to its operations as now conducted.
(m) The Company's system of internal accounting controls is sufficient to
meet the objectives of internal accounting control insofar as those objectives
pertain to the prevention or detection of errors or irregularities in amounts
that would be material in relation to the Company's financial statements.
Neither the Company, any of its subsidiaries, nor any director, officer, agent,
employee or other person associated with or acting on behalf of the Company or
any such subsidiary has, directly or indirectly used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
(n) The Company and its subsidiaries have filed all foreign, federal,
state and material local income and franchise tax returns required to be filed
through the date hereof and have paid all taxes shown as due therefrom; and
there is no tax deficiency, assessment, fine or penalty that has been, nor does
the Company or any subsidiary have knowledge of any tax deficiency, assessment,
fine or penalty which is likely to be, asserted against the Company or its
subsidiaries, which if determined adversely could materially and adversely
affect the earnings, assets, affairs, business prospects or condition (financial
or other) of the Company and its subsidiaries, taken as a whole.
(o) The Company and its subsidiaries operate their business in each
jurisdiction in which the Company or any of its subsidiaries is doing business
in conformity with all applicable statutes, ordinances, decrees, orders, rules
and regulations of all applicable governmental bodies, including federal, state
and local governing bodies in the United States and all foreign governments in
areas outside of the United States, except where such failure would have no
material adverse effect on the business, operations, property or business
prospects of the Company and its subsidiaries, taken as a whole. The Company
and its subsidiaries have all licenses, approvals or consents to operate their
respective business in all locations in which such businesses are currently
being operated other than such licenses, approvals or consents the failure to so
have obtained would not have a material adverse effect on the Company or its
subsidiaries, and the Company and its subsidiaries have no knowledge of any
existing or imminent matter other than as specifically disclosed in the
Effective Prospectus and the Final Prospectus which may have a material adverse
effect on the business, operations, property or business prospects of the
Company and its subsidiaries, considered as a whole.
(p) Neither the Company nor any of its subsidiaries have failed to file
with the applicable regulatory authorities any statement, report, information or
form required by any applicable law, regulation or order and all such filings or
submissions were in compliance with applicable laws when filed and no
deficiencies have been asserted by any regulatory commission, agency or
authority with respect to such filings or submissions, except where such failure
would have no material adverse effect on the business, operations, property or
business prospects of the Company and its subsidiaries, considered as a whole.
Neither the Company nor any of its subsidiaries have failed to maintain in full
force and effect any license or permit necessary or proper for the conduct of
its business, or received any notification that any revocation or limitation
thereof is threatened or pending, and there is not pending any change under any
law,
<PAGE>
regulation, license or permit which could materially adversely affect the
business, operations, property or business prospects of the Company and its
subsidiaries, taken as a whole. Neither the Company nor any of its subsidiaries
have received any notice of violation of or been threatened with a charge of
violating and, to the Company's knowledge, and except as previously disclosed in
writing to you, are not under investigation with respect to a possible violation
of any provision of any law, regulation or order.
(q) No labor dispute exists with the Company's employees or with employees
of its subsidiaries or is threatened which could materially adversely affect the
Company and its subsidiaries, taken as a whole. The Company is not aware of any
existing or threatened labor disturbance by its employees or by any employees of
its subsidiaries which could be expected to materially adversely effect the
condition (financial or otherwise), results of operations, properties, affairs,
management, business affairs or business prospects of the Company and its
subsidiaries, taken as a whole.
(r) Except as disclosed in the Effective Prospectus and the Final
Prospectus, the Company and its subsidiaries own or possess, or can acquire on
reasonable terms, the licenses, copyrights, trademarks, service marks, trade
names, patents and proprietary and other confidential information presently
employed by them in connection with the businesses now operated by them, and,
neither the Company nor any of its subsidiaries have received any notice of
infringement of or conflict with asserted rights of others with respect to any
of the foregoing which, alone or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries, taken as a
whole.
(s) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a comparable cost.
(t) Other than as set forth in the Company's bank loan agreement, no
subsidiary of the Company is currently prohibited, directly or indirectly, from
paying any dividends to the Company, from making any other distributions on such
subsidiary's capital stock, from repaying to the Company any loans or advances
to such subsidiary or from transferring any of such subsidiary's property or
assets to the Company or any other subsidiary of the Company.
(u) The Company is not, will not become as a result of the transactions
contemplated hereby, and does not intend to conduct its business in a manner
that would cause it to become, an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
(v) Neither the Company nor any of its subsidiaries, nor any of the
directors, officers, employees or agents of the Company and its subsidiaries
have taken and will not take, directly or indirectly, any action designed to
cause or result in, or which has constituted or which might be expected to
constitute, stabilization or manipulation of the price of the Common Stock.
(w) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act, and is qualified as a Nasdaq National Market security of The
Nasdaq Stock Market, Inc. The Company has taken no action designed to
terminate, or likely to have the effect of terminating, the registration of the
Common Stock under the Exchange Act or qualification of the Common Stock on the
Nasdaq National Market, nor has the Company received any notification that the
Commission or the NASD is contemplating terminating such registration or
qualification.
(x) Neither the Company nor any of its subsidiaries is in violation of any
federal or state law or regulation relating to occupational safety and health
and the Company and its subsidiaries have received all permits, licenses or
other approvals required of them under applicable federal and state laws and
regulations to conduct their respective
<PAGE>
businesses, and the Company and each such subsidiary is in compliance with all
terms and conditions of any such permit, license or approval, except any such
violation of law or regulation, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals which would not, singly or in the aggregate,
result in a material and adverse effect on the earnings, assets, affairs,
business prospects or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole.
(y) Each certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
(z) Except where such failure to comply or violation would not, singly or
in the aggregate have a material adverse effect on the earnings, assets,
affairs, business prospects or condition (financial or otherwise) of the Company
and its subsidiaries, taken as a whole, (i) the Company has complied with the
Immigration Reform and Control Act of 1986 and all regulations promulgated
thereunder ("IRCA") with respect to the completion and maintenance of Forms I-9,
Employment Eligibility Verification Forms, for all of its current employees and
reverification of the employment status of any and all employees whose
employment authorization documents indicated a limited period of employment
authorization; (ii) with respect to all former employees who left the Company's
employment within three years prior to the date hereof, the Company has complied
with IRCA with respect to the maintenance of Forms I-9 for at least three years
or for one year beyond the date of termination, whichever is later; (iii) the
Company has not violated any applicable laws relating to immigration and has
employed only individuals authorized to work in the United States and has never
been the subject of any inspection or investigation relating to its compliance
with or violation of IRCA; and (iv) the Company has not been warned, fined or
otherwise penalized by reason or any failure to comply with IRCA, and no such
proceeding is pending or threatened.
(aa) Each of the reports and registration statements filed by the Company
with the Commission under the Securities Act or the Exchange Act, when they
became effective or were filed with the Commission, as the case may be,
including, without limitation, the documents incorporated by reference in the
Final Prospectus, conformed in all material respects to the requirements of the
Securities Act or the Exchange Act and the Rules and Regulations, and none of
such documents contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(bb) The Company has not distributed and, prior to the later of (i) the
First Closing Date and (ii) the completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering and
sale of the Shares other than the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Final Prospectus or any amendment or
supplement thereto, or other materials, if any, permitted by the Securities Act.
(cc) At the time the Registration Statement became effective (A) it did not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) the Effective Prospectus and Final Prospectus did not and
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(dd) The conditions for use of a Registration Statement on Form S-3 set
forth in the General Instructions to Form S-3 have been satisfied with respect
to the Company and the transactions contemplated by this Agreement and the
Registration Statement.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The
Selling Stockholder represents and warrants to each Underwriter and agrees as
follows:
(a) The Selling Stockholder has good and marketable title to the Selling
Stockholder Shares to be sold by the Selling Stockholder, free and clear of any
liens, encumbrances, equities and claims (other than as imposed by
<PAGE>
the Securities Act or this Agreement), and full right, power and authority to
effect the sale and delivery of the Selling Stockholder Shares; and upon the
delivery of and payment for the Selling Stockholder Shares pursuant to this
Agreement, good and marketable title to the Selling Stockholder Shares, free and
clear of any liens, encumbrances, equities, claims, security interests,
restrictions, shareholder agreements or voting trusts, will be transferred to
the Underwriters.
(b) The Selling Stockholder has duly executed and delivered the Custody
Agreement in the form previously delivered to the Representatives, appointing
Cors & Bassett as the duly authorized custodian (the "Custodian") of the Selling
Stockholder Shares. Shares of Common Stock, in suitable form for transfer,
representing the Selling Stockholder Shares to be sold by the Selling
Stockholder hereunder have been deposited with the Custodian pursuant to the
Custody Agreement for the purpose of delivery pursuant to this Agreement. The
Selling Stockholder agrees that the Selling Stockholder Shares on deposit with
the Custodian are subject to the interest of the Underwriters hereunder, that
the arrangements made for such custody are to that extent irrevocable, and that
the obligations of the Selling Stockholder hereunder shall not be terminated
except as provided in this Agreement and the Custody Agreement. If the Selling
Stockholder should die or become incapacitated, or if any other event should
occur, before the delivery of the Shares of the Selling Stockholder hereunder,
the Selling Stockholder Shares deposited with the Custodian shall be delivered
by the Custodian in accordance with the terms and conditions of this Agreement
as if such death, incapacity, or other event had not occurred, regardless of
whether or not the Custodian shall have received notice thereof.
(c) The Selling Stockholder has duly executed and delivered this
Agreement. This Agreement constitutes a legal, valid and binding obligation of
the Selling Stockholder, enforceable against the Selling Stockholder in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency and other laws affecting creditors' rights generally or
general principles of equity. All authorizations and consents necessary for the
execution and delivery of this Agreement and the Custody Agreement on behalf of
the Selling Stockholder and for the sale and delivery of the Selling Stockholder
Shares to be sold by the Selling Stockholder hereunder has been given. The
Selling Stockholder has the legal capacity and full right, power and authority
to execute this Agreement and the Custody Agreement.
(d) The performance of this Agreement and the Custody Agreement and the
consummation of the transactions contemplated hereby and thereby by the Selling
Stockholder will not result in a breach or violation of, or conflict with, any
of the terms or provisions of, or constitute a default by the Selling
Stockholder under, any indenture, mortgage, deed of trust, trust (constructive
or other), loan agreement, lease, franchise, license or other agreement or
instrument to which the Selling Stockholder or any of the Selling Stockholder's
properties is bound, any statute, or any judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to the Selling
Stockholder or any of the Selling Stockholder's properties.
(e) The Selling Stockholder has not taken and will not take, directly or
indirectly, any action designed to, or which might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock. The Selling Stockholder has not distributed nor will distribute any
prospectus or other offering material in connection with the offer and sale of
the Shares other than any Preliminary Prospectus or the Final Prospectus or
other material permitted by the Securities Act.
(f) For a period of 180 days from the effective date of the Registration
Statement, the Selling Stockholder agrees that the Selling Stockholder will not,
directly or indirectly, sell, offer to sell, grant any option for the sale of,
or otherwise dispose of any shares of Common Stock, or any warrant or other
security convertible or exchangeable into or giving the holder thereof the right
to acquire Common Stock, without the prior written consent of the
Representatives.
(g) The representations and warranties of the Company in Section 1 of this
Agreement are true and correct. The Selling Stockholder has reviewed and is
familiar with the Registration Statement as originally filed with the
Commission, and as amended, and the Preliminary Prospectus. There are no facts,
conditions or information not
<PAGE>
disclosed in such Preliminary Prospectus that have materially adversely affected
or could materially adversely affect the business, financial position, net worth
or results of operations, or could materially adversely affect the properties or
assets of the Company and its subsidiaries, taken as a whole. The Preliminary
Prospectus does not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
Selling Stockholder represents that it was not prompted to sell the Selling
Stockholder Shares by any information concerning the Company or any subsidiary
that is not set forth in the Preliminary Prospectus, the Effective Prospectus,
or the Final Prospectus.
(h) At the time the Registration Statement became effective (A) such parts
of the Registration Statement and any amendments and supplements thereto as
specifically refer to the Selling Stockholder did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(B) such parts of the Effective Prospectus and Final Prospectus as specifically
refer to the Selling Stockholder did not and will not include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(i) Any certificate signed by or on behalf of the Selling Stockholder as
such and delivered to the Representatives or to counsel for the Representatives
shall be deemed a representation and warranty by the Selling Stockholder to each
Underwriter as to the matters covered thereby.
(j) In order to document each Underwriter's compliance with its reporting
and withholding obligations or responsibilities with respect to the transactions
herein contemplated, the Selling Stockholder agrees to deliver to you prior to
or at the First Closing Date (as defined below) a properly completed and
executed United States Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
3. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company and the Selling Stockholder agree severally and not jointly
to sell to each of the Underwriters, and each of the Underwriters, severally and
not jointly, agrees to purchase at a purchase price of $_________ per share, the
number of Firm Shares set forth opposite such Underwriter's name in Schedule I
hereto.
(b) The Company also grants to the Underwriters an option to purchase,
solely for the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares, all or any portion of the Option
Shares at the purchase price per share set forth above. The option granted
hereby may be exercised as to all or any part of the Option Shares at any time
within 30 days after the date the Registration Statement becomes effective (or,
if such 30th day shall be a Saturday or Sunday or a holiday, on the next
business day thereafter when the New York Stock Exchange is open for trading).
The Underwriters shall not be under any obligation to purchase any Option Shares
prior to the exercise of such option. The option granted hereby may be
exercised by the Underwriters by the Representatives giving written notice or by
telephone (confirmed in writing) to the Company setting forth the number of
Option Shares to be purchased and the date and time for delivery of and payment
for such Option Shares and stating that the Option Shares referred to in such
notice are to be used for the purpose of covering over-allotments in connection
with the distribution and sale of the Firm Shares. If such notice is given
prior to the First Closing Date (as defined herein), the date set forth therein
for such delivery and payment shall not be earlier than two full business days
thereafter or the First Closing Date, whichever occurs later. If such notice is
given on or after the First Closing Date, the date set forth therein for such
delivery and payment shall not be earlier than three full business days
thereafter. In either event, the date so set forth shall not be more than 10
full business days after the date of such notice. The date and time set forth
in such notice is herein called the "Second Closing Date." Upon exercise of the
option, the Company shall become obligated to sell to the Underwriters, and,
subject to the terms and conditions herein set forth, the Underwriters shall
become obligated to
<PAGE>
purchase, for the account of each Underwriter, from the Company the number of
Option Shares specified in such notice. Option Shares shall be purchased for
the accounts of the Underwriters in proportion to the number of Firm Shares set
forth opposite such Underwriter's name in Schedule I hereto, except that the
respective purchase obligations of each Underwriter shall be adjusted so that no
Underwriter shall be obligated to purchase fractional Option Shares.
(c) Certificates in definitive form for the Firm Shares which each
Underwriter has agreed to purchase hereunder shall be delivered by or on behalf
of the Company and the Selling Stockholder to the Underwriters for the account
of such Underwriter against payment by such Underwriter or on its behalf of the
purchase price therefor by certified or official bank check payable in New York
Clearing House (next day) funds, to the order of the Company or the Selling
Stockholder, as the case may be, at the offices of J. C. Bradford & Co.
("Bradford"), 330 Commerce Street, Nashville, Tennessee 37201, or at such other
place as may be agreed upon by Bradford, the Company and the Selling
Stockholder, at 10:00 A.M., Nashville, Tennessee time, on the third (or if the
Firm Shares are priced, as contemplated by rule 15c6-1(c), promulgated pursuant
to the Exchange Act, after 4:30 P.M., Washington, D.C. time, the fourth) full
business day after this Agreement becomes effective, or at such other time
thereafter as the Representatives, the Company and the Selling Stockholder may
mutually determine, such time of delivery against payment being herein referred
to as the "First Closing Date." The First Closing Date and the Second Closing
Date are herein individually referred to as the "Closing Date" and collectively
referred to as the "Closing Dates." Certificates in definitive form for the
Option Shares which each Underwriter shall have agreed to purchase hereunder
shall be similarly delivered by or on behalf of the Company on the Second
Closing Date. The certificates in definitive form for the Shares to be
delivered will be in good delivery form and in such denominations and registered
in such names as Bradford may request not less than 48 hours prior to the First
Closing Date or the Second Closing Date, as the case may be. Such certificates
will be made available for checking and packaging at a location as may be
designated by you, at least 24 hours prior to the First Closing Date or the
Second Closing Date, as the case may be. It is understood that you may (but
shall not be obligated to) make payment on behalf of any Underwriter or
Underwriters for the Shares to be purchased by such Underwriter or Underwriters.
No such payment shall relieve such Underwriter or Underwriters from any of its
or their obligations hereunder.
4. OFFERING BY THE UNDERWRITERS. After the Registration Statement
becomes effective, the several Underwriters propose to offer for sale to the
public the Firm Shares and any Option Shares which may be sold at the price and
upon the terms set forth in the Final Prospectus.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
of the Underwriters that:
(a) The Company shall comply with the provisions of and make all requisite
filings with the Commission pursuant to Rules 424, 430A and 434, if relied upon
by the Company, of the Rules and Regulations and to notify you promptly (in
writing, if requested) of all such filings. The Company shall notify you
promptly of any request by the Commission for any amendment of or supplement to
the Registration Statement, the Effective Prospectus or the Final Prospectus or
for additional information; the Company shall prepare and file with the
Commission, promptly upon your request, any amendments of or supplements to the
Registration Statement, the Effective Prospectus or the Final Prospectus which,
in your reasonable opinion, may be necessary or advisable in connection with the
distribution of the Shares; and the Company shall not file any amendment of or
supplement (including any Term Sheet) to the Registration Statement, the
Effective Prospectus or the Final Prospectus to which you reasonably object
after reasonable notice thereof. The Company shall advise you promptly after it
receives notice by the Commission or any jurisdiction or other regulatory body
of any stop order or other order suspending the effectiveness of the
Registration Statement, suspending or preventing the use of any Preliminary
Prospectus, the Effective Prospectus or the Final Prospectus or suspending the
qualification of the Shares for offering or sale in any jurisdiction, or of the
institution of any proceedings for any such purpose; and the Company shall use
its reasonable best efforts to prevent the issuance of any stop order or other
such order and, should a stop order or other such order be issued, to obtain as
soon as possible the lifting thereof.
<PAGE>
(b) The Company will take or cause to be taken all necessary action and
furnish to whomever you direct such information as may be reasonably required in
qualifying the Shares for offer and sale under the securities or Blue Sky laws
of such jurisdictions as the Underwriters may designate and will continue such
qualifications in effect for as long as may be reasonably necessary to complete
the distribution and for a period of not less than one year after the Effective
Date; provided, that in connection therewith the Company shall not be required
to qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction in which the Company is not currently so subject.
(c) Within the time during which a Final Prospectus relating to the Shares
is required to be delivered under the Securities Act, the Company shall comply
with all requirements imposed upon it by the Securities Act, as now and
hereafter amended, and by the Rules and Regulations, as from time to time in
force, so far as is necessary to permit the continuance of sales of or dealings
in the Shares as contemplated by the provisions hereof and the Final Prospectus.
If during such period any event occurs as a result of which the Final Prospectus
as then amended or supplemented would include an untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances then existing, not misleading, or if during
such period it is necessary to amend the Registration Statement or supplement
the Final Prospectus or to file under the Exchange Act any document incorporated
by reference in the Final Prospectus in order to comply with the Securities Act
or the Exchange Act, the Company shall promptly notify you and shall amend the
Registration Statement or supplement the Final Prospectus or any such
incorporated document (at the expense of the Company) so as to correct such
statement or omission or effect such compliance.
(d) The Company will furnish without charge to the Representatives copies
of the Registration Statement (two of which shall be signed and shall be
accompanied by all exhibits thereto) and will furnish, without charge to the
Representatives, each Underwriter and to any dealer in securities, each
Preliminary Prospectus, the Effective Prospectus and the Final Prospectus, and
all amendments and supplements thereto, including (i) all documents or
information incorporated by reference therein and (ii) any prospectus or
supplement prepared after the effective date of the Registration Statement, in
each case as soon as available and in such quantities as the Underwriters may
reasonably request.
(e) The Company will (i) deliver to you at such office or offices as you
may designate as many copies of the Preliminary Prospectus and Final Prospectus
as you may reasonably request, and (ii) for a period of not more than one month
after the Registration Statement becomes effective or such longer period that a
Final Prospectus relating to the Shares is required to be delivered under the
Securities Act, send to the Underwriters as many additional copies of the Final
Prospectus and any supplement thereto as you may reasonably request.
(f) The Company shall make generally available to its security holders, in
the manner contemplated by Rule 158(b) under the Securities Act as promptly as
practicable and in any event no later than 45 days after the end of its fiscal
quarter in which the first anniversary of the effective date of the Registration
Statement occurs, an earnings statement satisfying the provisions of Section 11
(a) of the Securities Act covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement.
(g) The Company will apply the net proceeds from the sale of the Shares as
set forth under the caption "Use of Proceeds" in the Final Prospectus.
(h) During a period of five years from the effective date of the
Registration Statement, the Company will furnish to the Representatives, without
charge, copies of all reports and other communications (financial or other)
furnished by the Company to its shareholders and, as soon as available, copies
of any reports or financial statements furnished or filed by the Company to or
with the Commission or any national securities exchange or over-the-counter
market on which any class of securities of the Company may be listed or traded
and such additional information concerning the business and financial condition
of the Company and its subsidiaries as you from time to time may reasonably
request.
<PAGE>
(i) The Company will, from time to time, after the effective date of the
Registration Statement file with the Commission such reports as are required by
the Securities Act, the Exchange Act and the Rules and Regulations, and shall
also file with state securities commissions in states where the Shares have been
sold by you (as you shall have advised us in writing) such reports as are
required to be filed by the securities acts and the regulations of those states.
(j) Except pursuant to this Agreement or with your written consent, the
Company will not, and the Company has provided agreements executed by each of
the Company's executive officers and directors providing that none of them will,
for a period of 180 days from the effective date of the Registration Statement,
offer for sale, sell, grant any options, rights or warrants with respect to any
shares of Common Stock, securities convertible into Common Stock or any other
capital stock of the Company, or otherwise dispose of, directly or indirectly,
any shares of Common Stock or such other securities or capital stock, except for
(i) the grant of options pursuant to the Company's stock option plans or other
stock bonus plans in the ordinary course consistent with past practice; or (ii)
the issuance of shares of Common Stock or other securities convertible into
Common Stock or any other capital stock of the Company solely to the owners of
capital stock of any company acquired by the Company.
(k) If at any time during the 30-day period after the date the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which, in your
reasonable opinion, the market price for the Shares has been or is likely to be
materially adversely affected (regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the Final Prospectus), after
written notice from you advising the Company to the effect set forth above, the
Company agrees forthwith to prepare, consult with you concerning the substance
of, and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication or
event; provided, however, that the Company shall have no obligation under this
Section 5(k) to disseminate a public statement or press release or make any
other communication if, in the Company's judgment, such communication may have
an adverse effect on any pending acquisition negotiation in which the Company
may then be engaged.
(l) Neither the Company nor any of its officers, directors or affiliates
will take, directly or indirectly, any action designed to cause or result in, or
which might constitute or be expected to constitute, stabilization or
manipulation of the price of the Common Stock.
(m) The Company will cause the Shares to be listed on the Nasdaq Stock
Market at each Closing Date and will use its reasonable best efforts to cause
the Shares to be so listed for at least one year from the date hereof.
6. EXPENSES. The Company and the Selling Stockholder agree with the
Underwriters that (a) whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is terminated,
the Company will pay all fees and expenses incident to the performance of the
obligations of the Company and the Selling Stockholder, including, but not
limited to, (i) the Commission's registration fee, (ii) the expenses of printing
(or reproducing) and distributing the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto), each
Preliminary Prospectus, the Effective Prospectus, the Final Prospectus, any
amendments or supplements thereto, and this Agreement and other underwriting
documents, including Underwriter's Questionnaires, Underwriter's Powers of
Attorney, Blue Sky Memoranda, Agreements Among Underwriters and Selected Dealer
Agreements, (iii) fees and expenses of accountants and counsel for the Company
and the Selling Stockholder, (iv) reasonable expenses of registration or
qualification of the Shares under state Blue Sky and securities laws, including
the fees and disbursements of counsel to the Underwriters in connection
therewith, provided, such counsel fees shall not exceed $7,500, (v) filing fees
paid or incurred by the Underwriters and related fees and expenses of counsel to
the Underwriters in connection with filings with the NASD, provided, such
counsel fees shall not exceed $5,000, (vi) expenses of listing the Shares on the
Nasdaq National Market, (vii) any expenses for travel, lodging and meals
incurred by the Company in connection with marketing, dealer and other meetings
attended by the Company and the Underwriters in marketing the Shares, (viii) the
costs and charges of the Company's transfer agent and registrar and the cost of
preparing the certificates for the Shares and (ix) all other costs and expenses
incident to the performance of its obligations hereunder not otherwise provided
for in this Section; and (b) all reasonable out-of-pocket expenses,
<PAGE>
including counsel fees, disbursements and expenses, incurred by the Underwriters
in connection with investigating, preparing to market and marketing the Shares
and proposing to purchase and purchasing the Shares under this Agreement, will
be borne and paid by the Company only if the sale of the Shares provided for
herein is not consummated by reason of the termination of this Agreement by the
Representatives pursuant to Sections 10 or 13(iv) or pursuant to Section 13(ii)
because of any failure or refusal on the part of the Company or the Selling
Stockholder to comply in all material respects with any term or fulfill in all
material respects any of the conditions of this Agreement. The Company and the
Selling Stockholder have agreed between themselves with regard to the sharing of
fees and expenses. It is understood, however, that, except as provided in this
Section 6 and Sections 8, 9 and 10, the Underwriters will pay all of their own
costs and expenses, including the fees of their counsel and any advertising
expenses in connection with any offers they may make.
7. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The respective
obligations of the Underwriters hereunder shall be subject, in their discretion,
to the accuracy of the representations and warranties of the Company and the
Selling Stockholder herein as of the date hereof and as of the Closing Date as
if made on and as of the Closing Date, to the accuracy of the statements of the
Company's officers made pursuant to the provisions hereof, to the performance by
the Company and the Selling Stockholder of all of their covenants and agreements
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments thereto
shall have become effective not later than 4:00 P.M., Washington, D.C. time, on
the day following the date of this Agreement, or such later time and date as
shall have been consented to by the Representatives and all filings required by
Rule 424, Rule 430A and Rule 434, if applicable, of the Rules and Regulations
shall have been made; no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Underwriters, shall be contemplated by the Commission; any
request of the Commission for additional information (to be included in the
Registration Statement or the Final Prospectus or otherwise) shall have been
complied with to your reasonable satisfaction; and the NASD, upon review of the
terms of the public offering of the Shares, shall not have objected to such
offering or the terms or the Underwriters' participation in the same.
(b) No Underwriter shall have advised the Company that the Registration
Statement, Preliminary Prospectus, the Effective Prospectus or Final Prospectus,
or any amendment or any supplement thereto, contains an untrue statement of fact
which, in your good faith judgment, is material, or omits to state a fact which,
in your good faith judgment, is material and is required to be stated therein or
necessary to make the statements therein not misleading.
(c) The Representatives shall have received (i) an opinion, dated the
First Closing Date, from Cors & Bassett, counsel for the Company and the Selling
Stockholder, substantially in the form and substance attached hereto as EXHIBIT
A, and reasonably acceptable to the Underwriters and (ii) an opinion dated the
First Closing Date, from Lindhorst & Dreidame, counsel to the Company and the
Selling Stockholder, substantially in the form and substance attached hereto as
EXHIBIT B and reasonably acceptable to the Underwriters.
(d) The Underwriters shall have received an opinion or opinions, dated the
Closing Date, of Alston & Bird, counsel for the Underwriters, with respect to
the Registration Statement and the Final Prospectus, and such other related
matters as the Underwriters may reasonably require.
(e) The Representatives shall have received from each of Grant Thornton
LLP and Deloitte & Touche LLP, a letter dated the date hereof and, at the
Closing Date, a second letter from Grant Thornton LLP dated the Closing Date in
form and in substance reasonably satisfactory to the Representatives, stating
that they are independent public accountants with respect to the Company and its
subsidiaries, within the meaning of the Securities Act and the applicable Rules
and Regulations, and to the effect that:
<PAGE>
(i) In their opinion, the consolidated financial statements and
schedules audited by them and included in the Final Prospectus and the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the published
Rules and Regulations and are presented in accordance with generally accepted
accounting principles consistently applied;
(ii) The unaudited summary and selected financial information
included in the Preliminary Prospectus and the Final Prospectus under the
captions "Prospectus Summary," "Summary Financial and Operating Data,"
"Selected Consolidated Financial and Operating Data," and "Selected Pro Forma
Consolidated Financial Data" agrees with the corresponding amounts in the
audited financial statements included in the Final Prospectus or previously
reported on by them;
(iii) On the basis of a reading of the latest available interim
consolidated financial statements (unaudited) of the Company and its
subsidiaries, a reading of the minute books of the Company and its
subsidiaries since the date of the latest audited financial statements
included in the Final Prospectus, inquiries of officials of the Company
responsible for financial and accounting matters and other specified
procedures, all of which have been agreed to by the Representatives, nothing
came to their attention that caused them to believe that:
(A) the unaudited amounts for sales, net revenues
and total and per share amounts of net income [insert other items as
appropriate] included in the Registration Statement and Final
Prospectus do not agree with the amounts set forth in the unaudited
consolidated financial statements for those same periods or are not in
conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the corresponding amounts
in the audited consolidated financial statements include in the
Registration Statement and the Final Prospectus.
(B) any other unaudited financial statement data
included in the Final Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
data was derived and any such unaudited data were not determined on
a basis substantially consistent with the basis for the
corresponding amounts in the audited financial statement included in
the Final Prospectus;
(C) at a specified date not more than three days
prior to the date of delivery of such respective letter, there was
any change in the consolidated capital stock, decline in
stockholders' equity or increase in long-term debt of the Company
and its subsidiaries, or other items specified by the Underwriters
in each case as compared with amounts shown in the latest balance
sheets included in the Final Prospectus, except in each case for
changes, decreases or increases which the Final Prospectus discloses
have occurred or may occur or which are described in such letters;
and
(D) for the period from the closing date of the
latest consolidated statements of income included in the Effective
Prospectus and the Final Prospectus to a specified date not more
than three days prior to the date of delivery of such respective
letter, there were any decreases in total revenues or net income of
the Company, or other items specified by the Underwriters, or any
increases in any items specified by the Underwriters, in each case
as compared with the corresponding period of the preceding year,
except in each case for decreases which the Final Prospectus
discloses have occurred or may occur or which are described in such
letter.
<PAGE>
(iv) On the basis of (A) a reading of the
unaudited pro forma condensed consolidated statements of income for the
year ended January 5, 1996, and the nine-month period ended October 5,
1996, included in the Registration Statement, (B) inquiries of certain
officials of the Company and the Acquired Company, and (C) the proof of
the arithmetic accuracy of the application of the pro forma adjustments
to the historical amounts in the unaudited pro forma condensed
consolidated financial statements, nothing came to their attention
that caused them to believe that the unaudited pro forma condensed
consolidated financial statements included in the Registration Statement
do not comply as to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X and that the
pro forma adjustment have not been properly applied to the
historical amounts in the compilation of those statements.
(v) They have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information specified by you which are derived from the general
accounting records of the Company and its subsidiaries and the Acquired
Company, as the case may be, which appear in the Effective Prospectus and
the Final Prospectus and have compared and agreed such amounts, percentages
financial information with the accounting records of the Company and its
subsidiaries and the Acquired Company, as the case may be or to analyses
and schedules prepared by the Company and its subsidiaries and the Acquired
Company, as the case may be from its detailed accounting records.
In the event that the letters to be delivered referred to above set forth any
such changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that the Underwriters shall have determined,
after discussions with officers of the Company responsible for financial and
accounting matters and with Grant Thornton LLP and Deloitte & Touche LLP, that
such changes, decreases or increases as are set forth in such letters do not
reflect a material adverse change in the stockholders' equity or long-term debt
of the Company as compared with the amounts shown in the latest consolidated
balance sheets of the Company included in the Final Prospectus, or a material
adverse change in total revenues or net income, of the Company, in each case as
compared with the corresponding period of the prior year.
(f) There shall have been furnished to you a certificate, dated as of the
Closing Date and addressed to you, signed by the Chief Executive Officer and by
the Chief Financial Officer of the Company to the effect that:
(i) the representations and warranties of the Company in Section 1
of this Agreement are true and correct, as if made at and as of the Closing
Date, and the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
initiated or are pending, or to their knowledge, threatened under the
Securities Act;
(iii) all filings required by Rule 424 and Rule 430A of the Rules
and Regulations have been made;
(iv) they have carefully examined the Registration Statement, the
Effective Prospectus and the Final Prospectus, and any amendments or
supplements thereto, and such documents do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and
(v) since the effective date of the Registration Statement, there
has occurred no event required to be set forth in an amendment or
supplement to the Registration Statement, the Effective Prospectus or the
Final Prospectus which has not been so set forth.
<PAGE>
(g) The representations and warranties of the Selling Stockholder
shall be true and correct as if made at and as of the Closing Date and the
Selling Stockholder shall deliver to you a certificate to that effect, dated
the Closing Date, signed by Selling Stockholder.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Final Prospectus, and except as
stated therein, the Company and its subsidiaries have not sustained any
material loss or interference with their respective businesses or properties
from fire, flood, hurricane, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any court or governmental
action, order or decree, or become a party to or the subject of any
litigation which is material to the Company and its subsidiaries, taken as a
whole, nor shall there have been any material adverse change, or any
development involving a prospective material adverse change, in the business,
properties, key personnel, capitalization, net worth, results of operations
or condition (financial or other) of the Company and its subsidiaries, taken
as a whole, which loss, interference, litigation or change, in your
reasonable judgment shall render it inadvisable to commence or continue the
offering of the Shares at the offering price to the public set forth on the
cover page of the Prospectus or to proceed with the delivery of the Shares.
(i) The Shares shall have been listed on the Nasdaq National Market.
(j) You shall have been furnished such additional documents and
certificates as you may reasonably request.
The Company and the Selling Stockholder shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives shall reasonably request.
The respective obligations of the Underwriters to purchase and pay for the
Option Shares shall be subject, in their discretion, to each of the foregoing
conditions to purchase the Firm Shares, except that all references to the
"Closing Date" shall be deemed to refer to the Second Closing Date, if it shall
be a date other than the Closing Date.
<PAGE>
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Underwriter,
and each person, if any, who controls any Underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based in
whole or in part upon (i) any inaccuracy in the representations and warranties
of the Company and the Selling Stockholder contained herein, (ii) any failure of
the Company or the Selling Stockholder to perform their obligations hereunder or
under law, (iii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus, or any amendment or
supplement thereto, any audio or visual materials supplied by the Company and
used in connection with the marketing of the Shares, including without
limitation, slides, videos, films and tape recordings; or in any Blue Sky
application or other written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all of the Shares under
the securities laws thereof (a "Blue Sky Application"), or (iv) the omission or
alleged omission to state in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus or any amendment or
supplement thereto or any Blue Sky Application a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter and each such controlling person for any legal
or other expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage, or liability arises out of or is based upon (i) any untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, the Preliminary Prospectus, the Effective Prospectus
or Final Prospectus or such amendment or such supplement (other than in any
documents, information or statements incorporated by reference therein) in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter specifically for use therein (it being understood
that the only information so provided is the information included in the last
paragraph on the cover page, the two paragraphs relating to stabilization
practices on the inside front cover and under the caption "Underwriting" in any
Preliminary Prospectus and the Final Prospectus and the Effective Prospectus) or
(ii) the failure of the Underwriters to deliver the Final Prospectus after the
effective date, as required under Section 4(3) of the Securities Act and Rule
174 thereunder (provided, that such failure to deliver was not the result of the
failure of the Company to timely supply sufficient quantities of the Final
Prospectus to the Underwriters upon the Underwriter's reasonable request).
(b) The Selling Stockholder agrees to indemnify and hold harmless each
Underwriter, and each person, if any, who controls any Underwriter within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based in whole or in part upon (i) any inaccuracy in the
representations and warranties of the Selling Stockholder contained herein,
(ii) any failure of the Selling Stockholder to perform his obligations
hereunder or under law, (iii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or Final Prospectus, or any
amendment or supplement thereto, or in any Blue Sky Application or (iv) the
omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or any
amendment or supplement thereto or any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses
are incurred. The Selling Stockholder will not be liable in any such case to
the extent that any such loss, claim, damage, or liability arises out of or
is based upon (i) any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, the
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or such
amendment or such supplement (other than in any documents, information or
statements incorporated by reference therein) in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter specifically for use therein (it being understood that the only
information so provided is the information included in the last paragraph on
the cover
<PAGE>
page, the two paragraphs relating to stabilization practices on the inside front
cover and under the caption "Underwriting" in any Preliminary Prospectus and the
Final Prospectus and the Effective Prospectus), or (ii) the failure of the
Underwriters to deliver the Final Prospectus after the effective date, as
required under Section 4(3) of the Securities Act and Rule 174 thereunder
(provided, that if such failure to deliver was the result of the failure of the
Company to timely supply sufficient quantities of the Final Prospectus to the
Underwriters upon the Underwriter's reasonable request, then the Company shall
indemnify the Underwriters and other persons set forth in this Section 8(b) with
respect to any associated losses, claims, damages or liabilities pursuant to
Section 8(a) above).
(c) Neither the Company nor the Selling Stockholder will, without prior
written consent of each Underwriter, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action, suit or
proceeding (or related cause of action or portion thereof) in respect of which
indemnification may be sought hereunder (whether or not such Underwriter is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of such Underwriter from
all liability arising out of such claim, action, suit or proceeding (or related
cause of action or portion thereof).
(d) Each Underwriter will indemnify and hold harmless the Company, each
of its directors, each person who has consented to be named in the Final
Prospectus as a proposed director, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of the Securities Act and the Selling Stockholder against
any losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person or the Selling Stockholder may become
subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Effective Prospectus or Final Prospectus, or any amendment or
supplement thereto (other than in any documents, information or statements
incorporated by reference therein), or arise out of or are based upon the
omission or the alleged omission to state in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or any
amendment or supplement thereto a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company by any
Underwriter specifically for use therein (it being understood that the only
information so provided is the information included in the last paragraph on
the cover page, the two paragraphs relating to stabilization practices on the
inside front cover and under the caption "Underwriting" in any Preliminary
Prospectus and in the Effective Prospectus and the Final Prospectus);
(e) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, including governmental proceedings,
such indemnified party will, if a claim in respect thereof is to be made against
the indemnifying party under this Section 8 notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8, except to the extent the indemnifying party
is irrevocably prejudiced thereby. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with any other counsel
satisfactory to such indemnified party; and after notice from the indemnifying
party to such indemnified party of its election to so assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation incurred at the direction of the indemnifying
party. The indemnified party shall have the right to employ separate counsel if
advised by separate counsel that one or more material legal defenses are
available to it that are different or in addition to those available to the
indemnified party, and in that event the reasonable fees and expenses of
separate counsel shall be paid by the indemnifying party. However, in no event,
shall the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to local counsel, if any) separate from their own counsel
for all indemnified parties in connection with any action or separate, but
similar or related, actions arising out of the same general allegations or
circumstances.
<PAGE>
(f) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the preceding
part of this Section 8 is for any reason held to be unavailable to the
Underwriters, the Company or the Selling Stockholders or is insufficient to
hold harmless an indemnified party, then the Company and the Selling
Stockholders shall contribute to the damages paid by the Underwriters, and
the Underwriters shall contribute to the damages paid by the Company and the
Selling Stockholders provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. In determining the amount of contribution to
which the respective parties are entitled, there shall be considered the
relative benefits received by each party from the offering of the Shares
(taking into account the portion of the proceeds of the offering realized by
each), the parties' relative knowledge and access to information concerning
the matter with respect to which the claim was asserted, the opportunity to
correct and prevent any statement or omission, and any other equitable
considerations appropriate under the circumstances. The Company and the
Selling Stockholders and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by PRO RATA or
per capita allocation (even if the Underwriters were treated as one entity
for such purpose). No Underwriter or person controlling such Underwriter
shall be obligated to make contribution hereunder which in the aggregate
exceeds the underwriting discount applicable to the Shares purchased by such
Underwriter under this Agreement, less the aggregate amount of any damages
which such Underwriter and its controlling persons have otherwise been
required to pay in respect of the same or any similar claim. The
Underwriters' obligations to contribute hereunder are several in proportion
to their respective underwriting obligations and not joint. For purposes of
this Section, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Securities Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each
person who has consented to be named in the Final Prospectus as a proposed
director, each officer of the Company who signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, and the Selling Stockholders shall have the
same rights to contribution as the Company.
(g) The obligations of the Company and the Selling Stockholder under this
Section 8 shall be in addition to any liability which the Company and the
Selling Stockholder may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Securities Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company within the meaning of the Securities Act and to
the Selling Stockholder.
9. DEFAULT OF UNDERWRITERS. If any Underwriter defaults in its
obligation to purchase Shares hereunder and if the total number of Shares which
such defaulting Underwriter agreed but failed to purchase is ten percent or less
of the total number of Shares to be sold hereunder, the non-defaulting
Underwriters shall be obligated severally to purchase (in the respective
proportions which the number of Shares set forth opposite the name of each non-
defaulting Underwriter in Schedule I hereto bears to the total number of Shares
set forth opposite the names of all the non-defaulting Underwriters), the Shares
which such defaulting Underwriter or Underwriters agreed but failed to purchase.
If any Underwriter so defaults and the total number of Shares with respect to
which such default or defaults occur is more than ten percent of the total
number of Shares to be sold hereunder, and arrangements satisfactory to the
other Underwriters, the Company and the Selling Stockholder for the purchase of
such Shares by other persons (who may include the non-defaulting
Underwriters)are not made within 36 hours after such default, this Agreement,
insofar as it relates to the sale of the Shares, will terminate without
liability on the part of the non-defaulting Underwriters, the Company or the
Selling Stockholder except for (i) the provisions of Section 8 hereof and (ii)
the expenses to be paid or reimbursed by the Company pursuant to Section 6. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section 9. Nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. DEFAULT BY THE SELLING STOCKHOLDER. If the Selling Stockholder shall
fail to sell the number of Firm Shares that the Selling Stockholder is obligated
to sell, the Representatives may, at their option, by notice to the Company,
either (a) require the Company to sell and deliver the number of Firm Shares as
to which the
<PAGE>
Selling Stockholder has defaulted, (b) elect to purchase the Firm Shares that
the Company has agreed to sell pursuant to this Agreement or(c) terminate this
Agreement without liability on the part of the Underwriters or the Company,
except for the provisions of Section 8 hereof and the expenses to be paid or
reimbursed by the Company pursuant to Section 6.
In the event of a default under this Section that does not result in the
termination of this Agreement, the Representatives shall have the right to
postpone the First Closing Date or Second Closing Date for a period not
exceeding seven days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements. No action
taken pursuant to this Section shall relieve the Company or the Selling
Stockholder so defaulting from liability, if any, in respect of such default.
11. SURVIVAL CLAUSE. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers, the Selling Stockholder and the Underwriters set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, any of its officers or
directors, the Selling Stockholder, any Underwriter or any controlling
person,(ii) any termination of this Agreement and (iii) delivery of and payment
for the Shares.
12. EFFECTIVE DATE. This Agreement shall become effective at whichever of
the following times shall first occur: (i) at 11:30 A.M., Washington, D.C. time,
on the next full business day following the date on which the Registration
Statement becomes effective or (ii) at such time after the Registration
Statement has become effective as the Representatives shall release the Firm
Shares for sale to the public; PROVIDED, HOWEVER, that the provisions of
Sections 6, 8, 11 and 12 hereof shall at all times be effective. For purposes
of this Section 12, the Firm Shares shall be deemed to have been so released
upon the release by the Representatives for publication, at any time after the
Registration Statement has become effective, of any newspaper advertisement
relating to the Firm Shares or upon the release by the Representatives of
telegrams offering the Firm Shares for sale to securities dealers, whichever may
occur first.
13. TERMINATION. This Agreement may be terminated by the Representatives
by notice to the Company and the Selling Stockholder (i) at any time before it
becomes effective in accordance with Section 12 hereof; (ii) in the event that
at or prior to the First Closing Date the Company or the Selling Stockholder
shall have failed, refused or been unable to perform any agreement on the part
of the Company or the Selling Stockholder to be performed hereunder (or any
other condition to the obligations of the Underwriters hereunder is not
fulfilled); (iii) if at or prior to the Closing Date trading in securities on
the New York Stock Exchange, the American Stock Exchange or the over-the-counter
market shall have been suspended or limited or minimum or maximum prices shall
have been established on either of such Exchanges or such market, or a banking
moratorium shall have been declared by Federal or state authorities; (iv) if at
or prior to the Closing Date trading in securities of the Company shall have
been suspended; or (v) if there shall have been any outbreak or escalation of
major hostilities in which the United States is involved, any declaration of war
by Congress or any other substantial national or international calamity or
emergency if, in the reasonable judgment of the Representatives, the effect of
any such outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the sale of and payment
for the Shares at the offering price to the public set forth on the cover page
of the Prospectus or to proceed with the delivery of the Shares. Termination of
this Agreement pursuant to this Section 13 shall be without liability of any
party to any other party other than as provided in Sections 6 and 8 hereof.
14. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed or delivered or telegraphed and
confirmed in writing to the Representatives in care of J. C. Bradford & Co.,
J.C. Bradford Financial Center, 330 Commerce Street, Nashville, Tennessee 37201,
Attention: Kirk Lundblade or if sent to the Company shall be mailed, delivered
or telegraphed and confirmed in writing to the Company at 1020 Petersburg Road,
Hebron, Kentucky 41048, Attention: David B. Pomeroy, II.
<PAGE>
15. MISCELLANEOUS. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company, the Selling Stockholder
and their respective successors and legal representatives. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
other person any legal or equitable right, remedy or claim under or in
respect of this Agreement. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the Company,
the Selling Stockholder and the several Underwriters and for the benefit of
no other person except that(i) the representations and warranties and
indemnities of the Company, the Selling Stockholder and contained in this
Agreement shall also be for the benefit of any person or persons who control
any Underwriter within the meaning of Section 15 of the Securities Act and
(ii) the indemnities by the Underwriters shall also be for the benefit of the
directors of the Company, each person who has consented to be named in the
Final Prospectus as a proposed director, officers of the Company who have
signed the Registration Statement and any person or persons who control the
Company within the meaning of Section 15 of the Securities Act. No purchaser
of Shares from any Underwriter will be deemed a successor because of such
purchase. The validity and interpretation of this Agreement shall be
governed by the laws of the State of Tennessee. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. You hereby represent and warrant to the Company that you have
authority to act hereunder on behalf of the several Underwriters, and any
action hereunder taken by you will be binding upon all the Underwriters.
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Company, the Selling Stockholder and each of the several Underwriters.
Very truly yours,
POMEROY COMPUTER RESOURCES, INC.
By:
---------------------------------------------
David B. Pomeroy, II, Chief Executive Officer
SELLING STOCKHOLDER
By:
---------------------------------------------
David B. Pomeroy, II
Confirmed and accepted as of the date first above written.
J. C. BRADFORD & CO.
TUCKER ANTHONY INCORPORATED
For themselves and as Representatives of the Several Underwriters
By: J. C. Bradford & Co.
By:
(Authorized Representative)
<PAGE>
EXHIBIT A
FORM OF CORS & BASSETT LEGAL OPINION
It is our opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation under the laws of the State of Delaware, with full power and
authority to own its properties and conduct its business as now conducted.
Except where failure to do so would not have a material adverse effect on the
Company's financial condition, the Company (i) is duly qualified to do business
as a foreign corporation and is in good standing in all other jurisdictions
where the nature of its business or character of property owned or leased
require it to be qualified or authorized to do business and (ii) holds all
licenses, certificates, permits, franchises and authorizations from governmental
authorities necessary for the conduct of its business in all locations in which
such business is currently being conducted.
2. Each of the Company's subsidiaries is validly existing under the laws
of the state of its incorporation or organization, as the case may be, with full
power and authority to own its properties and conduct is business as now
conducted. Except where the failure to do so would have no material adverse
effect on the Company's financial condition, each such subsidiary (i) is duly
qualified or authorized to do business as a foreign corporation and is in good
standing in all other jurisdictions where the nature of its business or
character of property owned or leased require it to be qualified or authorized
to do business and (ii) holds all licenses, certificates, permits, franchises
and authorizations from governmental authorities necessary for the conduct of
its business in all locations in which such business is currently being
conducted. The outstanding stock of each of the Company's subsidiaries is duly
authorized, validly issued, and to our knowledge, fully paid and nonassessable.
All of the outstanding stock of each of the subsidiaries is owned beneficially
and of record by the Company, free and clear of all liens, encumbrances,
pledges, equities or claims of any kind, except as described in the Final
Prospectus. To our knowledge, no options or warrants or other rights to
purchase, agreements or other obligations to issue or other rights to convert
any obligations into any shares of capital stock or of ownership interests in
any of the Company's subsidiaries are outstanding.
3. As of the date specified therein, the Company has authorized and
issued capital stock as set forth under the caption "Capitalization" in the
Final Prospectus, and the Company's capital stock conforms to the description
thereof contained under the caption "Description of Capital Stock" in the final
prospectus dated ______, 1997 relating to the offering and sale of 1,020,000
shares of Common Stock. All of the issued shares of Common Stock (including the
Selling Stockholder Shares) have been duly authorized and are validly issued,
fully paid and nonassessable. The Company Shares and the Option Shares have
been duly and validly authorized, and upon issuance thereof and payment therefor
as provided in the Underwriting Agreement will be validly issued, fully paid and
nonassessable.
4. To our knowledge, none of the issued shares of capital stock of the
Company (other than the Selling Stockholder Shares) have been issued in
violation of or subject to any preemptive or similar rights and there are no
preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the transfer of the Shares or any other shares of Common Stock
pursuant to the Company's Certificate of Incorporation, Bylaws or any agreement
or instrument to which the Company or the Selling Stockholder is a party or by
which it may be bound. Neither the filing of the Registration Statement nor the
offer or sale of the Shares as contemplated thereby gives rise to any rights,
for or relating to the registration of any shares of Common Stock or any other
securities of the Company. The Underwriters have received good and marketable
title to the Company Shares, the Selling Stockholder Shares and the Option
Shares, if applicable, free and clear of all liens, encumbrances, claims,
security interests, restrictions, shareholders agreements and voting trusts
whatsoever, and the certificates for the Company Shares, Selling Stockholder
Shares and the Option Shares, if applicable are in due and proper form. None of
the Selling Stockholder Shares have been issued in violation of or subject to
any preemptive or similar rights and there are no preemptive rights or other
rights to subscribe for or to purchase, or any restriction upon the transfer of
the Selling Stockholder Shares pursuant to the Company's Certificate
<PAGE>
of Incorporation, Bylaws or any agreement or instrument to which the Company or
the Selling Stockholder is a party or by which it may be bound.
5. No consent, approval, authorization or order of any court,
governmental agency or body or, to our knowledge, any third party, is required
for the performance of the Underwriting Agreement by the Company or the
consummation by the Company of the transactions contemplated thereby, except
such as have been obtained under the Act and such as may be required by the NASD
and other state securities or blue sky laws in connection with the purchase and
distribution of the Shares by the several Underwriters. The performance of the
Underwriting Agreement by the Company and the consummation by the Company of the
transactions contemplated thereby will not conflict with or result in a breach
or violation by the Company or any of its subsidiaries of any of the terms or
provisions of, or constitute a default by the Company or any of its subsidiaries
under, the Certificate of Incorporation or Bylaws of the Company or any of its
subsidiaries, or, to our knowledge, (i) any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which the Company or
any of its subsidiaries is a party or to which the Company or any of its
subsidiaries or their properties are subject, (ii) any statute, or (iii) any
judgment, decree, order, rule or regulation of any court or governmental agency
or body applicable to the Company or any of its subsidiaries or their
properties.
6. The Underwriting Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, and the Company has full legal right, power and authority to enter
into the Underwriting Agreement and to issue, sell and deliver the Company
Shares and the Option Shares to be sold by it to the Underwriters as provided
therein, except as such may be limited by bankruptcy, insolvency, reorganization
or similar laws relating to creditors' rights or debtors' obligations generally
and except that (i) the remedies of specific performance and injunctive and
other forms of relief are subject to general equitable principles, whether
enforcement is sought at law or in equity, (ii) such enforcement may be subject
to the discretion of the court before which any proceedings therefor may be
brought and (iii) rights to indemnity and contribution may be limited by state
or federal laws relating to securities or the policies underlying such laws.
7. To our knowledge, except as described in the Final Prospectus, there
is not pending or threatened, any action, suit, proceeding, inquiry or
investigation to which the Company or any of its subsidiaries is a party, or to
which the property of the Company or any of its subsidiaries is subject, before
or brought by any court or governmental agency or body, which, if determined
adversely to the Company or any of its subsidiaries, could result in a material
adverse change in the business, financial position, net worth or results of
operations, or could materially adversely affect the properties or assets, of
the Company and its subsidiaries, taken as a whole.
8. To our knowledge, no default exists and no event has occurred which,
with notice or after the lapse of time to cure or both, would constitute a
default in the due performance and observance of any term, covenant or condition
of any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or to which they or their properties are subject, which default or event
would have material adverse effect on the Company and its subsidiaries.
9. Neither the Company nor any subsidiary is in violation of its
Certificate of Incorporation or Bylaws or, to our knowledge, in violation of any
law, administrative rule or regulation or arbitrators' or administrative or
court decree, judgment or order or in violation or default (there being no
existing state of facts which with notice or lapse of time or both would
constitute a default) in the performance or observance of any obligation,
agreement, covenant or condition contained in any material contract, indenture,
deed of trust, mortgage, loan agreement, note, lease, agreement or other
instrument or permit to which it is a party or by which it or any of its
properties is or may bound, where such violation or default could have a
material adverse effect on the business, financial position, net worth or
results of operations, or could materially adversely affect the properties or
assets, of Company or its subsidiaries, taken as a whole.
<PAGE>
10. The Registration Statement and all post-effective amendments thereto
have become effective under the Act, and no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending, or, to our knowledge,
threatened or contemplated by the Commission. All filings required by Rule 424
and Rule 430A of the Rules and Regulations have been made. The Registration
Statement, the Effective Prospectus and Final Prospectus, and any amendments or
supplements thereto, as of their respective effective or issue dates, complied
as to form with the requirements of the Act, the Exchange Act and the Rules and
Regulations. The descriptions in the Registration Statement, the Effective
Prospectus and the Final Prospectus of statutes, regulations, legal and
governmental proceedings, and contracts and other documents are accurate and
present fairly the information required to be stated therein. To our knowledge,
there are no pending or threatened legal or governmental proceedings, statutes
or regulations required to be described in the Final Prospectus which are not
described as required to be described in the Registration Statement or the Final
Prospectus or to be filed as exhibits to the Registration Statement which are
not described and filed as required.
11. The Company is not, and will not be as a result of the consummation of
the transactions contemplated by the Underwriting Agreement, as "investment
company" within the meaning of the Investment Company Act of 1940.
12. The Underwriting Agreement and the Custody Agreement described therein
have been duly executed and delivered by or on behalf of the Selling Stockholder
and constitute valid and binding agreements of the Selling Stockholder
enforceable against the Selling Stockholder in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws now or hereafter in effect relating to creditors'
rights or debtors' obligations generally and except that (i) the remedies of
specific performance and injunctive and other forms of relief are subject to
general equitable principles, whether enforcement is sought at law or in equity,
(ii) such enforcement may be subject to the discretion of the court before which
any proceedings therefor may be brought and (iii) rights to indemnity and
contribution may be limited by state or federal laws relating to securities or
the policies underlying such laws. All authorizations and consents necessary
for the execution and delivery of the Underwriting Agreement and the Custody
Agreement on behalf of the Selling Stockholder and for the sale and delivery of
the Selling Stockholder Shares to be sold by the Selling Stockholder hereunder
have been given. To our knowledge, there are no facts which would cause the
Selling Stockholder to lack the legal capacity and full right, power and
authority to execute the Underwriting Agreement and the Custody Agreement and
the Power of Attorney.
13. No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated by the Underwriting Agreement in connection with the Selling
Stockholder Shares to be sold by the Selling Stockholder thereunder, except such
as have been obtained under the Act and such as may be required by the NASD and
other state securities or blue sky laws in connection with the purchase and
distribution of the Shares by the several Underwriters.
14. As of the closing, the Selling Stockholder has made good delivery,
duly endorsed, to the Underwriters or to a financial intermediary designated by
the Underwriters of the Selling Stockholder Shares, if applicable, and, assuming
that the Underwriters constitute bona fide purchasers as defined in Section 8-
302 of the Uniform Commercial Code, the Selling Stockholder has transferred good
and marketable title to the Selling Stockholder Shares, free and clear of any
and all liens, pledges, encumbrances, charges, agreements, equities, claims,
security interests, restrictions, shareholder agreements or voting trusts.
We have participated in the preparation of the Registration Statement, the
Effective Prospectus and the Final Prospectus and in conferences with officers
and other representatives of the Company, counsel for the Underwriters,
representatives of the independent public accountants for the Company, and your
representatives at which the contents of the Registration Statement, the
Effective Prospectus and the Final Prospectus were discussed, and no facts have
come to our attention which lead us to believe that the Registration Statement,
the Effective Prospectus or the Final Prospectus, or any amendment or supplement
thereto, contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; PROVIDED, HOWEVER, that
<PAGE>
we express no view as to financial statements or other financial data contained
in the Registration Statement, the Effective Prospectus or the Final Prospectus.
<PAGE>
EXHIBIT B
FORM OF LINDHORST & DREIDAME LEGAL OPINION
It is our opinion that:
1. All sales of the Company's securities prior to the date hereof were at
all relevant times duly registered or exempt from the registration requirements
of the Act and were duly registered or the subject of an exemption from the
registration requirements of applicable state securities or blue sky laws.
2. To our knowledge, no default exists and no event has occurred which,
with notice or after the lapse of time to cure or both, would constitute a
default in the due performance and observance of any term, covenant or condition
of any indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its subsidiaries a party
or to which they or their properties are subject, which default or event would
have a material adverse effect on the Company and its subsidiaries.
3. Neither the Company nor any subsidiary is in violation of its
Certificate of Incorporation or Bylaws or, to our knowledge, in violation of any
law, administrative rule or regulation or arbitrators' or administrative or
court decree, judgment or order or in violation or default (there being no
existing state of facts which with notice or lapse of time or both would
constitute a default) in the performance or observance of any obligation,
agreement, covenant or condition contained in any material contract, indenture,
deed of trust, mortgage, loan agreement, note, lease, agreement or other
instrument or permit to which it is a party or by which it or any of its
properties is or may bound, where such violation or default could have a
material adverse effect on the business, financial position, net worth or
results of operations, or could materially adversely affect the properties or
assets, of Company or its subsidiaries, taken as a whole.
4. To our knowledge, the performance of the Underwriting Agreement and
the Custody Agreement and the consummation of the transactions contemplated
thereby by the Selling Stockholder will not result in a breach or violation of,
or conflict with, any of the terms or provisions of, or constitute a default by
the Selling Stockholder under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease franchise, license or other
agreement or instrument to which the Selling Stockholder or any of the Selling
Stockholder's properties is bound, any statute, or any judgment, decree, order,
rule or regulation of any court or governmental agency or body applicable to the
Selling Stockholder.
<PAGE>
SCHEDULE I
UNDERWRITERS
Number of
Firm Shares
Underwriter to be Purchased
----------- ---------------
J.C. BRADFORD & CO.
TUCKER ANTHONY INCORPORATED
TOTAL 1,100,000
---------
<PAGE>
Exhibit 10.1
June 27, 1996
Pomeroy Computer Resources, Inc.
1020 Petersburg Road
Hebron, KY 41048
Attention: Edwin S. Weinstein
Vice President
Dear Ed:
This letter agreement (this "Amendment") confirms and evidences
certain agreements between Star Bank, National Association, a national banking
association (the "Bank"), and Pomeroy Computer Resources, Inc., a Delaware
corporation ("Pomeroy") and your subsidiary companies, C&N Corp., a Tennessee
corporation, Xenas Communications Corp., an Ohio corporation and Pomeroy
Computer Leasing Company, Inc., a Kentucky corporation (collectively with
Pomeroy, the "Borrowers"), with respect to amendment of the Loan Agreement
between the Bank and the Borrowers originally dated as of March 14, 1996 (the
"Agreement"), as follows:
1. REVOLVING CREDIT LOANS. The Agreement is hereby amended so that
the Revolving Credit Loans under Section 4(a) shall be made directly, without
use of a Credit Reserve, but subject to an Incentive Pricing Spread, all as
specified in the amended and restated Section 4(a), which shall hereafter read
as follows:
4. LOANS.
(a) REVOLVING CREDIT LOANS AND COMMITMENT. 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 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). 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)
<PAGE>
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."
If the aggregate amount of Revolving Credit Loans made to
Borrowers hereunder and outstanding at any one time exceeds the applicable
Commitment Amount limits as described above, then Borrowers shall immediately
repay sufficient of the Revolving Credit Loans to bring the outstanding
Revolving Credit Loan amount within such limits. Each loan draw shall represent
Borrowers' representation to Bank that its Loan request is within such limits
and that there is no event of default hereunder.
The sum of all Revolving Credit Loan draws shall never exceed the
Commitment Amount and shall be drawn in minimum amounts of One Hundred Thousand
Dollars ($100,000) and multiples thereof up to the Commitment Amount; provided,
however, that no Revolving Credit Loan draw to be subject to fixed rate pricing
shall be less than Two Million dollars ($2,000,000) and additional multiples of
$100,000 thereafter up to the Commitment Amount. Borrowers shall give notice to
the Bank by 12:00 noon (such time, and any time hereinafter noted, being local
Cincinnati time) of the day on which it desires to obtain a Revolving Credit
Loan priced on a variable rate basis and by 11:00 a.m. of the date in which it
requires such Loan on a fixed rate pricing basis. The Bank requires three (3)
business days prior notice for fixed rate pricing Loans. Any notice received by
the Bank after such times shall be deemed to have been given on such time on the
next succeeding business day. Such notice for fixed rate pricing Loans may be
given by telephone but shall be promptly followed by written confirmation from
the Borrowers to the Bank in the form of EXHIBIT "4(a)(i)" hereof. Should
Borrowers decide not to take a draw at the time specified in a request by it,
such draw lapses and Borrowers must give the Bank a new request as provided in
this Section to take a draw at another time. If such lapsed draw involved a
Loan with fixed rate financing, Borrower shall be subject to prepayment fees as
specified in Section 4(d) hereof. Each advance of a Revolving Credit Loan shall
be effectuated by crediting of Pomeroy's checking account at the Bank, account
number 480-3828-37. 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 (hereinafter called the
"Revolving Credit Note"). The Bank is hereby authorized by Borrowers to enter
from time to time on the reverse of the Revolving Credit Note the principal
balance of its Revolving Credit Loan and all payments and prepayments thereon,
and the aggregate
<PAGE>
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 (i) which
shall vary from time to time with the rate announced at the Bank from time to
time as its prime rate (the "Prime Rate") MINUS the Incentive Pricing Spread (as
defined below), OR, (ii) if elected by Borrowers, the LIBOR Rate (as defined
below) PLUS the Incentive Pricing Spread, such rates to be adjusted on the
effective date of any change in the Prime Rate and/or in the Incentive Pricing
Spread. If, for any reason in the good faith opinion of Bank, a LIBOR rate
cannot be determined or used for a short interim period, interest on the
Revolving Credit Loans for such period shall be at the Prime Rate minus the
applicable Incentive Pricing Spread. 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. The "LIBOR Rate" shall be the rate defined in and calculated pursuant to
EXHIBIT "4(a)(iii)", or, if unavailable, any other consensus LIBOR Rate
reasonably determined by Bank. Such interest shall be computed on the basis of
a year consisting of 360 days and applied to the actual number of days elapsed.
At the option of Borrowers, they may convert any portion of the then-available
Commitment Amount, whether then outstanding or not, in a minimum amount of
$2,000,000 and in additional multiples of $100,000 thereafter, to a fixed LIBOR
rate pricing over an elected period approximately equal, at Borrowers' option,
to one (1), two (2), three (3) or six (6) months during the term of this
Agreement, by a writing received by the Bank (as noted above). No such election
shall be effective if the fixed maturity date (three months) chosen is beyond
April 30, 1997 and not more than three (3) LIBOR rate Loans shall be outstanding
at any one time. Unless otherwise elected by Borrowers, any fixed LIBOR rate
Loan shall revert to a variable rate Loan (at the Prime Rate minus the
applicable Incentive Pricing Spread) at the expiration of any such fixed rate
term. Interest shall be payable to the Bank for fixed rate Loans as of the end
of each elected LIBOR period but no less frequently than monthly, and otherwise
for variable rate Loans monthly in arrears, commencing on June 30, 1996, and
monthly thereafter on the last day of each calendar month and when the Revolving
Credit Note is due. After any event of default as defined in Section 5 herein,
and whether or not the Bank accelerates the maturity of the Loans hereunder, 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 or cured and whether before or after
<PAGE>
any entry of any judgment thereon. The Borrowers shall also pay any late
payment fee specified in the Revolving Credit Note.
The interest rate pricing of the Revolving Credit Loans noted
herein shall be subject to incentive pricing adjustments (the "Incentive Pricing
Spread") as follows, such adjustments to be effective as of the fifteenth day of
the second fiscal month following Borrowers' quarterly consolidated fiscal
periods, commencing with such statements due for the period ended April 5, 1996
(and with any Borrower-favorable price adjustments in the Incentive Pricing
Spread conditioned on no events of default then existing under this Agreement)
and remain effective until readjusted by the next fiscal quarter's report
showing a different rate should be in effect:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEBT RATIO EBITDA RATIO INCENTIVE PRICING SPREAD PER
ANNUM BELOW PRIME RATE
(OR ABOVE LIBOR RATE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prime LIBOR
- --------------------------------------------------------------------------------
More than 5.0 to 1.0 -- 0.00% 275 basis points
- --------------------------------------------------------------------------------
Less than 5.0 to 1.0 -- 0.25% 250 basis points
- --------------------------------------------------------------------------------
Less than 4.0 to 1.0
and Less than 3.5 to 1.0 0.50% 225 basis points
- --------------------------------------------------------------------------------
Less than 3.0 to 1.0
and Less than 3.25 to 1.0 0.75% 200 basis points
- --------------------------------------------------------------------------------
Less than 2.0 to 1.0
and Less than 3.0 to 1.0 0.75% 175 basis points
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The "Debt Ratio" and "EBITDA Ratio" shall be as defined in EXHIBIT
"2(o)". All financial terms shall be defined pursuant to generally
accepted accounting principles as consistently applied to Borrower's
business. Where both Ratios must be met and one is not so met, the
less advantageous Incentive Pricing Spread shall apply. For example,
if the Debt Ratio is less than 3.0 to 1.0, but the EBITDA Ratio is
less than 3.5 to 1.0, the Incentive Pricing Spread for Prime Rate
Loans will be Prime minus 0.50%. It is acknowledged that, as of the
date of this Agreement, based on the applicable Incentive Pricing
Spread, the current interest rate on variable priced Loans is the
Prime Rate minus 0% per annum and on fixed price loans, LIBOR plus 275
basis points.*
<PAGE>
The Revolving Credit Note shall be due on April 30, 1997 without
need for demand or notice to Borrower, or earlier in case of any earlier
Commitment Termination Date.
*NOTWITHSTANDING THE ABOVE TABLE, THE BANK AGREES THAT THE INCENTIVE PRICING
SPREAD FOR PRIME RATE LOANS FROM THE DATE HEREOF UNTIL AUGUST 20, 1996 SHALL BE
PRIME MINUS 0.25%.
<PAGE>
2. REVOLVING CREDIT NOTE. The Revolving Credit Note shall remain
outstanding as originally issued and is hereby ratified and confirmed by
Borrowers.
3. COMMITMENT FEE. Section 4(c) of the Loan Agreement is amended to
decrease the Commitment Fee from one-fourth of one percent (0.25%) to
three-sixteenth of one percent (0.1875%), effective July 1, 1996, but otherwise
calculated and payable as noted in said Section 4(c).
4. PREPAYMENT FEE. Section 4(d) of the Loan Agreement is hereby
amended and restated to read as follows:
(d) PREPAYMENTS AND REFINANCING. The Borrower 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 Term Loan principal
balance outstanding. Repayments shall be in the minimum amount of $100,000 and
multiples thereof. Except as noted below, there shall be no prepayment premium
for any such prepayments by Borrower. Prepayments on any Revolving Credit Loans
then subject to unexpired LIBOR pricing periods may be repaid only with
termination fees determined in good faith by Bank to compensate it from loss,
such fees usually determined in accord with EXHIBIT "4(d)" attached hereto. All
prepayments of the Term Loans shall be applied to unpaid principal installments
of the Term Loans in the inverse order of the maturity dates of such
installments, and each such repayment or prepayment shall include accrued
interest to the date of prepayment on the principal amount being prepaid. Any
amounts repaid or prepaid on any Term Loans shall not be reloaned to Borrowers
by the Bank.
5. NON-FINANCIAL COVENANTS. Sections 2(f), 2(j) and 2(w) of the
Loan Agreement [and related EXHIBIT "2(f)"] are hereby amended to reflect and
allow the $1,650,000 remaining as an unpaid Pomeroy obligation to Vanstar
Corporation pursuant to settlement of their outstanding litigation (for a total
of $3,300,000 and the related cancellation of $500,000 of accounts receivable
owing from Vanstar), as collateralized by the pledge of shares owned by David B.
Pomeroy. The Bank waives, retroactive to the Vanstar settlement date, any Event
of Default which may have been caused thereby. Sections 2(j) and 2(w) shall
also be deemed interpreted to allow for Pomeroy's pending secondary offering of
1,200,000 shares of its common stock (1,402,500 shares if the underwriter's
over-allotment is exercised), and for Mr. Pomeroy to sell, *150,000 of his
common shares. Provided, however, that such waivers shall not apply to
any other Borrower Indebtedness, or sale or pledge of shares by Mr. Pomeroy
which is not provided for or allowed under the Loan Agreement, as amended
hereby.
*IN CONNECTION WITH SUCH OFFERING
<PAGE>
6. FINANCIAL COVENANTS. EXHIBIT "2(o)" is hereby modified and
restated to read as noted in revised EXHIBIT "2(o)" attached to this Amendment.
7. AMENDMENT FEE. In connection with this amendment, the Borrowers
agree to pay the Bank, upon execution hereof, the sum of * as an
amendment fee, and remain responsible for all other out-of-pocket expenses
(including attorneys' fees) payable under the terms of the Agreement.
*$35,000.00
8. DELIVERIES. In connection with this Amendment, there shall be
delivered to the Bank a copy of resolutions of each of Borrowers' Boards of
Directors authorizing the execution and delivery of this Amendment, each
certified in the form previously provided to the Bank.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as expressly
amended hereby, all representations, warranties and covenants of the Borrowers
set forth in the Agreement shall be deemed restated as of the date hereof, and
the Borrowers further represent and warrant that:
(a) This Amendment has been duly executed and delivered by the
Borrower and authorized by all requisite corporate action; and
(b) The execution and delivery by the Borrower of this Amendment does
not constitute a violation of any applicable law or a breach of any provision
contained in any Borrower's Certificate or Articles of Incorporation or By-Laws
or Regulations, or contained in any order of any court or other governmental
agency or in any agreement, instrument or document to which any Borrower is a
party or by which the Borrowers or any of their assets or properties is bound.
(c) There is outstanding no Event of Default, other than waived
hereunder (or previously by the Bank in writing).
10. MISCELLANEOUS.
(a) The Borrowers shall reimburse the Bank for all out-of-pocket
costs and expenses, including without limitation reasonable attorneys' fees,
incurred by the Bank or for which the Bank becomes obligated in connection with
or arising out of this Amendment.
(b) As amended hereby, the Agreement shall remain in full force and
effect, and all references in the Loan Documents to "the Agreement" shall mean
the Agreement as amended hereby.
(c) Capitalized terms used but not defined herein shall have the same
meanings herein as in the Agreement.
(d) This Amendment may be executed in counterparts.
<PAGE>
Ed, please acknowledge the agreement of the Borrowers to the terms set
forth in this Amendment by having two copies of this Amendment duly executed by
the Borrowers in the appropriate places below and returning one of such copies
to the Bank with copies of the certified resolutions noted above.
STAR BANK, NATIONAL ASSOCIATION
By: \s\ Douglas V. Wyatt
-------------------------------------------
Douglas V. Wyatt
Vice President
ACKNOWLEDGED, ACCEPTED AND AGREED
TO AS OF THE DATE FIRST NOTED ABOVE:
POMEROY COMPUTER RESOURCES, INC. XENAS COMMUNICATIONS CORP.
By: \s\ Edwin S. Weinstein By: \s\ Edwin S. Weinstein
---------------------- -----------------------
Edwin S. Weinstein Edwin S. Weinstein
Chief Financial Officer and Treasurer Secretary-Treasurer
C & N CORP. POMEROY COMPUTER LEASING
COMPANY, INC.
By: \s\ Edwin S. Weinstein By: \s\ Edwin S. Weinstein
---------------------- -----------------------
Edwin S. Weinstein Edwin S. Weinstein
Vice President Secretary-Treasurer
<PAGE>
EXHIBIT 4(a)(i)
REVOLVING CREDIT LOAN REQUEST FOR FIXED RATE PRICING
PURSUANT TO LOAN AGREEMENT BETWEEN POMEROY COMPUTER RESOURCES, INC.
SUBSIDIARIES AND STAR BANK, NATIONAL ASSOCIATION
Star Bank, National Association
425 Walnut Street
Cincinnati, OH 45202
Attention: Mr. Douglas V. Wyatt
Vice President
Dear Doug:
The undersigned hereby requests on behalf of Pomeroy Computer Resources, Inc.
and its subsidiaries (together the "Companies") a Revolving Credit Loan pursuant
to Section 4(a) of the above referenced Loan Agreement in the amount of
$____________ to be priced on a [1], [2], [3], [6] [circle one applicable
box]-month LIBOR Rate basis and to be made available on ________________, 19__
[specify a date not earlier than the date permitted in the Loan Agreement]. It
is understood that the Bank may provide a notation of same on, or on a schedule
attached to the Revolving Credit Note.
In support of this request, the Companies confirm and hereby represent and
warrant to the Bank that the representations and warranties contained in the
Loan Agreement remain true and correct in all material respects as of the date
hereof and will be correct in all material respects as of the date hereof and
will be true and correct in all material respects on the date such Revolving
Credit Loan is made (i.e. both before and after such Loan is made) and that no
Event of Default (as defined under the Loan Agreement) has occurred and is
continuing or will exist on the date such Revolving Credit Loan is made (whether
before or after such Loan is made).
Sincerely,
POMEROY COMPUTER RESOURCES, INC.
on behalf of itself and Subsidiaries
By:______________________________________
[authorized officer]
Date:__________________________, 19____
<PAGE>
EXHIBIT 4(a)(iii)
LIBOR RATE DEFINITION
(i) "LIBOR Rate" shall mean that rate of interest per annum determined
solely by the Bank, as the rate offered to the Bank by prime banks (rounded off
upwards, if necessary, to the nearest 1/10000 of one percent) for deposits with
the Bank of immediately available Dollars in the London Interbank Market at or
about 11:00 a.m., London time, (or such earlier time as may be arranged and
agreed upon by the Borrower and the Bank) and the Bank on the date two (2)
Eurodollar Business Days preceding an Interest Determination Date and adjusted
for Reserve Percentages and any other regulatory and/or governmental costs
incurred by the Bank from eurocurrency liabilities. The amount of the
adjustment for Reserve Percentages and regulatory and/or governmental costs
shall be based upon the assumption that the Bank funded 100% of the loan in the
London Interbank Market.
(ii) "Interest Determination Date" shall mean (A) in the case of any
outstanding advance, the date which is the third to last Eurodollar Business Day
of the then current Interest Period, or (B) in the case of any new advance, that
date which is two (2) Eurodollar Business Days prior to the date such Advance is
actually made. If such rate is not a Eurodollar Business Day then the
immediately preceding Eurodollar Business Day shall be utilized.
(iii) "Interest Period" shall mean, with respect to any LIBOR Rate
Loan, the period commencing on the date such Loan is made, continued or
converted or on the last day of the immediately preceding Interest Period
applicable to such LIBOR Rate Loan, as the case may be, and ending on the same
day in the third calendar month thereafter, as the Borrower may elect in advance
in accordance with the requirements of the Loan Agreement; provided, however,
that whenever the last day of any Interest Period would otherwise occur on a day
other than a Eurodollar Business Day, the last day of such Interest Period shall
occur on the next succeeding Eurodollar Business Day, and further provided that
if such extension of time would cause the last day of such Interest Period for a
LIBOR Rate Loan to occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding Eurodollar Business Day.
If any Interest Period ends on a day during a month in which there is
numerically corresponding day to the first day of the Interest Period, then the
Interest Period shall end on the last Eurodollar Business Day of such calendar
month.
(iv) "Eurodollar Business Day" shall mean any day on which major commercial
banks in London, England are open for the regular conduct of business. Interest
shall accrue from and including the first day of an Interest Period to, but
excluding, the last day of such Interest Period.
(v) "Reserve Percentages" shall mean the total maximum reserve percentages
for determining the reserves to be maintained by member banks of the Federal
Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board
Regulation D, rounded upward to the
<PAGE>
nearest 1/100 of one percent. The percentage will include, but not be limited
to, marginal, emergency, supplemental, special, and other reserve percentages.
<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
$11,500,000 April 5, 1996
$14,000,000 October 5, 1996
$16,000,000 January 5, 1997
"Tangible Net Worth" shall mean all equity accounts PLUS any debt full
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
5.75 to 1.0 April 5, 1996
4.75 to 1.0 October 5, 1996
4.25 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.
3. Generate at all times consolidated trailing twelve (12) month
after-tax net income of not less than the following amounts by and after the
following dates:
AMOUNT DATE
$2,000,000 April 5, 1996
$3,500,000 October 5, 1996
$3,500,000 January 5, 1997
<PAGE>
For purposes of the Incentive Pricing Spread under Section 4(a) of the
Agreement, the EBITDA Ratio shall mean the ratio of Borrower's consolidated Debt
to consolidated net earnings before interest, taxes, and depreciation and
amortization expenses for the trailing twelve (12) fiscal months.
<PAGE>
Exhibit 10.2
December 20, 1996
Mr. Edwin S. Weinstein
Chief Financial Officer
Pomeroy Computer Resources, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
In Re: Amended and Restated Loan Agreement dated March 14, 1996 (the
"Agreement") by and between Pomeroy Computer Resources, Inc.
("Pomeroy"), C & N Corp., Xenas Communications Corp., and
Pomeroy Computer Leasing Company, Inc. (collectively the
"Borrowers") and Star Bank, N.A. (the "Bank").
Dear Ed:
This letter agreement (this "Amendment") confirms and evidences certain
agreements between the Bank and Borrowers as follows:
1. OWNERSHIP AND OPERATIONS; COMPENSATION. The Agreement is hereby
amended effective as of December 19, 1996, so that paragraph 2(w) of the
Borrowers' Covenant section shall be modified in its entirety to read as
follows:
(w) OWNERSHIP AND OPERATIONS; COMPENSATION. (i) Maintain Xenas and
Leasing as wholly-owned subsidiaries of Pomeroy, (ii) Pomeroy shall
maintain management acceptable to the Bank, and (iii) not allow any Change
of Control of Borrowers. "Change of Control" shall mean for any
transaction, event or circumstance, or series thereof, the result of which
is that 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.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as expressly
amended hereby, all representations, warranties and covenants of the
Borrowers set forth in the Agreement shall be deemed restated as of the date
hereof, and the Borrowers further represent and warrant that:
(a) This Amendment has been duly executed and delivered by the
Borrower and authorized by all requisite corporate action; and
(b) The execution and delivery by the Borrowers of the Amendment
does not constitute a violation of any applicable law or breach of any
provision contained in any Borrower's
<PAGE>
Certificate or Articles of Incorporation or By-Laws or Regulations, or
contained in any order of any court or other governmental agency or in any
agreement, instrument, or document to which any Borrower is a party or by
which the Borrowers or any of their assets or properties is bound; and
(c) Giving effect to this amendment, there is outstanding no Event
of Default (other than waived previously by the Bank in writing).
3. MISCELLANEOUS.
(a) The Borrowers shall reimburse the Bank for all out-of-pocket
costs and expenses, including without limitation reasonable attorneys' fees,
incurred by the Bank or for which the Bank becomes obligated in connection
with or arising out of this Amendment.
(b) As amended hereby, the Agreement shall remain in full force
and effect, and all references in the Loan Documents to "the Agreement" shall
mean the Agreement as amended hereby.
(c) Capitalized terms used but not defined herein shall have the
same meanings herein as in the Agreement.
(d) This Amendment may be executed in counterparts.
Ed, please acknowledge the agreement of the Borrowers to the terms set
forth in this Amendment by having two copies of this Amendment duly executed
by the Borrowers in the appropriate places below and returning one of such
copies to the Bank with copies of the certified resolutions noted above.
STAR BANK, NATIONAL ASSOCIATION
By: \s\ William J. Goodwin
----------------------------------
William J. Goodwin
Senior Vice President
<PAGE>
ACKNOWLEDGED:
POMEROY COMPUTER RESOURCES, XENAS COMMUNICATIONS CORP.
INC.
By: \s\ Edwin S. Weinstein By: \s\ Edwin S. Weinstein
------------------------------ ------------------------------
Edwin S. Weinstein Edwin S. Weinstein
Chief Financial Officer Secretary-Treasurer
and Treasurer
C & N CORP. POMEROY COMPUTER LEASING
COMPANY, INC.
By: \s\ Edwin S. Weinstein By: \s\ Edwin S. Weinstein
------------------------------ ------------------------------
Edwin S. Weinstein Edwin S. Weinstein
Vice President Secretary-Treasurer
<PAGE>
Exhibit 10.3
POMEROY COMPUTER RESOURCES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of this 13th day of November, 1996, by and between
POMEROY COMPUTER RESOURCES, INC., a Delaware corporation ("Company"), and
STEPHEN POMEROY ("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. Subject to the provisions for termination as hereinafter
provided, the term of this Employment Agreement shall begin on the 13th day of
November, 1996 and shall continue for three (3) years, one (1) month and twenty-
three (23) days thereafter. Commencing January 6, 1997, on each day during the
term of this Agreement, such term automatically shall be extended on a daily
basis such that the term of this Agreement shall continue to be three (3) years
unless this Agreement is terminated as provided in Section 10, provided that
Sections 8, 9, 10(b), 10(c), 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. PLACE OF EMPLOYMENT. In connection with Employee's employment by
Company, Employee shall be based at the principal executive offices of the
Company located in Hebron, Kentucky.
4. DUTIES. Employee shall serve as Vice President of Marketing and
Corporate Development 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
<PAGE>
transaction involving computer services or products for his account without the
express written consent of Company.
5. COMPENSATION AND RELATED MATTERS. As compensation and consideration
for the performance by Employee of Employee's duties, responsibilities and
covenants pursuant to this Employment Agreement, the Company will pay the
Employee and the Employee agrees to accept in full payment for such performance,
the amounts and benefits set forth below:
(a) BASE SALARY: During the period of Employee's employment
hereunder, the Company shall pay to Employee an annual base salary commencing on
the effective date as follows:
(i) During the period from and after the effective date of this
Agreement to the last day of the Company's 1996 fiscal year, Employee shall be
paid at the annual rate of One Hundred Thousand ($100,000.00) Dollars;
(ii) During the Company's 1997 fiscal year, Employee shall be
paid at the annual rate of One Hundred Fifteen Thousand ($115,000.00) Dollars;
and
(iii) During each year thereafter during the term of this
Agreement, the rate at which Employee shall be paid may be increased (but not
decreased) at the sole discretion of the Board of Directors or of the
Compensation Committee of the Board, if any.
Said annual base salary shall be payable in accordance with the usual
and customary payroll practices of the Company.
(b) BONUS AND INCENTIVE DEFERRED COMPENSATION: The parties agree
that in January of 1997, 1998 and 1999, 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 (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 (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.
(ii) Compensation of Employee by salary payments and bonus shall
not be deemed exclusive and shall not prevent Employee from participating in any
other compensation or benefit plan of the Company. Salary payments (including
any increased salary payments) hereunder shall not in any way limit or reduce
any other obligation of the Company hereunder or under any other compensation or
benefit plan or agreement under which the Employee is entitled to receive
payments or other benefits from
<PAGE>
the Company, and no other compensation, benefit or payment hereunder or under
any other compensation or benefit plan or agreement under which the Employee is
entitled to receive payments or other benefits from the Company shall in any way
limit or reduce the obligation of the Company to pay the Employee's salary
hereunder.
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 $625.00 per month during the term of this Agreement.
Company shall also reimburse Employee for all standard car insurance premiums
during said term. 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.
<PAGE>
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 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;
<PAGE>
(4) knowingly employ or attempt to employ in any capacity any
employee or agent of Company, or any of its subsidiaries.
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).
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,
<PAGE>
(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 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) If the Employee is "permanently disabled" (as defined
below), the Company may terminate the Employee's employment hereunder. For
purposes of this Agreement, the Employee's permanent disability shall be deemed
to occur after one hundred fifty (150) days in the aggregate during any
consecutive twelve (12) month period, or after one hundred fifty (150)
consecutive days, during which the Employee, by reason of his physical or mental
illness, shall have been unable to discharge fully his duties under this
Agreement. In the event the Employee, after receipt of a notice of termination
from the Company, with respect to his permanent disability, shall dispute that
his permanent
<PAGE>
disability shall have occurred, he shall promptly submit to a physical
examination by the Chief of Medicine of any major accredited hospital in the
metropolitan Cincinnati area and, unless such physician shall issue his written
statement to the effect that in his opinion, based on his diagnosis, the
Employee is capable of resuming his employment and devoting his full time and
energy to discharging his duties within ten (10) days after the date of such
statement, such permanent disability shall be deemed to have occurred without
further dispute by the Employee. If at any time prior to the expiration of said
above-described period of permanent disability, the Employee shall no longer be
disabled so that he is, on a regular and continuous basis and for the
foreseeable future, able to resume and carry on his duties under this Agreement,
then he shall be reinstated under this Agreement for the then remainder of the
term hereof at the salary level herein set forth.
(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 sixty
(60) 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 B 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 bonuses
accrued to the date of his
<PAGE>
termination of employment as provided in Section 5(b), 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 and any other vested deferred compensation that
Employee has earned prior to the date of this Agreement, which shall
be payable 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.
(d) In the event that a Change in Control as defined in Exhibit B 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 at the rate then in effect for the remaining term of this Agreement, at
the time such payments are due.
(e) In addition, if Employee becomes entitled to any payment or
benefit pursuant (d) above in this Section 10 (all such payments being called
"Severance Payments") from the Company (or any persons whose actions result in a
Change in Control, any person affiliated with Company or 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 excise 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 procedures set forth below an additional amount (the "Gross-up
Payment") such that the net amount retained by the Employee, after deduction of
any Excise Tax on the Severance Payment and any federal and state and local
income tax and Excise Tax upon such Gross-Up payment shall be equal to the
Severance Payment.
11. COMPENSATION UPON TERMINATION FOR DISABILITY. During any period that
Employee fails to perform his duties hereunder as a result of incapacity due to
physical or mental illness, the Employee shall continue to receive his full base
salary at the rate then in effect for such period (offset by any payments to the
Employee received pursuant to disability benefit plans, if any, maintained by
the Company) and all other compensation and benefits to which he was then
entitled hereunder until his employment is terminated pursuant to Section
10(a)(iii) hereof. Thereafter in the event of the termination of Employee's
employment due to his permanent disability pursuant to Section 10(a)(iii)
hereof, the Employee,
(i) for the balance of the three (3) year, one (1) month,
twenty-three (23) days term of this Agreement, shall be entitled to receive his
full base salary at the rate then effect, at the time such payments are due; and
<PAGE>
(ii) for the balance of the period referred to in subparagraph
(i) above shall be entitled to participate in all medical, life and other
employee "welfare" benefit plans and programs in which the Employee was entitled
to participate immediately prior to the date of termination provided that
Employee's continued participation is possible under the general terms and
provisions of such plans and programs. In the event that the Employee's
participation in any such plan or program is barred, the Company shall arrange
to provide Employee with benefits substantially similar to those which the
Employee would otherwise have been entitled to receive under such plans and
programs from which his continued participation is barred.
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 Commonwealth 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.
1020 Petersburg Road
Hebron, Kentucky 41048
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 specific performance of this Agreement by each
party or to enjoin any party from activities in violation of this
<PAGE>
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 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.
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 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 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.
<PAGE>
WITNESSES: POMEROY COMPUTER RESOURCES, INC.
\s\ Tammy Schlarman By: \s\ Edwin S. Weinstein
- ------------------------------------ ------------------------------
\s\ James H. Smith
- ------------------------------------
\s\ Tammy Schlarman \s\ Stephen Pomeroy
- ------------------------------------ ------------------------------
STEPHEN POMEROY
\s\ James H. Smith
- ------------------------------------
<PAGE>
Exhibit 10.4
INCENTIVE DEFERRED COMPENSATION AGREEMENT
This Incentive Deferred Compensation Agreement is made effective as of
the 13th day of November, 1996, by and between POMEROY COMPUTER
RESOURCES, INC., a Delaware corporation (the "Company") and STEPHEN
POMEROY ("Pomeroy").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution of this Agreement, the
Company and Pomeroy have entered into an Employment Agreement for the
employment of Pomeroy by Company;
WHEREAS, pursuant to Section 5(b) of said Employment Agreement, Pomeroy
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 Pomeroy 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 Pomeroy should die or become disabled during the term
of the Employment Agreement, all incentive deferred compensation earned
shall be vested in full and shall be payable to Pomeroy and/or his
designated beneficiary at that time. For purposes of this Paragraph,
the term "disabled" shall have the meaning set forth in said Employment
Agreement.
3. In the event Pomeroy discontinues employment with the Company
during the initial term of the Employment Agreement and such
discontinuation of employment is not a result of Pomeroy becoming
disabled, the vested portion of his deferred compensation account
will be paid to him at said time and all non-vested amounts will be
forfeited. Provided, however, if Pomeroy would violate the terms
of his covenant not to compete and confidentiality agreement as set
forth in Sections 8 and 9 of his Employment Agreement, the vested
portion of his deferred compensation account will likewise 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
<PAGE>
OF THIS AGREEMENT
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 Pomeroy upon the
satisfaction of the economic criteria set forth in the Employment
Agreement. Provided, however, Pomeroy shall be vested fully in all
amounts hereunder on November 13, 2001.
By way of illustration, if Pomeroy satisfied the economic criteria for
years 1 and 2 of the Agreement, at the end of year 2, Pomeroy 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. In the event Pomeroy would terminate his Employment Agreement
within ninety (90) days following a change in control as defined in
Exhibit B to the Employment Agreement, all incentive deferred
compensation earned shall be vested in full and shall be payable to
Pomeroy at that time.
5. No deferred compensation shall be paid under the terms of this
Agreement in the event Pomeroy 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. Pomeroy 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 Pomeroy 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 the
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 Pomeroy or his beneficiary.
8. Nothing contained in this Agreement shall in any way affect or interfere
with the right of Pomeroy 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.
2
<PAGE>
9. This Agreement shall be binding upon the heirs, administrators, executors,
successors and assigns of Pomeroy. 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 Kentucky.
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/ Edwin S. Weinstein
-----------------------------
Edwin S. Weinstein, Chief Financial Officer
/s/ Stephen Pomeroy
---------------------------------
STEPHEN POMEROY
3
<PAGE>
Exhibit 10.5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and is entered into this
2nd day of August, 1996, by, between and among POMEROY COMPUTER RESOURCES, INC.,
a Delaware corporation, (the "Purchaser"), AA MICROSYSTEMS, INC., an Alabama
corporation (the "Seller"), and STUART RABURN ("Shareholder").
W I T N E S S E T H :
WHEREAS, Seller has been engaged in the sale of computer systems and accessories
in Birmingham, Alabama; and
WHEREAS, Shareholder owns all the issued and outstanding stock, and is the sole
director, of Seller; and
WHEREAS, the parties are desirous of entering into an Asset Purchase Agreement
for the purchase by Purchaser of certain of the assets of Seller used in its
business (the "Business"); and
WHEREAS, Purchaser is willing to purchase such assets but only (i) upon the
terms and subject to the conditions set forth in this Agreement, (ii) the
representations, warranties, covenants, indemnifications, assurances and
undertakings of Seller and Shareholder contained in this Agreement and (iii)
except as otherwise provided herein, the agreements of Seller and Shareholder to
refrain from competition with Purchaser for the later of four (4) years from the
closing of this transaction or one (1) year after the termination of
Shareholder's employment with Purchaser pursuant to an Employment Agreement to
be executed upon the closing of this transaction.
NOW, THEREFORE, in consideration of the above premises and the mutual promises,
covenants, agreements, representations and warranties herein contained, the
parties hereto agree as follows:
1.
SALE AND PURCHASE OF ASSETS
1.1 AGREEMENT.
Seller agrees to sell and convey to Purchaser certain assets as
hereinafter set forth in Paragraph 1.2. Purchaser agrees to purchase
said assets. The agreements of Purchaser and Seller are expressly
conditioned upon the terms, conditions, covenants, representations
and warranties as hereinafter set forth.
<PAGE>
1.2 ASSETS TO BE SOLD AND PURCHASED.
At the Closing (as defined in Section 11 hereof), Seller shall sell,
deliver, transfer and assign to Purchaser, free and clear of all
liens, security interests, claims, charges, restrictions, leases,
subleases, tenancies, licenses, easements, other rights of occupancy
or use by another and encumbrances of every kind, nature and
description, and Purchaser shall purchase for the consideration
hereinafter provided, those certain assets of Seller relating to
Seller's Business (the "Purchased Assets"). The Purchased Assets
shall be as follows:
(a) Certain inventory of computers, related equipment, service parts held
by Seller for resale in the ordinary course of business and the phone
system, all as set forth on Exhibit A, attached hereto.
(b) Service contracts of Seller as set forth on attached Exhibit B;
(c) The distribution agreements and authorizations of Seller as set forth
on attached Exhibit C;
(d) All customer lists of Seller's Birmingham, Alabama operation;
(e) Costs and sales records and data, including consolidated information
which relates to Seller's Birmingham, Alabama operations and invoices
and correspondence relating thereto; and
(f) The non-compete agreements with Seller and Shareholder as set forth on
Exhibits D and D-1.
1.3 ASSETS RETAINED BY SELLER.
Seller shall not sell and Purchaser shall not purchase any of the
assets of Seller, except the assets set forth in Section 1.2.
Specifically, Seller is not selling and Purchaser is not purchasing
any of Seller's cash or cash equivalents, accounts receivable,
inventory not set forth on Exhibit A, furniture, fixtures and leasehold
improvements, officer's life insurance, including its cash surrender
value, any federal, state or local tax refund(s), if any, owed to
Seller presently or in the future, any prepaid items, any part of
the Purchase Price (as defined in Section 3.1 hereof) to be received
by Seller for the sale of the Purchased Assets, the minute books of
Seller, its tax returns, corporate seal and stock records, or any
other assets not specifically set forth in Section 1.2.
1.4 INSTRUMENTS OF TRANSFER.
At Closing, the Seller will deliver to the Purchaser such bills of
sale, endorsements, assignments and other good and sufficient
instruments of transfer and assignment
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<PAGE>
as shall be effective to vest in Purchaser good and marketable title
and interest in and to the Purchased Assets. At or after the
Closing, and without further consideration, the Seller and
Shareholder will execute and deliver to Purchaser such further
instruments of conveyance and transfer and take such other
action as Purchaser may reasonably request in order to more
effectively convey and transfer to Purchaser any of the Purchased
Assets or for aiding and assisting and collecting and reducing to
possession and exercising rights with respect thereto. Seller and
Shareholder agree to use their good faith efforts to obtain and
deliver to Purchaser such consents, approvals, assurances and
statements from third parties as Purchaser may reasonably
request in a form reasonably satisfactory to Purchaser. In
addition to the foregoing, Seller will deliver to Purchaser the
originals or copies of all of the Seller's books, records and
other data relating to the Purchased Assets; and simultaneously
with such delivery, the Seller and Shareholder shall take all such
acts as may be necessary to put Purchaser in actual possession,
and operating control of the Purchased Assets.
2.
ASSIGNMENT OF RIGHTS AND ASSUMPTION OF OBLIGATIONS
2.1 ASSIGNED RIGHTS.
Seller shall assign to Purchaser all of Seller's rights relating to the
service contracts set forth on Exhibit B and shall assign to
Purchaser all of Seller's rights relating to the phone system
contract described on Exhibit A. Seller and Purchaser further agree
to use their best efforts to obtain the necessary and appropriate
consent from any third party for the assignment of such service
contracts or phone system as may be reasonably requested by
Purchaser. Seller will pay Purchaser for any portion of the
contract for which work is performed after August 2, 1996 and for
which Seller has been paid prior to such date.
2.2 OBLIGATIONS ASSUMED.
Purchaser shall assume and become responsible for Seller's obligations
that accrued after the Closing Date under the service contracts
submitted to Purchaser as set forth on Exhibit B and under the
distribution agreements and authorizations set forth on Exhibit C and
the phone system contract described on Exhibit A attached hereto
(collectively, "Assumed Obligations").
2.3 LIABILITIES NOT BEING ASSUMED.
Notwithstanding anything in this Agreement to the contrary, Purchaser
shall not assume or become responsible for any claim, liability or
obligation of any nature whatsoever, whether known or unknown,
accrued, absolute, contingent or otherwise (a "Liability") of Seller
except the Assumed Obligations. Without limiting the generality of
the foregoing, the following are included among the Liabilities of
Seller
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<PAGE>
which Purchaser shall not assume or become responsible for (unless
specifically included on the list of Assumed Obligations):
(i) all Liabilities for local, state, federal, sales, franchise, and
income and other taxes which have accrued or may accrue or become due
and payable by Seller either prior to, on or after the Closing Date,
including, without limitation, all taxes and fees of a similar nature
arising from the sale and transfer of the Purchased Assets to
Purchaser;
(ii) all accounts payable and other indebtedness and Liabilities of Seller
which are not assumed by Purchase under Section 2.2;
(iii) all Liabilities and obligations to directors, officers, employees or
agents of Seller, including, without limitation, all Liabilities and
obligations for wages, salary, bonuses, commissions, vacation or
severance pay, profit sharing or pension benefits, and all Liabilities
and obligations arising under any bonus, commission, salary or
compensation plans or arrangements of Seller, whether accruing prior
to, or on or after the Closing Date, but do not relate to any period
of employment with or engagement by Purchaser;
(iv) all Liabilities and obligations with respect to unemployment
compensation claims and workmen's compensation claims and claims for
race, age and sex discrimination or sexual harassment or for unfair
labor practice which occurred prior to the Closing Date and for which
any claim may be asserted by any of the Seller's employees, prior to,
on or after the Closing Date, but do not relate to any period of
employment with or engagement by Purchaser;
(v) all Liabilities of Seller to third parties for personal injury or
damage to property based on or arising from occurrences, circumstances
or events, or exposure to conditions, existing or occurring prior to
the Closing Date and for which any claim may be asserted by any third
party prior to, on or after the Closing Date;
(vi) all Liabilities and obligations of Seller arising under or by virtue
of environmental laws whether accruing prior to, on or after the
Closing Date;
(vii) all Liabilities of Seller, including any costs of attorneys' fees
incurred in connection therewith, for litigation, claims, demands or
governmental proceedings arising from occurrences, circumstances or
events, or exposure to conditions occurring or existing prior to, on
or after the Closing Date;
(viii) all Liabilities based on any theory of liability or product warranty
with respect to any product manufactured or sold by Seller prior to
the Closing Date and for which any claim may be asserted by any third
party, prior to, on or after the Closing Date;
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<PAGE>
(ix) all attorneys' fees, accountants or auditors' fees, and other costs
and expenses incurred by Seller and/or Shareholder in connection with
the negotiation, preparation and performance of this Agreement or any
of the transactions contemplated hereby; and
(x) all other debts, Liabilities, obligations, contracts and commitments
(whether direct or indirect, known or unknown, contingent or fixed,
liquidated or unliquidated, and whether now or hereinafter arising)
arising out of or relating to the ownership, operation or use of any
of the Purchased Assets on or prior to the Closing Date or the conduct
of the Business as conducted by Seller whether prior to, on or after
the Closing Date, except only for the liabilities and obligations to
be performed by Purchaser constituting the Assumed Obligations.
Seller agrees to pay all its accounts payable, bank debt and other
liabilities not assumed hereunder in the ordinary course of business
and in accordance with the terms of such debt.
3.
CONSIDERATION FOR PURCHASED ASSETS
3.1 PURCHASE PRICE.
The purchase price for the Purchased Assets shall be Four Hundred
Sixty-Seven Thousand Four Hundred Sixty-Four and No/100 Dollars
($467,464.00), as may be adjusted as hereinafter provided (the "Purchase
Price").
3.2 PAYMENT OF THE PURCHASE PRICE.
The Purchase Price, subject to the adjustments otherwise described herein,
shall be paid to Seller as follows:
(a) A certified, or bank cashier's check or by wire transfer to Seller's
bank account payable to Seller in the amount of Sixty- Seven Thousand
Four Hundred Sixty-Four Dollars ($67,464.00) shall be paid at closing;
(b) The sum of Two Hundred Thousand Dollars ($200,000.00) shall be payable
in the form of the common stock of Purchaser. The number of shares of
Purchaser's stock to be issued to Seller under this Section shall be
determined by dividing $200,000.00 by the average of the closing price
for Purchaser's stock on the over-the-counter market for the twenty
previous business days preceding the Closing Date. Incident to the
issuance of such shares, Seller shall execute such documentation
containing such representations concerning the holding of Purchaser
shares, including that the Seller is able to bear the economic risk of
holding the shares to be
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delivered hereunder for the period required by applicable Federal
Securities Laws because such shares will not have been registered
under the Securities Act of 1933 and therefore cannot be sold unless
they are subsequently registered under the Act or an exemption from
registration is available; provided that Seller shall have the right
to effect a piggyback registration (as defined in Section 4 hereof).
The form of the documentation to be executed by Seller incident to the
issuance of these shares is attached hereto as Exhibit E.
(c) The remaining sum of Two Hundred Thousand ($200,000.00) Dollars shall
be payable pursuant to the terms of Purchaser's promissory note in the
form attached hereto as Exhibit F (the "Note"). The Note shall bear
interest at the prime rate of Star Bank, N.A. as of the date of
Closing Date. The face amount of the Note shall be reduced by Ten
Thousand Dollars ($10,000.00) (but not below zero dollars) for each of
the following former employees of Seller who are employed by Purchaser
on August 2, 1996 should he or she elect voluntarily to leave the
employment of Purchaser before the expiration of a ninety-day period
beginning on the 2nd day of August, 1996: (1) Matthew Fancher, (2)
Russell Poe, (3) Mark Long and (4) Douglas Minderhout. The death,
disability, or termination without cause by the Purchaser shall not
reduce the face amount of the Note. The termination for cause by the
Purchaser of an individual named herein shall reduce the face amount
of the Note.
(Example: Assume that before the expiration of such ninety-day
period, two of the aforementioned individuals, voluntarily terminated
their employment with Purchaser. Pursuant to the adjustment set forth
above, the face amount of the Note would be amended to $180,000.00,
effective the date of execution and the Purchase Price would be
reduced to $430,000.00). The principal of the Note shall be payable
in three equal annual installments with the first principal payment
commencing on the first annual anniversary of the closing and the
remaining two (2) principal payments being due on the next two
successive annual anniversary dates. Interest on the unpaid principal
balance of the Note shall be paid quarterly.
3.3 ALLOCATION OF PURCHASE PRICE.
The Purchase Price shall be allocated among the Purchased Assets by Seller
and Purchaser in accordance with Exhibit G, attached hereto and made a part
hereof. The Seller and Purchaser agree to be bound by such allocation of
the Purchase Price and to file their respective tax returns accordingly.
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3.4 CERTAIN CLOSING EXPENSES.
Seller and Shareholder shall be liable for and shall pay all federal, state
and local sales taxes (if any) documentary stamp taxes, and all other
taxes, duties, or other like charges properly payable upon and in
connection with the conveyance and transfer of the Purchased Assets by
Seller to Purchaser.
4.
PIGGYBACK REGISTRATIONS
4.1 DEFINITIONS.
For purposes of this Section, the following terms shall, unless the context
otherwise requires, have the following meanings:
(a) "Piggyback Registration" means any registration of securities of
Purchaser (or any successor thereto) under the Securities Act of 1933,
as amended (other than a registration on Form S-3 relating to a
Dividend Reinvestment Plan, S-4 or S-8); provided, however, a
Piggyback Registration does not include any registration of securities
of Purchaser on behalf of The Computer Supply Store, Inc. or any
successor of The Computer Supply Store, Inc. pursuant to its demand
registration rights under Section 2 of the Registration Rights
Agreement dated March 14, 1996;
(b) "Registrable Securities" means the common stock of Purchaser issued to
Seller pursuant to Section 3.2(b) of this Agreement (and any shares of
common stock issued to Seller as a result of any stock split, stock
dividend, recapitalization or reorganization involving such additional
shares of common stock); provided, however, shares of common stock
will cease to be Registrable Securities when such shares have been
sold to the public in an offering registered under the Securities Act
of 1933, as amended, or in a transaction effected in accordance with
Rule 144 promulgated under the Securities Act of 1933, as amended;
(c) "Cutback Registration" means any registration in which the underwriter
or underwriters managing such registration advise Purchaser and
Purchaser in turn notifies in writing the holders of Registrable
Securities requested to be included therein, that marketing factors
require a limitation of the number of shares of common stock to be
underwritten in such registration.
4.2 PIGGYBACK REGISTRATION RIGHTS.
(a) If Purchaser at any time within five (5) years of the Closing Date
proposes to register any of its securities under the 1933 Act on a
form which permits inclusion of the shares of common stock held by
Seller (the "Shares") (or
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stock into which such Shares may be convertible upon such public
offering), it shall promptly each such time give written notice to
Seller of its intention to do so, and, upon the written request, given
within twenty (20) days after receipt of any such notice, of Seller to
register any Shares, Purchaser shall as soon as practicable thereafter
cause all such Shares specified by Seller to be registered under the
1933 Act, to the extent requisite to permit the sale or other
disposition by Seller of such Shares so registered.
(b) Whenever Purchaser is under an obligation hereunder to effect the
registration of any of its securities, Purchaser shall, as
expeditiously as practicable:
(i) Prepare and file with the Securities and Exchange Commission a
registration statement with respect to such securities and use
its best efforts to cause such registration statement to remain
effective;
(ii) Prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to
keep such registration statement effective, and to comply with
the provisions of the 1933 Act with respect to the sale or other
disposition of all securities covered by such registration
statement whenever Seller shall desire to sell or dispose of the
same;
(iii) Furnish to Seller such number of copies of the prospectus
contained in such registration statement, including any
preliminary prospectus, in conformity with the requirements of
the 1933 Act and such other documents as Seller may reasonably
request in order to facilitate the public sale or other
disposition of such securities;
(iv) Use every reasonable effort to register or qualify the securities
covered by such registration statement under the securities or
blue sky laws of such jurisdictions as the managing underwriters
of such public offering, if any, shall request and do any and all
other acts of things which may be necessary to enable Seller to
consummate the public sale or other disposition in such
jurisdictions of such securities; and
(v) Before filing the registration statement or prospectus of
amendments or supplements thereto, with the Securities and
Exchange Commission, furnish Seller's counsel with copies of all
such documents proposed to be filed, the portions of which
documents pertaining to Seller and its Shares shall be subject to
the reasonable approval of such counsel;
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PROVIDED, HOWEVER, that Purchaser shall not in any event be
required to use its best efforts to maintain the effectiveness of
any such registration statement for a period in excess of
one-hundred eighty (180) days.
(c) Seller shall pay its PRO-RATA share (based on the number of Shares it
is selling pursuant to the registration statement in relation to the
total number of shares of Purchaser's common stock being sold pursuant
thereto) of all expenses incurred in effecting the registrations
provided for herein, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel
for Purchaser, underwriting expenses and commissions, expenses of any
audits incident to or required by any such registration and expenses
of complying with the securities or blue sky laws of any
jurisdictions.
(d)(i) In the event of any registration of any of its securities under
the 1933 Act pursuant hereto, purchaser shall indemnify and hold
harmless the Seller and any affiliate thereof against any losses,
claims, damages or liabilities, joint or several, to which such
Seller or affiliate may become subject under the 1933 Act or any
other statute or common law, in so far as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out
of or are based upon (1) any alleged untrue statement of any
material fact contained, on the effective date thereof, in any
registration statement under which such securities were
registered under the 1933 Act, any preliminary prospectus or
final prospectus contained therein, or any summary prospectus
issued in connection with any securities being registered, or any
amendment or supplement thereto, or (2) any alleged omission to
state in any such document a material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, and
shall reimburse Seller or affiliates, for any legal or other
expenses reasonably incurred by Seller or affiliate, in
connection with investigating or defending any such loss, damage,
liability or action; PROVIDED, HOWEVER, that Purchaser shall not
be liable to any Seller or affiliate, in any such case to the
extent that any such loss, claim, damage or liability arises out
of or is based upon any alleged untrue statements or alleged
omission made in such registration statement, preliminary
prospectus, summary prospectus, prospectus, or amendment or
supplement thereto in reliance upon and in conformity with
written information furnished to Purchaser by Seller or affiliate
for use therein, or upon such statement or omission therein based
on the authority of an expert within the meaning of that term as
defined in the 1933 Act (but only if Purchaser had no reasonable
ground to believe, and did not believe, that the statements made
on the authority of an
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expert were untrue or that there was an omission to state a
material fact).
(ii) Seller shall indemnify and hold harmless Purchaser any affiliate
thereof against any losses, claims, damages, or liabilities,
joint or several, to which any such Purchaser or affiliate may
become subject under the 1933 Act or any other statute or at
common law, in so far as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon (1) any alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration
statement under which such securities were registered under the
1933 Act at the request of Seller, any preliminary prospectus or
final prospectus contained therein, or any summary prospectus
issued in connection with any such securities being registered,
or any amendment or supplement thereto, or (2) any alleged
omission to state in any such document a material fact required
to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not
misleading, in the case of (1) or (2) to the extent, but only to
the extent, that such alleged untrue statement, preliminary
prospectus, summary prospectus, prospectus, amendment or
supplement in reliance upon and in conformity with written
information furnished to Purchaser by Seller for use therein, and
then only to the extent that such alleged untrue statements or
alleged omissions by Seller were not based on the authority of an
expert (within the meaning of that term as defined in 1933 Act)
as to which Seller had no reasonable ground to believe, and did
not believe, that the statements made on the authority of such
expert were untrue or that there was an omission to state a
material fact.
(iii) Notwithstanding anything contained herein to the contrary, the
indemnity contained in subparagraphs (i) and (ii) above shall
remain in full force and effect regardless of any investigation
made by or on behalf of Seller or affiliate thereof in the case
of subparagraph (i) and regardless of any investigation made by
or on behalf of Purchaser or affiliate thereof in the case of
subparagraph (ii), and such indemnity shall survive the Closing
Date and any subsequent transfer of such securities by Seller of
affiliate.
(e) If
(i) Seller requests registration of any of its Shares under paragraph
(1) above, and
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(ii) the offering proposed to be made is to be an underwritten public
offering, and
(iii) the managing underwriters of such public offering furnish a
written opinion that the total amount of securities to be
included in such offering would exceed the maximum amount of
securities (as specified in such opinion) which can be marketed
at a price reasonably related to the then current market value of
such securities;
then the rights of Seller, the holders of other securities having the
right to include such securities in such registration and Purchaser to
participate in such offering shall be in the following order of
priority:
First: Seller and the person(s) (including Purchaser in the case of a
primary offering) requesting such registration shall be entitled to
participate PRO RATA among themselves in accordance with the number of
shares of Purchaser's common stock which Seller and such person(s)
shall request to be registered; and then
Second: Purchaser (if the offering is not a primary offering) and all
holders of other securities having the right to include such
securities in such registration shall be entitled to participate in
accordance with the relative priorities, if any, as shall exist among
them and Purchaser.
No securities of Purchaser (issued or unissued) other than those
registered and included in the underwritten offering shall be offered
for sale or other disposition in a transaction which would require
registration under the 1933 Act until the expiration of 180 days after
the effective date of the registration statement in which the Shares
were included pursuant to paragraph (a) above or such earlier time
consented to by the managing underwriters.
5.
EMPLOYMENT AGREEMENT
5.1 EMPLOYMENT AGREEMENT OF SHAREHOLDER.
At Closing, Purchaser shall enter into an Employment Agreement with
Shareholder. A copy of said Employment Agreement is attached hereto and
made a part hereof as Exhibit H.
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6.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE SHAREHOLDER
Except as set forth in the Disclosure Schedule attached hereto as Exhibit
I, the Seller and Shareholder, jointly and severally, represent and warrant
to Purchaser that the following statements are true and correct as of the
date hereof and shall remain true and correct as of the Closing as if made
again at and as of that time:
6.1 ORGANIZATION, GOOD STANDING, QUALIFICATION AND POWER OF SELLER.
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Alabama and has the corporate power
and authority to own, lease and operate the Purchased Assets and to
conduct the Business currently being conducted by it. The Seller is duly
qualified and in good standing in each of the jurisdictions in which it is
required by the nature of its business or the ownership of its properties
to so qualify. Seller has no subsidiaries.
6.2 CAPITALIZATION.
The Seller and Shareholder represent and covenant that 100 shares of no par
common stock of Seller, representing one hundred percent (100%) of the
issued and outstanding stock of Seller are currently owned by the
Shareholder, are fully paid and nonassessable and have not been issued in
violation of the preemptive rights of any person. Seller is not obligated
to issue or acquire, nor has it granted options or any similar rights with
respect to any of its securities.
6.3 AUTHORITY TO MAKE AGREEMENT.
Seller and Shareholder each have the full legal power and authority to
enter into, execute, deliver and perform their respective obligations under
this Agreement and each of the other agreements, instruments and other
instruments to be executed and delivered by Seller and Shareholder incident
hereto ("Other Seller Documents"). This Agreement and the Other Seller
Documents have been duly and validly executed and delivered by Seller and
Shareholder, and are the legal and binding obligation of each of them,
enforceable in accordance with their respective terms. Seller has taken
all necessary action (including action of its Board of Directors and
Shareholder) to authorize and approve the execution and delivery of this
Agreement and the Other Seller Documents, the performance of its
obligations thereunder and the consummation of the transactions
contemplated thereby.
6.4 EXISTING AGREEMENTS, GOVERNMENTAL APPROVALS AND PERMITS.
(a) The execution, delivery and performance of this Agreement and the
Other Seller Documents by Seller and Shareholder, the sale, transfer,
conveyance,
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assignment and delivery of the Purchased Assets to Purchaser as
contemplated in this Agreement, and the consummation of the other
transactions contemplated thereby: (i) do not violate any provisions
of law, statute, ordinance or regulation applicable to Seller,
Shareholder or the Purchased Assets, (ii) will not conflict with, or
result in the breach or termination of any provision of, or constitute
a default under (in each case whether with or without the giving of
notice or the lapse of time or both) the Articles of Incorporation or
Bylaws of Seller or any indenture, mortgage, lease, deed of trust, or
other instrument, contract or agreement or any license, permit,
approval, authority, or any order, judgment, arbitration award, or
decree to which Seller or Shareholder is a party or by which Seller or
Shareholder or any of their respective assets and properties are bound
(including, without limitation, the Purchased Assets), and (iii) will
not result in the creation of any encumbrance upon any of the
properties, assets, or business of Seller or Shareholder. Neither
Seller, Shareholder nor any of their respective assets or properties
(including, without limitation, the Purchased Assets) is subject to
any provision of any mortgage, lease, contract, agreement, instrument,
license, permit, approval, authority, order, judgment, arbitration
award or decree, or to any law, rule, ordinance, or regulation, or any
other restriction of any kind or character, which would prevent Seller
or Shareholder from entering into this Agreement or any of the Other
Seller Documents or from consummating the transactions contemplated
thereby.
(b) Neither Seller nor Shareholder is a party to, subject to or bound by
any agreement, judgment, award, order, writ, injunction or decree of
any court, governmental body or arbitrator which would prevent the use
by Purchaser of the Purchased Assets in accordance with present
practices of Seller after the Closing Date or which, by operation of
law, or pursuant to its terms, would be breached, terminate, lapse or
be subject to termination or default under (in each case whether with
or without notice, the passage of time or both) upon the consummation
of the transactions contemplated in this Agreement.
(c) No approval, authority or consent of, or filing by Seller with, or
notification to, any foreign, federal, state or local court, authority
or governmental or regulatory body or agency or any person is
necessary to authorize the execution and delivery of this Agreement or
the Other Seller Documents by Seller or Shareholder, the sale,
transfer, conveyance, assignment and delivery of the Purchased Assets
to Purchaser, or the consummation of the other transactions
contemplated thereby, or to continue the use and operation of the
Purchased Assets by Purchaser after the Closing Date.
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6.5 TITLE TO PURCHASED ASSETS.
(a) With respect to all Purchased Assets sold, at the Closing Seller shall
have good and marketable title to the Purchased Assets being acquired
by Purchaser, free and clear of all liens, security interests,
encumbrances, leases and charges whatsoever, except for any lien for
ad valorem taxes which are not yet due and payable; immediately after
the transfer of all the Purchased Assets being acquired by Purchaser
from Seller, Purchaser will own all of said Purchased Assets free and
clear of all leases, liens, claims, encumbrances and charges
whatsoever, whether perfected or unperfected, except for any lien for
ad valorem taxes which are not yet due and payable; and, by way of
illustration but not limitation, there are not any unpaid taxes,
assessments or charges due or payable by Seller to any federal, state
or local agency, or any obligations or liabilities or any unsatisfied
judgments against, or, to the best of Seller's knowledge, any
litigation or proceedings pending or threatened against Seller by
Seller's employees, clients, customers, creditors, suppliers, or any
other party (nor state of facts for any such obligation, liability,
litigation or proceeding), that could become a claim, obligation,
liability, lien or other charge of or against Purchaser or the
Purchased Assets.
(b) Except as otherwise specifically set forth herein, Seller is not a
party to any contract, agreement, lease or commitment that would
result in any claim, obligation, liability, lien or other charge
against Purchaser or the Purchased Assets, and Purchaser is not
obligated to assume the obligations under any contract, agreement,
lease or commitment of Seller, except as specifically set forth
herein.
6.6 SERVICE CONTRACTS AND AUTHORIZATIONS.
The service contracts set forth on Exhibit B and the distribution
agreements, and authorizations set forth on Exhibit C, as well as the phone
system contract described on Exhibit A, to be assigned by Seller to
Purchaser hereunder shall be valid, subsisting and in full force and effect
as of the Closing Date; Seller has good right and power to assign the same
with the consent of all other parties thereto; the interest in said
agreements hereby assigned is free and clear from all encumbrances, and
there has been no material default in any of the obligations, covenants and
other provisions on the part of Seller to be kept and performed thereunder;
and upon the execution of the assignment and consent by the Seller,
Purchaser and other parties thereto, Purchaser shall acquire all the rights
and interests of Seller, as described in said agreements, free and clear
from all encumbrances.
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6.7 TAXES.
Except as to taxes not yet due and payable, and except for taxes the
payment of which is being diligently contested in good faith and by proper
proceedings and for which adequate reserves have been established in
accordance with the historic accounting practices of Seller, Seller has
filed all returns and reports that are now required to be filed by it in
connection with any federal, state or local tax, duty or charge levied,
assessed or imposed upon it, or its property, including unemployment,
social security and similar taxes; and all of such taxes have been either
paid or adequate reserves or other provision has been made therefor.
6.8 EMPLOYEE BENEFIT PLANS.
Seller has not incurred or accumulated any funding deficiency within the
meaning of the Employees Retirement Income Security Act of 1974, as
amended (ERISA) or incurred any liability to the Pension Benefit Guaranty
Corporation in connection with any employee benefit plan established or
maintained by the Seller and no reportable event or prohibited transaction,
as defined in ERISA, has occurred with respect to any plans of Seller.
Seller is not a party to nor has it ever been a party to any multiple
employer pension plan and has never incurred any withdrawal liability
incident thereto.
6.9 PAYMENTS TO EMPLOYEES.
All accrued obligations of Seller relating to employees and agents of
Seller, whether arising by operation of law, by contract, or by past
service, for payments to trusts or other funds or to any governmental
agency, or to any individual employee or agent (or his heirs, legatees, or
legal representatives) with respect to unemployment compensation benefits,
profit sharing or retirement benefits, or social security benefits have
been paid by Seller or will be paid by Seller. All obligations of Seller
as an employer or principal relating to employees or agents, whether
arising by operation of law, by contract, or by past practice, for vacation
and holiday pay, bonuses, and other forms of compensation which are or may
become payable to such employees or agents, have been paid or will be paid
by Seller.
6.10 CHANGE OF CORPORATE NAME.
At the Closing, Seller if requested by Purchaser will adopt and file with
the Secretary of State of Alabama a resolution changing the name of Seller
to a name substantially dissimilar to "AA Microsystems, Inc." and Seller
shall also execute a Consent for Use of Similar Name form, as set forth on
Exhibit "J," granting to Purchaser the use of the name "AA Microsystems,
Inc."
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6.11 BROKERS AND FINDERS.
No broker, finder or other person or entity acting in a similar capacity
has participated on behalf of Seller in bringing about the transaction
herein contemplated, or rendered any service with respect thereto or been
in any way involved therewith.
7.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller that the following statements
are true and correct as of the date hereof and shall remain true and correct as
of the Closing as if made again at and as of that time.
7.1 ORGANIZATION, GOOD STANDING AND POWER OF PURCHASER.
(a) Purchaser is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has full
power and lawful authority to execute, deliver and perform this
Agreement and the "Other Purchaser Documents" (as hereinafter
defined).
7.2 STATUS OF AGREEMENTS.
(a) All requisite corporate action to approve, execute, deliver and
perform this Agreement and each of the other agreements, instruments
and other documents to be delivered by and on behalf of Purchaser in
connection herewith (the "Other Purchaser Documents") has been taken
by Purchaser. This Agreement and the Other Purchaser Documents have
been duly and validly executed and delivered by Purchaser and
constitute the legal and binding obligation of Purchaser enforceable
in accordance with their respective terms. Purchaser has taken all
necessary actions (including actions of its Board of Directors) to
authorize and approve the execution and delivery of this Agreement and
the Other Purchaser Documents, the performance of its obligations
thereunder and the consummation of the transactions contemplated
thereby.
(b) No authorization, approval, consent or order of, or registration,
declaration or filing with, any court, governmental body or agency or
other public or private body, entity or person is required in
connection with the execution, delivery or performance of this
Agreement or any other agreement, instrument or document to be
delivered by or on behalf of Purchaser in connection herewith.
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(c) Neither the execution or delivery nor performance of this Agreement or
any of the other agreements, instruments or documents to be delivered
by or on behalf of Purchaser in connection herewith does or will
(i) conflict with, violate or result in any breach of any
judgment, decree, order, statute, rule or regulation
applicable to Purchaser;
(ii) conflict with, violate or result in any breach of any
agreement or instrument to which Purchaser is a party or by
which Purchaser is bound, or constitute a default thereunder
or give rise to a right of acceleration of an obligation of
Purchaser; or
(iii) conflict with or violate any provision of the Articles of
Incorporation or Code of Regulations of Purchaser.
7.3 BROKERS AND FINDERS.
No broker, finder or other person or entity acting in a similar capacity
has participated on behalf of Purchaser in bringing about the transaction
herein contemplated, or rendered any service with respect thereto or been
in any way involved therewith.
8.
BULK SALES ACT
8.1 COMPLIANCE WITH BULK SALES ACT.
Purchaser waives compliance with the provisions of any applicable bulk
sales law and Seller and Shareholder, jointly and severally, agree to
indemnify and hold harmless Purchaser from any liability incurred as a
result of the failure to so comply, except to liabilities explicitly
assumed hereunder by Purchaser.
9.
COMPETITION
9.1 As an inducement for and in consideration of Purchaser entering into this
Agreement, Seller and Shareholder agree to enter into a covenant not to
compete agreement, in the form of Exhibits D and D-1, respectively,
attached hereto and made a part hereof.
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10.
SURVIVAL OF AND RELIANCE UPON
REPRESENTATIONS, WARRANTIES AND AGREEMENTS; INDEMNIFICATION
10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
Notwithstanding anything to the contrary contained herein, the parties
acknowledge and agree that all representations, warranties, indemnities and
agreements contained in this Agreement or in any agreement, instrument,
exhibit, certificate, schedule or other document delivered in connection
herewith, shall survive the Closing and continue to be binding upon the
party giving such representation, warranty, indemnity or agreement and
shall be fully enforceable to the extent provided for in Sections 10.3 and
10.4 hereof, at law or in equity, for the period beginning on the Closing
Date and ending one (1) year thereafter, except for (i) the representations
made in Section 6.7, which shall survive the Closing for a period of two
(2) years and (ii) the representations, warranties, indemnities and
agreements designated and identified in Sections 2.3, 6.3, 6.5(a) (with
respect to good and marketable title to the Purchased Assets), 6.5(b) and
7.2, which shall survive the Closing and shall terminate in accordance with
the statute of limitations governing written contracts in the State of
Alabama; and (iii) Exhibits D and D-1 which shall terminate as provided
therein.
10.2 RELIANCE UPON AND ENFORCEMENT OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS.
(a) Seller hereby agrees that, notwithstanding any right of Purchaser to
fully investigate the affairs of Seller, and notwithstanding
knowledge of facts determined or determinable by Purchaser pursuant to
such investigation or right of investigation, Purchaser has the right
to rely fully upon the representations, warranties and agreements of
Seller contained in this Agreement and upon the accuracy of any
document, certificate or exhibit given or delivered to Purchaser
pursuant to the provisions of this Agreement.
(b) Purchaser hereby agrees that, notwithstanding any right of Seller to
fully investigate the affairs of Purchaser, and notwithstanding
knowledge of facts determined or determinable by Seller pursuant to
such investigation or right of investigation, Seller has the right to
rely fully upon the representations, warranties and agreements of
Purchaser contained in this Agreement and upon the accuracy of any
document, certificate or exhibit given or delivered to Seller pursuant
to the provisions of this Agreement.
10.3 INDEMNIFICATION BY SELLER AND SHAREHOLDER.
Seller and Shareholder (jointly and severally) shall indemnify Purchaser
against and hold it harmless from:
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(i) any and all loss, damage, liability or deficiency resulting from
or arising out of any inaccuracy in or breach of any
representation, warranty, covenant, or obligation made or
incurred by Seller herein or in any other agreement, instrument
or document delivered by or on behalf of Seller in connection
herewith;
(ii) any imposition (including by operation of law) or attempted
imposition by a third party upon Purchaser of any liability of
Seller which Purchaser has not specifically agreed to assume
pursuant to Section 2.2 of this Agreement;
(iii) any liability (except for any Assumed Obligation described in
Section 2.2) or other obligation incurred by or imposed upon
Purchaser resulting from the failure of the parties to comply
with the provisions of any law relating to bulk transfers which
may be applicable to the transaction herein contemplated; and
(iv) any and all costs and expenses (including reasonable legal and
accounting fees) related to any of the foregoing, subject to the
provisions of Section 10.5.
The aggregate amount that the Purchaser may recover from Seller and
Shareholder as a result of the breach or violation of the representations,
warranties, covenants and agreements contained herein and otherwise
pursuant to this Section 10 shall be limited to a maximum amount of Three
Hundred Fifty Thousand and No/100 Dollars ($350,000.00).
Notwithstanding the above, no claims for indemnification shall be made by
Purchaser against the Seller and/or Shareholder until such time as all
claims hereunder total more than Twenty Thousand Dollars ($20,000.00) in
the aggregate. Indemnification shall be made only to the extent such claim
or claims exceed such threshold amount in the aggregate. Any amounts to
which Purchaser, its successors or assigns, is entitled to indemnification
pursuant to the provisions of this Section, subject to the provisions of
Section 10.5, shall be offset against the amount payable to Seller under
the Note. Provided, however, the offset in any one year may not exceed the
aggregate amount of principal and interest due on said Note for said year.
Except as provided herein, nothing in this Section 10 shall be construed to
limit the amount to which, or the time in which, by reason of offset, or
otherwise, that Purchaser may recover from Seller and Shareholder pursuant
to this Agreement resulting from the breach of any representation,
warranty, covenant or agreement contained herein.
10.4 INDEMNIFICATION BY PURCHASER.
Purchaser shall indemnify Seller against and hold it harmless from any and
all loss, damage, liability or deficiency resulting from or arising out
of: (i) any Assumed
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Obligations; (ii) Purchaser's operation of its business or ownership of the
Purchased Assets subsequent to the Closing (except to the extent such
liability is the result of a breach of a covenant or warranty of Seller
hereunder); or (iii) any inaccuracy in or breach of any representation,
warranty, covenant or obligation made or incurred by Purchaser herein; and
(iv) any and all related costs and expenses (including reasonable legal and
accounting fees), subject to the provisions of 10.5. Except as
specifically provided herein, nothing in this Section 10.4 shall be
construed to limit the amount to which (except as described in Section
10.1), or the time by which, by reason of offset or otherwise, that Seller
may recover from Purchaser pursuant to this Agreement resulting from its
breach or violation of any representation, warranty, covenant or agreement
contained herein.
10.5 NOTIFICATION OF AND PARTICIPATION IN CLAIMS.
(a) No claim for indemnification shall arise until notice thereof is given
to the party from whom indemnity is sought (the "Indemnifying
Party"). Such notice shall be sent within ten (10) days after the
party to be indemnified has received notification of such claim, but
failure to notify the Indemnifying Party shall in no event prejudice
the right of the party to be indemnified under this Agreement, unless
the Indemnifying Party shall be prejudiced by such failure and then
only to the extent of such prejudice. In the event that any legal
proceeding shall be instituted or any claim or demand is asserted by
any third party in respect to which Seller/Shareholder on the one
hand, or Purchaser on the other hand, may have an obligation to
indemnify the other, the party asserting such right to indemnity (the
"Party to be Indemnified") shall give or cause to be given to the
party from whom indemnity is sought (the "Indemnifying Party") written
notice thereof and the Indemnifying Party shall have the right, at its
option and expense, to participate in the defense of such proceeding,
claim or demand, but not to control the defense, negotiation or
settlement thereof, which control shall at all times rest with the
Party to be Indemnified, unless the Indemnifying Party irrevocably
acknowledges in writing full and complete responsibility for and
agrees to provide indemnification of the Party to be Indemnified, in
which case such Indemnifying Party may assume such control through
counsel of its choice and at its expense. In the event a third party
asserts a claim due to a repeat service call, the Indemnifying Party
shall have the option of responding to such claim prior to the Party
to Indemnified responding to such claim. In the event the
Indemnifying Party assumes control of the defense, the Indemnifying
Party shall not be responsible for the legal costs and expenses of the
Party to be Indemnified in the event the Party to be Indemnified
decides to join in such defense. The parties hereto agree to
cooperate fully with each other in connection with the defense,
negotiation or settlement of any such third party legal proceeding,
claim or demand.
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(b) If the Party to be Indemnified is also the party controlling the
defense, negotiation or settlement of any matter, and if the Party to
be Indemnified determines to compromise the matter, the Party to be
Indemnified shall immediately advise the Indemnifying Party of the
terms and conditions of the proposed settlement. If the Indemnifying
Party agrees to accept such proposal, the Party to be Indemnified
shall proceed to conclude the settlement of the matter, and the
Indemnifying Party shall immediately indemnify the Party to be
Indemnified pursuant to the terms of Sections 10.3 and 10.4 hereunder.
If the Indemnifying Party does not agree within fourteen (14) days to
accept the settlement (said 14-day period to begin on the first
business day following the date such party receives a complete copy of
the settlement proposal), the Indemnifying Party shall immediately
assume control of the defense, and negotiation of the settlement
thereof, at the Indemnifying Party's expense. The Party to be
Indemnified shall be indemnified in the entirety for any liabilities
arising out of the ultimate defense, negotiation or settlement of such
matter.
(c) If the Indemnifying Party is the party controlling the defense,
negotiation or settlement of any matter, and the Indemnifying Party
determines to compromise the matter, the Indemnifying Party shall
immediately advise the Party to be Indemnified of the terms and
conditions of the proposed settlement and irrevocably acknowledge in
writing full and complete responsibility for, and agree to provide,
indemnification of the Party to be Indemnified. If the Party to be
Indemnified agrees to accept such proposal, the Indemnifying Party
shall proceed to conclude the settlement of the matter and immediately
indemnify the Party to be Indemnified pursuant to the terms of
Sections 10.3 or 10.4 hereunder. If the Party to be Indemnified does
not agree within fourteen (14) days to accept the settlement (said
14-day period to begin on the first business day following the date
such party receives a complete copy of the settlement proposal), the
Party to be Indemnified shall immediately assume control of the
defense, negotiation or settlement thereof, at the Party to be
Indemnified's expense. If the final amount paid to resolve the claim
is less than the amount of the original proposed settlement made by
the Indemnifying Party, then the Party to be Indemnified shall receive
such indemnification pursuant to Sections 10.3 or 10.4 hereof,
including any and all expenses incurred by the Party to be Indemnified
incurred in connection with the defense, negotiation or settlement of
such matter. If the amount finally paid to resolve the claim is equal
to or greater than the amount of the original proposed settlement
proposed by the Indemnifying Party, then the Indemnifying Party shall
provide indemnification pursuant to Sections 10.3 and 10.4 for the
amount of the original settlement proposal submitted by the
Indemnifying Party, and the Party to be Indemnified shall be
responsible for all amounts in excess of the original settlement
proposal submitted by the Indemnifying Party and all costs and
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expenses incurred by the Party to be Indemnified in connection with
such defense, negotiation or settlement.
Notwithstanding anything contained herein to the contrary, the sole remedy
available to either party for a breach by the other party of any
representation, warranty, covenant or agreement contained herein shall be
to exercise its rights under this Section 10, subject, however, to the
procedures and limitations set forth in this Section 10.
11.
THE CLOSING
11.1 DATE, TIME AND PLACE OF CLOSING.
Consummation of the transactions contemplated hereby (the "Closing") shall
take place on the 2nd day of August, 1996 (the "Closing Date"), at 9:00
a.m. EST at the offices of Lindhorst & Dreidame Co., L.P.A., 312 Walnut
Street, Suite 2300, Cincinnati, Ohio 45202, or on such other Closing Date,
or at such other time and/or place as the parties may mutually agree upon.
11.2 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS.
The obligation of Purchaser to perform in accordance with this Agreement
and to consummate the transactions herein contemplated is subject to the
satisfaction of the following conditions at or before the Closing:
(a) The Seller shall have complied with and performed all of the
representations, warranties, agreements and covenants hereunder
required to be performed by it prior to or at the Closing;
(b) There shall be no pending or threatened legal action which, if
successful, would prohibit consummation or require substantial
rescission of the transactions contemplated by this Agreement;
(c) Seller shall have delivered to Purchaser, at or before the Closing,
the following documents, all of which shall be in form and substance
reasonably acceptable to the Purchaser and its counsel:
(i) The instrument of transfer required by Section 1.4;
(ii) Releases (or copies thereof) of all liens, claims, charges,
encumbrances, security interests and restrictions on the
Purchased Assets necessary to provide Purchaser with good,
marketable and indefeasible title to each of the Purchased Assets
at the Closing;
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(iii) Certified copies of the corporate actions taken by the Board of
Directors and shareholder of Seller, authorizing the execution,
delivery and performance of this Agreement;
(iv) Certificate of Good Standing for Seller from the Secretary of
State of Alabama dated no earlier than fifteen (15) days prior to
Closing;
(d) Seller will adopt and file with the Secretary of State of Alabama a
resolution changing the name of Seller substantially dissimilar to AA
Microsystems, Inc. and Seller shall execute a Consent of Similar Name
form, as set forth on Exhibit "J", granting to Purchaser the use of
the name "AA Microsystems, Inc.";
(e) Seller and Shareholder shall have executed the Covenant Not to Compete
Agreements set forth on Exhibits D and D-1; and
(f) Shareholder shall have executed the Employment Agreement set forth on
Exhibit H.
11.3 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.
The obligation of Seller to perform in accordance with this Agreement and
to consummate the transactions herein contemplated is subject to the
satisfaction of the following conditions at or before the Closing:
(a) Performance by Purchaser of all of the representations, warranties,
agreements and covenants to be performed by it at or before the
Closing;
(b) There shall be no pending or threatened legal action which, if
successful, would prohibit consummation or require substantial
rescission of the transactions contemplated by this Agreement;
(c) Purchaser shall deliver to Seller at or before the Closing the
following documents, all of which shall be in form and substance
acceptable to Seller and its counsel:
(i) A certified or official bank check for the aggregate amount to be
paid to Seller at the Closing pursuant to Section 3.2(a) hereof;
(ii) The Note, as set forth in Section 3.2(c);
(iii) The stock of Purchaser to be delivered to Seller pursuant to
Section 3.2(b) hereof;
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(iv) Certified copies of the corporate actions taken by Purchaser
authorizing the execution, delivery and performance of this
Agreement; and
(v) Certificate of Good Standing for Purchaser from the Secretary of
State of Delaware dated no earlier than fifteen (15) days prior
to the date of Closing.
(d) Purchaser shall enter into with Shareholder, the Employment Agreement
set forth in Exhibit "H".
(e) Purchaser shall execute a lease substantially in the form of Exhibit K
to lease approximately eight thousand five hundred (8,500) shares feet
of space in a building owned by AA Management, L.L.C. for a lease term
of not less than three (3) years and at a monthly lease amount of
approximately Six and 75/100 Dollars ($6.75) per square foot.
12.
GENERAL PROVISIONS
12.1 PUBLICITY.
All public announcements relating to this Agreement or the transactions
contemplated hereby will be made by Purchaser with the consent of Seller,
which consent will not be unreasonably withheld.
12.2 EXPENSES.
Except to the extent otherwise specifically provided herein, Purchaser will
bear and pay all of its expenses incident to the transactions contemplated
by this Agreement which are incurred by Purchaser or its representatives
and Seller shall bear and pay all of the expenses incident to the
transactions contemplated by this Agreement which are incurred by Seller or
its representatives.
12.3 NOTICES.
All notices and other communications required by this Agreement shall be in
writing and shall be deemed given if delivered by hand or mailed by
registered mail or certified mail, return receipt requested, to the
appropriate party at the following address (or at such other address for a
party as shall be specified by notice pursuant hereto):
(a) If to Purchaser, to:
Pomeroy Computer Resources, Inc.
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1020 Petersburg Road
Hebron, Kentucky 41048
With a copy to:
James H. Smith III, Esq.
Lindhorst & Dreidame
312 Walnut Street, Suite 2300
Cincinnati, Ohio 45202
(b) If to Seller, to:
AA Microsystems, Inc.
2218 English Village Lane
Birmingham, Alabama 35223
With a copy to:
Harold B. Kushner
Berkowitz, Lefkovits, Isom and Kushner
1600 SouthTrust Tower
420 North 20th Street
Birmingham, Alabama 35203
(c) If to Shareholder, to:
Stuart Raburn
2218 English Village Lane
Birmingham, Alabama 35223
With a copy to:
Harold B. Kushner
Berkowitz, Lefkovits, Isom and Kushner
1600 SouthTrust Tower
420 North 20th Street
Birmingham, Alabama 35203
12.4 BINDING EFFECT.
Except as may be otherwise provided herein, this Agreement and all the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives,
successors and assigns.
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12.5 HEADINGS.
The headings in this Agreement are intended solely for convenience of
reference and shall be given no effect in the construction or
interpretation of this Agreement.
12.6 EXHIBITS.
The Exhibits referred to in this Agreement constitute an integral part of
this Agreement as if fully rewritten herein.
12.7 COUNTERPARTS.
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which constitute together one and
the same document.
12.8 GOVERNING LAW.
This Agreement shall be construed in accordance with and governed by the
laws of the State of Alabama, without regard to its laws regarding conflict
of laws.
12.9 SEVERABILITY.
If any provision of this Agreement shall be held unenforceable, invalid, or
void to any extent for any reason, such provision shall remain in force and
effect to the maximum extent allowable, if any, and the enforceability or
validity of the remaining provisions of this Agreement shall not be
affected thereby.
12.10 WAIVERS; REMEDIES ACCUMULATED.
No waiver of any right or option hereunder by any party shall operate as a
waiver of any other right or option, or the same right or option with
respect to any subsequent occasion for its exercise, or of any right to
damages. No waiver by any party of any breach of this Agreement or of any
representation or warranty contained herein shall be held to constitute a
waiver of any other breach or a continuation of the same breach. All
remedies provided in this Agreement are in addition to all of the remedies
provided by law. No waiver of any of the provisions of this Agreement
shall be valid and enforceable unless such waiver is in writing and signed
by the party granting the same.
12.11 ASSIGNMENTS.
Except as otherwise provided in this Agreement, no party shall assign its
rights or obligations hereunder prior to Closing without the prior written
consent of the other party.
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12.12 ENTIRE AGREEMENT.
This Agreement and the agreements, instruments and other documents to be
delivered hereunder constitute the entire understanding and agreement
concerning the subject matter hereof. All negotiations between the parties
hereto are merged into this Agreement, and there are no representations,
warranties, covenants, understandings, or agreements, oral or otherwise, in
relation thereto between the parties other than those incorporated herein
and to be delivered hereunder. Except as otherwise expressly contemplated
by this Agreement, nothing expressed or implied in this Agreement is
intended or shall be construed so as to grant or confer on any person, firm
or corporation other than the parties hereto any rights or privilege
hereunder. No supplement, modification or amendment of this Agreement
shall be binding unless executed in writing by the parties hereto.
12.14 BUSINESS RECORDS.
Seller shall be permitted to retain copies of such books and records
relating to the Purchased Assets and relate to the accounting and tax
matters of the Business and to have access to all original copies of
records so delivered to Purchaser at reasonable times, for any reasonable
business purpose, for a period of six (6) years after the Closing.
12.15 INVOICING OF SALES.
Sales made by Seller but not invoiced prior to Closing will be invoiced by
Purchaser. Seller will reimburse Purchaser for such inventory on such jobs
at cost.
The parties hereto have executed this Agreement as of the date first above
written.
WITNESSES: AA MICROSYSTEMS, INC.
\s\ Sheila R. Dichiara
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\s\ Cynthia A. Evans By: \s\ Stuart Raburn
- ------------------------------ ------------------------------
POMEROY COMPUTER RESOURCES, INC.
\s\ Sheila R. Dichiara
- ------------------------------
\s\ Cynthia A. Evans By: \s\ Edwin S. Weinstein
- ------------------------------ ------------------------------
\s\ Sheila R. Dichiara
- ------------------------------
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\s\ Cynthia A. Evans \s\ Stuart Raburn
- ------------------------------ ------------------------------
STUART RABURN
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Exhibit 10.6
PROMISSORY NOTE
$200,000.00 Cincinnati, Ohio
August 2, 1996
FOR VALUE RECEIVED, the undersigned, promises to pay to the order of AA
MICROSYSTEMS, INC., an Alabama corporation (to be known as AA Holdings, Inc.
after its Articles of Incorporation have been amended incident to the sale of
such name pursuant to the Asset Purchase Agreement), at such place as the holder
hereof may designate, in legal tender of the United States, the principal sum of
TWO HUNDRED THOUSAND DOLLARS ($200,000.00) (as such sum may be adjusted in the
manner set forth below) with interest on the unpaid principal balance from the
date of such Note until paid at the prime rate of Star Bank, N.A., Cincinnati,
Ohio as of the date of Closing.
This Note is given pursuant to an Asset Purchase Agreement ("Agreement") of even
date by and between the undersigned and AA Microsystems, Inc.
The principal of this Note shall be reduced by Ten Thousand Dollars ($10,000.00)
(but not below zero) for each of the following former employees of AA
Microsystems, Inc. who are employees of the undersigned on August 2, 1996,
should such individual voluntarily leave the employment of the undersigned
before the expiration of a ninety-day period beginning on the 2nd day of
August, 1996: (i) Matthew Fancher, (ii) Russell Poe, (iii) Mark Long and (iv)
Douglas Minderhout. The death, disability or termination without cause by the
undersigned of any of such individuals named in this paragraph shall not cause a
reduction of the principal amount of this Note. The undersigned's termination
for cause of any of such individuals, during the ninety-day period, shall cause
a reduction in the principal amount of this Note.
The principal of this Note shall be payable in three (3) equal installments with
the first principal payment commencing on the first annual anniversary of the
Closing and the remaining two (2) principal payments being due on the next two
(2) successive annual anniversary dates. Interest on the unpaid principal
balance of the Note shall be paid quarterly.
The undersigned shall have the right to prepay all or a part of its obligation
to pay before its due date without incurring any penalty or liability for
additional interest.
The rights of the holder hereof may be assigned to Stuart Raburn in the event of
the liquidation of the assets of AA Microsystems, Inc.
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In the event that any installment of interest or principal is not delivered to
the holder of this Note with seven (7) days after its due date, the entire
principal balance together with all arrearages of interest shall immediately be
due and payable and shall bear interest from such date at the lesser of fifteen
(15%) percent or the maximum allowable under Alabama law. Provided, however, in
the event the undersigned has a good faith claim against AA Microsystems, Inc.
arising from its Agreement of at least one hundred percent (100%) of the payment
or payments that have not been made, withholding such payment shall not be
considered an event of default hereunder (however, interest shall continue to
accrue on any unpaid balance ultimately not offset), it being the intent of AA
Microsystems, Inc. that the undersigned shall have a right of offset to the
extent and in the manner set forth in the Agreement for any claims against AA
Microsystems, Inc. arising under the Agreement.
Should all or any part of the indebtedness represented by this Note be collected
by action in law, or in bankruptcy, insolvency, receivership or other court
proceedings, or should the Note be placed in the hands of an attorney for
collection after the occurrence of an event of default, the undersigned hereby
agrees to pay to the holder, all court costs and reasonable attorneys' fees and
expenses incurred or sustained by the holder of this Note.
The undersigned waives presentment, demand, protest and notice of demand,
protest and dishonor.
No delay or omission by the holder in exercising any right hereunder shall
operate as a waiver of such right; nor shall a waiver on any one occasion be
construed as a bar to or a waiver of any right on any future occasion. The
undersigned waives presentment, demand, notice, protest, and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note and assents, without notice of any kind, to any
extension or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party primarily or secondarily liable.
This Note will be governed and construed and enforced in accordance with the
laws of the State of Alabama.
POMEROY COMPUTER RESOURCES, INC.
By: \s\ Edwin S. Weinstein
--------------------------------
Edwin S. Weinstein, Vice-President
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Exhibit 10.7
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and is entered into this
11th day of October, 1996, by, between and among POMEROY COMPUTER RESOURCES,
INC., a Delaware corporation, (the "Purchaser"), COMMUNICATIONS TECHNOLOGY,
INC., d/b/a DILAN, a North Carolina corporation (the "Seller"), and ROBERT
MARTIN (the "Shareholder").
W I T N E S S E T H :
WHEREAS, Seller is a full service provider of micro computer products and
computer integration and networking services to large and medium size
commercial, health care, governmental and educational customers (the
"Business"); and
WHEREAS, Shareholder owns all the issued and outstanding stock, and is the sole
director of, Seller; and
WHEREAS, Purchaser desires to purchase substantially all the assets of the
Seller used in the Business and assume certain of the liabilities of Seller in
connection with the Business, and Seller desires to sell substantially all of
such assets, subject to such liabilities, but only (i) upon the terms and
subject to the conditions set forth in this Agreement, (ii) the representations,
warranties, covenants, indemnifications, assurances and undertakings of Seller
and Shareholder and of Purchaser contained in this Agreement and (iii) the
agreements of Seller and Shareholder to refrain from competition with Purchaser
for five (5) years from the closing of this transaction.
NOW, THEREFORE, in consideration of the above premises and the mutual promises,
covenants, agreements, representations and warranties herein contained, the
parties hereto agree as follows:
1.
DEFINITIONS
1.1 AFFILIATE. "Affiliate" shall mean (i) in the case of an entity, any
person (the term "person" for these purposes means an individual,
partnership, firm, corporation or other entity) who or which, directly or
indirectly, through one or more intermediaries, controls or is controlled
by, or is under common control with, any specified person (the term
"control" for these purposes means the ability, whether by ownership of
shares or other equity interests, by contract or otherwise, to elect a
majority of the directors of a corporation, to select the managing or
general partner of a partnership, or otherwise to select, or have the
power to remove and then select, a majority of those persons exercising
governing authority over an entity) or (ii) in
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the case of an individual, such individual's spouse, descendants or
parents or a trust primarily for the benefit of such individual or any of
the foregoing.
1.2 ASSUMED LIABILITIES. The "Assumed Liabilities" are the liabilities of
the Seller assumed or paid at Closing by the Purchaser pursuant to this
Agreement.
1.3 BALANCE SHEET. The "Balance Sheet" is the audited balance sheet of the
Seller as of March 31, 1996, included as part of the Financial
Statements.
1.4 CLOSING. The "Closing" shall be the consummation of the transactions
contemplated under this Asset Purchase Agreement.
1.5 CLOSING DATE. The "Closing Date" shall be as of 2:00 PM, E.S.T., October
11, 1996.
1.6 CODE. The "Code" is the Internal Revenue Code of 1986, as amended, 26
U.S.C. Section 1 ET SEQ.
1.7 COURT. A "Court" is any federal, state, municipal, domestic, foreign or
other governmental tribunal or an arbitrator or person with similar power
or authority.
1.8 DISCLOSURE SCHEDULE. The "Disclosure Schedule" is the Disclosure
Schedule dated the date of this Agreement and delivered by Seller to
Purchaser.
1.9 ENCUMBRANCE. An "Encumbrance" is any security interest, lien, charge,
encumbrance or restriction, whether imposed by agreement, understanding,
law or otherwise, on any Purchased Asset (as defined herein).
1.10 EXCLUDED ASSETS. An "Excluded Asset" is any asset set forth on Exhibit C
attached hereto.
1.11 FINANCIAL STATEMENTS. The "Financial Statements" are the audited
financial statements of the Seller for the year ended March 31, 1995 and
March 31, 1996 and the unaudited interim balance sheets as of July 31,
1996 and September 30, 1996, including any and all notes thereto.
1.12 GOVERNMENTAL ENTITY. A "Governmental Entity" is any Court or any
federal, state, municipal, domestic, foreign or other administrative
agency, department, commission, board, bureau or other governmental
authority or instrumentality.
1.13 PRO FORMA BALANCE SHEET. The "Pro Forma Balance Sheet" is the unaudited
balance sheet adjusted for Excluded Assets per Section 2.3 and Exhibit C
and Excluded Liabilities of the Seller per Section 3.3 as of September
30, 1996, included as part of the Financial Statements.
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1.14 PURCHASE PRICE. The "Purchase Price" is the total consideration paid by
Purchaser to Seller for the Purchased Assets as set forth in Section 4.1.
1.15 PURCHASED ASSETS. The "Purchased Assets" are the assets of the Seller,
used in the Business, acquired by the Purchaser pursuant to the terms of
this Agreement. Any asset of Seller which is not an Excluded Asset shall
be a Purchased Asset.
1.16 TAXES. "Taxes" means all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts,
excise, property, sales, use, license, payroll and franchise taxes,
imposed by any Governmental Entity and includes any estimated tax,
interest and penalties or additions to tax.
1.17 TAX RETURN. A "Tax Return" is a report, return or other information
required to be supplied to a Governmental Entity in connection with Taxes
including, where permitted or required, combined or consolidated returns
for any group of entities that includes the Seller.
2.
TERMS
2.1 AGREEMENT.
Seller agrees to sell and convey to Purchaser the Purchased Assets as
hereinafter set forth in Section 2.2. Purchaser agrees to purchase said
assets. The agreements of Purchaser and Seller are expressly conditioned
upon the terms, conditions, covenants, representations and warranties as
hereinafter set forth.
2.2 ASSETS TO BE SOLD AND PURCHASED.
At the Closing of this Agreement, Purchaser shall purchase and Seller
shall sell all the Assets of the Seller, used in the Business, except for
the Excluded Assets. The Purchased Assets shall include, but not be
limited to:
(a) The tangible personal property and assets of the Seller of every
kind and description, real, personal or mixed, wherever located,
used in the Business of Seller, including without limitation, all of
such assets as reflected on the Pro Forma Balance Sheet (excepting
those assets disposed of, and including those assets acquired, in
the ordinary course of business since the date of the Pro Forma
Balance Sheet);
(b) All intangible assets of the Seller which are used in the Business
of Seller, including without limitation, all purchase orders,
contract rights and agreements, work in process, customer lists,
supplier arrangements, patents, trademarks and service marks
(including the goodwill associated with the marks), office supplies,
computer programs, claims of the Seller, the right to
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use the corporate and trade name of or used by the Seller, or any
derivative thereof, as all or part of a corporate or trade name;
(c) All investment securities, cash and cash equivalents (except
investment securities, cash and cash equivalents that are Excluded
Assets as defined in Section 2.3) and customer notes receivable
relating to the Business;
(d) All inventory of the Business which shall be valued on a moving
average basis at the lower of cost of acquisition, less trade and
cash discounts, or market;
(e) All accounts receivable and vendor receivables relating to the
Business;
(f) All prepaid expenses applicable to the Business;
(g) All of Seller's service, routing, installation and networking
contracts;
(h) All vendor rebates, spiff money, retainage amounts under any
contracts, and any other customer deposits;
(i) The distribution agreements and authorizations of Seller;
(j) All base artwork, photo materials, plates (if owned by Seller),
separations and other materials that are used by Seller for printing
brochures and promotional materials;
(k) The entire right, title, benefit and interest of Seller, now
existing or hereafter arising, in or to all indemnities, guarantees,
warranties, claims and choses of action of Seller against other
parties with respect to the Purchased Assets, including by way of
example and not limitation, any rights under insurance policies and
other rights thereunder;
(l) The assignment of any telephone numbers used in the Business;
(m) The covenant not to compete agreements with Seller and Shareholder
set forth on Exhibits "B" and "B-1" attached hereto and made a part
hereof;
(n) All rights of Seller in the JacqCad Master Computer Program, all
updates thereto and all rights of Seller under all license and
distributor agreements entered into by Seller regarding such
software; and
(o) All other fees, assets, property, business and going concern value,
and rights of Seller (including the rights under covenants or
agreements not to disclose confidential information or not to
compete, if any), and all other assets of Seller not specifically
excluded pursuant to the terms of this Agreement.
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2.3 EXCLUDED ASSETS.
The Excluded Assets are set forth on Exhibit "C" hereto.
2.4 LEASE AGREEMENTS.
(a) Seller is the lessee under certain lease agreements providing for
payments of more than $5,000.00 per year covering the following real
and personal properties:
(i) Lease by and between Damler Associates, as Landlord, and
Seller, as Tenant, dated July 21, 1994, as amended on
December 8, 1994, covering the real property located at Lot
No. 2, Commonwealth Business Center, Flex-Com Building,
Morrisville, North Carolina 27560, as amended by a First
Amendment to Lease which provides for an additional 1,750
square feet adjacent to the Lot No. 2 space;
(ii) Lease by and between Century Center, Inc. and Seller dated
May 3, 1994 for approximately 3,564 square feet known as
Spaces F and G (556-F/G Arborhill Road) Century Center,
Kernersville, North Carolina 27284;
(iii) Lease by and between BCI Property Company No. 44, a North
Carolina general partnership, and Seller dated April 27,
1994 for approximately 3,310 square feet of space in the
Bissell Business Park located at 4321 - E. Stuart Andrew
Blvd., Charlotte, North Carolina, which Lease was assigned
by BCI Property Company No. 44 to Highwoods/Forsythe Limited
Partnership as of July 13, 1995;
(iv) Sublease Agreement by and between Wordsmith Executive
Suites, Inc., as Sublessor and Seller, as Sublessee, dated
February 14, 1996, covering the real property located at
Wordsmith Offices and Secretarial Services, Inc., Suite 339,
84 Villa Road, Second Floor, Greenville, South Carolina
29615;
(v) Sublease Agreement by and between Seller, as Sublessor, and
Allstates Air Cargo, Inc., as Sublessee, dated March 15,
1995, as amended by a First Amendment to Sublease for a
portion of the premises located in the Flex-Com Building,
Suite 15-A, Morrisville, North Carolina 27560.
(vi) Lease agreement dated April 4, 1995 for an initial term of
two (2) years with Advanta Business Services for one (1)
Netframe 8540 cluster server, two (2) 4.2 gb fast/wide live
drives and one (1) 64 mb
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memory kit. Monthly rent under such lease is $2,626.00 with
an option to purchase at the end of the lease for $1.00;
(vii) Lease Agreement with Colonial Pacific Leasing as assignee of
U.S. Commercial Leasing, Inc. regarding three (3) Xylogics
Remote Annex 6100 T-1 Access Servers and one (1) Xylogics
Remote Annex 6100 T-1 Server;
(viii) Lease agreement with General Electric Capital for one (1)
Mita DC-5690 copier and one (1) AS7-10 finisher;
(ix) Lease Agreement with Chrysler Credit Corporation relating to
a 1994 Chrysler LHS;
(x) Lease agreement with First Citizens Bank relating to a 1994
Ford Explorer; and
(xi) Lease Agreement with First Citizens Bank relating to a 1993
Ford Explorer.
(b) Seller is the lessor under certain master lease agreements for
equipment providing for payments of more than $5,000.00 per year as
follows:
(i) Loomcraft;
(ii) W. Scott Glidden;
(iii) We Love Country;
(iv) Sedden Ryan Wylde, Inc.;
(v) Nosara Design Corporation;
(vi) Hafner, Inc.;
(vii) Mastercraft;
(viii) EBGB;
(ix) Bates of Maine;
(x) Ty-MAWR;
(xi) Masterweave;
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(xii) Perfect Home;
(xiii) R & D Weaving;
(xiv) Prime Vision;
(xv) Sales Vision; and
(xvi) Mastercraft/Doblin.
(c) Seller is the Lessor under certain operating lease agreements for
equipment providing for payments of more than $5,000.00 per year as
follows:
(i) Access, Inc.;
(ii) Sales Vision;
(iii) American Emergencies Vehicle, Inc.; and
(iv) Harris Teeter, Inc.
(d) Seller is the Lessor under certain lease agreements for equipment
with Henredon, Inc. and Blueridge Community Action, Inc., which
leases have been pledged as security to Dana Commercial Credit
Corporation by Seller, including all the equipment and other
property which is the subject matter of such lease and including all
returned and repossessed equipment with all additions and
attachments together with any and all proceeds of whatever nature
arising therefrom.
At the Closing, Seller and Purchaser shall execute necessary
documentation for the assignment of these leases and all of Seller's
right and interest thereunder to Purchaser and, at the Closing, Seller
shall assign all its rights and interests in said leases to Purchaser.
Purchaser agrees to indemnify and hold Seller harmless from any liability
with respect to the aforementioned leases occurring after the Closing
Date. To the extent that the assignment of any lease shall require the
consent of other parties thereto, this Agreement shall not constitute an
assignment thereof and Seller shall obtain any such necessary consents or
assignments by the Closing.
2.5 INSTRUMENTS OF TRANSFER.
At Closing, the Seller will deliver to the Purchaser such bills of sale,
endorsements, assignments and other good and sufficient instruments of
transfer and assignment as shall be effective to vest in Purchaser good
and marketable title and interest in
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and to the Purchased Assets. At or after the Closing, and without
further consideration, the Seller will execute and deliver to Purchaser
such further instruments of conveyance and transfer and take such other
action as Purchaser may reasonably request in order to more effectively
convey and transfer to Purchaser any of the Purchased Assets or for
aiding and assisting and collecting and reducing to possession and
exercising rights with respect thereto. Seller and the Shareholder agree
to use their best efforts to obtain and deliver to Purchaser such
consents, approvals, assurances and statements from third parties as
Purchaser may reasonably require in a form satisfactory to Purchaser. In
addition to the foregoing, Seller will deliver to Purchaser the originals
or copies of all of the Seller's books, records and other data relating
to the Purchased Assets; and simultaneously with such delivery, the
Seller shall take all such acts as may be necessary to put Purchaser in
actual possession, and operating control of the Purchased Assets. Seller
shall cooperate with Purchaser to permit Purchaser, if possible, to enjoy
Seller's ratings and benefits under workmen's compensation laws and
unemployment compensation laws to the extent permitted by such laws.
2.6 INSTRUMENTS GIVING CERTAIN ADDITIONAL POWERS AND RIGHTS.
At the Closing, Seller shall, by appropriate instrument, constitute and
appoint Purchaser, its successors and assigns, the true and lawful
attorney of Seller with full power of substitution, in the name of
Purchaser, or the name of Seller, on behalf of and for the benefit of
Purchaser, to collect all receivables and other items being transferred
and assigned to Purchaser as provided herein, to endorse, without
recourse, any and all checks in the name of Seller the proceeds of which
Purchaser is entitled to hereunder, to institute and prosecute, in the
name of Seller or otherwise, all proceedings which Purchaser may deem
proper in order to collect, assert or enforce any claim, right or title
of any kind in or to the Purchased Assets, to defend and compromise any
and all actions, suits and proceedings in respect of any of the Purchased
Assets, and to do all such acts and things in relation thereto as
Purchaser may deem advisable. Seller agrees that the foregoing powers
are coupled with an interest and shall be irrevocable by Seller, directly
or indirectly, by the dissolution of Seller or in any manner or for any
reason. Seller further agrees that Purchaser shall retain for its own
account any amounts collected pursuant to the foregoing powers, and
Seller shall pay or transfer to Purchaser, if and when received, any
amounts which shall be received by Seller after the Closing in respect of
any receivables or other assets, properties, rights or business to be
transferred and assigned to Purchaser as provided herein. Seller further
agrees that, at any time or from time to time after the Closing, it will,
upon the request of Purchaser and at Seller's expense, do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged
or delivered, all such further reasonable acts, assignments, transfers,
powers of attorney or assurances as may be required in order to further
transfer, assign, grant, assure and confirm to Purchaser, or to aid and
assist in the collection or granting of possession by Purchaser of, any
of the
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Purchased Assets, or to vest in Purchaser good and marketable title to
the Purchased Assets.
3.
ASSIGNMENT OF LIABILITIES
3.1 LIABILITIES TO BE PAID OFF AT CLOSING OR ASSUMED.
A. At the Closing, Purchaser shall pay off (and secure the release of
Seller and Shareholder from any personal guaranty or liability with
respect to such obligations), the following:
(i) Seller's obligation to Bank of Granite under a certain
Installment Fixed Asset Note in the original principal amount of
Five Hundred Thousand Dollars ($500,000.00) dated January 24,
1996, the outstanding amount of which is $435,402.85 Dollars on
the Closing Date, which is collateralized by a security interest
in the Seller's fixed assets;
(ii) Seller's obligation to Branch Banking and Trust Company under a
certain Commercial Note in the original principal amount of
$360,000 Dollars, the outstanding amount of which is One Hundred
Fifty-Seven Thousand Two Hundred Eight and 49/100 Dollars
($157,208.49) on the Closing Date which is collateralized by a
security interest in certain of the Seller's property.
The Assumed Liabilities to be paid off as set forth in Sections 3.1
A (i) through (ii), as may have been incurred, increased or
decreased since the Balance Sheet to the Pro Forma Balance Sheet for
operations in the ordinary course of business or any other
transaction permitted by this Agreement, and subject to the
satisfaction of the minimum net worth requirements set forth in
Section 4.1(c) as of September 30, 1996. Any incurrence of or
increase or decrease in the amount of the Assumed Liabilities set
forth above for the period October 1, 1996 through October 11, 1996
shall be subject to the provisions of Section 10.1.
B. At the Closing, Purchaser shall assume and pay or discharge when due
(and secure the release of Seller and all Shareholders from any and
all personal liability or guarantee with respect to such
obligations), the following:
(i) All of the trade accounts payable, accrued expenses, capital
lease and unearned service contracts of the Seller relating to
the Business incurred in the ordinary course of business
consistent with Seller's prior practices and of the same or
similar nature as such items as set forth on the Disclosure
Schedule, the Pro Forma Balance Sheet, the Financial Statements,
or any notes thereto; and
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*$998,183.47 assumed
trade payables
$2,292,474.60 paid off
(ii) Seller's obligation to Deutsche Financial Services Corporation,
the outstanding amount of which is_______ * Dollars
($__________) on the Closing Date and which is secured by a
security interest in the Seller's receivables and inventory.
The Assumed Liabilities to be assumed as set forth in Sections
3.1.B.(i) through (iv) as may be incurred, increased or decreased
since the Balance Sheet to the Pro Forma Balance Sheet for
operations in the ordinary course of business or any other
transaction permitted by this Agreement, and subject to the
satisfaction of the minimum net worth requirements set forth in
Section 4.1(c) as of September 30, 1996. Any incurrence of or
increase or decrease in the amount of the liabilities set forth
above to be assumed at Closing for the period October 1, 1996
through October 11, 1996 shall be subject to the provisions of
Section 10.1.
C. It is the parties' intent that Purchaser shall pay off at Closing,
or assume and pay off or discharge when due, all obligations of
Seller set forth in Sections 3.1 A and B above for which the
Shareholder has personal liability and Purchaser agrees to use its
best efforts to secure the release of the Shareholder from such
personal guaranty after Closing if such releases are not secured
prior to Closing.
D. Purchaser shall indemnify and hold harmless Seller from any
liability emanating from a guarantee of any liability owed to Dana
Commercial Credit Corporation emanating out of leases with Henredon,
Inc. and Blue Ridge Community Action, Inc., which were assigned to
Dana Commercial Credit Corporation by Seller, to the extent and in
the amount not to exceed the value of said leases and the underlying
equipment as reflected on the Pro Forma Balance Sheet.
3.2 EXECUTORY CONTRACTS.
At the Closing, Purchaser shall assume Seller's obligations and pay or
discharge when due the following:
(i) All obligations, to the extent they are assumable, under
contracts, leases or agreements of the Seller as set forth on the
Disclosure Schedule under Section 7.8; and
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(ii) All future Assumed Liabilities for merchandise in transit F.O.B.
shipping point which has not been received by Seller as of the
Closing and for which no bill has been issued by the supplier at
such time.
3.3 EXCLUDED LIABILITIES.
Notwithstanding anything in this Agreement to the contrary, Purchaser
shall not assume or become responsible for any claim, liability or
obligation of any nature whatsoever, whether known or unknown, accrued,
absolute, contingent or otherwise (a "Liability") of Seller except the
Assumed Liabilities. Without limiting the generality of the foregoing,
the following are included among the Liabilities of Seller which
Purchaser shall not assume or become responsible for (unless specifically
included on the list of Assumed Liabilities):
(i) all Liabilities for local, state, federal, sales, franchise, and
income and other taxes whether deferred or which have accrued or
may accrue or become due and payable by Seller either prior to,
on or after the Closing Date, including, without limitation, all
taxes and fees of a similar nature arising from the sale and
transfer of the Purchased Assets to Purchaser;
(ii) all Liabilities and obligations to directors, officers, employees
or agents of Seller, including, without limitation, all
Liabilities and obligations for wages, salary, bonuses,
commissions, vacation (except to the extent Purchaser agrees to
assume such item) or severance pay, profit sharing or pension
benefits, and all Liabilities and obligations arising under any
bonus, commission, salary or compensation plans or arrangements,
whether accruing prior to, or on or after the Closing Date;
(iii) all Liabilities and obligations with respect to unemployment
compensation claims and workmen's compensation claims and claims
for race, age and sex discrimination or sexual harassment or for
unfair labor practice which occurred prior to the Closing Date
and for which any claim may be asserted by any of the Seller's
employees, prior to, on or after the Closing Date;
(iv) all Liabilities of Seller to third parties for personal injury or
damage to property based on or arising from occurrences,
circumstances or events, or exposure to conditions, existing or
occurring prior to the Closing Date and for which any claim may
be asserted by any third party prior to, on or after the Closing
Date;
(v) all Liabilities and obligations of Seller arising under or by
virtue of environmental laws whether accruing prior to, on or
after the Closing Date;
(vi) all Liabilities of Seller, including any costs of attorneys' fees
incurred in connection therewith, for litigation, claims, demands
or governmental
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proceedings arising from occurrences, circumstances or events,
or exposure to conditions occurring or existing prior to, on or
after the Closing Date;
(vii) all Liabilities based on any theory of liability or product
warranty with respect to any product manufactured or sold prior
to the Closing Date and for which any claim may be asserted by
any third party, prior to, on or after the Closing Date;
(viii) all attorneys' fees, accountants or auditors' fees, and other
costs and expenses incurred by Seller and/or the Shareholders in
connection with the negotiation, preparation and performance of
this Agreement or any of the transactions contemplated hereby;
(ix) All Liabilities of the Seller in connection with the Excluded
Assets, including but not limited to the mortgage loan for the
real estate being retained by Seller as set forth on Exhibit C;
(x) Any Liabilities of Seller with respect to any options, warrants,
agreements or convertible or other rights to acquire shares of
its capital stock of any class;
(xi) Any Liabilities of Seller incurred incident to the redemption of
all the issued and outstanding shares of common stock of Seller
owned by Neal Becton, Mark Sturgis, James Poynter, Carroll Hoyle,
Michael Adams, Landon Lane, Jr. and Ronald Faulkner;
(xii) Any Liability to Bay Networks, Inc. under the Settlement
Agreement dated February 15, 1996;
(xiii) all other debts, Liabilities, obligations, contracts and
commitments (whether direct or indirect, known or unknown,
contingent or fixed, liquidated or unliquidated, and whether now
or hereinafter arising) arising out of or relating to the
ownership, operation or use of any of the Purchased Assets on or
prior to the Closing Date or the conduct of the Business of
Seller whether prior to, on or after the Closing Date, except
only for the liabilities and obligations to be performed by
Purchaser constituting the Assumed Liabilities; and
(xiv) Any Liability relating to the Merisel Datago/Vantage Agreement,
which agreement is not being assigned.
It is the intent of the parties that upon Closing, all employees of
Seller will be terminated by it and Purchaser will extend offers of
employment to such individuals at such time.
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4.
CONSIDERATION FOR PURCHASED ASSETS
4.1 PURCHASE PRICE.
Subject to the other terms of this Agreement, the Purchase Price for the
Purchased Assets shall be the sum of:
(a) Three Million Seven Hundred Forty-Two Thousand Four Hundred
Eighty-Three Dollars ($3,742,483.00); and
(b) The Assumed Liabilities assumed or paid off under Sections 3.1 A.
and/or 3.1 B.
The sum of the items contained in Sections 4.1(a) and (b) above shall be
either adjusted upward or downward by the amount determined under Section
4.1(c) and as further may be adjusted by the provisions of Section 4.1(d)
(c) Prior to the Closing, Seller shall prepare and deliver to Purchaser
the Pro Forma Balance Sheet which shall set forth the Purchased
Assets (including, for this purpose only, any Excess Cash) and the
Assumed Liabilities as of September 30, 1996. The Pro Forma
Balance Sheet shall be prepared using the same accounting methods,
policies, practices and procedures, with consistent
classifications, judgments and estimation methodologies as used in
the preparation of the March 31, 1996 balance sheet.
If the Net Assets Amount (as defined below) shown on the Pro Forma
Balance Sheet is less than $1,325,000.00, the Purchase Price shall
be decreased on a dollar for dollar basis for the difference. Any
such reduction shall be offset against the cash portion of the
Purchase Price as set forth in Section 4.2(a) below.
If the Net Assets Amount shown on the Pro Forma Balance Sheet
equals or exceeds $1,325,000.00, Seller shall be entitled to retain
cash, cash equivalents and investment securities, if any, up to the
amount of such excess (the "Excess Cash") and such Excess Cash
shall be an Excluded Asset.
The Net Assets Amount shall mean the total of the Purchased Assets
(including, for this purpose only, any Excess Cash) less the total
of the Assumed Liabilities, in each case as shown on the Pro Forma
Balance Sheet.
Purchaser shall review the Pro Forma Balance Sheet prior to Closing
and shall initially make any adjustments to the Purchase Price
based on such Pro
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Forma Balance Sheet. Not later than the date occurring forty-five
(45) days after Closing, Seller and Purchaser agree to determine
any adjustment to the Pro Forma Balance Sheet resulting from a test
of accounts to be performed by such date. Such test of accounts
shall include confirmation of Seller's inventory acquired hereunder
but not its value.
In the event that there is Excess Cash as of September 30, 1996,
Seller shall be entitled to distribute such Excess Cash prior to
Closing, and such distribution shall be deemed as having been
undertaken in the ordinary course of business.
In addition, Seller shall be entitled to be reimbursed by Purchaser
for all income or franchise taxes payable by Seller arising from
operation of the Business in the ordinary course during the period
from October 1, 1996 to the Closing Date, based on taxable income
for such period and utilizing an effective income tax rate of 40%.
Purchaser shall agree to reimburse Seller for such taxes, if any,
as determined by Seller, not later than 30 days after Closing. The
determination of the taxable income for such period shall be made
in accordance with Seller's internally-generated financial
statements consistent with prior periods. Such taxable income
shall not include any income attributable to the sale of the
Purchased Assets being effectuated hereunder.
(d) To the extent that the earnings before interest and taxes ("EBIT")
of Seller's business for the period April 1, 1996 through the
Closing Date and from the Closing Date to March 31, 1997, when such
business is operated as a division of Purchaser, exceeds One
Million One Hundred Twenty-Five Thousand ($1,125,000.00) Dollars,
the Purchase Price shall be increased by an amount equal to the
aggregate amount of EBIT in excess of $1,125,000.00 times 2. To
the extent that the EBIT of Seller's business for the period April
1, 1996 through the Closing Date and from the Closing Date to March
31, 1997, when such business is operated as Purchaser's DILAN
Division, is less than Nine Hundred Twenty-Five Thousand
($925,000.00) Dollars. The Purchase Price shall be decreased by an
amount equal to the difference between 925,000 and the total of
such EBIT times 2. In the event that the EBIT for the
computational period is greater than One Million Twenty-Five
Thousand ($1,025,000.00) Dollars but less than One Million One
Hundred Twenty-Five Thousand ($1,125,000.00) Dollars or in the
event such EBIT is less than $1,025,000.00 but greater than
$925,000.00, no increase or decrease to the Purchase Price shall be
made.
(i) For purposes of this Section, the term "earnings before
interest and taxes" ("EBIT") shall mean the EBIT of Seller
from April 1, 1996 to the Closing Date plus the EBIT of
Purchaser's DILAN division from the Closing Date to March
31, 1997. In making said determination, all
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gains or losses realized by Seller or Purchaser's DILAN
division on the sale or other disposition of its assets
(other than in the ordinary course of business) shall be
excluded; all refunds, returns or rebates which are made
during such period shall be subtracted along with all
accounts receivable that are written off during such period
in accordance with Purchaser's accounting system. For
purposes of determining Purchaser's DILAN division's EBIT
for the period form the Closing Date to March 31, 1997, no
overhead allocation of Purchaser's other operations will be
charged by Purchaser to such DILAN division. In addition,
no deduction shall be taken for any inventory purchased from
Seller that is subsequently written down by Purchaser. No
sale shall be made by Purchaser's DILAN division for below
cost of any inventory purchased hereunder without the
express written consent of Purchaser's home office. The
Purchaser's DILAN division's EBIT will be calculated on a
basis consistent with Seller's financial statements
determining EBIT for the period April 1, 1996 to the Closing
Date, using the same methodologies, judgments and estimates
employed by Seller in preparing such financial statements,
all in accordance with generally accepted accounting
principles.
Within forty-five (45) days of March 31, 1997, Purchaser
will deliver to Seller a copy of the report of EBIT prepared
by the Company's Certified Public Accountants for the
subject period along with any supporting documentation
reasonably requested by Seller. Within thirty (30) days
following delivery to Seller of such report, Seller shall
have the right to object in writing to the results contained
in such determination. If timely objection is not made by
the Seller to such determination, such determination shall
become final and binding for purposes of this Agreement. If
timely objection is made by Seller to Purchaser and Seller
and Purchaser are able to resolve their differences in
writing within thirty (30) days following the expiration of
the thirty (30) day period, then such determination shall
become final and binding as it regards to this Agreement.
If timely objection is made by Seller to Purchaser and
Seller and Purchaser are unable to resolve their differences
in writing within thirty (30) days following the expiration
of the thirty (30) day period, then all disputed matters
pertaining to the report shall be submitted to and reviewed
by an arbitrator (the "Arbitrator") which shall be an
independent accounting firm selected by Purchaser and
Seller. If Purchaser and Seller are unable to agree
promptly on an accounting firm to serve as the Arbitrator,
each shall select by no later than the thirtieth (30th) day
following the expiration of the sixty (60) day period, an
accounting firm, and the selected accounting firm shall be
instructed to select promptly another accounting firm, the
firm to serve as the Arbitrator. The Arbitrator shall
consider only the disputed matters pertaining to
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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 Seller
and Purchaser. Expenses of the arbitration (including
reasonable attorney and accounting fees) shall be borne by
Seller, unless the arbitration panel determines that the
determination of EBIT is greater by Fifty Thousand
($50,000.00) Dollars or more than the determination made by
Company's accounting firm, in which case the expense of the
arbitration (including reasonable attorney and accounting
fees) shall be borne by Purchaser.
(ii) Any increase or decrease to the Purchase Price resulting
from any adjustments made under this Section 4.1(d) shall be
made by increasing or decreasing the promissory note
referenced in Section 4.2(b). If, prior to such adjustment,
Purchaser has made any interest payment to Seller under such
promissory note, the parties agree to adjust any prior
payments to equitably reflect either the increase or
decrease made to the Purchase Price as a result of any
adjustments contained in Section 4.1(d).
4.2 PAYMENT OF THE PURCHASE PRICE.
Subject to the conditions, covenants, representations and warranties
hereof, at Closing, Purchaser shall deliver:
(a) By wire transfer to Seller in the amount of Two Million Seven
Hundred Thousand Dollars ($2,700,000.00) less any deficiency in the
Net Asset Amount on the Pro Forma Balance Sheet as described in
Section 4.1(c) ($53,517.00). One Hundred Twenty-Five Thousand
($125,000.00) Dollars of such amount shall be held in an escrow
account with Seller's and Purchaser's counsel as escrow agents
pending the conclusion of the test of accounts to be performed
within forty-five (45) days of the closing as set forth in Section
4.1(c).
(b) The Purchaser's Subordinated Promissory Note in the principal
amount of One Million Ninety-Six Thousand Dollars ($1,096,000.00)
in the form attached hereto as Exhibit "D" (the "Note") as may be
adjusted by the provisions of Section 4.1(d). Such Note shall be
subordinate to Purchaser's lender pursuant to the terms of a
Subordination Agreement in the form attached hereto as Exhibit "E";
(c) The assumption or payment of the Assumed Liabilities assumed by
Purchaser pursuant to Sections 3.1 A. or B.
4.3 ALLOCATION OF PURCHASE PRICE.
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The Purchase Price to be paid to Seller hereunder, including Assumed
Liabilities assumed or paid by Seller pursuant to Section 3.1 A. or
Section 3.1 B., shall be allocated as set forth on Exhibit "F" attached
hereto. Seller, Shareholders and Purchaser agree that each shall act in
a manner consistent with such allocation in (a) filing Internal Revenue
Form 8594; and (b) in paying sales and other transfer taxes in connection
with the purchase and sale of assets pursuant to this Agreement. The
parties agree to enter into an amendment to Exhibit "F" upon the
finalization of the balance sheet of Seller as of the Closing Date and
the determination to be made under Section 4.1(d), as approved by
Purchaser, within thirty (30) days of the final determination of any
adjustments required by Section 4.1(d). The Purchase Price for the
Purchased Assets shall be allocated in the manner set forth on Exhibit
"F" attached hereto.
4.4 CERTAIN CLOSING EXPENSES.
Seller shall be liable for and shall pay all federal, state and local
sales taxes (if any), documentary stamp taxes, and all other duties, or
other like charges properly payable upon and in connection with the
conveyance and transfer of the Purchased Assets by Seller to Purchaser.
5.
EMPLOYMENT AGREEMENTS
5.1 EMPLOYMENT AGREEMENT OF SHAREHOLDERS.
At Closing, Purchaser shall enter into Employment Agreements with R.
Martin and Carroll Hoyle. Copies of said Employment Agreements are
attached hereto and made a part hereof as Exhibits "G-1" and "G-2."
6.
LEASE AGREEMENT
6.1 LEASE AGREEMENT - 1225 25TH STREET PL, SE, HICKORY, NORTH CAROLINA REAL
ESTATE.
Seller is the owner of the real estate located at 1225 25th Street PL,
SE,. Hickory, North Carolina 28602, which real estate is an Excluded
Asset. As a condition to the Closing of this Agreement, Seller shall
have entered into a Lease Agreement with Purchaser in the form attached
hereto as Exhibit "H."
7.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE SHAREHOLDER
Except as set forth in the Disclosure Schedule attached hereto, Seller
and Shareholder, jointly and severally, represent and warrant to
Purchaser that the
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following statements are true and correct as of the date hereof and shall
remain true and correct as of the Closing as if made again at and as of
that time:
7.1 ORGANIZATION, GOOD STANDING, QUALIFICATION AND POWER OF SELLER.
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of North Carolina and has the
corporate power and authority to own, lease and operate the Purchased
Assets and to conduct the Business currently being conducted by it. The
Seller is duly qualified and validly existing in North Carolina and in
good standing in each of the other jurisdictions in which it is required
by the nature of its business or the ownership of its properties to so
qualify. Seller has no subsidiaries. The Disclosure Schedule correctly
lists, with respect to the Seller, each jurisdiction in which it is
qualified to do business as a foreign corporation.
7.2 CAPITALIZATION.
The authorized capitalization of the Seller consists solely of 400,000
shares of no par common stock, of which 136,000 shares representing one
hundred percent (100%) of the issued stock are currently owned in the
manner set forth in the second recital on page 1 of this Agreement, are
fully paid and nonassessable and have not been issued in violation of the
preemptive rights of any person. Seller is not obligated to issue or
acquire any of its securities, nor has it granted options or any similar
rights with respect to any of its securities, except for the options set
forth on Exhibit I, which options shall be cancelled prior to the Closing
of this transaction.
7.3 AUTHORITY TO MAKE AGREEMENT.
Seller and Shareholder have the full legal power and authority to enter
into, execute, deliver and perform their respective obligations under
this Agreement and each of the other agreements, instruments and other
instruments to be delivered incident hereto ("Other Seller Documents").
This Agreement and the Other Seller Documents have been duly and validly
executed and delivered by Seller and Shareholder, and are the legal and
binding obligation of each of them, enforceable in accordance with their
respective terms, subject to principles of equity, bankruptcy laws, and
laws affecting creditors' rights generally. Seller has taken all
necessary action (including action of its Board of Directors and
Shareholder) to authorize and approve the execution and delivery of this
Agreement and the Other Seller Documents, the performance of its
obligations thereunder and the consummation of the transactions
contemplated thereby.
7.4 EXISTING AGREEMENTS, GOVERNMENTAL APPROVALS AND PERMITS.
(a) The execution, delivery and performance of this Agreement and the
Other Seller Documents by Seller, the sale, transfer, conveyance,
assignment and delivery of the Purchased Assets to Purchaser as
contemplated in this
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Agreement, and the consummation of the other transactions
contemplated thereby: (i) do not violate any provisions of law,
statute, ordinance or regulation applicable to Seller, the
Shareholder or the Purchased Assets, (ii) (except for Seller's
secured creditors set forth in Section 3.1, whose consent shall be
obtained prior to Closing) will not conflict with, or result in the
breach or termination of any provision of, or constitute a default
under (in each case whether with or without the giving of notice or
the lapse of time or both) the Articles of Incorporation or Bylaws
of Seller or any indenture, mortgage, lease, deed of trust, or
other instrument, contract or agreement or any license, permit,
approval, authority, or any order, judgment, arbitration award, or
decree to which Seller or the Shareholder is a party or by which
Seller or the Shareholder or any of their assets and properties are
bound (including, without limitation, the Purchased Assets), and
(iii) will not result in the creation of any encumbrance upon any
of the properties, assets, or Business of Seller or of the
Shareholder. Neither Seller, nor the Shareholder, nor any of
their assets or properties (including, without limitation, the
Purchased Assets) is subject to any provision of any mortgage,
lease, contract, agreement, instrument, license, permit, approval,
authority, order, judgment, arbitration award or decree, or to any
law, rule, ordinance, or regulation, or any other restriction of
any kind or character, which would prevent Seller or the
Shareholder from entering into this Agreement or any of the Other
Seller Documents or from consummating the transactions contemplated
thereby.
(b) Neither Seller nor the Shareholder is a party to, subject to or
bound by any agreement, judgment, award, order, writ, injunction or
decree of any court, governmental body or arbitrator which would
prevent the use by Purchaser of the Purchased Assets in accordance
with present practices of Seller after the Closing Date or which,
by operation of law, or pursuant to its terms, would be breached,
terminate, lapse or be subject to termination or default under (in
each case whether with or without notice, the passage of time or
both) upon the consummation of the transactions contemplated in
this Agreement.
(c) No approval, authority or consent of, or filing by Seller with, or
notification to, any foreign, federal, state or local court,
authority or governmental or regulatory body or agency or any
person is necessary to authorize the execution and delivery of this
Agreement or the Other Seller Documents by Seller or the
Shareholder, the sale, transfer, conveyance, assignment and
delivery of the Purchased Assets to Purchaser, or the consummation
of the other transactions contemplated thereby, or to continue the
use and operation of the Purchased Assets by Purchaser after the
Closing Date.
7.5 FINANCIAL STATEMENTS.
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A. Copies of the Financial Statements are attached to the Disclosure
Schedule. Each of the Financial Statements are true and complete
in all material respects and were prepared in accordance with
generally accepted accounting principles (except for the unaudited
Balance Sheet and Pro Forma Balance Sheet of Seller which were
prepared as set forth in Section 1.11) applied on a consistent
basis throughout the periods indicated (except as noted on such
Financial Statements) and fairly present in all material respects
the financial position and condition of the Seller as of the
respective dates thereof and the results of its operation and
changes in financial position for the respective periods then
ended.
B. Except to the extent reflected, reserved against, or disclosed on
the Pro Forma Balance Sheet, the Financial Statements, or the
Disclosure Schedule, the Seller had, as of such date, no material
liabilities or obligations of any nature, whether accrued,
absolute, contingent, or otherwise, including without limitation,
unfunded pension or other retirement plan liabilities and tax
liabilities whether or not incurred in respect of or measured by
the Seller's income, for any period prior to the date of said
Financial Statements, or arising out of transactions entered into
or any set of facts existing prior thereto. Except to the extent
disclosed on the Disclosure Schedule, there exists no basis for the
assertion against Seller, as of the date of the Financial
Statements or the Pro Forma Balance Sheet, of any material
liability of any nature or in any amount not fully reflected,
reserved against, or disclosed in said Financial Statements or Pro
Forma Balance Sheet.
7.6 CUSTOMERS.
The Disclosure Schedule includes a correct list of the twenty-five (25)
largest customers of the Seller by sales in dollars for each of the past
two (2) years and the amount of business done by the Seller with each
such customer for each year. Assuming that Purchaser continues to
conduct the Business in the ordinary course consistent with Seller's
prior practices generally and specifically with respect to Seller's
current customers, Seller has no actual knowledge that any of the current
customers of Seller will or intend to (a) cease doing business with the
Seller; or (b) materially alter the amount of business they are presently
doing with the Seller; or (c) not do business with the Purchaser after
the Closing. For purposes of this Section 7.6, actual knowledge of
Seller shall be limited to the actual knowledge of the officers of
Seller.
7.7 INTANGIBLE PROPERTY.
The Disclosure Schedule includes an accurate list and summary description
of all patents, franchises, distributorships, registered and unregistered
trademarks, trade names and service marks, licenses, brand names and
company lists and all applications for the foregoing, presently owned
and/or held (as a licensee or
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otherwise) by the Seller. The Seller is not a licensor in respect to any
patents, trade secrets, inventions, shop rights, know-how, trademarks,
trade names, copyrights, or applications therefor. The Disclosure
Schedule contains an accurate and complete description of such intangible
property and the items of all licenses and other agreements relating
thereto. All of the above-mentioned intangibles used in the Seller's
Business are the sole property of the Seller, do not require the consent
of or consent to any other person as a condition to their use or the
transaction provided for herein and do not infringe upon the rights of
others.
7.8 SIGNIFICANT AGREEMENTS.
The Disclosure Schedule contains an accurate and complete list of all
contracts, agreements, licenses, instruments and understandings (whether
or not in writing) to which the Seller is a party or is bound and that
are material to the Business, assets, financial condition or results of
operations of the Seller. Without limiting the generality of the
foregoing, such list includes all such contracts, agreements, licenses
and instruments:
(a) Providing for payments of more than Five Thousand ($5,000.00) per
year;
(b) Providing for the extension of credit other than consistent with
normal credit terms described in the Disclosure Schedule;
(c) Limiting the ability of the Seller to conduct its Business or any
other business or to otherwise compete in its or any other
business, including as to manner or place;
(d) Providing for a guarantee or indemnity by the Seller;
(e) With any Affiliate of Seller;
(f) With any labor union or employees' association connected with
Seller's Business;
(g) For the employment or retention of any director, officer, employee,
agent, shareholder, consultant, broker or advisor of Seller or any
other contract between Seller and any director, officer, employee,
agent, shareholder, consultant or advisor which does not provide
for termination at will by the Seller without further cost or other
liability to the Seller as of or at any time after the Closing.
(h) In the nature of a profit sharing, bonus stock option, stock
purchase, pension, deferred compensation, retirement, severance,
hospitalization, insurance or other plan or contract providing
benefit to any person or former
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director, officer, employee, agent, shareholder, consultant, broker
or advisor of Seller, or such person's dependents, beneficiaries or
heirs;
(i) In the nature of an indenture, mortgage, promissory note, loan or
credit agreement or other contract relating to the borrowing of
money or a line of credit by the Seller or relating to the direct
or indirect guarantee or assumption by the Seller of obligations of
others;
(j) Leases or subleases with respect to any property, real, personal or
mixed, in which the Seller is involved, as lessor or lessee; and
(k) Distributorship Agreement(s) or License Agreement(s) with respect
to any property which Seller has entered into as licensor.
True and correct copies of all items so disclosed in the Disclosure
Schedule have been provided or made available to Purchaser. Each of such
items listed, or required to be listed, is a valid and binding obligation
of the parties thereto enforceable in accordance with its terms, subject
to principles of equity, bankruptcy laws, and laws affecting creditors'
rights generally, and there have been no material defaults or claims of
material default by the Seller and there are no facts or conditions that
have occurred or that are anticipated to occur which, through the passage
of time or the giving of notice, or both, would constitute a default by
the Seller, or would cause the acceleration of any obligation of any
party thereto or the creation of an Encumbrance upon any asset of the
Seller. There are no material oral contracts, agreements or
understandings made by the Shareholder, whether or not binding, material
to the Seller, except such as have been disclosed in the Disclosure
Schedule and for which an accurate summary description has been provided.
7.9 INVENTORY.
The Disclosure Schedule contains a copy of Seller's inventory as of
September 30, 1996. No item included in the Inventory of Seller is held
by the Seller on consignment from others.
7.10 ACCOUNTS RECEIVABLE.
All accounts and notes receivable of the Seller, as reflected on the Pro
Forma Balance Sheet, represent sales actually made in the ordinary
course of business, are valid obligations of the respective debtors
without any known claims or defenses and are fully collectible net of any
reserve as reflected on the September 30, 1996 pro forma balance sheet.
7.11 TAXES.
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Except as to taxes not yet due and payable, and except for taxes the
payment of which is being diligently contested in good faith and by
proper proceedings and for which adequate reserves have been established
in accordance with generally accepted accounting principles, Seller has
filed all returns and reports that are now required to be filed by it in
connection with any federal, state or local tax, duty or charge levied,
assessed or imposed upon it, or its property, including unemployment,
social security and similar taxes; and all of such taxes have been either
paid or adequate reserves or other provision has been made therefor.
7.12 TITLE TO PURCHASED ASSETS.
(a) With respect to all Purchased Assets sold, at the Closing Seller
shall have good and marketable title to the Purchased Assets being
acquired by Purchaser, free and clear of all liens, security
interests, encumbrances, leases and charges whatsoever; immediately
after the transfer of all the Purchased Assets being acquired by
Purchaser from Seller, Purchaser will own all of said Purchased
Assets free and clear of all leases, liens, claims, encumbrances
and charges whatsoever, whether perfected or unperfected; and, by
way of illustration but not limitation, there are not any unpaid
taxes, assessments or charges due or payable by Seller to any
federal, state or local agency, or any obligations or liabilities
or any unsatisfied judgments against, or, to the best of Seller's
knowledge, any litigation or proceedings pending or threatened
against Seller by Seller's employees, clients, customers,
creditors, suppliers, or any other party (nor state of facts for
any such obligation, liability, litigation or proceeding), that
could become a claim, obligation, liability, lien or other charge
of or against Purchaser or the Purchased Assets.
(b) Except as otherwise specifically set forth herein, Seller is not a
party to any contract, agreement, lease or commitment that would
result in any claim, obligation, liability, lien or other charge
against Purchaser or the Purchased Assets, and Purchaser is not
obligated to assume the obligations under any contract, agreement,
lease or commitment of Seller, except as specifically set forth
herein.
7.13 PENDING ACTIONS.
Seller has not been served with or received notice of any actions, suits,
arbitrations, NCOSHA, EPA or other governmental violations, or any other
proceedings or investigations, either administrative or judicial,
strikes, lockouts or NLRB charges or complaints ("Actions and Disputes").
To the best of Seller's knowledge, there are no Actions or Disputes
pending or threatened against or affecting (directly or indirectly) the
Seller or its property or assets, nor are there any facts or conditions
which exist which would give rise to any such Actions or Disputes which,
if
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determined adversely to Seller, would have a material adverse effect upon
Seller's Business.
7.14 INSURANCE.
The Disclosure Schedule contains an accurate and complete listing
(showing type of insurance, amount, insurance company, annual premium and
special exclusions) of all policies of fire, liability, worker's
compensation and other forms of insurance owned or held by the Seller.
All such policies are in full force and effect; are sufficient for
compliance with all requirements of law and of all agreements to which
the Seller is a party; are valid, outstanding and enforceable policies;
provide adequate insurance coverage for the assets and operations of the
Seller and will remain in full force and effect through the Closing.
There are no outstanding requirements or recommendations by any insurance
company that issued a policy with respect to any of the properties and
assets of the Seller by any Board of Fire Underwriters or other body
exercising similar functions or by any Governmental Entity requiring or
recommending any repairs or other work to be done on or with respect to
any of the properties and assets of the Seller or requiring or
recommending any equipment or facilities to be installed on or in
connection with any of the properties or assets of the Seller.
7.15 STATUS OF BUSINESS.
(a) Since March 31, 1996, the Business of the Seller has been operated
only in the ordinary course, and, except as set forth in the
Disclosure Schedule or permitted under Exhibit C dealing with
Excluded Assets, there has not been with respect to the Business:
(i) Any material change in its condition (financial or other),
assets, liabilities, obligations, business or earnings,
except changes in the ordinary course of business, none of
which in the aggregate has been materially adverse;
(ii) Any material liability or obligation incurred or assumed, or
any material contract, agreement, arrangement, lease (as
lessor or lessee), or other commitment entered into or
assumed, on behalf of the Business, whether written or oral,
except in the ordinary course of business;
(iii) Any purchase or sale of material assets in anticipation of
this Agreement, or any purchase, lease, sale, abandonment or
other disposition of material assets, except in the ordinary
course of business;
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(iv) Any waiver or release of any material rights, except for
rights of nominal value;
(v) Any cancellation or compromise of any material debts owed to
Seller or material claims known by Seller against another
person or entity, except in the ordinary course of business;
(vi) Any damage or destruction to or loss of any physical assets
or property of Seller which materially adversely affects the
Business or any of the properties of the Seller (whether or
not covered by insurance);
(vii) Any material changes in the accounting practices,
depreciation or amortization policy or rates theretofore
adopted by the Seller, or any material revaluation or
write-up or write-down of any of its assets;
(viii) Any direct or indirect redemption, purchase or other
acquisition for value by the Seller of its shares, or any
agreement to do so;
(ix) Any material increase in the compensation levels or in the
method of determining the compensation of any of the
Seller's officers, directors, agents or employees, or any
bonus payment or similar arrangement with or for the benefit
of any such person, any increase in benefits expense to the
Seller, any payments made or declared into any
profit-sharing, pension, or other retirement plan for the
benefit of employees of the Seller, except in the ordinary
course of business;
(x) Any loans or advances between the Seller and any
Shareholder, or any family member or any associate or
Affiliate of the Seller or of any Shareholder;
(xi) Any material contract cancelled or the terms thereof amended
or any notice received with respect to any such contract
terminating or threatening termination or amendment of any
such contract;
(xii) Any transfer or grant of any material rights under any
leases, licenses, agreements, or with respect to any trade
secrets or know-how;
(xiii) Any labor trouble or employee controversy materially
adversely affecting its Business or assets; or
(xiv) Any dividend or other distribution on or in respect of
shares of its capital stock.
(b) Seller is not
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(i) in violation of any outstanding judgment, order, injunction,
award or decree specifically relating to the Business, or
(ii) in violation of any federal, state or local law, ordinance
or regulation which is applicable to the Business, except
where such violation does not have a materially adverse
effect on the Business.
Seller has all permits, licenses, orders, approvals,
authorizations, concessions and franchises of any federal, state or
local governmental or regulatory body that are material to or
necessary in the conduct of the Business, except where failure to
have such permit, license, order, approval, authorization,
concession or franchise does not have a materially adverse effect
on the Business. All such permits, licenses, orders, approvals,
concessions and franchises are set forth on the Disclosure Schedule
and are in full force and effect and there is no proceeding, or to
the knowledge of Seller, threatened to revoke or limit any of them.
(c) No claim, litigation, action, investigation or proceeding is
pending or, to the knowledge of Seller, threatened, and no order,
injunction or decree is outstanding, against or relating to the
Business or its assets, and Seller does not know of any information
which could result in such a claim, litigation, action,
investigation or proceeding, which, if determined adversely to
Seller, would have a material adverse effect upon Seller's
Business.
(d) Seller has accrued or paid in full, to all employees of the
Business, in the normal course of its operations, all wages,
salaries, commissions, bonuses, vacations and other direct
compensation for all services performed by them. To the best of
Seller's knowledge, Seller is in compliance with all federal, state
and local laws, ordinances and regulations relating to employment
and employment practices at the Business, and all employee benefit
plans and tax laws relating to employment at the Business, except
where such non-compliance would not have a materially adverse
effect on the Business. There is no unfair labor practice
complaint against Seller relating to the Business pending before
the National Labor Relations Board or similar agency or body and,
to the best of Seller's knowledge, no condition exists that could
give rise to any unfair labor practice complaint. There is no
labor strike, dispute, slowdown or stoppage actually pending or, to
the knowledge of Seller, threatened against or involving the
Business.
7.16 ENVIRONMENTAL LAWS.
(a) To the best of Seller's knowledge, the real estate located at (i)
1225 25th Street, PL, SE, Hickory, North Carolina 28602, (ii) Lot
No. 2, Commonwealth Business Center, Flex-Com Building,
Morrisville, North Carolina 27560 (iii) Spaces F and G (556-F/G
Arborhill Road) Century
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Center, Kernersville, North Carolina 27284; (iv) 4321-E Stuart
Andrew Blvd., Charlotte, North Carolina; (v) the real estate leased
under Sublease Agreement by and between Seller as tenant and
Allstates Air Cargo, Inc. as sublessee dated March 15, 1995, as
amended by a First Amendment to Sublease; and (vi) Suite 339, 84
Villa Road, Second Floor, Greenville, South Carolina 29615 ("Real
Estate") have not been used or operated in any fashion involving
producing, handling and disposing of chemicals, toxic substances,
wastes and effluent materials, x-rays or other materials or devices
in material violation of any laws, rules, regulations or orders,
and to the best of Seller's knowledge, the Real Estate is in
material compliance with applicable laws, regulations, ordinances,
decrees and orders arising under or relating to health, safety, and
environmental laws and regulations, including without limitation
the Federal Occupation and Safety Health Act, 29 U.S.C. Section
651, et seq.; Federal Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. Section 6901, et seq.; Federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. Section 9601, et seq.; the Federal Clean Air Act, 42
U.S.C. Section 2401, et seq.; the Federal Clean Water Act, 33
U.S.C. Section 1251, et seq.; and all state and local laws that
correspond therewith or supplement such laws.
(b) To the best of Seller's knowledge, the Real Estate has not been
operated, in violation of any laws, rules, regulations or orders,
so as to involve or create any surface impoundments, incinerators,
land fills, waste storage tanks, waste piles, or deep well
injection systems or for the purpose of storage, treatment or
disposal of a hazardous waste as defined by RCRA or hazardous
substance, pollutant or contaminate as defined by CERCLA and, to
the best of Seller's knowledge, no acts have been committed that
would make the Real Estate or any part thereof subject to remedial
action under RCRA or CERCLA or corresponding state or local laws.
(c) To the best of Seller's knowledge, there have not been, are not now
and as of the Closing Date, there will be no solid waste, hazardous
waste, hazardous substance, toxic substance, toxic chemicals,
pollutants or contaminants, underground storage tanks, purposeful
dumps, or accidental spills in, on or about the Real Estate or any
of the assets of the Seller, whether real or personal, owned or
leased, or stored on any real property owned or leased by the
Seller or by the Seller's lessees, licensees, invites, or
predecessors.
(d) Seller is not engaged in, and to the best of Seller's knowledge and
belief, is not threatened with any litigation, or governmental or
other proceeding which may give rise to any claim against the Real
Estate. Specifically, there are no pending suits, charges,
actions, governmental investigations, or other proceedings,
involving, directly or indirectly without limitation, the laws,
statutes and regulations set forth in subsection (a), above,
whether initiated
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by a third party or by Seller and there are none, to the best of
Seller's knowledge, threatened against or relating to or involving
the Real Estate or the transactions contemplated by this Agreement.
Seller is not in default with respect to any order, writ,
injunction or decree of any federal, state, local or foreign court,
department, agency or instrumentality.
(e) The Disclosure Schedule will list all waste disposal sites, dump
sites and other areas either on the Real Estate or offsite at which
hazardous or toxic waste generated by the Seller has been disposed
(in each case identifying such waste) and it will specifically
identify each such site or area which is or has been included in
any published federal, state or local (domestic or foreign)
superfund or other list of hazardous or toxic waste sites or areas.
(f) To the best of Seller's knowledge, Seller has obtained all permits,
and licenses and other authorizations required by all environmental
laws; and all of such permits, licenses and other authorizations
are in full force and effect as of the date hereof. A true and
correct list of all such permits, licenses and other authorizations
is set forth in the Disclosure Schedule.
7.17 CERTAIN EMPLOYEES
(a) Each of the following is included in the list of agreements set
forth in the Disclosure Schedule: all collective bargaining
agreements, employment and consulting agreements, bonus plans,
deferred compensation plans, employee pension plans or retirement
plans, employee profit-sharing plans, employee stock purchase and
stock option plans, hospitalization insurance, and other plans and
arrangements providing for employee benefits of employees of the
Seller.
(b) The Disclosures Schedule contains a true, complete and accurate
list of the following: the names, positions, and compensation of
the present employees of the Seller, together with a statement of
the annual salary payable to salaried employees and a summary of
the bonuses and description of agreements for additional
compensation and other like benefits, if any, paid or payable to
such persons for the period set forth in the Disclosure Schedule.
Except as listed in the Disclosure Schedule, to the best of
Seller's knowledge, all employees of Seller are employees-at-will.
(c) Seller has no retired employees who are receiving or are entitled
to receive any payments, health or other benefits from Seller.
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7.18 PAYMENTS TO EMPLOYEES.
All accrued obligations of Seller relating to employees and agents of
Seller, whether arising by operation of law, by contract, or by past
service, for payments to trusts or other funds or to any governmental
agency, or to any individual employee or agent (or his heirs, legatees,
or legal representatives) with respect to unemployment compensation
benefits, profit sharing or retirement benefits, or social security
benefits have been paid or accrued by Seller. All obligations of Seller
as an employer or principal relating to employees or agents, whether
arising by operation of law, by contract, or by past practice, for
vacation and holiday pay, bonuses, and other forms of compensation which
are or may become payable to such employees or agents, have been paid or
will be paid or accrued by Seller.
7.19 CHANGE OF CORPORATE NAME.
At the Closing, Seller, if requested by Purchaser will adopt and file
with the Secretary of State of North Carolina an amendment to the
Articles of Incorporation of Seller changing the name of Seller to a name
substantially dissimilar to "Communications Technology, Inc., d/b/a
DILAN" and Seller shall also execute a Consent for Use of Similar Name
form, as set forth in the Disclosure Schedule granting to Purchaser the
use of the name "Communications Technology, Inc., d/b/a DILAN." In
addition, Shareholder, if requested by Purchaser, will require DILAN,
Inc. a North Carolina corporation owned solely by Shareholder to adopt
and file with the Secretary of State of North Carolina an Amendment to
the Articles of Incorporation of DILAN, Inc. changing the name of such
corporation to a name substantially dissimilar to DILAN and Seller shall
also execute a consent for use of similar name form, as set forth in the
Disclosure Schedule granting to Purchaser the use of the name DILAN.
7.20 BROKERS AND FINDERS.
Except as set forth in the Disclosure Schedule, no broker, finder or
other person or entity acting in a similar capacity has participated on
behalf of Seller in bringing about the transaction herein contemplated,
or rendered any service with respect thereto or been in any way involved
therewith.
7.21 PRESERVATION OF ORGANIZATION.
Except as set forth on the Disclosure Schedule, since March 31, 1996, the
Seller has kept intact the Business and organization of the Seller;
retained the services of all the Seller's material employees and agents,
retained the Seller's arrangements with the manufacturers of the products
distributed by Seller in the same manner as conducted prior to such date,
and engaged in no transaction other than in the ordinary course of
Seller's Business.
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7.22 ABSENCE OF CERTAIN PAYMENTS.
To the best of Seller's knowledge, neither Seller, nor any director,
officer, agent, Affiliate, employee or other person associated with or
acting on behalf of any of them, have used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity, or made any direct or indirect unlawful
payments to foreign or domestic government officials or employees from
corporate funds, or made or received any payment, whether direct or
indirect, to or from any supplier or customer of the Seller, for purposes
other than the satisfaction of lawful obligations, or established or
maintained any unlawful or unrecorded funds.
7.23 SUPPLIERS.
The Disclosure Statement sets forth the names of and description of
contractual arrangements (whether or not binding or in writing) with the
twenty-five (25) largest suppliers of the Seller by sales or services in
dollars. Assuming that Purchaser continues to conduct the Business in
the ordinary course consistent with Seller's prior practices generally
and specifically with respect to Seller's current suppliers, Seller has
no direct knowledge that any of the current suppliers of the Seller will,
or intend to, (a) cease doing business with the Seller; or (b) materially
alter the amount of business they are currently doing with the Seller; or
(c) not do business with the Purchaser after the Closing. For purposes
of this Section 7.23, direct knowledge of Seller shall be limited to the
direct knowledge of the officers of Seller.
7.24 PRODUCT LIABILITY CLAIMS.
To the best of Seller's knowledge, there are no material product
liability claims against the Seller, either potential or existing, which
are not fully covered by product liability insurance coverage with a
responsible company which, if determined adversely to Seller, would have
a material adverse effect upon Seller's Business.
7.25 EMPLOYEE BENEFIT PLANS.
For the purposes of this Section 7.25, "Seller" shall include all persons
who are members of a controlled group, a group of trades or businesses
under common control, or an affiliated service group (within the meanings
of Sections 414(b), (c) or (m) of the Code), of which the Seller is a
member.
(a) The Employee Benefit Plans presently maintained by the Seller or to
which the Seller has contributed within the past six (6) years,
including any terminated or frozen plans which have not yet
distributed all plan assets, are fully set forth in the Disclosure
Schedule. For purposes of this provision, the term "Employee
Benefit Plan" shall mean:
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(i) A Welfare Benefit Plan as defined in Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA") established for the purpose of providing for its
participants or their beneficiaries, through the purchase of
insurance or otherwise, medical, surgical, or hospital care
or benefits, or benefits in the event of sickness, accident,
disability, death or unemployment (including any plan or
program of severance pay), or vacation benefits,
apprenticeship or other training programs, or day care
centers, scholarship funds, or prepaid legal services, or
any benefit described in Section 302(c) of the Labor
Management Relations Act of 1947;
(ii) An Employee Pension Benefit Plan as defined in Section 3(2)
of ERISA established or maintained by the Seller for the
purpose of providing retirement income to employees or for
the purpose of providing deferral of income by employees for
periods extending to the termination of covered employment
or beyond; and
(iii) Any other plan or arrangement not covered by ERISA but which
provides benefits to employees or former employees and
results in an accrued liability on the part of the Seller
either by contract or by operation of law.
(b) With respect to any such Employee Benefit Plans, the Seller
represents and warrants that, to the best of Seller's knowledge;
(i) The Seller has not, with respect to any Employee Benefit
Plans, engaged in any prohibited transaction, as such term
is defined in Section 4975 of the Code or Section 406 of
ERISA.
(ii) The Seller has, with respect to any Employee Benefit Plans,
complied with all reporting and disclosure requirements
required by Title I, Subtitle B, Part 1 of ERISA.
(iii) There was no accumulated funding deficiency (as defined in
section 302 of ERISA and Section 412 of the Code) with
respect to any Employee Pension Benefit Plan which is a
defined benefit pension plan, whether or not waived, as of
the last day of the most recent fiscal year of the plans
ending prior to the date of this Agreement.
(iv) There are no contributions due to any Employee Pension
Benefit Plan for the most recent fiscal year of the plans
ending prior to the date of this Agreement and the Seller's
Financial Statements reflect any liability of the Seller to
make contributions to the Employee Pension Benefit Plans.
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(v) No material liability to the Pension Benefit Guaranty
Corporation ("PBGC") has been asserted with respect to any
Employee Pension Benefit Plan which is a defined benefit
pension plan.
(vi) There has been no reportable event as described in Section
4043(b) of ERISA since the effective date of Section 4043 of
ERISA with respect to any Employee Pension Benefit Plan
which is a defined benefit plan.
(vii) Except for claims for benefits by participants and
beneficiaries in the normal course of events, to the best of
Seller's knowledge, there are no claims, pending or
threatened, by any individual or Governmental Entity, which,
if decided adversely, would have a material adverse effect
upon the financial condition of any Employee Benefit Plan,
the plan administrator of any Employee Benefit Plan, or the
Seller.
(viii) The Seller has made available for inspection all annual
reports for the Seller filed on Internal Revenue Service
("IRS") Form 5500 or 5500C, all reports for the Seller
prepared by an actuary for the last three plan years, the
plan and trust documents and the Summary Plan Description,
as amended, for each Employee Benefit Plan and the last
filed PBGC1 Form (if applicable) for each Employee Benefit
Plan, with respect to any Employee Benefit Plans other than
multi-employer plans (within the meaning of Section 3(37) of
ERISA), and other reports filed with the PBGC during the
last three plan years.
(ix) All Employee Pension Benefit Plans are intended to be
qualified retirements plans under the Code. The IRS has
issued, and the Seller has made available for inspection,
one or more favorable determination letters with respect to
the qualification of all Employee Pension Benefit Plans
stating that from the inception of each such plan, such plan
has been qualified under Section 401(a) of the Code and each
trust maintained in connection with such plan has been and
is exempt under Section 501(a) if the Code. The time for
adoption of any amendments required by changes in the Code
since such determination letters were issued, or changes
required by the IRS as a condition for continued
qualification of such plans has not expired, or did not
expire without such amendments being made. Such plans are
now, and always have been, established in writing and
maintained and operated in accordance with the plan
documents, ERISA, the Code, and all other applicable laws.
(x) There is no liability arising from the termination or
partial termination of any Employee Benefit Plan, except for
liabilities as to which
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adequate reserves are reflected on the Financial Statements,
and there exists no condition presenting a material risk of
such liability.
(xi) The Seller has timely made any contributions it is obligated
to make to any multi-employer plan within the meaning of
Section 3(37) of ERISA. The Seller has no liability arising
as a result of withdrawal from any multi-employer plan, no
such withdrawal liability has been asserted and no such
withdrawal liability will be asserted with regard to any
withdrawal or partial withdrawal on or before the date of
this Agreement.
7.26 REDEMPTION OF CERTAIN SHAREHOLDERS.
Seller and Shareholder represent and warrant that as of the Closing Date,
Shareholder will own one hundred percent (100%) of the issued and
outstanding common stock of the Company; and that the Company will have
no other equity securities or rights to acquire equity securities issued
and outstanding on the Closing Date. Furthermore, Seller and Shareholder
represent and warrant that on October 1 thru October 10, 1996 Seller
redeemed all of the issued and outstanding shares of common stock of
Seller owned by Neal Becton, Mark Sturgis, James Poynter, Carroll Hoyle,
Michael Adams, Landon Lane, Jr. and Ronald Faulkner (the "Redeemed
Shareholders"). In connection with the redemption of shares of common
stock from the Redeemed Shareholders, Seller and Shareholder disclosed
all material facts concerning this Agreement and Seller's and
Shareholder's transactions with Purchaser, including all material terms,
conditions and considerations that occurred prior to the redemption. In
making such disclosures to the Redeemed Shareholders and in redeeming the
Redeemed Shareholders' shares of common stock, Seller and Shareholder did
not make any untrue statement of a material fact, or omit to state a
material fact necessary to make all such statements and disclosures not
misleading. Seller and Shareholder shall indemnify and hold harmless
Purchaser, its successors and assigns, against all loss, liability,
damage or expense (including, without limitation, interest, penalties and
reasonable attorneys' fees) arising from and in connection with any
misrepresentation or material omission or breach of the representations
and warranties set forth in this paragraph.
7.27 FULL DISCLOSURE.
None of the representations and warranties made by the Seller herein, or
made on its behalf, including any disclosures made in the Disclosure
Schedule, contains or will contain, to the best of Seller's knowledge,
any untrue statement of material fact or omits or will omit any material
fact.
8.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
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Purchaser hereby represents and warrants to Seller that the following statements
are true and correct as of the date hereof and shall remain true and correct as
of the Closing as if made again at and as of that time.
8.1 ORGANIZATION, GOOD STANDING AND POWER OF PURCHASER.
(a) Purchaser is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and has
full corporate power and lawful authority to execute, deliver and
perform this Agreement and conduct the Business of Seller currently
conducted by Seller in each of the jurisdictions in which Seller
currently conducts its Business, which are the only jurisdictions
where the failure to be so qualified by Purchaser will have a
material adverse effect on the business prospects or financial
condition of Purchaser.
8.2 STATUS OF AGREEMENTS.
(a) All requisite corporate action (including action of its Board of
Directors) to approve, execute, deliver and perform this Agreement
and each of the other agreements, instruments and other documents
to be delivered by and on behalf of Purchaser ("Other Purchaser
Documents") in connection herewith has been taken by Purchaser.
This Agreement has been duly and validly executed and delivered by
Purchaser and constitutes the valid and binding obligation of
Purchaser enforceable in accordance with its terms. All Other
Purchaser Documents in connection herewith will, when executed and
delivered, constitute the valid and binding obligation of Purchaser
enforceable in accordance with their respective terms.
(b) No authorization, approval, consent or order of, or registration,
declaration or filing with, any court, governmental body or agency
or other public or private body, entity or person is required
(except for Purchaser's primary lender, Star Bank, N.A., whose
consent shall be obtained prior to Closing) in connection with the
execution, delivery or performance of this Agreement or any Other
Purchaser Documents in connection herewith.
(c) Neither the execution, delivery nor performance of this Agreement
or any of the Other Purchaser Documents in connection herewith does
or will:
(i) conflict with, violate or result in any breach of any
judgment, decree, order, statute, ordinance, rule or
regulation applicable to Purchaser;
(ii) conflict with, violate or result in any breach of any
agreement or instrument to which Purchaser is a party or by
which Purchaser or any of Purchaser's assets or properties
is bound, or constitute a default
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thereunder or give rise to a right of acceleration of an
obligation of Purchaser; or
(iii) conflict with or violate any provision of the Articles of
Incorporation or By-Laws of Purchaser.
8.3 BROKERS AND FINDERS.
No broker, finder or other person or entity acting in a similar capacity
has participated on behalf of Purchaser in bringing about the transaction
herein contemplated, or rendered any service with respect thereto or been
in any way involved therewith.
9.
COMPETITION
9.1 As an inducement for and in consideration of Purchaser entering into this
Agreement, Seller and Shareholder agree to enter into a Covenant Not to
Compete Agreement, in the form of Exhibits "B" and "B-1", respectively,
attached hereto and made a part hereof.
9.2 As an express condition of this Agreement, certain key employees of
Seller and/or former shareholders that were redeemed as set forth in
Section 7.26, specifically, Neal Becton, Landon Lane, Jr., Carroll Hoyle,
Mark Sturgis, Michael Adams and Ronald Faulkner shall enter into covenant
not to compete agreements in the form of Exhibits "B-2", "B-3",
"B-4","B-5", "B-6" and "B-7", respectively, attached hereto and made a
part hereof.
10.
INTERIM OPERATIONS
10.1 SELLER'S COVENANTS.
From the date of the Pro Forma Balance Sheet to the Closing Date and
except as set forth on the Disclosure Schedule, Seller shall not:
(i) change its articles of incorporation or bylaws or merge or
consolidate with or into any entity, or acquire control of any
entity, or obligate itself to do so;
(ii) issue or agree to issue any shares of the capital stock of the
Seller or any stock options, warrants, rights, calls or commitments
of any character calling for or permitting the issue, transfer,
sale or delivery of any such capital stock;
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(iii) declare, set aside or pay any dividend or other distribution on or
in respect of shares of its capital stock, or purchase, redeem or
otherwise acquire, or agree to purchase, redeem or otherwise
acquire, any of its capital stock;
(iv) authorize, guarantee or incur indebtedness for borrowed money,
including but not limited to, borrowing for the payment of any
taxes;
(v) sell or agree to sell any of the Purchased Assets, except in the
ordinary course of business;
(vi) mortgage, pledge or subject to any security interest any of the
Purchased Assets;
(vii) make any capital expenditures or capital additions or betterments,
or commitments therefor, aggregating in excess of $5,000.00;
(viii) refrain and cause its officers, employees and agents to refrain
from seeking other offers to purchase the stock or assets of
Seller;
(ix) enter into any long-term contractual arrangements or blanket
purchase orders which extend past the closing date without the
express written consent of Purchaser;
(x) increase the salaries of any existing employees, hire new managers
or employees, pay or award bonuses, make loans, or permit draws by
any individuals without Purchaser's express written consent.
10.2 CONDUCT OF BUSINESS.
Seller will operate the Business substantially as presently operated and
only in the ordinary course of business and, consistent with such
operation, will use its best efforts to preserve intact for the benefit
of Purchaser, the present business organization of the Business and the
relationships and good will of suppliers, customers, clients and others
having business relations with the Business. Without limiting the
generality of the foregoing, Seller will not take any of the actions
contemplated by, or which would give rise to, a result contemplated by
Section 7.15(a) hereof.
10.3 ACCESS TO INFORMATION.
From the date hereof until Closing, Seller shall make available or cause
to be made available to the accountants, attorneys or other
representatives of Purchaser for examination during normal business
hours, upon reasonable requests, all properties, assets, books of
accounts, title papers, insurance policies, contracts,
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leases, commitments, records and other documents of every character
relating to the Business.
10.4 OTHER ACTIONS.
From the date hereof until Closing, Seller shall not take any action
which shall prevent the representations, warranties and covenants of
Seller set forth herein from being true and correct at the Closing.
11.
BULK SALES ACT
11.1 COMPLIANCE WITH BULK SALES ACT.
Purchaser waives compliance with the provisions of any applicable bulk
sales law and Seller and Shareholder, jointly and severally, agree to
indemnify and hold harmless Purchaser from any liability incurred as a
result of the failure to so comply, except to liabilities explicitly
assumed hereunder by Purchaser.
12.
SURVIVAL OF AND RELIANCE UPON
REPRESENTATIONS, WARRANTIES AND AGREEMENTS; INDEMNIFICATION
12.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The parties acknowledge and agree that all representations, warranties
and agreements contained in this Agreement or in any agreement,
instrument, exhibit, certificate, schedule or other document delivered in
connection herewith, shall survive the Closing and continue to be binding
upon the party giving such representation, warranty or agreement and
shall be fully enforceable to the extent provided for in Sections 12.3
and 12.4 hereof, at law or in equity, for the period beginning on the
date of Closing and ending three (3) years thereafter, except for the
representations, warranties and agreements designated and identified in
Sections 3.3, 7.3, 7.12(a), 7.12(b), 7.15 (c), 7.16, 7.26 and 8.2 which
shall survive the Closing and shall terminate in accordance with the
statute of limitations governing written contracts in the State of North
Carolina and Exhibits "B", "B-1", "B-2", "B-3", "B-4", "B-5", "B-6" and
"B-7", which shall terminate as provided therein.
12.2 RELIANCE UPON AND ENFORCEMENT OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS.
(a) Seller hereby agrees that, notwithstanding any right of Purchaser
to fully investigate the affairs of Seller, and notwithstanding
knowledge of facts determined or determinable by Purchaser pursuant
to such investigation or right of investigation, Purchaser has the
right to rely fully upon the representations, warranties and
agreements of Seller contained in this
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Agreement and upon the accuracy of any document, certificate or
exhibit given or delivered to Purchaser pursuant to the provisions
of this Agreement.
(b) Purchaser hereby agrees that, notwithstanding any right of Seller
to fully investigate the affairs of Purchaser, and notwithstanding
knowledge of facts determined or determinable by Seller pursuant to
such investigation or right of investigation, Seller has the right
to rely fully upon the representations, warranties and agreements
of Purchaser contained in this Agreement and upon the accuracy of
any document, certificate or exhibit given or delivered to Seller
pursuant to the provisions of this Agreement.
12.3 INDEMNIFICATION BY SELLER AND SHAREHOLDER.
Seller and Shareholder (jointly and severally, shall indemnify Purchaser
against and hold it harmless from:
(i) any and all loss, damage, liability or deficiency resulting from or
arising out of any inaccuracy in or breach of any representation,
warranty, covenant, or obligation made or incurred by Seller herein
or in any other agreement, instrument or document delivered by or
on behalf of Seller in connection herewith;
(ii) any imposition (including by operation of law) or attempted
imposition by a third party upon Purchaser of any liability of
Seller which Purchaser has not specifically agreed to assume
pursuant to Section 3.2 of this Agreement;
(iii) any liability (except for any Assumed Liabilities described in
Section 3.1) or other obligation incurred by or imposed upon
Purchaser resulting from the failure of the parties to comply with
the provisions of any law relating to bulk transfers which may be
applicable to the transaction herein contemplated; and
(iv) any and all costs and expenses (including reasonable legal and
accounting fees) related to any of the foregoing, subject to the
provisions of Section 12.5.
Nothing in this Section 12.3 shall be construed to limit the amount to
which, or the time by which (except as described in Sections 12.1 or
12.6), by reason of offset or otherwise, the Purchaser may recover from
Seller or the Shareholder pursuant to this Agreement resulting from
Seller's and the Shareholder's breach or violation of any representation,
warranty, covenant or agreement contained herein.
Notwithstanding the above, no claims for indemnification shall be made by
Purchaser against the Seller and/or the Shareholder until such time as
all claims hereunder net of income tax benefit realized and/or realizable
by Purchaser total
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more than Fifty Thousand Dollars ($50,000.00) in the aggregate, and then
indemnification shall be made only to the extent such claim or claims
exceed such threshold amount in the aggregate. Any amounts to which
Purchaser, its successors or assigns, is entitled to indemnification
pursuant to the provisions of this Section, subject to the provisions of
Section 12.5, shall first be offset against the amount payable to Seller
under the promissory note. Provided, however, the offset in any one year
may not exceed the aggregate amount of principal and interest due on said
promissory note for said year. Moreover, nothing in this Section 12
(except as set forth in Section 12.1) shall be construed to limit the
amount to which, or the time in which, by reason of offset, or otherwise,
that Purchaser may recover from Seller and the Shareholder pursuant to
this Agreement resulting from the breach of any representation, warranty,
covenant or agreement contained herein.
12.4 INDEMNIFICATION BY PURCHASER.
Purchaser shall indemnify Seller against and hold it harmless from any
and all loss, damage, liability or deficiency resulting from or arising
out of: (i) any Assumed Liabilities; (ii) any liability of Purchaser
arising out of Purchaser's operations subsequent to the Closing (except
to the extent such liability is the result of a breach of a covenant or
warranty of Seller hereunder); or (iii) any inaccuracy in or breach of
any representation, warranty, covenant or obligation made or incurred by
Purchaser herein; and (iv) any and all related costs and expenses
(including reasonable legal and accounting fees), subject to the
provisions of 12.5. Except as specifically provided herein, nothing in
this Section 12.4 shall be construed to limit the amount to which (except
as described in Section 12.1), or the time by which, by reason of offset
or otherwise, that Seller may recover from Purchaser pursuant to this
Agreement resulting from its breach or violation of any representation,
warranty, covenant or agreement contained herein.
12.5 NOTIFICATION OF AND PARTICIPATION IN CLAIMS.
(a) No claim for indemnification shall arise until notice thereof is
given to the party from whom indemnity is sought. Such notice
shall be sent within ten (10) days after the party to be
indemnified has received notification of such claim, but failure to
notify the indemnifying party shall in no event prejudice the right
of the party to be indemnified under this Agreement, unless the
indemnifying party shall be prejudiced by such failure and then
only to the extent of such prejudice. In the event that any legal
proceeding shall be instituted or any claim or demand is asserted
by any third party in respect of which Seller/Shareholders on the
one hand, or Purchaser on the other hand, may have an obligation to
indemnify the other, the party asserting such right to indemnity
(the "Party to be Indemnified") shall give or cause to be given to
the party from whom indemnity is sought (the "Indemnifying Party")
written notice thereof and the Indemnifying Party shall have the
right, at its option and expense, to participate in the defense of
such proceeding, claim or
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demand, but not to control the defense, negotiation or settlement
thereof, which control shall at all times rest with the Party to be
Indemnified, unless the Indemnifying Party irrevocably acknowledges
in writing full and complete responsibility for and agrees to
provide indemnification of the Party to be Indemnified, in which
case such Indemnifying Party may assume such control through
counsel of its choice and at its expense. In the event the
Indemnifying Party assumes control of the defense, the Indemnifying
Party shall not be responsible for the legal costs and expenses of
the Party to be Indemnified in the event the Party to be
Indemnified decides to join in such defense. The parties hereto
agree to cooperate fully with each other in connection with the
defense, negotiation or settlement of any such third party legal
proceeding, claim or demand.
(b) If the Party to be Indemnified is also the party controlling the
defense, negotiation or settlement of any matter, and if the Party
to be Indemnified determines to compromise the matter, the Party to
be Indemnified shall immediately advise the Indemnifying Party of
the terms and conditions of the proposed settlement. If the
Indemnifying Party agrees to accept such proposal, the Party to be
Indemnified shall proceed to conclude the settlement of the matter,
and the Indemnifying Party shall immediately indemnify the Party to
be Indemnified pursuant to the terms of Sections 12.3 and 12.4
hereunder. If the Indemnifying Party does not agree within
fourteen (14) days to accept the settlement (said 14-day period to
begin on the first business day following the date such party
receives a complete copy of the settlement proposal), the
Indemnifying Party shall immediately assume control of the defense,
negotiation or settlement thereof, at that Indemnifying Party's
expense. Thereafter, the Party to be Indemnified shall be
indemnified in the entirety for any liability arising out of the
ultimate defenses, negotiation or settlement of such matter.
(c) If the Indemnifying Party is the party controlling the defense,
negotiation or settlement of any matter, and the Indemnifying Party
determines to compromise the matter, the Indemnifying Party shall
immediately advise the Party to be Indemnified of the terms and
conditions of the proposed settlement and irrevocably acknowledge
in writing full and complete responsibility for, and agree to
provide, indemnification of the Party to be Indemnified. If the
Party to be Indemnified agrees to accept such proposal, the
Indemnifying Party shall proceed to conclude the settlement of the
matter and immediately indemnify the Party to be Indemnified
pursuant to the terms of Sections 12.3 or 12.4 hereunder. If the
Party to be Indemnified does not agree within fourteen (14) days to
accept the settlement (said 14-day period to begin on the first
business day following the date such party receives a complete copy
of the settlement proposal), the Party to be Indemnified shall
immediately assume control of the defense, negotiation or
settlement thereof, at the Party to be Indemnified's expense. If
the final amount paid to
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resolve the claim is less than the amount of the original proposed
settlement made by the Indemnifying Party, then the Party to be
Indemnified shall receive such indemnification pursuant to Sections
12.3 or 12.4 hereof, including any and all expenses incurred by the
Party to be Indemnified incurred in connection with the defense,
negotiation or settlement of such matter. If the amount finally
paid to resolve the claim is equal to or greater than the amount of
the original proposed settlement proposed by the Indemnifying
Party, then the Indemnifying Party shall provide indemnification
pursuant to Sections 12.3 and 12.4 for the amount of the original
settlement proposal submitted by the Indemnifying Party, and the
Party to be Indemnified shall be responsible for all amounts in
excess of the original settlement proposal submitted by the
Indemnifying Party and all costs and expenses incurred by the Party
to be Indemnified in connection with such defense, negotiation or
settlement.
13.
EXPRESS CONDITIONS
13.1 Notwithstanding anything herein to the contrary, Purchaser's obligations
hereunder are subject to the following conditions:
(a) Purchaser shall have obtained from its primary lender, Star Bank,
N.A., consent to the transaction.
(b) Purchaser shall have acquired all necessary permits from federal,
state and local agencies that are necessary to conduct cabling
operations in the State of North Carolina.
(c) Approval of the Board of Directors of Purchaser.
(d) Purchaser has completed its due diligence investigation of the
books and records and business prospects of Seller to its
satisfaction.
(e) Certain of Seller's employees or its former shareholders have
entered into the Covenant Not to Compete Agreements set forth in
Section 9.2.
The contingencies set forth in this Section shall have all been met, or
rejected in writing, by Purchaser and Seller, where applicable, no later
than October 11, 1996.
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14.
THE CLOSING
14.1 DATE, TIME AND PLACE OF CLOSING.
Consummation of the transactions contemplated hereby (the "Closing")
shall take place on October 11, 1996 (the "Closing Date"), at ____ p.m.
EST at the offices of Lindhorst & Dreidame, 312 Walnut Street, Suite
2300, Cincinnati, Ohio 45202, or on such other Closing Date, or at such
other time and/or place as the parties may mutually agree upon.
14.2 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS.
The obligation of Purchaser to perform in accordance with this Agreement
and to consummate the transactions herein contemplated is subject to the
satisfaction of the following conditions at or before the Closing:
(a) The Seller shall have complied with and performed all of the
representations, warranties, agreements and covenants hereunder
required to be performed by it prior to or at the Closing;
(b) There shall be no pending or threatened legal action which, if
successful, would prohibit consummation or require substantial
rescission of the transactions contemplated by this Agreement;
(c) The business, aggregate properties and operations of Seller shall
not have been materially adversely affected as a result of any
fire, accident or other casualty or any labor disturbance or act of
God or the public enemy, and there shall otherwise have been no
material adverse change to the business, aggregate properties, or
operations of the Seller since March 31, 1996;
(d) Seller shall have delivered to Purchaser, at or before the Closing,
the following documents, all of which shall be in form and
substance reasonably acceptable to the Purchaser and its counsel:
(i) The instruments of transfer and powers of attorney required
by Sections 2.5 and 2.6;
(ii) Releases (or copies thereof) of all liens, claims, charges,
encumbrances, security interests and restrictions on the
Purchased Assets necessary to provide Purchaser with good,
marketable and indefeasible title to each of the Purchased
Assets at the Closing;
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(iii) Certified copies of the corporate actions taken by the Board
of Directors and Shareholder of Seller, authorizing the
execution, delivery and performance of this Agreement;
(iv) Certificate of Existence for Seller from the Secretary of
State of North Carolina dated no earlier than fifteen (15)
days prior to Closing;
(v) Opinion letter of Patrick, Harper & Dixon, LLP, counsel for
Seller, addressed to Purchaser and dated the Closing Date,
containing the opinion set forth on Exhibit "J".
(vi) Seller shall have entered into the Lease Agreement set forth
in Exhibit "H."
(vii) Seller shall have entered into the Subordination Agreement
in the form attached hereto as Exhibit "E".
(viii) Seller and the Shareholder shall have entered into the
non-competition agreements set forth in Exhibits "B" and
"B-1".
(ix) Certain employees and former shareholders of Seller shall
have entered into the non-competition agreements set forth
in Exhibits "B-2", "B-3", "B-4", "B-5", "B-6" and "B-7".
(x) The express conditions set forth in Section 13 have been
satisfied or waived.
(e) Seller will adopt and file with the Secretary of State of North
Carolina an amendment to the Articles of Incorporation of Seller
changing the name of Seller to a name substantially dissimilar to
Communications Technology, Inc., d/b/a DILAN and Seller shall
execute a Consent for Use of Similar Name form, as set forth on
Exhibit "K", granting to Purchaser the use of the name
"Communications Technology, Inc., d/b/a DILAN". Shareholder will
cause DILAN, Inc. to file with the Secretary of State of North
Carolina an amendment to the Articles of Incorporation of DILAN,
Inc. changing the name of DILAN, Inc. to a name substantially
dissimilar to DILAN, Inc. and Shareholder shall cause DILAN, Inc.
to execute a Consent for Use of Similar Name for, as set forth on
Exhibit "L" granting Purchaser the use of the name DILAN.
14.3 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.
The obligation of Seller to perform in accordance with this Agreement and
to consummate the transactions herein contemplated is subject to the
satisfaction of the following conditions at or before the Closing:
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(a) Performance by Purchaser of all of the representations, warranties,
agreements and covenants to be performed by it at or before the
Closing;
(b) There shall be no pending or threatened legal action which, if
successful, would prohibit consummation or require substantial
rescission of the transactions contemplated by this Agreement;
(c) Purchaser shall deliver to Seller at or before the Closing the
following documents, all of which shall be in form and substance
acceptable to Seller and its counsel:
(i) A wire transfer for the aggregate amount to be paid to
Seller at the Closing pursuant to Section 4.2(a) hereof;
(ii) A wire transfer to the Escrow Agents for the amount set
forth in Section 4.2(a) hereof;
(iii) Assumption of Liabilities Agreement under which Purchaser
assumes the Liabilities set forth in Section 3.1;
(iv) A subordinated promissory note as set forth in Section
4.2(b);
(v) Lease Agreement set forth in Section 6;
(vi) Certified copies of the corporate actions taken by Purchaser
authorizing the execution, delivery and performance of this
Agreement;
(vii) Certificate of Good Standing for Purchaser from the
Secretary of State of Delaware dated no earlier than fifteen
(15) days prior to the date of Closing;
(viii) Opinion letter of Lindhorst & Dreidame Co., L.P.A., counsel
for Purchaser, addressed to Seller and dated the Closing
Date, containing the opinions set forth on Exhibit "M";
(ix) All of the express conditions set forth in Section 13 have
been satisfied or waived.
(d) Purchaser shall have entered into the Employment Agreements set
forth in Exhibits "G" and "G-1".
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15.
GENERAL PROVISIONS
15.1 PUBLICITY.
All public announcements relating to this Agreement or the transactions
contemplated hereby will be made by Purchaser with the consent of Seller,
which consent will not be unreasonably withheld, except for any
disclosure which may be required because of Purchaser's being a
publicly-traded corporation on the over-the-counter market.
15.2 EXPENSES.
Purchaser will bear and pay all of its expenses incident to the
transactions contemplated by this Agreement which are incurred by
Purchaser or its representatives and Seller shall bear and pay all of the
expenses incident to the transactions contemplated by this Agreement
which are incurred by Seller or its representatives.
15.3 NOTICES.
All notices and other communications required by this Agreement shall be
in writing and shall be deemed given if delivered by hand or mailed by
registered mail or certified mail, return receipt requested, to the
appropriate party at the following address (or at such other address for
a party as shall be specified by notice pursuant hereto):
(a) If to Purchaser, to:
Pomeroy Computer Resources, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
With a copy to:
James H. Smith III, Esq.
Lindhorst & Dreidame
312 Walnut Street, Suite 2300
Cincinnati, Ohio 45202
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(b) If to Seller, to:
Communications Technology, Inc.
P.O. Box 159
Hickory, North Carolina 28603
With a copy to:
Eloise Bradshaw, Esq.
Patrick, Harper and Dixon, LLP
B B & T Building
Hickory, North Carolina 28603
(c) If to Shareholder, to:
Robert Martin
P.O. Box 159
Hickory, North Carolina 28603
15.4 BINDING EFFECT.
Except as may be otherwise provided herein, this Agreement and all the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives,
successors and assigns.
15.5 HEADINGS.
The headings in this Agreement are intended solely for convenience of
reference and shall be given no effect in the construction or
interpretation of this Agreement.
15.6 EXHIBITS.
The Exhibits referred to in this Agreement constitute an integral part of
this Agreement as if fully rewritten herein.
15.7 COUNTERPARTS.
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which constitute together one and
the same document.
15.8 GOVERNING LAW.
This Agreement shall be construed in accordance with and governed by the
laws of the State of North Carolina, without regard to its laws regarding
conflict of laws.
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15.9 SEVERABILITY.
If any provision of this Agreement shall be held unenforceable, invalid,
or void to any extent for any reason, such provision shall remain in
force and effect to the maximum extent allowable, if any, and the
enforceability or validity of the remaining provisions of this Agreement
shall not be affected thereby.
15.10 WAIVERS; REMEDIES ACCUMULATED.
No waiver of any right or option hereunder by any party shall operate as
a waiver of any other right or option, or the same right or option with
respect to any subsequent occasion for its exercise, or of any right to
damages. No waiver by any party of any breach of this Agreement or of
any representation or warranty contained herein shall be held to
constitute a waiver of any other breach or a continuation of the same
breach. All remedies provided in this Agreement are in addition to all
of the remedies provided by law. No waiver of any of the provisions of
this Agreement shall be valid and enforceable unless such waiver is in
writing and signed by the party granting the same.
15.11 ASSIGNMENTS.
Except as otherwise provided in this Agreement, no party shall assign its
rights or obligations hereunder prior to Closing without the prior
written consent of the other party.
15.12 ENTIRE AGREEMENT.
This Agreement and the agreements, instruments and other documents to be
delivered hereunder constitute the entire understanding and agreement
concerning the subject matter hereof. All negotiations between the
parties hereto are merged into this Agreement, and there are no
representations, warranties, covenants, understandings, or agreements,
oral or otherwise, in relation thereto between the parties other than
those incorporated herein and to be delivered hereunder. Except as
otherwise expressly contemplated by this Agreement, nothing expressed or
implied in this Agreement is intended or shall be construed so as to
grant or confer on any person, firm or corporation other than the parties
hereto any rights or privilege hereunder. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing
by the parties hereto.
15.13 BUSINESS RECORDS.
Seller and Shareholder shall be permitted to retain copies of such books
and records relating to the Purchased Assets and relate to the accounting
and tax matters of the Business and to have access to all original copies
of records so
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delivered to Purchaser at reasonable times, for any reasonable business
purpose, for a period of six (6) years after the Closing.
The parties hereto have executed this Agreement as of the date first
above written.
WITNESSES: COMMUNICATIONS TECHNOLOGY, INC.
\s\ Robert J. Mahlum
- ------------------------------
\s\ James H. Smith By: \s\ Robert Martin
- ------------------------------ ------------------------------
\s\ Robert J. Mahlum POMEROY COMPUTER RESOURCES, INC.
- ------------------------------
\s\ James H. Smith By: \s\ Edwin S. Weinstein CFO
- ------------------------------ ------------------------------
\s\ Robert J. Mahlum
- ------------------------------
\s\ James H. Smith \s\ Robert Martin
- ------------------------------ ------------------------------
ROBERT MARTIN
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Exhibit 10.8
SUBORDINATED PROMISSORY NOTE
$1,096,000.00 Cincinnati, Ohio
(to be adjusted as hereinafter set forth) October 11, 1996
1. FOR VALUE RECEIVED, POMEROY COMPUTER RESOURCES, INC., a Delaware
corporation (hereinafter, together with its successors in title and assigns,
called the "Borrower") does hereby absolutely and unconditionally promise to pay
to the order of COMMUNICATIONS TECHNOLOGY, INC. d/b/a Dilan, an North Carolina
corporation ("Lender"), the sum of One Million Ninety-Six Thousand Dollars
($1,096,000.00) (adjusted upward or downward in the manner hereinafter set
forth), together with interest on the outstanding principal balance from the
date hereof, at the rate specified below.
2. The initial face amount of this note ($1,096,000.00) shall be adjusted
either downward or upward by any increase or decrease required by Section 4.1(d)
of the Asset Purchase Agreement. Such adjustments and the manner in which they
are to be made shall be done in accordance with Section 4.1(d) of the Asset
Purchase Agreement which is incorporated herein by reference. If, prior to such
adjustment, Borrower has made any interest payment to Lender hereunder, the
parties agree to adjust any prior payments to equitably reflect either the
increase or decrease made as a result of any adjustments contained in Section
4.1(d) of the Asset Purchase Agreement.
3. Interest shall accrue at the rate of ten percent (10%) per annum. Interest
on the unpaid principal balance of this note shall be due and payable quarterly
with the first interest payment due and payable ninety (90) days from the date
hereof and on the 11th day of each successive quarter thereafter. Principal
shall be paid in three (3) equal annual installments of Three Hundred
Sixty-five Thousand Three Hundred Thirty-three and 33/100 Dollars ($365,333.33),
as may be adjusted pursuant to the provisions of paragraph 2, commencing on the
first Anniversary Date of this Note and continuing on the next two (2)
successive Anniversary Dates until paid in full.
4. All payments received hereunder shall be applied first to interest and then
to principal. Subject to the Subordination Agreement, as defined below, this
Note may be prepaid, in whole or in part, at any time, without penalty.
5. This Note and all obligations of the Borrower hereunder are subordinated
and made junior in right of payment to the extent and in the manner provided in
the Subordination Agreement of even date herewith (the "Subordination
Agreement") between Star Bank, National Association, the Lender and the Borrower
and no action may be taken by the Lender except in accordance with the terms of
such Subordination Agreement as long as it is in effect.
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6. Upon the occurrence of an Event of Default, the entire principal amount
outstanding under this Note, and accrued interest thereon, shall at once become
due and payable, at the option of the Lender and the Lender shall have the
remedies set forth in the Asset Purchase Documents and Subordination Agreement.
During the continuance of any Event of Default, all principal evidenced by this
Note (whether for principal or otherwise) shall (to the extent permitted by
applicable law) bear interest at the annual rate of twelve percent (12%). The
unpaid interest accrued during the continuation of any Event of Default on the
indebtedness evidenced by this Note (whether for principal or otherwise) in
accordance with the foregoing terms of this paragraph shall become and be
absolutely due and payable by the Borrower to the Lender hereof on demand by the
Lender of this Note at any time. Interest will continue to accrue on all
indebtedness evidenced hereby until the Event of Default shall be cured or
otherwise remedied.
7. This Note is issued pursuant and subject to the terms and conditions of the
Asset Purchase Agreement. This Note is subject to all terms and conditions set
forth in the Asset Purchase Documents, including, but not limited to, terms of
default and rights of acceleration, if any. The terms and conditions of said
Asset Purchase Documents are incorporated herein by reference. Any holder of
this Note is subject to all claims and defenses which the Borrower could pursue
against Lender under the Asset Purchase Agreement.
8. When this Note becomes due, by acceleration or otherwise, the Lender may,
at its option, subject to the Subordination Agreement, demand, sue for, collect
or make any compromise or settlement it deems desirable with reference to
property held as security herefor. The failure to exercise any option to
declare the maturity hereof or to exercise any other rights under any of the
covenants or conditions contained in the Asset Purchase Documents shall not be
taken or deemed to be a waiver of the right to exercise such option or to
declare such maturity after any subsequent violation of any such covenants or
conditions. All remedies provided for herein upon any default by the Borrower
shall be cumulative and not exclusive.
9. Notwithstanding the above, pursuant to the Asset Purchase Agreement, Lender
made certain representations, warranties, covenants and agreements with and to
the Borrower. Lender agrees that if the Borrower is entitled to indemnification
from the Lender under the Asset Purchase Agreement or any other of the Asset
Purchase Documents, the amount of such indemnification due from Lender may be
set off against the amounts payable hereunder if permitted under the Asset
Purchase Agreement, being first applied to interest and the withholding all or
any part of payment due hereunder as a result of such a set off shall not be
considered an Event of Default hereunder. Lender agrees that the amount to
which the Borrower may be entitled to recover from Lender shall not be limited
by either the amount paid or due to be paid to Lender hereunder or by the terms
of this Note but shall be governed by the terms of the Asset Purchase Documents.
10. The provisions of this Note and the obligations of the Borrower hereunder
shall in all respects be governed by and interpreted and determined in
accordance with the internal
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laws of the State of Ohio. BORROWER AND THE LENDER AGREE THAT ANY ACTION OR
PROCEEDING COMMENCED BY OR ON BEHALF OF THE PARTIES ARISING OUT OF OR RELATING
TO THIS NOTE SHALL BE COMMENCED AND MAINTAINED EXCLUSIVELY IN THE DISTRICT COURT
OF THE UNITED STATES OF THE APPLICABLE DISTRICT OF OHIO, OR ANY OTHER COURT OF
APPLICABLE JURISDICTION LOCATED IN CINCINNATI, OHIO.
11. The rights of the Lender hereunder are fully assignable and transferrable,
except that any assignment and/or transfer made to a competitor of Borrower
shall be made only with the prior written approval of Borrower, which approval
shall not be unreasonably withheld. A competitor of Borrower is any individual
or entity that engages in the leasing or selling of computers and/or computer
equipment.
12. The Borrower hereby unconditionally and irrevocably waives notice of
acceptance, presentment, notice of nonpayment (except as provided herein),
protest, notice of protest, suit and all other conditions precedent in
connection with the delivery, acceptance, collection and/or enforcement of this
Note.
13. Should all or any part of the indebtedness represented by this Note be
collected by action in law, or in bankruptcy, insolvency, receivership or other
court proceedings, or should this Note be placed in the hands of attorneys for
collection after the occurrence of an Event of Default, the Borrower hereby
promises to pay to the Lender of this Note, upon demand by the Lender hereof at
any time, in addition to principal and all (if any) other amounts payable on or
in respect of this Note or the indebtedness evidenced hereby, all court costs
and reasonable attorneys' fees and all other reasonable collection charges and
expenses incurred or sustained by the Lender of this Note.
14. If for any circumstances whatsoever, the fulfillment of any provision of
this Note involves transcending the limit of validity prescribed by any
applicable usury statute or any other applicable law with regard to obligations
of like character and amount, then the obligation to be fulfilled will be
reduced to the limit of such validity as provided in such statute of law, so
that in no event shall any exaction of interest be possible under this Note in
excess of the limit of such validity. In no event shall the Borrower be bound
to pay interest of more than the legal limit for the use, forbearance or
detention of money, and the right to demand any such excess is hereby expressly
waived by the Lender.
15. No delay or omission of the holder of this Note to exercise any right or
power arising from any default shall impair any such right or power or be
considered to be a waiver of any such default or any acquiescence therein, nor
shall the action or non-action of the holder in case of default on the part of
the Borrower impair any right or power resulting therefrom.
16. As used herein, the following terms shall have the following meanings,
respectively:
(a) "Anniversary Date" - October 11, 1997 and each October 11 thereafter.
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(b) "Asset Purchase Agreement" - The Asset Purchase Agreement between and
among the Borrower and the Lender dated October 11, 1996.
(c) "Asset Purchase Documents" - The Asset Purchase Agreement and any
employment agreements or subordination agreement between and among the parties
to the Asset Purchase Agreement.
(d) "Event of Default" -
(i) The failure of Borrower to make any payment of principal or
interest due under this Note for a period of ten (10) days after receipt of
written notice from the Lender to the Borrower that such installment has not
been paid; or
(ii) A default under the Senior Debt loan documentation that has been
declared in writing, remains uncured past any applicable cure period, and
results in the declared acceleration of the Senior Debt.
(e) "Senior Debt" - The Debt of the Borrower to Star Bank, N.A., as set
forth in the Subordination Agreement.
WITNESSES: BORROWER
Pomeroy Computer Resources, Inc.
\s\ Margaret Kippley
- ------------------------------
By: \s\ Edwin S. Weinstein
-------------------------------
\s\ Robert J. Mahlum Its: CFO
- ------------------------------ ------------------------------
THE OBLIGATION REPRESENTED BY THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A
SUBORDINATION AGREEMENT DATED OCTOBER 11, 1996 IN FAVOR OF THE STAR BANK,
NATIONAL ASSOCIATION TO WHICH REFERENCE IS HEREBY MADE, RESTRICTING THE RIGHTS
OF THE MAKER OR DRAWER AND OF ANY HOLDER WITH RESPECT TO PAYMENTS ON ACCOUNT OF
THE PRINCIPAL AND INTEREST HEREOF.
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Exhibit 10.9
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement") is entered into effective
as of October 11, 1996, among (i) POMEROY COMPUTER RESOURCES, INC., a Delaware
corporation (the "Borrower"), (ii) COMMUNICATIONS TECHNOLOGY, INC. d/b/a DILAN,
a North Carolina 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, as amended by a Letter Agreement dated June 27, 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 $1,096,000.00 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 under 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:
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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:
"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).
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"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.
"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 interests 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.
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"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.
"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.
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"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 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
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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 the 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 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 of 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
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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:
(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 and retain 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
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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.
Notwith-standing 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.
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 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
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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) October 11, 1999.
(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 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
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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 assert 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;
(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.
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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:
Communications Technology, Inc.
Attention: Robert Martin
1225 25th Street PL, SE
Hickory, North Carolina 28602
or at such other address as may be provided by the Subordinated Creditor to the
Senior Creditor; and
With a copy to: Donald R. Fuller, Jr., Esq.
Patrick, Harper and Dixon, LLP
B B & T Building
Hickory, North Carolina 38603
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.
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ARTICLE 6
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
at 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
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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.
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 Subordinated 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
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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 on the
Senior Creditor's ability to exercise all its rights to protect or enforce the
Senior Loans and the 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 each 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 or 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.
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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: 1020 Petersburg Rd
Hebron, Kentucky 41048
Fax: 606 525-1537
Attention: Edwin S. Weinstein
_________________________
STAR BANK, NATIONAL ASSOCIATION
By: \s\ Douglas V. Wyatt
-----------------------------
Title: Vice President
Address: 425 Walnut St., Mail Location 3100
Cincinnati, Ohio 45202
Fax: (513) 632-2068
Attention: Douglas V. Wyatt
_________________________
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COMMUNICATIONS TECHNOLOGY, INC.,
d/b/a/ DILAN
By: \s\ Robert Martin
---------------------------------------
Title: President
Address: _________________________
_________________________
Fax: _________________________
Attention: _________________________
_________________________
STATE OF OHIO )
: SS:
COUNTY OF HAMILTON )
On this 11th day of October, 1996, before me personally appeared Edwin S.
Weinstein, to me known, who, being by me duly sworn, declared that he is the
Chief Financial Officer of POMEROY COMPUTER RESOURCES, INC., a signatory of the
foregoing Subordination Agreement; and that, being duly authorized, he did
execute
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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\ James H. Smith
-------------------------------------------------
Notary Public
My Commission Expires:
-------------------
STATE OF OHIO )
: SS:
COUNTY OF HAMILTON )
On this 11th day of October, 1996, before me personally appeared Robert
Martin, to me known, who, being by me duly sworn, declared that he is the
President of COMMUNICATIONS TECHNOLOGY, INC. d/b/a DILAN, a signatory of the
foregoing Subordination Agreement; and that, being duly authorized, he did
execute the foregoing Subordination Agreement on behalf of COMMUNICATIONS
TECHNOLOGY, INC. d/b/a DILAN, and that the foregoing Subordination Agreement
constitutes the free act and deed of COMMUNICATIONS TECHNOLOGY, INC. d/b/a
DILAN.
\s\ James H. Smith
-------------------------------------------------
Notary Public
My Commission Expires:
-------
STATE OF OHIO )
: SS:
COUNTY OF HAMILTON )
On this 11th day of October, 1996, before me personally appeared Douglas
Wyatt, to me known, who, being by me duly sworn, declared that he is the
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\ James H. Smith
-------------------------------------------------
Notary Public
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My Commission Expires: __________
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Exhibit 23.1
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated December 19, 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
January 3, 1997
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Pomeroy Computer Resources, Inc. on Form S-3 of our report dated March 24, 1994,
appearing in the Annual Report on Form 10-K of Pomeroy Computer Resources,
Inc. for the year ended January 5, 1996, and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
\s\ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 3, 1997
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Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Pomeroy Computer Resources, Inc. (the "Company") on Form S-3 of our report dated
February 26, 1996, included in the Company's Current Report on Form 8-K dated
March 28, 1996, as amended by the Company's Current Report on Form 8-K/A dated
May 13, 1996, with respect to the financial statements of The Computer Supply
Store, Inc., for the year ended December 31, 1995, incorporated by reference 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
January 3, 1997
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Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Pomeroy Computer
Resources, Inc. (the "Company") for the registration of shares of common stock
and to the incorporation by reference therein of our report dated February 21,
1995, included in the Company's Current Report on Form 8-K dated March 28, 1996,
as amended by the Company's Current Report on Form 8-K/A dated May 13, 1996,
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
January 3, 1997
-129-
<PAGE>
Exhibit 23.6
CONSENT
I hereby consent to the reference to my name as a person about to become a
director of Pomeroy Computer Resources, Inc. (the "Company"), under the caption
"Management" in the Registration Statement (Form S-3) and related Prospectus of
the Company for the registration of shares of common stock.
/s/ Kenneth R. Waters
--------------------------------------
Kenneth R. Waters
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