UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 5, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20022
POMEROY COMPUTER RESOURCES, INC.
________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 31-1227808
________ __________
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1020 Petersburg Road Hebron, KY 41048
______________________________________
(Address of principal executive offices)
(606) 586-0600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such requirements
for the past 90 days.
YES ___X___NO___
The number of shares of common stock outstanding as of November
7, 1997 was 11,363,758.
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements: Page
____
Consolidated Balance 3
Sheets as of January 5,
1997 and October 5, 1997
Consolidated Statements of 4
Income for the Quarters
Ended October 5, 1996 and
1997
Consolidated Statements of 5
Income for the Nine Months
Ended October 5, 1996 and
1997
Consolidated Statements of 6
Cash Flows for the Nine
Months Ended October 5,
1996 and 1997
Notes to Consolidated 7
Financial Statements
Item 2. Management's Discussion 10
and Analysis of Financial
Condition and Results of
Operations
Part II. Other Information 13
SIGNATURE 15
<PAGE>
<TABLE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
( In thousands)
<CAPTION> January 5, October 5,
1997 1997
__________ _________
ASSETS
<S> <C> <C>
Current assets:
Cash $ 6,809 $ 54
Accounts and note receivable,
less allowance of $509 and $719 at January
5 and October 5, 1997, respectively 68,094 89,881
Inventories 23,426 42,560
Other 739 1,065
_________ _________
Total current assets 99,068 133,560
_________ _________
Equipment and leasehold improvements 13,076 16,052
Less accumulated depreciation 3,864 6,018
_________ _________
Net equipment and leasehold improvements 9,212 10,034
Other assets 13,100 16,294
_________ _________
Total assets $ 121,380 $ 159,888
========= =========
LIABILITIES AND EQUITY
Current liabilities:
Notes payable $ 907 $ 1,417
Accounts payable 40,343 42,337
Bank notes payable 24,146 21,077
Other current liabilities 6,469 10,203
_________ _________
Total current liabilities 71,865 75,034
Notes payable 2,189 2,446
Deferred income taxes 733 384
Equity:
Preferred stock ( no shares
issued or outstanding)
Common stock ( 9,692 and 11,322 shares
issued and outstanding at January 5
and October 5, 1997, respectively) 65 113
Paid-in capital 34,402 58,318
Retained earnings 12,330 23,797
_________ _________
46,797 82,228
Less treasury stock, at cost
(21 shares at January 5
and October 5, 1997, respectively) 204 204
_________ _________
Total equity 46,593 82,024
_________ _________
Total liabilities and equity $ 121,380 $ 159,888
========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
( In thousands, except per share amounts )
<CAPTION>
Quarter Ended
_________________________
October 5, October 5,
1996 1997
__________ __________
<S> <C> <C>
Net sales and revenues $ 92,975 $ 130,729
Cost of sales and service 78,308 109,196
__________ __________
Gross profit 14,667 21,533
__________ __________
Operating expenses:
Selling, general and administrative 8,717 12,841
Rent expense 385 486
Depreciation 518 702
Amortization 156 271
__________ __________
Total operating expenses 9,776 14,300
__________ __________
Income from operations 4,891 7,233
Interest expense 500 182
Other expense (income) (16) (42)
Income before income tax 4,407 7,093
Income tax expense 1,788 2,553
__________ __________
Net income $ 2,619 $ 4,540
========== ==========
Weighted average shares outstanding:
Primary 9,712 11,617
Fully diluted 9,825 11,702
Net income per common share:
Primary $ 0.27 $ 0.39
Fully diluted $ 0.27 $ 0.39
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
( In thousands, except per share amounts )
<CAPTION>
Nine Months Ended
October 5, October 5,
1996 1997
__________ __________
<S> <C> <C>
Net sales and revenues $ 234,035 $ 349,313
Cost of sales and service 196,922 291,741
__________ __________
Gross profit 37,113 57,572
__________ __________
Operating expenses:
Selling, general and administrative 23,297 34,613
Rent expense 1,016 1,405
Depreciation 1,278 2,205
Amortization 425 706
__________ __________
Total operating expenses 26,016 38,929
__________ __________
Income from operations 11,097 18,643
Interest expense 1,594 648
Litigation settlement and related costs 4,392 -
Other expense (income) (133) 79
__________ __________
Income before income tax 5,244 17,916
Income tax expense 2,127 6,449
__________ __________
Net income $ 3,117 $ 11,467
========== ==========
Weighted average shares outstanding:
Primary 7,477 11,266
Fully diluted 7,629 11,382
Net income per common share:
Primary $ 0.42 $ 1.02
Fully diluted $ 0.41 $ 1.01
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
( In thousands )
<CAPTION>
Nine Months Ended
October 5, October 5,
1996 1997
__________ __________
<S> <C> <C>
Net cash flows used in operating activities $ (4,849) $ (21,995)
__________ __________
Cash flows used in investing activities:
Capital expenditures (1,788) (1,790)
Acquisition of resellers (4,528) (2,990)
__________ __________
Net investing activities (6,316) (4,780)
__________ __________
Cash flows provided by (used in)
financing activities:
Net payments on bank note (1,146) (3,070)
Payments of notes payable (3,982) (492)
Net proceeds of stock offering 17,924 23,262
Retirement of stock warrants (330) 0
Proceeds from exercise of stock options 1,271 320
__________ __________
Net financing activities 13,737 20,020
__________ __________
Increase (decrease) in cash 2,572 (6,755)
Cash:
Beginning of period 596 6,809
__________ __________
End of period $ 3,168 $ 54
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Basis of Presentation
The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Except as
disclosed herein, there has been no material change in the
information disclosed in the notes to consolidated financial
statements included in the Company's Annual Report on Form 10-
K for the year ended January 5, 1997. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the interim
period have been made. The results of operations for the nine-
month period ended October 5, 1997 are not necessarily
indicative of the results that may be expected for future
interim periods or for the year ending January 5, 1998.
2.Borrowing Arrangements
The Company's $25.0 million bank revolving credit agreement
(" Credit Facility " ) expired on April 30, 1997 and was
replaced by an amended Credit Facility permitting the Company
to borrow up to $15.0 million, expiring on June 30,1998. The
amended 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 will be adjusted quarterly. The amended Credit Facility
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 amended Credit
Facility, the Company will be subject to various financial
covenants. At October 5, 1997, the outstanding balance, which
included $12.8 million of overdrafts on the Company's books in
accounts at Star Bank, was $21.1 million at an interest rate
of 7.5%. The overdrafts were subsequently funded through the
normal course of business.
3.Supplemental Cash Flow Disclosures
Supplemental disclosures with respect to cash flow information
and non-cash investing and financing
activities are as follows:
<PAGE>
(In thousands) Nine Months Ended
_________________________
October 5, October 5,
1996 1997
___________ __________
Interest paid $ 1,565 $ 721
=========== ==========
Income taxes paid $ 688 $ 5,023
=========== ==========
Business combination accounted
for as purchase:
Assets aquired $ 14,830 $ 5,901
Liabilities assumed (6,395) (1,246)
Note payable (2,700) (1,343)
Stock issued (1,275) (322)
___________ __________
Net cash paid $ 4,460 $ 2,990
=========== ==========
Note issued and accrued
liabilities for litigation
settlement $ 1,650 -
========== ==========
<PAGE>
4.Stockholders' Equity
On February 28, 1997, the Company completed a secondary public
offering of 1.02 million shares of its common stock. The net
proceeds of $23.3 million were used to reduce amounts
outstanding under the Company's line of credit. If this
secondary offering had been completed as of January 6, 1997,
pro forma primary and fully diluted earnings per share would
have been $1.01 and $1.00 , respectively, for the first nine
months of fiscal 1997. This computation assumes no interest
expense related to the credit line and the issuance of only a
sufficient number of shares to eliminate the credit line at
the beginning of fiscal 1997.
On September 8, 1997, the Company's Board of Directors
authorized a three-for-two stock split in the form of a stock
dividend payable October 6, 1997, to shareholders of record
September 22, 1997. The split resulted in the issuance of
3,767,056 new shares of Common Stock. The stated par value of
each share was not changed from $0.01. A total of $38 thousand
was reclassified from the Company's additional paid in capital
account to the Company's common stock account. Accordingly,
net income per common share, weighted average shares
outstanding and stock option plan information have been
restated to reflect the stock split.
5.Income Taxes
The Company's effective tax rate was 36.0% in the third
quarter and first nine months of 1997 compared to 40.6% in the
third quarter and first nine months of 1996. This decrease was
attributable to state tax credits earned as a result of the
move to the new headquarters and distribution center in fiscal
1996.
6.Acquisition
On June 26, 1997, the Company acquired substantially all of
the assets and assumed certain of the liabilities of Magic
Box, Inc. ( "Magic Box" ), a privately held network integrator
located in Miami, Florida. On July 24, 1997, the Company
acquired certain assets and assumed certain liabilities of
Micro Care, Inc. ( "Micro Care" ), a privately held systems
integrator located in Indianapolis, Indiana. The purchase
price of the two acquisitions consisted of $3.0 million in
cash, $1.2 million of assumed liabilities and $1.3 million of
subordinated notes. The Micro Care acquisition included 12,002
unregistered shares of the Company's common stock with an
approximate value of $0.3 million. Interest on the
subordinated notes, which is calculated at the prime rate as
of the dates of closing, is payable quarterly and principal is
payable in two equal annual installments for Magic Box and
three equal annual installments for Micro Care.
These acquisitions were accounted for as purchases,
accordingly the purchase price was allocated to assets and
<PAGE>
liabilities based on their estimated values as of the dates of
acquisition. The results of Magic Box's and Micro Care's
operations were included in the consolidated statement of
income from the dates of acquisition. Had Magic Box and Micro
Care been acquired at the beginning of fiscal 1996, the pro-
forma inclusion of their operating results would not have had
a significant effect on the reported consolidated net income
for the nine months ended October 5, 1996 and 1997,
respectively.
7.New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board
( "FASB" ) issued Statement of Financial Accounting Standards
No. 128, Earnings Per Share ( "Statement 128" ). Statement 128
supersedes APB Opinion No. 15, Earnings Per Share and
specifies the computation, presentation and disclosure
requirements for earnings per share ( "EPS") for entities with
publicly held common stock or potential common stock.
Statement 128 replaces the presentation of primary EPS and
fully diluted EPS with a presentation of basic EPS and diluted
EPS. Statement 128 is effective for financial statements for
both interim and annual periods ending after December 15,
1997. The Company has determined the impact of the
implementation of Statement 128 on its financial statements
and related disclosures will not be material.
8. 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 financial position or results
of operations.
9.Subsequent Event
On October 20, 1997, a wholly owned subsidiary of the Company
acquired all the assets and liabilities of The Computer Store
Inc., a Columbia, S.C.-based network integrator. The purchase
price consisted of $0.7 million in cash, and 24,851
unregistered shares of the Company's common stock with an
approximate value of $0.7 million. The acquisition will be
accounted for as a purchase, accordingly the purchase price
will be allocated to the assets and liabilities based on their
estimated value as of the date of acquisition. The results of
The Computer Store's operations will be included in the
consolidated statement of income from the date of acquisition.
During the third quarter of 1997 the Company changed the name
of its wholly owned subsidiary from Pomeroy Computer Leasing
Company, Inc. to Technology Integration Financial Services,
Inc. ( "TIFS" ). On November 5, 1997, TIFS executed a $20.0
million collateral based recourse loan facility ( "Resource
Facility" ) with The Fifth Third Bank of Northern Kentucky,
Inc. ( "Fifth Third" ) The loan, which is guaranteed by the
Company, will be used to fund all lease transactions financed
<PAGE>
on a recourse basis and will expire on October 1,1998. The
Recourse Facility will carry a variable interest rate based on
(I) Fifth Third's prime rate less an incentive pricing spread
(the "Incentive Pricing Spread" ) or (ii) Treasury notes plus
the Incentive Pricing Spread, at the Company's election.
<PAGE>
Special Cautionary Notice Regarding Forward-Looking Statements
______________________________________________________________
Certain of the matters discussed under the caption
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" contain certain forward looking
statements regarding future financial results of the Company.
The words "expect" , "estimate" , "anticipate" , "predict" ,
and similar expressions are intended to identify forward
looking statements. Such statements are forward-looking
statements for purposes of the Securities Act of 1933 and the
Securities Exchange Act of 1934, as amended, 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 document
including, without limitation, those statements made in
conjunction with the forward-looking statements under
"Management's Discussion and Analysis of Financial Condition
and Results of Operations". All written or oral forward-
looking statements attributable to the Company are expressly
qualified in their entirety by such factors.
POMEROY COMPUTER RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TOTAL NET SALES AND REVENUES. Total net sales and revenues
increased $37.7 million, or 40.5%, to $130.7 million in the third
quarter of 1997 from $93.0 million in the third quarter of 1996.
This increase was attributable to acquisitions completed in 1996
and 1997 and an increase in sales to existing and new customers.
Excluding acquisitions completed in 1996 and 1997, total net
sales and revenues increased 31.1%. Sales of equipment and
supplies increased $31.0 million, or 36.1%, to $116.8 million in
the third quarter of 1997 from $85.8 million in the third quarter
of 1996. Excluding acquisitions completed in 1996 and 1997, sales
of equipment and supplies increased 27.5%. Service revenues
increased $6.8 million, or 94.4%, to $14.0 million in the third
quarter of 1997 from $7.2 million in the third quarter of 1996.
Excluding acquisitions completed in 1996 and 1997, service
revenues increased 73.3%.
Total net sales and revenues increased $115.3 million, or 49.3%,
to $349.3 million in the first nine months of 1997 from $234.0
million in the first nine months of 1996. On a comparable basis,
as described above, total net sales and revenues increased 35.9%.
Sales of equipment and supplies increased $99.5 million, or
46.5%, to $313.6 million in the first nine months of 1997 from
$214.1 million in the first nine months of 1996. On a comparable
basis, as described above, sales of equipment and supplies
increased 33.5%. Service and other revenues increased $15.8
<PAGE>
million, or 79.4%, to $35.7 million in the first nine months of
1997 from $19.9 million in the first nine months of 1996. On a
comparable basis, as described above, service and other revenues
increased 59.9%.
GROSS MARGIN. Gross margin was 16.5 % in the third quarter of
1997 compared to 15.8% in the third quarter of 1996. This
increase in the third quarter of 1997 is primarily attributable
to an increase in the percentage of service revenues as a
percentage of total net sales. Service revenues increased to
10.7% of total net sales in the third quarter of 1997 compared to
7.7% of total net sales in the third quarter of 1996. Factors
that may have an impact on this trend in the future include the
percentage of equipment sales with lower-margin customers and the
ratio of service revenues to total net sales and revenues.
Gross profit as a percentage of sales was 16.5% in the first nine
months of 1997 compared to 15.9% in the first nine months of
1996. This increase is attributed to the increase in the volume
of higher-margin service revenues, which more than offsets the
decrease in hardware gross margins and the growth in equipment
sales.
OPERATING EXPENSES. Selling, general and administrative expenses
(including rent expense) expressed as a percentage of total net
sales and revenues increased to 10.2% for the third quarter of
1997 from 9.8% in the third quarter of 1996. This increase is
primarily attributable to hiring technical staff as part of the
overall strategy of the Company to increase service revenues.
Selling, general and administrative expenses (including rent
expense) expressed as a percentage of total net sales and
revenues decreased to 10.3% in the first nine months of 1997 as
compared to 10.4% in the first nine months of 1996. Total
operating expenses expressed as a percentage of total net sales
and revenues increased to 10.9% in the third quarter 1997 from
10.5% in the third quarter of 1996 due to the reasons noted
above. Total operating expenses for the first nine months of 1997
and 1996 remained the same at 11.1% as a percentage to total net
sales and revenues.
INCOME FROM OPERATIONS. Income from operations increased $2.3
million, or 46.9%, to $7.2 million in the third quarter of 1997
from $4.9 million in the third quarter of 1996. The Company's
operating margin increased to 5.5% in the third quarter of 1997
as compared to 5.3% in 1996 as the increase in gross margin more
than offset the increase in operating expenses as a percent of
total net sales and revenues.
Income from operations increased $7.5 million, or 67.6%, to $18.6
million in the first nine months of 1997 from $11.1 million in
the first nine months of 1996. Operating margin increased to 5.3%
in the first nine months of 1997 as compared to 4.7% in 1996 due
to the increase in gross margin and the stable operating
expenses as a percent of net sales and revenues.
<PAGE>
INTEREST EXPENSE. Interest expense was $0.2 million and $0.6
million in the third quarter and first nine months of 1997
compared with $0.5 million and $1.6 million in the third quarter
and first nine months of 1996. This decrease in the third quarter
and first nine months of 1997 from the comparable periods in 1996
is due to lower average debt outstanding as the proceeds from the
secondary public offering in February 1997 were used to pay
outstanding balances.
INCOME TAXES. The Company's effective tax rate was 36.0% in the
third quarter and first nine months of 1997 compared to 40.6% in
the third quarter and first nine months of 1996. This decrease
was attributable to state tax credits earned as a result of the
move to the new headquarters and distribution center in fiscal
1996. The Company has been approved for state tax credits of
approximately $4.0 million over 10 years by the Kentucky Economic
Development Finance Authority.
NET INCOME. Net income increased $1.9 million, or 73.1%, to $4.5
million in the third quarter of 1997 from $2.6 million in the
third quarter of 1996. This increase was a result of the factors
described previously. Net income, excluding the impact of the
Vanstar settlement in fiscal 1996, increased $5.8 million, or
101.8%, to $11.5 million in the first nine months of 1997 from
$5.7 million in the first nine months of 1996. This increase was
a result of the factors described previously.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $22.0 million in the first
nine months of 1997. Cash used in investing activities included
$3.0 million for acquisitions and $1.8 million for capital
expenditures. Cash provided by financing activities included
$23.3 million of net proceeds from a secondary stock offering of
1.02 million shares less $3.1 million of net repayments on bank
notes payable and $0.5 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, 1997,
these lines of credit totaled $47.0 million, including $12.0
million with IBM Credit Corporation ( "ICC" ) and $35.0 million
with Deutsche Financial Services ( "DFS" ). ICC and DFS have
increased the total line by $37.0 million on a temporary basis
for the fourth quarter. Borrowings under the ICC floor plan
arrangement are made on sixty day notes, with one-half of the
note amount due in thirty days. Borrowings under the DFS floor
plan arrangement are made on thirty day notes. All such
borrowings are secured by the related inventory. Financing on
substantially all of the arrangements is interest free due to
subsidies by manufacturers. The average annual interest rate on
the plans overall is less than 1.0%. The Company classifies
amounts outstanding under the floor plan arrangements as
accounts payable.
The Company's $25.0 million bank revolving credit agreement
( "Credit Facility" ), which expired on April 30, 1997, was
<PAGE>
replaced by a temporary $10 million note with interest at 1.0
percentage point below the bank's prime rate. During the third
quarter an amended loan agreement, effective April 30, 1997, for
$15 million was completed. At October 5, 1997, the amount
outstanding, which included $12.8 million of overdrafts on the
Company's books in accounts at Star Bank, was $21.1 million at an
interest rate of 7.5%. The overdrafts were subsequently funded
through the normal course of business. The amended Credit
Facility permits the Company to borrow up to $15.0 million and
will expire June 30, 1998. The Company elected to reduce the
amended Credit Facility in order to eliminate the fees charged
for unused portions of the credit line. The amended 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 amended Credit Facility 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 amended Credit Facility, the
Company is subject to various financial covenants.
At the beginning of the third quarter of 1997, the Company hired
a president for Technology Integration Financial Services, Inc.
( "TIFS" ), a wholly-owned subsidiary of the Company (f/k/a
Pomeroy Computer Leasing Company, Inc.), in an effort to increase
its leasing business. Through TIFS, the Company can directly
provide its customers with leasing alternatives. Management
expects that the leasing operations of TIFS will increase in the
fourth quarter of 1997 over the relatively minimal levels of
leasing activity to date. Increased leasing operations could
impact one or more of total net sales and revenues, gross margin,
operating income, net income, total debt and liquidity, depending
on the amount of leasing activity and the types of leasing
transactions. However, the impact of any increased leasing
operations for the balance of 1997 is not expected to be
material. On November 5, 1997, TIFS executed a $20.0 million
collateral based recourse loan facility ( "Recourse Facility" )
with The Fifth Third Bank of Northern Kentucky, Inc. ( "Fifth
Third" ). The loan, which is guaranteed by the Company, will be
used to fund all lease transactions financed on a recourse basis
and will expire on October 1, 1998. . The Recourse Facility will
carry a variable interest rate based on (i) Fifth Third's prime
rate less an incentive pricing spread (the " Incentive Pricing
Spread" ) or (ii) Treasury notes plus the Incentive Pricing
Spread, at the Company's election.
The Company believes that 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.
<PAGE> OTHER
The Company's single largest customer is Columbia/HCA Healthcare
Corp. ( "CHCA" ). Sales to CHCA represented 13% and 12% of total
net sales and revenues for the third quarter 1997 and fiscal
1996, respectively. Total sales to CHCA could decline as a result
of the impact on CHCA of an on-going federal investigation. The
significant growth that CHCA has experienced may not continue and
it has been reported that CHCA is considering whether to sell
some of its divisions or hospitals. CHCA has also issued a
Request For Proposal ( "RFP" ) for the future provision of
computer equipment. It is not known when CHCA will make an award
under the RFP or who will be the provider of the equipment.
The Company began addressing the Year 2000 Compliance issue in
1996. Working with our software technology providers, the Company
believes that it has and will continue to identify the
appropriate steps to be Year 2000 Compliant before the end of
the millennium. In addition, the Company requires that all future
software technology providers are taking adequate steps to be
Year 2000 Compliant.
<PAGE>
PART II - OTHER INFORMATION
PART II - OTHER INFORMATION
Items 1 to 5 None
Item 6(a) Exhibits
Filed Herewith
(page #) or
Incorporated
Exhibit by Reference to:
_______ ________________
10(i) Material Contracts
(w)(1) Non Compete Agreement E-1 to E-4
between the Company and
Microcare Computer
Services, Inc., dated
July 24, 1997
(w)(2) Non Compete Agreement E-5 to E-8
between the Company and
Microcare, Inc., dated
July 24, 1997
(w)(3) Assignment and E-9 to E-
Assumption Agreement 10
between the Company,
and Microcare Computer
Services, Inc., and
Microcare Inc.,dated
July 24, 1997
(w)(4) Assumtpion of E-11 to E-
Liabilities Agreement 14
between the Company,
and Microcare Computer
Services, Inc., and
Microcare Inc.,dated
July 24, 1997
(w)(5) Non Compete Agreement E-15 to E-
between the Company, 17
and Robert L.
Versprille, dated July
24, 1997
(w)(6) Consent for Use of E-18
Similar Name by between
between the Company and
Microcare, Inc., dated
July 24, 1997
<PAGE>
(w)(7) Subordination Agreement E-19 to E-
between the Company, 32
and Microcare Computer
Services, Inc., and
Star Bank, N.A., dated
July 24, 1997
(w)(8) Subordinated Promissory E-33 to E-
Note between the 35
Company and Microcare
Computer Services,
Inc., dated July 24,
1997
(w)(9) Registration Rights E-36 to E-
Agreement between the 38
Company and Microcare
Computer Services,
Inc., dated July 24,
1997
(w)(10) General Bill of Sale E-39 to E-
and Assignment between 40
the Company and
Microcare Computer
Services, Inc., dated
July 24, 1997
(w)(11) General Bill of Sale E-41 to E-
and Assignment between 42
the Company and
Microcare, Inc., dated
June 24, 1997
(w)(12) Asset Purchase E-43 to E-
Agreement between the 79
Company, and Microcare
Computer Services,
Inc., Microcare Inc.,
and Robert L.
Versprille dated July
24, 1997
(w)(13) Employeement Agreement E-80 to E-
between the Company and 86
Robert L. Versprille,
dated July 24, 1997
11 Computation of Per E-87
Share Earnings
27 Financial Data Schedule E-88
Item 6(a) None
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
POMEROY COMPUTER RESOURCES, INC.
________________________________
(Registrant)
Date: November 10, 1997 By: /s/ Edwin S. Weinstein
Edwin S. Weinstein,
Vice President of Finance and
Principal Financial and
Accounting Officer
<PAGE>
AGREEMENT
This Agreement made and entered into this _______ day of
______________, 1997, by and between MICROCARE COMPUTER SERVICES,
INC., an Indiana corporation (hereinafter referred to as
"Seller"), and POMEROY COMPUTER RESOURCES, INC., a Delaware
corporation (hereinafter referred to as "Purchaser").
W I T N E S S E T H :
WHEREAS, Seller is a full service provider of a variety of
computer service and support solutions to large and medium size
commercial, governmental and other professional customers
throughout the Indianapolis, Indiana metropolitan area as well the
entire state of Indiana (the "Business"); and
WHEREAS, simultaneously with the execution of this Agreement,
Seller and Purchaser have entered into an Asset Purchase Agreement
("Asset Purchase Agreement") whereby Seller has sold to Purchaser
substantially all of the assets of Seller relating to the
Business; and
WHEREAS, Purchaser would not have entered into the Asset Purchase
Agreement with Seller without the consent of Seller to enter into
this covenant not to compete agreement; and
WHEREAS, pursuant to Sections 8 and 13.2(d)(vii) of said Asset
Purchase Agreement, Seller agreed to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and in consideration of the execution
and closing of the Asset Purchase Agreement, the parties hereto
agree as follows:
1. In consideration of the payments to be made by Purchaser to
Seller for its assets, Seller covenants and agrees that for a
period equal to four (4) years from the closing of the Asset
Purchase Agreement of even date herewith, Seller will not, or with
any other person, corporation or entity, directly or indirectly,
by stock or other ownership, investment, management, employment or
otherwise, or in any relationship whatsoever:
(a) Solicit, divert or take away, or attempt to solicit,
divert or take away, any of the business, clients, customers or
patronage of Purchaser or any affiliate or subsidiary thereof
relating to the Business of Purchaser, as defined below;
(b) Attempt to seek or cause any clients or customers of
Purchaser or any such affiliate or subsidiary relating thereto to
refrain from continuing their patronage of the Business of
Purchaser;
(c) Engage in the Business of Purchaser in any state, county
and/or metropolitan area in which Purchaser or its subsidiaries do
business during the term of this Agreement. A list of the states
in which Purchaser and its subsidiaries currently transact
business is attached hereto as Exhibit A;
(d) Knowingly employ or engage, or attempt to employ or
engage, in any capacity, any person in the employ of the Purchaser
or any affiliate or subsidiary.
E-1
<PAGE>
(e) Nothing in this Agreement shall prohibit Seller from
owning or purchasing less than five percent (5%) of the
outstanding stock of any publicly traded company whose stock is
traded on a nationally or regionally recognized stock exchange or
is quoted on NASDAQ or the OTC Bulletin Board.
For purposes of this section, the "Business of Purchaser"
shall mean any person, corporation, partnership or other legal
entity engaged, directly or indirectly, through subsidiaries or
affiliates, in the following line of business:
(i) Distributing of computer hardware, software, peripheral
devices, and related products and services to other entities or
persons engaged in any manner in the business of the distribution,
sale, resale or servicing, whether at the wholesale or retail
level, or leasing or renting, of computer hardware, software,
peripheral devices or related products;
(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) Sale or servicing of microcomputer products and
computer integration products, peripheral devices and related
products and the sale of microcomputer products and computer
integration and networking services.
Seller has carefully read all the terms and conditions of
this Paragraph 1 and has given careful consideration to the
covenants and restrictions imposed upon Seller herein, and agrees
that the same are necessary for the reasonable and proper
protection of the Seller's Business acquired by Purchaser and have
been separately bargained for and agrees that Purchaser has been
induced to enter into the Asset Purchase Agreement and pay the
consideration described in Paragraph 2 by the representation of
Seller that it will abide by and be bound by each of the covenants
and restrictions herein; and Seller agrees that Purchaser will
suffer irreparable injury in the event of a breach by Seller, and
Seller agrees that Purchaser is entitled to injunctive relief in
the event of any breach of any covenant or restriction contained
herein in addition to all other remedies provided by law or
equity. Seller hereby acknowledges that each and every one of
said covenants and restrictions is reasonable with respect to the
subject matter, the line of business, the length of time and
geographic area embraced therein, and agrees that irrespective of
when or in what manner this agreement may be terminated, said
covenants and restrictions shall be operative during the full
period or periods hereinbefore mentioned and throughout the area
hereinbefore described.
The parties acknowledge that this Agreement, which Agreement
is ancillary to the main thrust of the Asset Purchase Agreement,
is being entered into to protect a legitimate business interest of
Purchaser including, but not limited to, (i) trade secrets; (ii)
valuable confidential business or professional information that
otherwise does not qualify as trade secrets; (iii) substantial
relationships with specific prospective or existing customers or
clients; (iv) client or customer good will associated with an
ongoing business by way of trade name, trademark, service mark, or
trade dress, a specific geographic location, or a specific
marketing or trade area; and (v) extraordinary or specialized
training. In the event that any provision or portion of this Para
graph 1 shall for any reason be held invalid or unenforceable, it
is agreed that the same shall not affect the validity or
enforceability of any other provision of Paragraph 1 of this
Agreement, but the remaining provisions of Paragraph 1 of this
E-2
<PAGE>
Agreement shall continue in force and effect; and that if such
invalidity or unenforceability is due to the reasonableness of the
line of business, time or geographical area covered by certain
covenants and restrictions contained in Paragraph 1, said
covenants and restrictions shall nevertheless be effective for
such line of business, period of time and for such area as may be
determined by arbitration or by a Court of competent jurisdiction
to be reasonable.
2. The consideration for Seller's covenant not to compete shall
be One Dollar ($1.00) and other valuable consideration, including
consideration paid by the Purchaser to Seller pursuant to an Asset
Purchase Agreement to which Seller is a party of even date
herewith.
3. The terms and conditions of this Agreement shall be binding
upon the Seller and Purchaser, and their successors, heirs and
assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agree
ment on the day and year first above written.
SELLER:
MICROCARE COMPUTER SERVICES, INC.
BY:__________________________________
PURCHASER:
POMEROY COMPUTER RESOURCES, INC.
BY:__________________________________
E-3
<PAGE>
EXHIBIT A
STATES IN WHICH PURCHASER
AND/OR ITS SUBSIDIARIES TRANSACT BUSINESS
1. Alabama
2. Florida
3. Indiana
4. Iowa
5. Kentucky
6. North Carolina
7. Ohio
8. South Carolina
9. Tennessee
E-4
<PAGE>
AGREEMENT
This Agreement made and entered into this _______ day of
______________, 1997, by and between MICROCARE, INC., an Indiana
corporation (hereinafter referred to as "Seller"), and POMEROY
COMPUTER RESOURCES, INC., a Delaware corporation (hereinafter
referred to as "Purchaser").
W I T N E S S E T H :
WHEREAS, Seller is a full service provider of a variety of
computer service and support solutions to large and medium size
commercial, governmental and other professional customers
throughout the Indianapolis, Indiana metropolitan area as well the
entire state of Indiana (the "Business"); and
WHEREAS, simultaneously with the execution of this Agreement,
Seller and Purchaser have entered into an Asset Purchase Agreement
("Asset Purchase Agreement") whereby Seller has sold to Purchaser
substantially all of the assets of Seller relating to the
Business; and
WHEREAS, Purchaser would not have entered into the Asset Purchase
Agreement with Seller without the consent of Seller to enter into
this covenant not to compete agreement; and
WHEREAS, pursuant to Sections 8 and 13.2(d)(vii) of said Asset
Purchase Agreement, Seller agreed to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and in consideration of the execution
and closing of the Asset Purchase Agreement, the parties hereto
agree as follows:
1. In consideration of the payments to be made by Purchaser to
Seller for its assets, Seller covenants and agrees that for a
period equal to four (4) years from the closing of the Asset
Purchase Agreement of even date herewith, Seller will not, or with
any other person, corporation or entity, directly or indirectly,
by stock or other ownership, investment, management, employment or
otherwise, or in any relationship whatsoever:
(a) Solicit, divert or take away, or attempt to solicit,
divert or take away, any of the business, clients, customers or
patronage of Purchaser or any affiliate or subsidiary thereof
relating to the Business of Purchaser, as defined below;
(b) Attempt to seek or cause any clients or customers of
Purchaser or any such affiliate or subsidiary relating thereto to
refrain from continuing their patronage of the Business of
Purchaser;
(c) Engage in the Business of Purchaser in any state, county
and/or metropolitan area in which Purchaser or its subsidiaries do
business during the term of this Agreement. A list of the states
in which Purchaser and its subsidiaries currently transact
business is attached hereto as Exhibit A;
(d) Knowingly employ or engage, or attempt to employ or
engage, in any capacity, any person in the employ of the Purchaser
or any affiliate or subsidiary.
E-5
<PAGE>
(e) Nothing in this Agreement shall prohibit Seller from
owning or purchasing less than five percent (5%) of the
outstanding stock of any publicly traded company whose stock is
traded on a nationally or regionally recognized stock exchange or
is quoted on NASDAQ or the OTC Bulletin Board.
For purposes of this section, the "Business of Purchaser"
shall mean any person, corporation, partnership or other legal
entity engaged, directly or indirectly, through subsidiaries or
affiliates, in the following line of business:
(i) Distributing of computer hardware, software, peripheral
devices, and related products and services to other entities or
persons engaged in any manner in the business of the distribution,
sale, resale or servicing, whether at the wholesale or retail
level, or leasing or renting, of computer hardware, software,
peripheral devices or related products;
(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) Sale or servicing of microcomputer products and
computer integration products, peripheral devices and related
products and the sale of microcomputer products and computer
integration and networking services.
Seller has carefully read all the terms and conditions of
this Paragraph 1 and has given careful consideration to the
covenants and restrictions imposed upon Seller herein, and agrees
that the same are necessary for the reasonable and proper
protection of the Seller's Business acquired by Purchaser and have
been separately bargained for and agrees that Purchaser has been
induced to enter into the Asset Purchase Agreement and pay the
consideration described in Paragraph 2 by the representation of
Seller that it will abide by and be bound by each of the covenants
and restrictions herein; and Seller agrees that Purchaser will
suffer irreparable injury in the event of a breach by Seller and
Seller agrees that Purchaser is entitled to injunctive relief in
the event of any breach of any covenant or restriction contained
herein in addition to all other remedies provided by law or
equity. Seller hereby acknowledges that each and every one of
said covenants and restrictions is reasonable with respect to the
subject matter, the line of business, the length of time and
geographic area embraced therein, and agrees that irrespective of
when or in what manner this agreement may be terminated, said
covenants and restrictions shall be operative during the full
period or periods hereinbefore mentioned and throughout the area
hereinbefore described.
The parties acknowledge that this Agreement, which Agreement
is ancillary to the main thrust of the Asset Purchase Agreement,
is being entered into to protect a legitimate business interest of
Purchaser including, but not limited to, (i) trade secrets; (ii)
valuable confidential business or professional information that
otherwise does not qualify as trade secrets; (iii) substantial
relationships with specific prospective or existing customers or
clients; (iv) client or customer good will associated with an
ongoing business by way of trade name, trademark, service mark, or
trade dress, a specific geographic location, or a specific
marketing or trade area; and (v) extraordinary or specialized
training. In the event that any provision or portion of this Para
graph 1 shall for any reason be held invalid or unenforceable, it
is agreed that the same shall not affect the validity or
enforceability of any other provision of Paragraph 1 of this
Agreement, but the remaining provisions of Paragraph 1 of this
E-6
<PAGE>
Agreement shall continue in force and effect; and that if such
invalidity or unenforceability is due to the reasonableness of the
line of business, time or geographical area covered by certain
covenants and restrictions contained in Paragraph 1, said
covenants and restrictions shall nevertheless be effective for
such line of business, period of time and for such area as may be
determined by arbitration or by a Court of competent jurisdiction
to be reasonable.
2. The consideration for Seller's covenant not to compete shall
be One Dollar ($1.00) and other valuable consideration, including
consideration paid by the Purchaser to Seller pursuant to an Asset
Purchase Agreement to which Seller is a party of even date
herewith.
3. The terms and conditions of this Agreement shall be binding
upon the Seller and Purchaser, and their successors, heirs and
assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agree
ment on the day and year first above written.
SELLER:
MICROCARE, INC.
BY:__________________________________
PURCHASER:
POMEROY COMPUTER RESOURCES, INC.
BY:__________________________________
82751
E-7
<PAGE>
EXHIBIT A
STATES IN WHICH PURCHASER
AND/OR ITS SUBSIDIARIES TRANSACT BUSINESS
1. Alabama
2. Florida
3. Indiana
4. Iowa
5. Kentucky
6. North Carolina
7. Ohio
8. South Carolina
9. Tennessee
E-8
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT and Assumption Agreement ("Assignment") is
made this 24th day of July, 1997 by and between MICROCARE, INC.,
an Indiana corporation ("MI"), and MICROCARE COMPUTER SERVICES,
INC., an Indiana corporation ("MCI"), and POMEROY COMPUTER
RESOURCES, INC., a Delaware corporation ("Purchaser").
WHEREAS, pursuant to an Asset Purchase Agreement, dated July
24th, 1997 (the "Agreement"), by and between MI and MCI and
Robert L. Versprille, Purchaser wishes to assume MI's and MCI's
rights, benefits and privileges of certain contracts, and MI and
MCI are desirous of assigning to Purchaser all of their rights,
benefits and privileges in certain contracts;
NOW, THEREFORE, in consideration of the foregoing and the
agreements and covenants herein set forth, and other good and
valuable consideration paid by Purchaser to MI and MCI, the
receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
ASSIGNMENT:
1. MI and MCI do hereby sell, assign, transfer and convey to
Purchaser, to the extent legally permitted, the contracts set
forth on Exhibit "A" attached hereto, and all of MI's and MCI's
rights, interest, benefits and privileges thereunder.
ADDITIONAL ACTION BY MI AND MCI:
2. To the extent this Assignment does not result in a complete
transfer of the contracts to Purchaser because of a prohibition
in the contracts against MI's and MCI's assignment of any of its
rights thereunder, MI and MCI shall cooperate with Purchaser in
any reasonable manner proposed by Purchaser to complete the
acquisition of the contracts and MI's and MCI's rights, benefits
and privileges thereunder in order to fulfill and carry out MI's
and MCI's obligations under the Agreement. Such additional
action may include, but is not limited to: (i) entering into a
subcontract between MI and MCI and Purchaser which allows
Purchaser to perform MI's and MCI's duties under the contracts
set forth on Exhibit "A" and to enforce MI's and MCI's rights
thereunder; (ii) The sale of MI's and MCI's stock owned by Robert
L. Versprille to Purchaser on terms to which the parties may
mutually agree to allow Purchaser to operate MI and MCI as a
wholly owned subsidiary to enforce the contracts; or (iii)
entering into a new multi-party agreement with the customers
identified in the contracts set forth on Exhibit "A" which allows
Purchaser to perform MI's and MCI's obligations and enforce MI's
and MCI's rights under the contracts.
ASSUMPTION OF OBLIGATIONS:
3. Purchaser shall be responsible for the performance and
discharge of all the duties and obligations of MI contained in
the contracts set forth on Exhibit "A" upon the earlier to occur
of: (i) the completion of the assignment of the contracts and
MI's rights, interest, benefits and privileges thereunder; or
(ii) in accordance with any proposed transaction contemplated or
set forth in Paragraph 2 hereof.
BINDING EFFECT:
4. All of the covenants, terms and conditions set forth herein
shall be binding upon and shall inure to the benefit of the
parties hereof and their respective successors and assigns.
E-9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Assignment as of the date first above written.
Witnesses: MICROCARE, INC.
________________________
________________________ By:
_______________________________
Robert L. Versprille,
President
MICROCARE COMPUTER SERVICES, INC.
________________________
________________________
By:_______________________________
Robert L. Versprille,
President
POMEROY COMPUTER RESOURCES, INC.
________________________
________________________
BY:________________________________
E-10
<PAGE>
ASSUMPTION OF LIABILITIES
THIS ASSUMPTION OF LIABILITIES is made this ____ day of
_________, 1997 by and between Microcare, Inc., an Indiana
corporation ("Seller No. 1"), Microcare Computer Services, Inc.,
an Indiana corporation ("Seller No. 2") and Pomeroy Computer
Resources, Inc., a Delaware corporation, ("Purchaser").
WHEREAS, pursuant to an Asset Purchase Agreement dated July 24th,
1997 (the "Agreement") by, between and among Purchaser and Seller
No. 1, Seller No. 2 and Robert L. Versprille, Purchaser wishes to
assume certain obligations of Seller No 1 and Seller No. 2;
NOW, THEREFORE, pursuant to the Agreement and in consideration of
the premises, and for good and valuable consideration, the
receipt of which is hereby acknowledged;
1. Assumption of Liabilities of Seller No. 1
Purchaser hereby accepts, assumes and agrees to pay and
perform the obligations of Seller No. 1 as set forth on Exhibit
"1" attached hereto and made a part hereof. Purchaser agrees to
indemnify and hold Seller No. 1 harmless from any liability with
respect to such assumed obligations.
2. Assumption of Liabilities of Seller No. 2
Purchaser hereby accepts, assumes and agrees to pay and
perform the obligations of Seller No. 2 as set forth on Exhibit
"1" attached hereto and made a part hereof. Purchaser agrees to
indemnify and hold Seller No. 2 harmless from any liability with
respect to such assumed obligations.
3. Excluded Liabilities
Purchaser shall not assume or be liable for any liabilities
of Seller No. 1 and/or Seller No. 2 not listed on Exhibit "1"
attached hereto and made part hereof.
4. The Agreement
Nothing contained in this Assumption of Liabilities shall be
deemed to supersede, restrict, impair, diminish, enlarge or
expand in any respect any of the obligations, agreements,
covenants or warranties of Seller No. 1, Seller No. 2 or
Purchaser contained in the Agreement. All terms used in this
Assumption of Liabilities shall have the meaning defined in the
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Assumption of Liabilities to be executed in their names on the
date first above written.
MICROCARE, INC., an Indiana
corporation
By: _____________________________
Robert L. Versprille,
President
E-11
<PAGE>
MICROCARE COMPUTER SERVICES,
INC., an Indiana corporation
By: _____________________________
Robert L. Versprille,
President
POMEROY COMPUTER RESOURCES, INC.,
a Delaware corporation
By: _____________________________
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
The foregoing instrument was acknowledged before me this
____ day of ________, 1997 by Robert L Versprille, President of
Microcare, Inc. an Indiana corporation, on behalf of the
corporation.
_________________________________
NOTARY PUBLIC
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
The foregoing instrument was acknowledged before me this
____ day of ________, 1997 by Robert L Versprille, President of
Microcare Computer Services, Inc. an Indiana corporation, on
behalf of the corporation.
_________________________________
NOTARY PUBLIC
E-12
<PAGE>
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
The foregoing instrument was acknowledged before me this
____ day of _______, 1997 by ______________________, _________ of
Pomeroy Computer Resources Inc., a Delaware corporation, on
behalf of the corporation.
_________________________________
NOTARY PUBLIC
E-13
<PAGE>
71055
EXHIBIT "1"
ASSUMED LIABILITIES OF
MICROCARE, INC.
1. Purchaser shall pay off the debt on certain vehicles
being transferred to it in the amount of $12,457.48 as of
the date hereof and shall assume Seller No. 1's deferred
service contract liability in the amount of $31,405.00 as of July
24, 1997.
2. Purchaser shall assume and pay, perform and discharge
when due all of Seller No. 1's employees' accrued vacation time,
which on the date of July 24, 1997 is $13,357.38.
3. Purchaser shall assume and pay, perform and discharge
when due the following:
(a) All the obligations and liabilities of Seller No. 1 and
Seller No. 2 arising after the Closing under the contracts
described in Sections 2.2 and 2.3 of the Agreement; and
(b) Seller No. 1's obligations and liabilities under
executory contracts arising after the Closing relating to Seller
No. 1's Yellow Pages advertisements (projected to cost Twelve
Thousand Six Hundred Eighteen Dollars ($12,618.00) for the period
August, 1997 through July, 1998) and Centrix agreements.
(c) All product warranty liabilities and obligations of
Seller No. 1 arising after Closing with respect to products
assembled, manufactured, distributed or sold on or prior to the
Closing Date up to a maximum aggregate liability of $2,000.00.
(d) All future liabilities for merchandise in transit
F.O.B. shipping point which has not been received and/or entered
into inventory by Seller No. 1 or Seller No. 2 as of the Closing
and for which no bill has been posted by Seller No. 1 or Seller
No. 2 as of Closing.
E-14
<PAGE>
AGREEMENT
This Agreement made and entered into this ____ day of _______,
1997, by and between ROBERT L. VERSPRILLE (hereinafter referred to
as "Owner") and POMEROY COMPUTER RESOURCES, INC., a Delaware
corporation (hereinafter referred to as "Purchaser").
W I T N E S S E T H :
WHEREAS, simultaneously with the execution of this Agreement,
Purchaser entered into an Asset Purchase Agreement ("Asset
Purchase Agreement") with Microcare, Inc., an Indiana corporation
(hereinafter referred to as "Seller 1"), and Microcare Computer
Services, Inc., an Indiana corporation (hereinafter referred to as
"Seller 2") for the acquisition of substantially all of the assets
of Seller 1 and Seller 2 relating to their businesses of providing
a variety of computer service and support solutions to large and
medium size commercial, governmental and other professional
customers throughout the Indianapolis, Indiana metropolitan area
as well the entire state of Indiana (both businesses collectively
referred to as the "Business"); and
WHEREAS, Owner owns one hundred percent (100%) percent of the
outstanding stock of Seller 1 and Seller 2; and
WHEREAS, Purchaser would not have entered into the Asset Purchase
Agreement with Seller 1 and Seller 2 without the consent of Owner
to enter into this covenant not to compete agreement; and
WHEREAS, pursuant to Sections 8 and 13.2(d)(vii) of said Asset
Purchase Agreement, Owner agreed to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and in consideration of the execution
and closing of the Asset Purchase Agreement, the parties hereto
agree as follows:
1. As an inducement for Purchaser to enter into the Asset
Purchase Agreement with Seller 1 and Seller 2 (100% of the stock
of which is owned by Owner), Owner covenants and agrees that for a
period equal to the later of (i) four (4) years from the closing
of the Asset Purchase Agreement of even date herewith or (ii) one
(1) year after the termination of Owner's employment with
Purchaser under an Employment Agreement executed by and between
the Owner and the Purchaser of even date herewith, Owner will not,
or with any other person, corporation or entity, directly or indi
rectly, by stock or other ownership, investment, management,
employment or otherwise, or in any relationship whatsoever:
(a) Solicit, divert or take away, or attempt to solicit,
divert or take away, any of the business, clients, customers or
patronage of Purchaser or any affiliate or subsidiary thereof
relating to the Business of Purchaser, as defined below;
(b) Attempt to seek or cause any clients or customers of
Purchaser or any such affiliate or subsidiary relating thereto to
refrain from continuing their patronage of the Business of
Purchaser;
(c) Engage in the Business of Purchaser in any state, county
and/or metropolitan area in which Purchaser or its subsidiaries do
business during the term of this Agreement. A list of the states
in which Purchaser and its subsidiaries currently transact
business is attached hereto as Exhibit A;
E-15
<PAGE>
(d) Knowingly employ or engage, or attempt to employ or
engage, in any capacity, any person in the employ of the Purchaser
or any affiliate or subsidiary;
(e) Nothing in this Agreement shall prohibit Owner from
owning or purchasing less than five percent (5%) of the
outstanding stock of any publicly traded company whose stock is
traded on a nationally or regionally recognized stock exchange or
is quoted on NASDAQ or the OTC Bulletin Board.
For purposes of this Section, the "Business of Purchaser"
shall mean any person, corporation, partnership or other legal
entity engaged, directly or indirectly, through subsidiaries or
affiliates, in the following line of business:
(i) Distributing of computer hardware, software, peripheral
devices, and related products and services to other entities or
persons engaged in any manner in the business of the distribution,
sale, resale or servicing, whether at the wholesale or retail
level, or leasing or renting, of computer hardware, software,
peripheral devices or related products;
(ii) Sale or servicing, whether at the wholesale or retail
level, or leasing or renting, of computer hardware, software,
peripheral devices or related products; and
(iii) Sale or servicing of microcomputer products and
computer integration products, peripheral devices and related
products and the sale of microcomputer products and computer
integration and networking services.
Owner has carefully read all the terms and conditions of this
Paragraph 1 and has given careful consideration to the covenants
and restrictions imposed upon Owner herein, and agrees that the
same are necessary for the reasonable and proper protection of the
Business of Seller 1 and Seller 2 acquired by Purchaser and have
been separately bargained for and agrees that Purchaser has been
induced to enter into the Asset Purchase Agreement and pay the
consideration described in Paragraph 2 by the representation of
Owner that he will abide by and be bound by each of the covenants
and restrictions herein; and Owner agrees that Purchaser will
suffer irreparable injury in the event of a breach by Owner, and
Owner agrees that Purchaser is entitled to injunctive relief in
the event of any breach of any covenant or restriction contained
herein in addition to all other remedies provided by law or
equity. Owner hereby acknowledges that each and every one of said
covenants and restrictions is reasonable with respect to the
subject matter, the line of business, the length of time and
geographic area embraced therein, and agrees that irrespective of
when or in what manner this agreement may be terminated, said
covenants and restrictions shall be operative during the full
period or periods hereinbefore mentioned and throughout the area
hereinbefore described.
The parties acknowledge that this Agreement, which Agreement
is ancillary to the main thrust of the Asset Purchase Agreement,
is being entered into to protect a legitimate business interest of
Purchaser including, but not limited to, (i) trade secrets; (ii)
valuable confidential business or professional information that
otherwise does not qualify as trade secrets; (iii) substantial
E-16
<PAGE>
relationships with specific prospective or existing customers or
clients; (iv) client or customer good will associated with an
ongoing business by way of trade name, trademark, service mark, or
trade dress, a specific geographic location, or a specific
marketing or trade area; and (v) extraordinary or specialized
training. In the event that any provision or portion of this Para
graph 1 shall for any reason be held invalid or unenforceable, it
is agreed that the same shall not affect the validity or
enforceability of any other provision of Paragraph 1 of this
Agreement, but the remaining provisions of Paragraph 1 of this
Agreement shall continue in force and effect; and that if such
invalidity or unenforceability is due to the reasonableness of the
line of business, time or geographical area covered by certain
covenants and restrictions contained in Paragraph 1, said
covenants and restrictions shall nevertheless be effective for
such line of business, period of time and for such area as may be
determined by arbitration or by a Court of competent jurisdiction
to be reasonable.
2. The consideration for Owner's covenant not to compete shall
be One Dollar ($1.00) and other valuable consideration, including
consideration paid by the Purchaser to Seller 1 and Seller 2
pursuant to an Asset Purchase Agreement to which Owner is a party
of even date herewith.
3. The terms and conditions of this Agreement shall be binding
upon the Owner and Purchaser, and their successors, heirs and
assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agree
ment on the day and year first above written.
OWNER:
__________________________________
ROBERT L. VERSPRILLE
PURCHASER:
POMEROY COMPUTER RESOURCES, INC.
By:________________________________
EXHIBIT A
STATES IN WHICH PURCHASER
AND/OR ITS SUBSIDIARIES TRANSACT BUSINESS
1. Alabama
2. Florida
3. Indiana
4. Iowa
5. Kentucky
6. North Carolina
7. Ohio
8. South Carolina
9. Tennessee
E-17
<PAGE>
71026
CONSENT FOR USE OF SIMILAR NAME
On the _____ day of _______, 1997, the Board of Directors of
Microcare, Inc., an Indiana corporation, passed the following
resolution:
RESOLVED, that Microcare, Inc. gives its consent to Pomeroy
Computer Resources, Inc., a Delaware corporation, for the use of
the name Microcare, Inc.
MICROCARE, INC.
By:
________________________________
Robert L. Versprille,
President
E-18
<PAGE>
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement") is entered
into effective as of ___________, 1997, among (i) POMEROY
COMPUTER RESOURCES, INC., a Delaware corporation (the
"Borrower"), (ii) MICROCARE COMPUTER SERVICES, INC., an Indiana
corporation, its successors and assigns (the "Subordinated
Creditor") and (iii) STAR BANK, NATIONAL ASSOCIATION, a national
banking association, its successors or assigns (the "Senior Credi
tor").
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 as amended by an Amended and Restated Loan
Agreement dated as of April 30, 1997 (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 Fifteen Million ($15,000,000.00) 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 Fifteen Million
($15,000,000.00) 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 $801,240.00 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:
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.
E-19
<PAGE>
"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 liquida
tion, 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 or actions
customarily taken by unsecured creditors in bankruptcy or
insolvency proceedings to preserve their claims, it being
understood and agreed that any such action may be taken by the
Subordinated Creditor at any time and from time to time after the
date hereof without any limitation or restriction.
"Enforcement Action Notice" has the meaning specified in
Section 3.2(b).
"Event of Default" has, in connection with permitted
payments under Section 2.6 hereof, the meaning specified in the
Senior Loan Agreement and, with respect to Standstill Events as
defined herein and as used in Section 3., has the meaning
specified in the Acquisition Note.
"Extension of Credit" means any loan, letter of credit or
other extension of credit of any kind or character and in the
case of revolving credit facilities, includes lending and
relending up to the maximum amount thereof, the substitution of
term notes for portions of the revolving credit notes and any
Permitted Increase.
"Instrument" means any contract, agreement, indenture,
mortgage or other document or writing (whether a formal agree
ment, letter or otherwise) under which any obligation is
evidenced, assumed or undertaken, or any right to any lien is
granted or perfected.
E-20
<PAGE>
"Payment in Full" and "Paid in Full" mean payment in full in
immediately available funds.
"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 an amount that would cause a violation of
any of the ratios 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.
"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 introduc
tory 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 Fifteen Million Dollars ($15,000,000.00).
(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, indemni
ties, reimbursements and other amounts owing to the Senior
Creditor on Extensions of Credit described in clause (a) of this
definition; and
E-21
<PAGE>
(c) any Permitted Increase.
"Senior Debt Documents" means, collectively, (a) the Senior
Loan Agreement and (b) the Senior Notes (subject always to the
provisions of the defined term "Senior Debt") and each other
Instrument executed in connection with or evidencing, governing,
guaranteeing or securing any indebtedness under any such document
or any Permitted Increase, all as the same may be amended,
modified or supplemented pursuant to the terms thereof in
accordance with the provisions of this Agreement.
"Senior Loans" has the meaning specified in the first
paragraph of the Recitals hereto.
"Senior Loan Agreement" has the meaning specified in the
first paragraph of the Recitals hereto.
"Standstill Event" means the occurrence of any one or more
of the Events of Default under the Acquisition Note.
"Standstill Event Notice" shall mean the date the
Subordinated Creditor shall have provided written notice of such
Standstill Event to the Senior Creditor and Borrower.
"Standstill Period" means, in relation to any Standstill
Event, the period beginning on the date the Standstill Event in
relation to such Standstill Period shall have occurred and ending
on the date determined pursuant to Section 3.1(a).
"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.
"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 obliga
tions 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 obliga
tions 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
E-22
<PAGE>
effect on the date hereof), have the meanings given to such terms
in the Senior Loan Agreement (as in effect on the date hereof).
SECTION 1.3. U.C.C. Definitions. Unless otherwise defined
herein or the context otherwise requires, terms for which
meanings are provided in the U.C.C. are used in this Agreement,
including the introductory paragraph and Recitals hereto, with
such meanings.
SECTION 1.4. General Provisions Relating to Definitions.
Terms for which meanings are defined in this Agreement shall
apply equally to the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms.
The term "including" means including, without limiting the
generality of any description preceding such term. Except as
otherwise expressly provided herein, each reference herein to any
Person shall include a reference to such Person's successors in
title and assigns or (as 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 Subordi
nated 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 Distribu
tions 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 and
E-23
<PAGE>
immediately available funds of all Senior Debt, the Subordinated
Creditor shall be immediately subrogated to the rights of the
Senior Creditor (to the extent of the payments and distributions
previously made to the Senior Creditor pursuant to the provisions
of this Article 2) to receive payments and distributions of
property of the Borrower applicable to Senior Debt until all
amounts owing on Subordinated Debt shall be paid in full. No
payments or distributions applicable to Senior Debt which the
Subordinated Creditor shall receive by reason of its being
subrogated to the rights of the Senior Creditor pursuant to the
provisions of this Section 2.4 shall, as between the Borrower and
its creditors, other than the Senior Creditor and the
Subordinated Creditor, be deemed to be a payment by the Borrower
to or for the account of Subordinated Debt; and, for the purposes
of such subrogation, no payments or distributions to the Senior
Creditor of any property to which the Subordinated Creditor would
be entitled except for the provisions of this Agreement, and no
payment pursuant to provisions of this Agreement to the Senior
Creditor by the Subordinated Creditor, shall, as between the
Borrower and its creditors, if any, other than the Senior
Creditor and the Subordinated Creditor, be deemed to be a payment
by the Borrower to or for the account of Senior Debt, it being
understood that the provisions of this Agreement are intended
solely for the purpose of defining the relative rights of the
Subordinated Creditor, on the one hand, and the Senior Creditor,
on the other hand, and nothing contained in this Section 2.4 or
elsewhere in this Agreement is intended to or shall impair, as
between the Borrower and the Subordinated Creditor, the obliga
tion 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 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 prepay
ment (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, however, that if no Event of
Default (or event which would become and Event of Default with
notice or the passage of time) exists 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 Creditor is not
permitted to receive and retain pursuant to this Agreement, such
payment shall be held in trust by the Subordinated Creditor for
E-24
<PAGE>
the benefit of, and shall be paid over promptly on demand to the
Senior Creditor or its successors and assigns, as their respec
tive interests may appear, for application to the payment of all
Senior Debt remaining unpaid until the same shall have been paid
in full in immediately available funds, 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 after 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 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) July 24, 2000.
(b) At any time during a Standstill Period, Borrower or
Senior Creditor may cause any Event of Default under the
Acquisition Debt to be cured and, in such event, the Subordinated
Creditor shall not have any right to accelerate the principal
payment of the Acquisition Debt as relates to such Event of
Default that was cured.
E-25
<PAGE>
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; provided, however, the Subordinated Creditor shall give
Senior Creditor notice of any action it takes which is action
customarily taken by unsecured creditors in Bankruptcy or
Insolvency proceedings to preserve their claim concurrently with
or as soon as practical after such action is taken.
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 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
E-26
<PAGE>
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.
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 or
acceleration of the Senior Notes 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:
Microcare Computer Services, Inc.
Attention: Robert L. Versprille
3144 N. Shadeland Avenue
Indianapolis, IN 46226
or at such other address as may be provided by the Subordinated
Creditor to the Senior Creditor; and
With a copy to:
David Millard, Esq.
Leagre Chandler & Millard
9011 Keystone Crossing #800
P.O. Box 40609
Indianapolis, Indiana 46240
E-27
<PAGE>
Notwithstanding the agreement of Senior Creditor to deliver
notices pursuant to the terms above, Subordinated Creditor and
Borrower hereby acknowledge that the failure to delivery any such
notice shall not (i) affect or be deemed to be a waiver by Senior
Creditor of any of the rights or remedies of Senior Creditor
under this Agreement or (ii) create any liability on behalf of
Senior Creditor with respect to such failure to Subordinated
Creditor.
SECTION 5.2. Representations and Warranty of the Borrower.
The Borrower hereby represents to the Senior Creditor as follows:
(a) all subordinated debt existing on the date hereof is
Subordinated Debt.
ARTICLE 6
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 it 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
E-28
<PAGE>
and the Subordinated Creditor acknowledge and agree that their
respective obligations hereunder are, and are intended to be, an
inducement and consideration to the Senior Creditor to acquire
and continue to hold, or to continue to hold, the Senior Debt.
The Senior Creditor shall be deemed conclusively to have relied
upon the obligations hereunder of the Borrower and the
Subordinated Creditor in acquiring and continuing to hold, or in
continuing to hold, the Senior Debt. The Senior Creditor is
hereby made an obligee hereunder and may enforce directly the
obligations of the Borrower and the Subordinated Creditor
contained herein. The Senior Creditor, by accepting the
benefits of this Agreement, is bound by the provisions hereof.
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 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 sent by registered or certified mail, return receipt
requested, addressed in accordance with this Section with
postage prepaid shall be deemed given three (3) days after
deposited in a receptacle of the United States mail, and any
notice, if transmitted by facsimile transmission, shall be
deemed given when received.
SECTION 6.9. Entire Agreement. This Agreement constitutes
the entire agreement among the Borrower, the Senior Creditor and
the Subordinated Creditor with respect to the subject matter
hereof and supersedes any prior or contemporaneous agreements,
representations, warranties or understandings, whether oral,
written or implied, as to the subject matter of this Agreement.
SECTION 6.10. CHOICE OF LAW. THIS AGREEMENT HAS BEEN EXECUTED
AND DELIVERED IN THE STATE OF OHIO AND SHALL IN ALL RESPECTS BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS
OF SUCH STATE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
WHOLLY WITHIN SUCH STATE.
E-29
<PAGE>
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.
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.
E-30
<PAGE>
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:______________________________
Title:___________________________
Address: _________________________
_________________________
Fax: _________________________
Attention: _________________________
_________________________
STAR BANK, NATIONAL ASSOCIATION
By:______________________________
Title:___________________________
Address: _________________________
_________________________
Fax: _________________________
Attention: _________________________
_________________________
MICROCARE COMPUTER SERVICES, INC.
By:______________________________
Title: President
Address: _________________________
_________________________
Fax: _________________________
Attention: _________________________
_________________________
STATE OF OHIO )
: SS:
COUNTY OF HAMILTON )
On this ____ day of ______________, 1997, before me personally
appeared _______________________, to me known, who, being by
E-31
<PAGE>
me duly sworn, declared that he is the _______________ of
POMEROY COMPUTER RESOURCES, INC., a signatory of the foregoing
Subordination Agreement; and that, being duly authorized, he
did execute the foregoing Subordination Agreement on behalf of
POMEROY COMPUTER RESOURCES, INC.; and that the foregoing
Subordination Agreement constitutes the free act and deed of
POMEROY COMPUTER RESOURCES, INC.
_________________________________
Notary Public
My Commission Expires:
STATE OF OHIO )
: SS:
COUNTY OF HAMILTON )
On this ____ day of ___________, 1997, before me personally
appeared Robert L. Versprille, to me known, who, being by me
duly sworn, declared that he is the President of MICROCARE
COMPUTER SERVICES, INC., a signatory of the foregoing
Subordination Agreement; and that, being duly authorized,
he did execute the foregoing Subordination Agreement on
behalf of MICROCARE COMPUTER SERVICES, INC., and that the
foregoing Subordination Agreement constitutes the free act
and deed of MICROCARE COMPUTER SERVICES, INC.
________________________________
Notary Public
My Commission Expires:
STATE OF OHIO )
: SS:
COUNTY OF HAMILTON )
On this ____ day of ________________, 1997, before me personally
appeared _______________, to me known, who, being by me duly sworn,
declared that he is the __________ 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.
________________________________
Notary Public
My Commission Expires: __________
E-32
<PAGE>
THE OBLIGATION REPRESENTED BY THIS INSTRUMENT IS SUBJECT TO THE
TERMS OF A SUBORDINATION AGREEMENT DATED JULY 24, 1997 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.
SUBORDINATED PROMISSORY NOTE
$801,240.00
Cincinnati, Ohio
July 24, 1997
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 MICROCARE
COMPUTER SERVICES, INC., an Indiana corporation ("Lender"), the
sum of Eight Hundred One Thousand Two Hundred Forty Dollars
($801,240.00), together with interest on the outstanding principal
balance from the date hereof, at the rate specified below.
2. Interest shall accrue at the rate of the prime rate of Star
Bank, National Association as of the date hereof 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 _____ day
of each successive quarter thereafter. Such interest shall be
paid on actual daily balances of outstanding principal for the
exact number of days such principal remains outstanding and shall
be computed on the basis of a three hundred sixty (360) day year.
Principal shall be paid in three (3) equal annual installments of
Two Hundred Sixty-Seven Thousand Eighty Dollars ($267,080.00)
commencing on the first Anniversary Date of this Note and
continuing on the next two (2) successive Anniversary Dates until
paid in full. If any installment of principal or interest under
this Note is payable on a day other than a Business Day, the
maturity of such installment shall be extended to the next
succeeding Business Day, and interest shall be payable during such
extension of maturity.
3. 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.
4. 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.
5. Upon the occurrence of an Event of Default and at any time
thereafter prior to such Event of Default being cured, the entire
principal amount outstanding under this Note, and accrued interest
thereon irrespective of the maturity date specified herein, 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
E-33
<PAGE>
twelve percent (12%) (the "Default Rate"). 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 at the Default Rate
on all indebtedness evidenced hereby until the Event of Default
shall be cured or otherwise remedied.
6. 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.
7. 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.
8. 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.
9. 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 laws of
the State of Indiana. 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 INDIANA, OR ANY OTHER COURT OF
APPLICABLE JURISDICTION LOCATED IN INDIANAPOLIS, INDIANA.
10. 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.
E-34
<PAGE>
11. The Borrower hereby unconditionally and irrevocably waives
demand, notice of acceptance, presentment for payment, notice of
dishonor, notice of nonpayment, protest, and notice of protest in
connection with the delivery, acceptance, collection and/or
enforcement of this Note.
12. 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.
13. 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.
14. 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.
15. As used herein, the following terms shall have the following
meanings, respectively:
(a) "Anniversary Date" - July 24, 1998 and each July 24th
thereafter.
(b) "Asset Purchase Agreement" - The Asset Purchase
Agreement by, between and among the Borrower, the Lender,
Microcare, Inc., an Indiana corporation, and Robert L. Versprille
dated July 24, 1997.
(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) "Business Day" - Means a day other than a Saturday,
Sunday or legal holiday under the laws of the State of Indiana.
(e) "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 such payment is due; 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.
(iii) Borrower shall (A) have an order for relief
entered with respect to it under the Federal Bankruptcy Code, (B)
make an assignment for the benefit of creditors, (C) apply for,
consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for
it or any substantial part of its property, or (D) institute any
proceeding seeking any order for relief under the Federal
Bankruptcy Code or seeking to adjudicate it a bankrupt or
insolvent, or seeking dissolution, winding up, liquidation,
reorganization, rehabilitation, arrangement, adjustment or
composition of it or its debtors under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or
fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, or (E)
dissolve or suspend operations as presently conducted or
discontinue doing business as a going concern; or
(iv) without the application, approval or consent of
Borrower, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for Borrower or any substantial part
of Borrower's property, or a proceeding described in subsection
(iii) above shall be instituted against Borrower and such
appointment continues undischarged or such proceeding continues
undismissed or unstayed for a period of sixty (60) consecutive
days.
(f) "Senior Debt" - The Debt of the Borrower to Star Bank,
National Association, as set forth in the Subordination Agreement.
WITNESSES: BORROWER
Pomeroy Computer Resources,
Inc.
_____________________________
By:
_____________________________
_____________________________ Its:
_____________________________
E-35
<PAGE>
INVESTOR'S CERTIFICATE
The undersigned, Microcare Computer Services, Inc. ("Investor"),
an Indiana corporation, intends to acquire ____________________
(_______) shares of the common stock, par value $.01 (the
"Securities") of POMEROY COMPUTER RESOURCES, INC., a Delaware
corporation (the "Company") pursuant to the terms and conditions
of an Asset Purchase Agreement entered into between the Company
and Investor dated the ____ day of _____, 1997. The Securities
will be acquired by Investor from the Company upon the closing of
the transactions contemplated by the Asset Purchase Agreement.
In order to induce the Company to close the transactions
contemplated by the Asset Purchase Agreement and to induce the
Company to issue the Securities, Investor hereby certifies to the
Company as follows:
1. Investor's full name and business address are as follows:
Name: Business Address:
Microcare Computer Services, Inc. 3144 N. Shadeland
Avenue
Indianapolis, Indiana 46226
2. Investor is purchasing the Securities in its own name and
for its own account and no other person has any interest in or
right with respect to the Securities, nor has it agreed to give
any person such interest or right in the future.
3. Investor is acquiring the Securities for investment purposes
and not with a view to or for sale in connection with any
distribution of the Securities. It recognizes that the
Securities have not been registered under the Securities Act of
1933, as amended (the "Act"), or qualified under the securities
laws of the State of Indiana or any other state, and that any
disposition of the Securities is subject to restrictions imposed
by federal and state law, and that the certificates representing
the Securities will bear a restrictive legend to that effect.
Investor also recognizes that it cannot transfer or dispose of
the Securities absent registration and qualification or an
available exemption from registration and qualification.
Investor represents that it is familiar with the provisions of
Rule 144 of the Rules and Regulations of the Securities and
Exchange Commission and that it understands that the Securities
are "Restricted Securities" as such term is defined in said Rule
144. The Investor understands that the Indiana Division of
Securities has made no finding or determination relating to the
fairness for investment of the Securities offered by the Company
and that no such recommendation or endorsement will be made.
4. Investor has not seen nor received any advertisement or
general solicitation with respect to the sale of the Securities.
5. The total consideration to be paid by Investor to purchase
the Securities has a value of $____________ and consists of a
portion of the value of the assets of Investor being sold to the
Company in exchange for which the Securities constitute a portion
of the purchase price, all as more fully specified in the Asset
Purchase Agreement.
6. Investor represents by reason of the business and/or
financial experience of its directors, officers and sole
shareholder, or by reason of the business or financial experience
of its professional advisor, who is unaffiliated with and who is
E-36
<PAGE>
not compensated, directly or directly, by the Company or any
affiliate or selling agent of the Company that it is capable of
evaluating the merits and risks of this investment in the shares
of the Company and protecting its own interest in connection with
the investment.
Description of Business Experience of Board of Directors and
Shareholders:
President and sole Shareholder has been in the industry for
12 years from the beginning of the PC era, has acquired a
computer service company and has activily invested in stocks of
public company's for ten years.
_____ Check if a Professional Advisor is used
Name and Address of Professional Advisor:
_____________________________
________________________________________________________________
_________________________________________________________________
Describe business or experience of Professional Advisor:
________________________________________________________________
________________________________________________________________
7. Investor acknowledges that during the course of the
negotiation of the Asset Purchase Agreement, and before
completing the acquisition of the Securities, it has been
provided with financial and other written information about the
Company. Investor, its officers, directors and shareholders have
read the Asset Purchase Agreement, reviewed it with counsel and
been given the opportunity by the Company to obtain any
information and ask any questions concerning the Company, the
Securities and its investment that it or they have felt
necessary, and to the extent that they have availed themselves of
that opportunity, have received satisfactory information and
answers. If Investor has requested any additional information
that the Company possessed or could acquire without unreasonable
effort or expense and that was necessary to verify the accuracy
of the financial and other written information furnished to it
by the Company, that additional information was provided to it
and was satisfactory. In reaching the decision to sell
substantially all of its operating assets and to receive as
partial consideration therefor the Securities, Investor, its
officers, directors and shareholders have carefully evaluated
Investor's financial resources and investment position and the
risks associated with this investment, and Investor acknowledges
that it is able to bear the economic risks of this investment.
By electing to make this investment, Investor realizes that it
may lose its entire investment. Investor fully acknowledges that
its financial condition is such that it is not under any present
necessity or constraint to dispose of the Securities to satisfy
any existing or contemplated debt or undertaking.
8. Investor understands that the Company will instruct its
transfer agent and registrar not to transfer all or any portion
of the Securities to any other person, firm or entity, or to
E-37
<PAGE>
perform any registration unless the transfer is pursuant to a
registration statement which is effective under the Act or an
available exemption from the registration requirements of the
Act. Investor hereby agrees that the following legend shall be
placed on the face or back of all certificates representing the
Securities:
"The shares of stock represented by this
certificate have not been registered under the
Securities Act of 1933, as amended (the "Act"), or
under any applicable state securities laws, and may not
be offered or resold unless registered under the Act,
and any applicable state securities law, or unless, in
the opinion of counsel for the Investor, an exemption
from registration is available, the availability of
which must be established to the satisfaction of the
Company."
9. Investor represents that (a) it is a corporation duly
organized and validly existing under the laws of the State of
Indiana and (b) one hundred percent (100%) of its outstanding
stock is owned by Robert L. Versprille.
IN WITNESS WHEREOF, the undersigned has executed this Investor's
Certificate this ____ day of __________, 1997.
MICROCARE COMPUTER SERVICES, INC.
By:
________________________________
Robert L. Versprille,
President
Taxpayer Identification No.: ____________
E-38
<PAGE>
GENERAL BILL OF SALE AND ASSIGNMENT
KNOW ALL MEN BY THESE PRESENTS:
That Microcare Computer Services, Inc., an Indiana corporation
("Company") for good and valuable consideration received from
Pomeroy Computer Resources, Inc., a Delaware corporation
("Purchaser"), does hereby, in accordance with the terms and
conditions of the Asset Purchase Agreement, dated July 24, 1997
(the "Agreement"), by and between Company, Microcare, Inc., an
Indiana corporation, Robert L. Versprille and Purchaser, sell,
assign, transfer, convey, deliver and confirm to Purchaser, its
successors and assigns, or its nominee, those certain assets of
Company ("Purchased Assets No. 2") described in the Agreement as
the Purchased Assets No. 2, relating to Company's Business, which
Purchased Assets No. 2 shall include without limitation:
The Purchased Assets No. 2 but excluding the Excluded Assets
as defined in the Agreement.
TO HAVE AND TO HOLD to Purchaser, its successors and assigns
forever.
Except as otherwise provided in the Agreement, Company hereby
represents, warrants and covenants that, at and until delivery of
this General Bill of Sale and Assignment, Company has good and
marketable title to the Purchased Assets No. 2, free and clear of
all liens, security interests, encumbrances, leases and charges
whatsoever, other than the Assumed Liabilities, as defined in the
Agreement; that from and after the delivery by Company to
Purchaser of this General Bill of Sale and Assignment, Purchaser
will own the Purchased Assets No. 2 and have good and marketable
title thereto, free and clear of all liens, security interests,
encumbrances, leases and charges whatsoever, other than the
Assumed Liabilities, as defined in the Agreement.
Company, for itself and its successors, further covenants and
agrees that, in the event there are any such Purchased Assets No.
2 covered by this General Bill of Sale and Assignment which
cannot be transferred or assigned by it without the consent of or
notice to a third party and in respect of which any necessary
consent or notice has not at the date of delivery of this General
Bill of Sale and Assignment been given or obtained, the
beneficial interest in and to the asset/contract shall, in any
event, pass hereby to Purchaser, and Company, for itself and its
successors and assigns, covenants and agrees (i) to hold and
hereby declares that it holds such Purchased Assets No. 2 in
trust for and for the benefit of Purchaser, its successors and
assigns; (ii) if requested by Purchaser, Company will use all
reasonable efforts to obtain and secure such consents to transfer
such Purchased Assets No. 2; and (iii) to make or complete such
transfer or transfers as soon as reasonably possible.
Company hereby further covenants that it will, at any time and
from time to time, at the request of Purchaser, execute and
deliver to Purchaser any new or confirmatory instrument and all
other and further instruments necessary or convenient, which
Purchaser may reasonably request, to vest in Purchaser Company's
full right, title and interest in or to any of the Purchased
Assets No. 2, or to enable Purchaser to realize upon or otherwise
to enjoy any such property, assets or rights or to carry into
effect the intent or purpose hereof.
This General Bill of Sale and Assignment, being further
documentation of the transfers, conveyances and assignments
E-39
<PAGE>
provided in the Agreement, does not expand or limit the rights
and obligations provided in said Agreement.
This instrument shall be binding upon, inure to the benefit of
and be enforceable by the Company and Purchaser and their
respective successors and assigns.
Any capitalized terms used, but not defined herein, shall have
the definition set forth in the Agreement.
IN WITNESS WHEREOF, Microcare Computer Services, Inc. has caused
this instrument to be executed by its officer thereunto duly
authorized as of this ____ day of ___________, 1997.
Signed and delivered in MICROCARE COMPUTER SERVICES,
INC.
the presence of an Indiana corporation
_________________________ By:
_______________________________
Robert L. Versprille,
President
_________________________
STATE OF OHIO
COUNTY OF HAMILTON , ss
BE IT REMEMBERED, that on this _____ day of __________,
1997, before me, the undersigned, a Notary Public in and for said
County, personally appeared Robert L. Versprille, who
acknowledged himself to be the President of Microcare Computer
Services, Inc. an Indiana corporation, and that he, as such
President being authorized to do so, executed the foregoing
instrument for the purposes therein contained, by signing the
name of the corporation by himself as President.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed my notarial seal on the day and year last above written.
____________________________________
NOTARY PUBLIC
E-40
<PAGE>
GENERAL BILL OF SALE AND ASSIGNMENT
KNOW ALL MEN BY THESE PRESENTS:
That Microcare, Inc., an Indiana corporation ("Company") for good
and valuable consideration received from Pomeroy Computer
Resources, Inc., a Delaware corporation ("Purchaser"), does
hereby, in accordance with the terms and conditions of the Asset
Purchase Agreement, dated June 24, 1997 (the "Agreement"), by and
between Company, Microcare Computer Services, Inc., an Indiana
corporation, Robert L. Versprille and Purchaser, sell, assign,
transfer, convey, deliver and confirm to Purchaser, its
successors and assigns, or its nominee, those certain assets of
Company ("Purchased Assets No. 1") described in the Agreement as
the Purchased Assets No. 1, relating to Company's Business, which
Purchased Assets No. 1 shall include without limitation:
The Purchased Assets No. 1 but excluding the Excluded Assets
as defined in the Agreement.
TO HAVE AND TO HOLD to Purchaser, its successors and assigns
forever.
Except as otherwise provided in the Agreement, Company hereby
represents, warrants and covenants that, at and until delivery of
this General Bill of Sale and Assignment, Company has good and
marketable title to the Purchased Assets No. 1, free and clear of
all liens, security interests, encumbrances, leases and charges
whatsoever, other than the Assumed Liabilities, as defined in the
Agreement; that from and after the delivery by Company to
Purchaser of this General Bill of Sale and Assignment, Purchaser
will own the Purchased Assets No. 1 and have good and marketable
title thereto, free and clear of all liens, security interests,
encumbrances, leases and charges whatsoever, other than the
Assumed Liabilities, as defined in the Agreement.
Company, for itself and its successors, further covenants and
agrees that, in the event there are any such Purchased Assets No.
1 covered by this General Bill of Sale and Assignment which
cannot be transferred or assigned by it without the consent of or
notice to a third party and in respect of which any necessary
consent or notice has not at the date of delivery of this General
Bill of Sale and Assignment been given or obtained, the
beneficial interest in and to the asset/contract shall, in any
event, pass hereby to Purchaser, and Company, for itself and its
successors and assigns, covenants and agrees (i) to hold and
hereby declares that it holds such Purchased Assets No. 1 in
trust for and for the benefit of Purchaser, its successors and
assigns; (ii) if requested by Purchaser, Company will use all
reasonable efforts to obtain and secure such consents to transfer
such Purchased Assets No. 1; and (iii) to make or complete such
transfer or transfers as soon as reasonably possible.
Company hereby further covenants that it will, at any time and
from time to time, at the request of Purchaser, execute and
deliver to Purchaser any new or confirmatory instrument and all
other and further instruments necessary or convenient, which
Purchaser may reasonably request, to vest in Purchaser Company's
full right, title and interest in or to any of the Purchased
Assets No. 1, or to enable Purchaser to realize upon or otherwise
to enjoy any such property, assets or rights or to carry into
effect the intent or purpose hereof.
This General Bill of Sale and Assignment, being further
documentation of the transfers, conveyances and assignments
E-41
<PAGE>
provided in the Agreement, does not expand or limit the rights
and obligations provided in said Agreement.
This instrument shall be binding upon, inure to the benefit of
and be enforceable by the Company and Purchaser and their
respective successors and assigns.
Any capitalized terms used, but not defined herein, shall have
the definition set forth in the Agreement.
IN WITNESS WHEREOF, Microcare, Inc. has caused this instrument to
be executed by its officer thereunto duly authorized as of this
____ day of ___________, 1997.
Signed and delivered in MICROCARE, INC.
the presence of an Indiana corporation
_________________________ By:
_______________________________
Robert L. Versprille,
President
_________________________
STATE OF OHIO
COUNTY OF HAMILTON , ss
BE IT REMEMBERED, that on this _____ day of __________,
1997, before me, the undersigned, a Notary Public in and for said
County, personally appeared Robert L. Versprille, who
acknowledged himself to be the President of Microcare, Inc. an
Indiana corporation, and that he, as such President being
authorized to do so, executed the foregoing instrument for the
purposes therein contained, by signing the name of the
corporation by himself as President.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed my notarial seal on the day and year last above written.
____________________________________
NOTARY PUBLIC
E-42
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and is
entered into this 24th day of July, 1997, by, between and among
POMEROY COMPUTER RESOURCES, INC., a Delaware corporation, (the
"Purchaser"), MICROCARE, INC., an Indiana corporation ("Seller
No. 1"), MICROCARE COMPUTER SERVICES, INC., an Indiana
corporation ("Seller No. 2"), and ROBERT L. VERSPRILLE (the
"Shareholder").
W I T N E S S E T H :
WHEREAS, Seller No. 1 is a full service provider of a variety of
computer service and support solutions to large and medium size
commercial, governmental and other professional customers
throughout the Indianapolis, Indiana Metropolitan area as well as
the entire state of Indiana; and
WHEREAS, Seller No. 2 provides a variety of computer service and
support solutions to the State of Indiana;
WHEREAS, Shareholder is the owner of 100 shares of the
outstanding stock of Seller No. 1 and 100 shares of the
outstanding stock of Seller No. 2, which stock constitutes 100%
of the outstanding stock of each corporation and Shareholder is
the sole director of Seller No. 1 and Seller No. 2; and
WHEREAS, Purchaser desires to purchase certain of the assets of
Seller No. 1 and of Seller No. 2 used in their operations (the
"Business") and assume certain of the liabilities of Seller No. 1
in connection with the Business, and Seller No. 1 and Seller No.
2 desire to sell certain 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 No. 1, Seller No. 2, Shareholder and of
Purchaser contained in this Agreement, (iii) the agreements of
Seller No. 1 and Seller No. 2 to refrain from competition with
Purchaser for four (4) years from the closing of this transaction
and (iv) the agreement of Shareholder to refrain from competition
for the later of four (4) years from the Closing date or one (1)
year after the termination of Shareholder's employment with
Purchaser pursuant to and in accordance with, the terms of his
Employment Agreement to be executed upon Closing.
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
E-43
<PAGE>
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 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 Seller No. 1 and Seller No. 2 assumed or paid at
Closing by the Purchaser pursuant to Sections 3.1 and 3.2 of this
Agreement.
1.3 Balance Sheets. The "Balance Sheets" are the unaudited
balance sheet of Seller No. 1 and Seller No. 2, respectively, as
of June 30,1997, 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 10:00 a.m.,
E.D.T., July 24, 1997.
1.6 Code. The "Code" is the Internal Revenue Code of 1986, as
amended, 26 U.S.C. 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 No. 1 and Seller No. 2 to Purchaser.
1.9 Encumbrance. An "Encumbrance" is any security interest,
lien, or encumbrance whether imposed by agreement,
understanding, law or otherwise, on any of Purchased Assets No. 1
and/or Purchased Assets No. 2 (as defined herein).
1.10 Excluded Assets. An "Excluded Asset" is any asset set forth
in Section 2.4.
1.11 Financial Statements. The "Financial Statements" are the
unaudited financial statements of Seller No. 1 for the years
ended March 31, 1997 and March 31, 1996 and the unaudited interim
balance sheets of Seller No. 1 and Seller No. 2 as of June 30,
1997, including any and all notes thereto. The "Financial
Statements do not include the Pro Forma Balance Sheet.
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 of Seller No. 1 prepared as described
in Section 4.1(c) and adjusted for Excluded Assets of Seller No.
1 per Section 2.4 and Excluded Liabilities of Seller No. 1 per
Section 3.3 as of July 23, 1997.
1.14 Purchase Price. The "Purchase Price" is the total
consideration paid by Purchaser to Seller No. 1 and Seller No. 2
for Purchased Assets No. 1 and Purchased Assets No. 2 as set
forth in Sections 4.1, 4.2 and 4.4.
1.15 Purchased Assets No. 1. The "Purchased Assets No. 1" are
the assets of Seller No. 1, used in the Business, acquired by the
Purchaser pursuant to the terms of this Agreement.
E-44
<PAGE>
1.16 Purchased Assets No. 2. The "Purchased Assets No. 2" are
the assets of Seller No. 2, used in the Business, acquired by the
Purchaser pursuant to the terms of this Agreement.
1.17 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.
1.18 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 Seller No. 1 and Seller No. 2.
1.19 Actual Knowledge of Seller No. 1 and Seller No. 2. For
purposes of this Agreement, Actual Knowledge of Seller No. 1 and
Seller No. 2 shall be limited to the actual knowledge of the
Shareholder.
1.20 Best Knowledge of Seller No. 1 and Seller No. 2. For
purposes of this Agreement, Best Knowledge of Seller No. 1 and
Seller No. 2 shall be limited to the best knowledge of the
Shareholder.
2.
TERMS
2.1 Agreement.
Seller No. 1 agrees to sell and convey to Purchaser the
Purchased Assets No. 1 as hereinafter set forth in Section 2.2.
Seller No. 2 agrees to sell and convey to Purchaser the Purchased
Assets No. 2 as hereinafter set forth in Section 2.3. Purchaser
agrees to purchase said assets. The agreements of Purchaser and
Seller No. 1 and Seller No. 2 are expressly conditioned upon the
terms, conditions, covenants, representations and warranties as
hereinafter set forth.
2.2 Assets to be Sold by Seller No. 1 and Purchased by
Purchaser.
At the Closing of this Agreement, Purchaser shall purchase
and Seller No. 1 shall sell the following assets of Seller No. 1
used in the Business of Seller No. 1:
(a) Certain inventory of computers, related equipment and
service parts held by Seller No. 1 as set forth on Exhibit A
attached hereto;
(b) Certain vehicles of Seller No. 1 set forth on attached
Exhibit B (excepting the four (4) vehicles to be retained by
Seller No. 1 as set forth in Section 2.4);
(c) Certain fixed assets and equipment of Seller No. 1 as
set forth on attached Exhibit C;
(d) All of Seller No. 1's fixed rate contracts and time and
material contracts with the State of Indiana and other
organizations set forth on attached Exhibit D;
(e) All of Seller No. 1's service contracts which are set
forth on attached Exhibit E;
E-45
<PAGE>
(f) All intangible assets of Seller No. 1 which are used in
the Business of Seller No. 1, including without limitation, all
purchase orders, contracts, rights and agreements, work in
process, customers lists, supplier agreements, patents,
trademarks and service marks (including the goodwill associated
with the marks), computer programs, the right to the use of the
corporate and trade names of or used by Seller No. 1, or
derivative thereof, as all or a part of a corporate or trade name
(excepting the intangible assets to be retained by Seller No. 1
as set forth in Section 2.4);
(g) All distribution contracts and authorizations of Seller
No. 1;
(h) All base artwork, photo materials, plates (if owned by
Seller No. 1), separations and other materials that are used by
Seller No. 1 for printing brochures and promotional materials
including all intellectual property rights therein; and
(i) The assignment of any telephone numbers used in the
Business of Seller No. 1.
2.3 Assets to be Sold by Seller No. 2 and Purchased by
Purchaser.
At the Closing of this Agreement, Purchaser shall purchase
and Seller No. 2 shall sell the following assets of Seller No. 2
used in the Business of Seller No. 2:
(a) Seller No. 2's agreement( whether oral or written) with
the State of Indiana dated the 1st day of July, 1997, set forth
on attached Exhibit F;
(b) All of Seller No. 2's service contracts, if any, which
are set forth on attached Exhibit G;
(c) All intangible assets of Seller No. 2 which are used in
the Business of Seller No. 2, including without limitation, all
purchase orders, contracts, rights and agreements, work in
process, customers lists, supplier agreements, patents and
trademarks and service marks (including the goodwill associated
with the marks) the right to use the corporate and trade name of
or used by Seller No. 2, or derivative thereof, as all or part of
a corporate or trade name (excepting the intangible assets to be
retained by Seller No. 2 as set forth in Section 2.4); and
(d) The assignment of any telephone number used in the
Business of Seller No. 2.
2.4 Excluded Assets.
Seller No. 1 and Seller No. 2 shall not sell and Purchaser
shall not purchase any of the assets of Seller No. 1 and/or
Seller No. 2, except the assets set forth in Sections 2.2 and 2.3
above. Specifically, Seller No.1 and Seller No. 2 are not
selling and Purchaser is not purchasing any of Seller No. 1's or
Seller No. 2's cash or cash equivalents, investment accounts,
accounts receivable, officers life insurance, including its
surrender value, four vehicles, consisting of a 1994 Cadillac, a
1994 Corvette, a 1994 Plymouth Colt Vista, and a 1996 Suburban,
any federal, state or local tax refunds, if any, owed to Seller
No. 1 or Seller No. 2 presently or in the future, any prepaid
items (except as related to the executory contracts being assumed
by Purchaser in Section 3.2), any part of the Purchase Price to
be received by Seller No. 1 and Seller No. 2 for the sale of the
assets, the minute books of Seller No. 1 or Seller No. 2, their
E-46
<PAGE>
tax returns, corporate seals and stock records and any other
assets not specifically set forth in Sections 2.2 and 2.3 above.
In addition, Seller No. 1 and Seller No. 2 will each interim
bill (and shall be entitled to receive and retain payment for),
as of the Closing, or as soon thereafter as is customary with the
billing practices of any partially completed contract, all
partially completed work that Seller No. 1 and Seller No. 2 have
performed on any of its contracts up to the date of Closing. In
addition, to the extent that Seller No. 1 and Seller No. 2 are
unable to interim bill for any partially completed contracts,
Seller No. 1 and Seller No. 2 will each bill Purchaser within
thirty (30) days of the Closing date, for all work that Seller
No. 1 and Seller No. 2 have performed on any such unbilled
partially completed contracts up to the date of Closing. A list
of all such unbilled partially completed work is set forth on
Exhibit H attached hereto. Seller No. 1 and Seller No. 2 will
bill Purchaser for such work at a rate of $20.00 per hour for
labor and at cost for parts incident to such work. Purchaser
covenants and agrees to diligently complete such work and
promptly upon completion undertake reasonable efforts to bill and
collect for such work. Upon collection by Purchaser for such
work, Purchaser covenants and agrees to promptly reimburse Seller
No. 1 and Seller No. 2 for such work according to the billings
received by Purchaser from Seller No. 1 and Seller No. 2 as
provided above. Seller No. 1 and Seller No. 2 shall be solely
responsible for any liability or costs relating to such completed
or partially completed work. In the event that Purchaser incurs
any cost for correcting any defective work performed by Seller
No. 1 or Seller No. 2 prior to the closing date, Seller No. 1 and
Seller No. 2 shall promptly reimburse Purchaser for all costs
that may be incurred by Purchaser to correct such prior work
performed by Seller No. 1 and/or Seller No. 2.
2.5 Instruments of Transfer.
Except as otherwise provided herein, at Closing, Seller No.
1 and Seller No. 2 will deliver, respectively, to 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 and to Purchased Assets No. 1 and Purchased Assets
No. 2, respectively. At or after the Closing, and without
further consideration, Seller No. 1 and Seller No. 2 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 No. 1 and/or
Purchased Assets No. 2 or for aiding and assisting and collecting
and reducing to possession and exercising rights with respect
thereto. Seller No. 1, Seller No. 2 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 reasonably
satisfactory to Purchaser. In addition to the foregoing, Seller
No. 1 and Seller No. 2 will deliver to Purchaser the originals or
copies of all of Seller No. 1's and Seller No. 2's books, records
and other data relating to Purchased Assets No. 1 and Purchased
Assets No. 2, respectively; and simultaneously with such
delivery, Seller No. 1 and Seller No. 2 shall take all such acts
as may be necessary to put Purchaser in actual possession, and
operating control of Purchased Assets No. 1 and Purchased Assets
No. 2. Seller No. 1 and Seller No. 2 shall cooperate with
E-47
<PAGE>
Purchaser to permit Purchaser, if possible, to enjoy Seller No.
1's and Seller No. 2'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 Powers and Rights.
To the extent that any assignment does not result in a
complete transfer of the contracts to Purchaser because of a
provision in any contract against Seller No. 1's or Seller No.
2's assignment of any its right thereunder, Seller No. 1 and
Seller No. 2 shall cooperate with Purchaser in any reasonable
manner proposed by Purchaser to complete the acquisition of the
contracts and Seller No. 1's and Seller No. 2's rights, benefits
and privileges thereunder in order to fulfill and carry out
Seller No. 1's and Seller No. 2's obligations under this
Agreement. Such additional action may include, but is not
limited to: (i) entering into a subcontract between Seller No. 1
and/or Seller No. 2 and Purchaser which allows Purchaser to
perform Seller No. 1's and Seller No. 2's duties under such
contracts and to enforce Seller No. 1's and Seller No. 2's rights
thereunder; (ii) the sale of Seller No. 1's and Seller No. 2's
stock owned by Shareholder to Purchaser on terms to which the
parties may mutually agree to allow Purchaser to operate Seller
No. 1 and Seller No. 2 as wholly-owned subsidiaries to enforce
the contracts; or (iii) entering into a new multi-party agreement
with such customers which allows Purchaser to perform Seller No.
1's and Seller No. 2's obligations and enforce Seller No. 1's and
Seller No. 2's rights under the contracts.
3.
ASSIGNMENT OF LIABILITIES
3.1 Liabilities to be Paid Off at Closing or Assumed.
A. At the Closing, Purchaser shall pay off the debt on
certain vehicles being transferred to it in the approximate
amount of $12,457.48 as of the date hereof and shall assume
Seller No. 1's deferred service contract liability in the
approximate amount of $31,405.00 as of the date hereof.
Purchaser shall secure the release of any personal guarantees
executed by Shareholder relating to the indebtedness securing the
vehicles of Seller No. 1 being purchased by Purchaser.
B. At the Closing, Purchaser shall assume and pay, perform
and discharge when due all of Seller No. 1's employees' accrued
vacation time, which on the date of Closing is $13,357.38.
3.2 Executory Contracts.
At the Closing, Purchaser shall assume and pay, perform and
discharge when due the following:
(a) All the obligations and liabilities of Seller No. 1 and
Seller No. 2 arising after the Closing under the contracts
described in Sections 2.2 and 2.3; and
(b) Seller No. 1's obligations and liabilities under
executory contracts arising after the Closing relating to Seller
No. 1's Yellow Pages advertisements (projected to cost Twelve
Thousand Six Hundred Eighteen Dollars ($12,618.00) for the period
August, 1997 through July, 1998) and Centrix agreements.
(c) All product warranty liabilities and obligations of
Seller No. 1 arising after Closing with respect to products
assembled, manufactured, distributed or sold on or prior to the
Closing Date up to a maximum aggregate liability of $2,000.00.
E-48
<PAGE>
(d) All future liabilities for merchandise in transit
F.O.B. shipping point which has not been received and/or entered
into inventory by Seller No. 1 or Seller No. 2 as of the Closing
and for which no bill has been posted by Seller No. 1 or Seller
No. 2 as of the Closing.
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 No. 1 and/or Seller No. 2 except the
Assumed Liabilities. Without limiting the generality of the
foregoing, the following are included among the Liabilities of
Seller No. 1 and Seller No. 2 which Purchaser shall not assume or
become responsible for (unless specifically included as Assumed
Liabilities):
(a) all of the trade accounts payable, accrued expenses and
capital leases of Seller No. 1 and/or Seller No. 2;
(b) any indebtedness relating to the vehicles being
retained by Seller No. 1 as set forth in Section 2.4.
(c) all Liabilities for any Taxes whether deferred or which
have accrued or may accrue or become due and payable by Seller
No. 1 and/or Seller No. 2 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
Purchased Asset No. 1 and Purchased Assets No. 2 to Purchaser;
(d) all Liabilities and obligations to directors, officers,
employees or agents of Seller No. 1 and Seller No. 2, including,
without limitation, all Liabilities and obligations for wages,
salary, bonuses, commissions, vacation (except to the extent
Purchaser agrees to assume such item as set forth in Section
3.1(B)) 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, on or after the Closing Date;
(e) 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 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 of Seller No. 1's and/or Seller No.
2's employees, prior to, on or after the Closing Date;
(f) all Liabilities of Seller No. 1 and/or Seller No. 2 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;
(g) all Liabilities and obligations of Seller No. 1 and/or
Seller No. 2 arising under or by virtue of federal or state
environmental laws 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 prior to, on or after the Closing Date;
(h) all Liabilities of Seller No. 1 and/or Seller No. 2,
E-49
<PAGE>
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 the Closing
Date;
(i) all Liabilities based on any theory of liability or
product warranty (except to the extent assumed in Section 3.2(c))
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;
(j) all attorneys' fees, accountants or auditors' fees, and
other costs and expenses incurred by Seller No. 1, Seller No. 2
and/or Shareholder in connection with the negotiation,
preparation and performance of this Agreement or any of the
transactions contemplated hereby;
(k) all Liabilities of Seller No. 1 and/or Seller No. 2 in
connection with the Excluded Assets;
(l) any Liabilities of Seller No. 1 and/or Seller No. 2
with respect to any options, warrants, agreements or convertible
or other rights to acquire shares of its capital stock of any
class; and
(m) 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 Purchased Assets No. 1
and/or Purchased Assets No. 2 on or prior to the Closing Date or
the conduct of the Business of Seller No. 1 and/or Seller No. 2
prior to the Closing Date, except only for the liabilities and
obligations to be assumed or paid, performed or discharged by
Purchaser constituting the Assumed Liabilities.
Seller No. 1 and Seller No. 2 shall pay all of their
respective liabilities not being assumed hereunder by Purchaser
within the customary time for payment of such liabilities.
It is the intent of the parties that upon Closing, all
employees of Seller No. 1 and Seller No. 2 will be terminated by
such parties and Purchaser will extend offers of employment to
such individuals and use its best efforts to offer employment
agreements to such employees within sixty (60) days of Closing
upon such terms and conditions as shall be mutually agreed upon
by Purchaser and Shareholder.
4.
CONSIDERATION FOR
PURCHASED ASSETS NO. 1 AND PURCHASED ASSETS NO. 2
4.1 Purchase Price for Purchased Assets No. 1.
Subject to the other terms of this Agreement, the Purchase
Price for Purchased Assets No. 1 shall be the sum of:
(a) Five Hundred Thirty-Six Thousand Six Hundred Dollars
($536,600); and
(b) The liabilities assumed or paid off at Closing under
Section 3.1 relating to the debt on certain vehicles which
currently equals Twelve Thousand Four Hundred Fifty-Seven and
48/100 Dollars ($12,457.48) and as shall be adjusted to the date
E-50
<PAGE>
of Closing relating to the debt on certain vehicles and the
deferred service contract liability which currently equals Thirty-
one Thousand Four Hundred Five Dollars ($31,405.00) and as shall
be adjusted to the date of Closing.
(c) Seller No. 1's accrued vacation time in the amount of
Thirteen Thousand Three Hundred Fifty-seven Thousand and 38/100
Dollars (13,357.38).
The sum of the items contained in Sections 4.1(a) and 4.1(b)
above shall be either adjusted upward or downward by the amount
determined under Section 4.1(c).
(c) Prior to the closing, Seller No. 1 shall prepare and
deliver to Purchaser a Pro Forma Balance Sheet which shall set
forth the purchased assets consisting of the inventory and
service parts valued at cost and the net book value of the fixed
assets, vehicles and equipment being purchased from Seller No. 1
less the assumed liabilities relating to the debt on the
vehicles, the deferred service contract liability and the accrued
vacation liability being assumed by Purchaser. The Pro Forma
Balance Sheet shall be prepared using the same accounting
methods, policies, practices and procedures with consistent
classifications, judgments and estimation methodology as used in
the preparation of the December 31, 1996 balance sheet.
If the net asset amount (as defined below) shown on the
Pro Forma Balance sheet is less than Two Hundred Thirty-Five
Thousand Six Hundred Dollars ($235,600.00), the Purchase Price to
be paid to Seller No. 1 shall be decreased on a dollar-for-dollar
basis for such difference. Any such reduction shall be offset
against the cash portion of the Purchase Price as set forth
above, provided, Seller No. 1 shall have the right to transfer
accounts receivable, the collectibility of which shall be
guaranteed by Seller No. 1, in lieu thereof. If the net asset
amount shown on the Pro Forma Balance Sheet equals or exceeds Two
Hundred Thirty-Five Thousand Six Hundred Dollars ($235,600.00),
the Purchase Price shall be increased on a dollar-for-dollar
basis for such difference and Purchaser shall have the option of
paying additional cash to Seller No. 1 or assuming a set amount
of accounts payable of Seller No. 1.
The net asset amount shall mean the sum of the
inventory and service parts acquired hereunder valued at their
cost and the net book value of the fixed assets, vehicles and
equipment acquired by Purchaser from Seller No. 1 less the
assumed liabilities relating to the debt on the vehicles, the
deferred service contract liability, and the accrued vacation
liability being assumed by Purchaser in each case as shown on the
Pro Forma Balance Sheet.
4.2 Purchase Price for Purchased Assets No. 2.
Subject to the other terms of this Agreement, the Purchased
Price for Purchased Assets No. 2 shall be One Million Six Hundred
Fifty-Nine Thousand Eight Hundred Dollars ($1,659,800.00) plus
any additional amount, if any, that may be paid pursuant to
Section 4.4.
4.3 Payment of the Purchase Price for Purchased Assets No. 1 and
Purchased Assets No. 2.
Subject to the conditions, covenants, representations and
warranties hereof, at Closing, Purchaser shall deliver:
(a) By certified or bank cashier's check or by wire
E-51
<PAGE>
transfer to Seller No. 1's bank account, the amount of Five
Hundred Thirty-Six Thousand Six Hundred Dollars ($536,600.00) as
either adjusted upward or downward as determined under Section
4.1(c) hereof;
(b) The assumption or payment of the liabilities of Seller
No. 1 assumed by Purchaser pursuant to Section 3.1;
(c) By certified or bank cashier's check or by wire
transfer to Seller No. 2's bank account, the amount of Five
Hundred Thirty-Six Thousand Six Hundred Dollars ($536,600.00);
(d) The sum of Three Hundred Twenty-One Thousand Nine
Hundred Sixty Dollars ($321,960.00) 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 No. 2 under this Section
shall be determined by dividing $321,960.00 by the average of the
closing price for Purchaser's stock on the over-the-counter
market for the twenty (20) previous business days preceding the
closing date. Incident to the issuance of such shares, Seller
No. 2 shall execute such documentation containing such
representations concerning the holding of Purchaser's shares,
including that Seller No. 2 is able to bear the economic risk of
holding the shares to be 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. The form of the documentation to be executed by
Seller No. 2 incident to the issuance of these shares is attached
hereto as Exhibit I. In the event the base period price of the
Purchaser's common stock is greater than $27.00 per share or is
less than $17.00 per share, the parties agree to engage in good
faith negotiations to renegotiate the economics of this aspect of
the transaction on the Closing Date.
(e) The remaining sum of Eight Hundred One Thousand Two
Hundred Forty Dollars ($801,240.00) shall be payable pursuant to
the terms of Purchaser's promissory note. The note shall bear
interest at the prime rate of Star Bank, N.A. as of the date of
closing. The principal of the 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 successive
annual anniversary dates. Interest on the unpaid principal
balance of the note shall be paid quarterly. Such note and all
obligations of Purchaser thereunder will be subordinated and made
junior in right of payment to the extent and in the manner
provided in a Subordination Agreement to be executed between Star
Bank, N.A. and Purchaser and Seller No. 2. A copy of said note
is attached hereto as Exhibit J. Such note shall be subordinate
to Purchaser's lender pursuant to the terms of a Subordination
Agreement in the form attached hereto as Exhibit K.
4.3 Allocation of Purchase Price.
The Purchase Price to be paid to Seller No. 1 and Seller No.
2 hereunder, including the liabilities assumed or paid by
Purchaser pursuant to Section 3.1, shall be allocated as set
forth on Exhibit L attached hereto. Seller No. 1, Seller No. 2,
Shareholder 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.
E-52
<PAGE>
4.4 Potential Adjustment to Purchase Price.
If the earnings before interest and taxes ("EBIT") of the
Purchaser's Indiana Division during July 24, 1997 through January
5, 1998, during the fiscal years 1998 or 1999 or during the first
seven months twenty-three days of the year 2000 exceed Five
Hundred Thirty-six Thousand Six Hundred Dollars ($536,600.00)
("EBIT Threshold") (prorated to $235,221.92 in 1997 and
$301,378.08 in 2000 based on the date of Closing), Purchaser
shall pay Seller No. 2 cash, by bank check or wiring within
ninety (90) days following the end of the fiscal year, except for
the period ending July 23, 2000, which such payment shall be made
within sixty (60) days of the expiration of such period, an
amount equal to fifty percent (50%) of the EBIT of Purchaser's
Indiana Division in excess of the EBIT Threshold for the
applicable year or portion thereof, subject to a cumulative
limitation of One Million Five Hundred Thousand Dollars
($1,500,000.00) during such aggregate period. Such cash payment
by the Purchaser shall be additional Purchase Price which will be
added to the good will allocation of the Purchase Price. For the
year 1997, in making the determination of EBIT for the
Purchaser's Indiana Division, a 1.5% MAS royalty fee on gross
sales by the Purchaser's Indiana Division shall be made incident
to said determination. A MAS royalty fee is a fee charged to
each branch of the Purchaser for the following services performed
by the Purchaser's corporate headquarters: marketing,
advertising, professional, accounting and other related expenses.
For each subsequent year described above in this paragraph for
which the Purchaser may be required to pay additional Purchase
Price, the parties shall, in good faith, agree upon a MAS royalty
fee to be charged hereunder based on the level of services and
support being provided by the Purchaser to its Indiana Division.
Provided, however, such MAS royalty fee shall be 1.5% if the
parties are unable to come to an agreement for each subsequent
year. For purposes of this Section, the term "Indiana Division"
shall include, but not be limited to, the business acquired from
Seller No. 1 and Seller 2 together with the business conducted in
Indiana by the Purchaser on the date of the Closing. The
Purchaser agrees to conduct the business of the Indiana Division
in the ordinary course generally consistent with past practice.
For purposes of this Section, the term "EBIT" shall mean the
net income before taxes and before interest expense of the
Purchaser's Indiana Division (and before amortization or other
deduction of the payments to be made pursuant to this Section
4.4) during the applicable period. The EBIT shall be determined
by the independent accountant regularly retained by the Purchaser
in the manner set forth above in accordance with generally
accepted accounting principles, subject to verification as
described below. For purposes of determining the EBIT for any
particular year, except as noted above, no item of income or
expense will be allocated by the Purchaser to Purchaser's Indiana
Division unless such items are reasonably calculated to
contribute to the increase profits of such Indiana Division, it
being the intent of the parties that the Purchaser shall exercise
the utmost good faith with respect to allocations of income and
expense to Purchaser's Indiana Division. Incident to the
determination of EBIT of Purchaser's Indiana Division, no
compensation of any executive or other employee of Purchaser or
its affiliates who do not work directly for Purchaser's Indiana
Division shall be allocated to such division. Any payment made
to Seller No. 2 pursuant to this Section 4.4 shall not be charged
against the EBIT for any year.
Within forty-five (45) days after the end of each calendar
year or period described herein, Purchaser will deliver to Seller
E-53
<PAGE>
No. 2 a copy of the report of EBIT prepared by Purchaser's
certified public accountants for the subject period along with
any supporting documentation reasonably requested by Seller No.
2. Within thirty (30) days following delivery to Seller No. 2 of
such report, Seller No. 2 shall have the right to object in
writing to the results contained in such determination. If
timely objection is not made by the Seller No. 2 to such
determination, such determination shall become final and binding
for purposes of this Agreement. If timely objection is made by
Seller No. 2 to Purchaser and Seller No. 2 and Purchaser are able
to resolve their differences in writing within thirty (30) days
following the expiration of the thirty-day (30-day) period, then
such determination shall become final and binding as it regards
to this Agreement. If timely objection is made by Seller No. 2
to Purchaser and Seller No. 2 and Purchaser are unable to resolve
their differences in writing within thirty (30) days following
the expiration of the thirty-day (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
No. 2. If Purchaser and Seller No. 2 are unable to agree
promptly on an accounting firm to serve as the Arbitrator, each
shall select by no later than the 30th day following the
expiration of the sixty-day (60-day) period, an accounting firm,
and the two selected accounting firms shall be instructed to
select promptly another accounting firm, such newly selected firm
to serve as the Arbitrator. The Arbitrator shall consider only
the disputed matters pertaining to the determination and shall
act promptly to resolve all disputed matters, and its decision
with respect to all disputed matters shall be final and binding
upon Seller No. 2 and Purchaser. Expenses of the Arbitration
(including reasonable attorney and accounting fees) shall be
borne equally by Seller No. 2 and Purchaser, unless the
Arbitrator determines that the determination of EBIT is greater
by Fifty Thousand Dollars ($50,000.00) or more than the
determination made by Purchaser's accounting firm, in which case
the expense of the arbitration (including reasonable attorney and
accounting fees) shall be borne by the Purchaser.
4.5 Certain Closing Expenses.
Seller No. 1 and Seller No. 2 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 by Seller No. 1 and Seller No. 2 upon
and in connection with the conveyance and transfer of Purchased
Assets No. 1 and Purchased Assets No. 2 by Seller No. 1 and
Seller No. 2, respectively, to Purchaser.
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 M.
6.
REPRESENTATIONS AND WARRANTIES OF SELLER NO. 1,
SELLER NO. 2 AND THE SHAREHOLDER
Except as set forth in the Disclosure Schedule attached
hereto, Seller No. 1, Seller No. 2 and Shareholder, jointly and
severally, represent and warrant to Purchaser that the following
E-54
<PAGE>
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 No. 1 and Seller No. 2.
Seller No. 1 and Seller No. 2 are corporations duly
organized and validly existing under the laws of the State of
Indiana and have the corporate power and authority to own, lease
and operate Purchased Assets No. 1 and Purchased Assets No. 2,
respectively, and to conduct the Businesses currently being
conducted by them. Seller No. 1 and Seller No. 2 have no
subsidiaries. The Disclosure Schedule correctly lists with
respect to Seller No. 1 and Seller No. 2, each jurisdiction in
which it is qualified to do business as a foreign corporation.
6.2 Capitalization.
The authorized capitalization of Seller No. 1 and Seller No.
2 consists of 1,000 and 1,000 shares of no par common stock, of
which 100 shares of each corporation representing one hundred
percent (100%) of the issued stock are currently owned by
Shareholder and are fully paid and nonassessable and have not
been issued in violation of the preemptive rights of any person.
Neither Seller No. 1 nor Seller No. 2 is obligated to issue or
acquire any of its respective securities, nor has either
corporation granted options or any similar rights with respect to
any of its securities.
6.3 Authority to Make Agreement.
Except as otherwise provided herein, Seller No. 1, Seller
No. 2 and Shareholder have the full power and authority to enter
into, execute, deliver and perform their respective obligations
under this Agreement and each of the other agreements and
instruments to be executed and delivered incident hereto ("Other
Seller Documents"). This Agreement and the Other Seller
Documents have been duly and validly executed and delivered by
Seller No. 1, Seller No. 2 and Shareholder, as applicable, 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 No. 1 and Seller No. 2 have taken all
necessary action (including action of their respective Boards 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) Except as otherwise provided herein, the execution,
delivery and performance of this Agreement and the Other Seller
Documents by Seller No. 1 and Seller No. 2, the sale, transfer,
conveyance, assignment and delivery of Purchased Assets No. 1 and
Purchased Assets No. 2 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 No. 1,
Seller No. 2, Shareholder, Purchased Assets No. 1 or Purchased
Assets No. 2; (ii) (except for Seller No. 1's and/or Seller No.
2's secured creditors, which consent(s) shall be obtained prior
to Closing and except for the Government Contracts (as herein
defined)) will not conflict with, or result in the breach or
termination of any provision of, or constitute a default under
E-55
<PAGE>
(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 No. 1 or Seller No. 2 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 No. 1 or Seller No.
2 or the Shareholder is a party or by which Seller No. 1 or
Seller No. 2 or the Shareholder or any of their assets and
properties are bound (including, without limitation, Purchased
Assets No. 1 and/or Purchased Assets No. 2), and (iii) will not
result in the creation of any encumbrance upon any of the
properties, assets, or Business of Seller No. 1 or Seller No. 2
or of the Shareholder . Neither Seller No. 1, Seller No. 2, or
the Shareholder, nor any of their assets or properties
(including, without limitation, Purchased Assets No. 1 and/or
Purchased Assets No. 2) 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 No. 1 or Seller No. 2 or the Shareholder from entering
into this Agreement or any of the Other Seller Documents or from
(except for the Government Contracts) consummating the
transactions contemplated thereby.
(b) Except for the Government Contracts, neither Seller No.
1, Seller No. 2 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 Purchased Assets No. 1
and/or Purchased Assets No. 2 in accordance with present
practices of Seller No. 1 and/or Seller No. 2 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) Except for the Government Contracts, no approval,
authority or consent of, or filing by Seller No. 1 or Seller No.
2 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 No. 1
or Seller No. 2 or the Shareholder, the sale, transfer,
conveyance, assignment and delivery of Purchased Assets No. 1 and
Purchased Assets No. 2 to Purchaser, or the consummation of the
other transactions contemplated thereby, or to continue the use
and operation of Purchased Assets No. 1 and Purchased Assets No.
2 by Purchaser after the Closing Date.
(d) Purchaser acknowledges that consents from the State of
Indiana and various agencies of the State of Indiana
(collectively, the State of Indiana and such agencies thereof may
be referred to herein as the "State of Indiana") under contracts
between the State of Indiana and Seller No. 1 and Seller No. 2
(collectively, the "Government Contracts") to the transfer and
assignment of the Government Contracts to the Purchaser may be
required by the Government Contracts, but that no such consents
will be solicited or obtained prior to Closing. Notwithstanding
anything expressed or implied to the contrary in this Agreement,
the failure of Seller No. 1, Seller No. 2 or Shareholder to
secure the consent from the State of Indiana to the transfer and
assignment to the Purchaser of any Government Contract or the
fact that such consent may be required under such Government
Contract shall not be deemed to be and shall not constitute a
E-56
<PAGE>
breach of or inaccuracy in any representation, warranty or
covenant made by Seller No. 1, Seller No. 2 or Shareholder under
this Agreement. Notwithstanding the foregoing sentence, Seller
No. 1, Seller No. 2 and Shareholder shall execute and deliver to
Purchaser such reasonable and appropriate 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 the Government Contracts or for aiding and
assisting in collecting and reducing to possession and exercising
rights with respect thereto. Seller No. 1, Seller No. 2 and
Shareholder agree to use their best efforts after the Closing to
obtain and deliver to Purchaser such consents, approvals,
assurances and statements from the State of Indiana as Purchaser
may reasonably require in a form reasonably satisfactory to
Purchaser.
6.5 Financial Statements.
Copies of the Financial Statements are attached to the
Disclosure Schedule. Each of the Financial Statements were
prepared in accordance with generally accepted accounting
principles 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 condition
of Seller No. 1 and Seller No. 2 as of the respective dates
thereof and the results of its operation and changes in financial
position for the respective periods then ended; provided however,
that (a) the Financial Statements lack footnotes and other
presentation items, (b) all interim financial statements are
subject to normal year-end adjustments (which will not
individually or in the aggregate be material) and (c) any service
contract representing less than Five Thousand Dollars
($5,000.00) on an annual basis has been taken into income and has
not been accrued for as an accrued service contract liability or
otherwise. Seller No. 1 and Seller No. 2 represent that the
total of service contracts for which an accrued service contract
liability has not been accrued does not exceed an average of
$25,000.00 per month in the aggregate.
6.6 Customers.
The Disclosure Schedule includes a correct list of the
twenty-five (25) largest customers of Seller No. 1 and Seller No.
2 by sales in dollars for the past year and the amount of
business done by Seller No. 1 and Seller No. 2 with each such
customer for such year. Assuming that Purchaser continues to
conduct the Business in the ordinary course consistent with
Seller No. 1's and Seller No. 2's prior practices generally and
specifically with respect to Seller No. 1's and Seller No. 2's
current customers, Shareholder has no actual knowledge that any
of the current customers of Seller No. 1 or Seller No. 2 will or
intend to (a) cease doing business with Seller No. 1 or Seller
No. 2; or (b) materially alter the amount of business they are
presently doing with Seller No. 1 or Seller No. 2; or (c) not do
business with the Purchaser after the Closing.
6.7 Intangible Property.
The Disclosure Schedule includes an accurate list and
summary description of all patents, franchises, distributorships,
registered copyrights, 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 otherwise) by Seller No. 1 and
Seller No. 2. Neither Seller No. 1 nor Seller No. 2 is a
licensor in respect to any patents, trade secrets, inventions,
E-57
<PAGE>
shop rights, know-how, trademarks, trade names, copyrights, or
applications therefor. All of the above-mentioned intangibles
used in Seller No. 1's or Seller No. 2's Business are the sole
property of such party, 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.
6.8 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 either Seller
No. 1 or Seller No. 2 is a party or is bound:
(a) Providing for payments of more than Ten Thousand
($10,000.00) per year;
(b) Limiting the ability of Seller No. 1 or Seller No. 2 to
conduct its Business or any other business or to otherwise
compete in its or any other business, including as to manner or
place;
(c) With any Affiliate of Seller No. 1 or Seller No. 2;
(d) With any labor union or employees' association
connected with the Business of Seller No. 1 or Seller No. 2;
(e) Which are leases or subleases with respect to any
property, real, personal or mixed, in which Seller No. 1 or
Seller No. 2 is involved, as lessor or lessee; and
(f) Any employment agreement with any employee which does
not provide for termination at will by Seller No. 1 or Seller No.
2 without further costs or other liability to Seller No. 1 or
Seller No. 2 as of or at any time after the Closing.
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 Seller No. 1 and Seller No. 2 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 Seller No. 1 or
Seller No. 2, or would cause the acceleration of any obligation
of any party thereto or the creation of an Encumbrance upon any
asset of Seller No. 1 or Seller No. 2. There are no material
oral contracts, agreements or understandings made by the
Shareholder, whether or not binding, material to Seller No. 1 or
Seller No. 2, except such as have been disclosed in the
Disclosure Schedule and for which an accurate summary description
has been provided.
6.9 Inventory.
Exhibit A contains a copy of Seller No. 1's inventory as of
July 23, 1997. No item included in the Inventory of Seller No. 1
is held by Seller No. 1 on consignment from others.
6.10 Taxes.
Except as to taxes not yet due and payable, and except for
E-58
<PAGE>
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 No. 1 and Seller No. 2 have 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.
6.11 Title to Purchased Assets No. 1 and Purchased Assets No. 2.
Except as otherwise provided herein, with respect to all
Purchased Assets No. 1 and Purchased Assets No. 2 sold, at the
Closing, Seller No. 1 and Seller No. 2 shall have good and
marketable title to the respective Purchased Assets No. 1 and
Purchased Assets No. 2 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 No. 1 and Purchased Assets No. 2 being acquired
by Purchaser from Seller No. 1 and Seller No. 2, Purchaser will
own all of said Purchased Assets No. 1 and Purchased Assets No. 2
free and clear of all leases, liens and encumbrances and charges
whatsoever, whether perfected or unperfected, other than the
Assumed Liabilities.
6.12 Pending Actions.
Neither Seller No. 1 nor Seller No. 2 have been served with
or received notice of any actions, suits, arbitrations, IOSHA,
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 No. 1's and Seller No. 2's knowledge, there
are no Actions or Disputes pending or threatened against or
affecting (directly or indirectly) Seller No. 1 or Seller No. 2
or their property or assets.
6.13 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 Seller No. 1 or Seller No. 1. All such policies
are in full force and effect; are sufficient for compliance with
all requirements of law and of all agreements to which Seller No.
1 or Seller No. 2 is a party; are valid, outstanding and
enforceable policies; provide adequate insurance coverage for the
assets and operations of Seller No. 1 and Seller No. 2 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 Seller No. 1 and Seller No. 2 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 Seller No. 1 or Seller No. 2 or
requiring or recommending any equipment or facilities to be
installed on or in connection with any of the properties or
assets of Seller No. 1 or Seller No. 2.
6.14 Status of Business.
(a) Since March 31, 1997, the Business of Seller No. 1 and
E-59
<PAGE>
Seller No. 2 has been operated only in the ordinary course and,
except as set forth in the Disclosure Schedule, 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;
(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 No. 1 or Seller No. 2 or material claims
known by Seller No. 1 or Seller No. 2 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 No. 1 or Seller No. 2 which
materially adversely affects the Business or any of the
properties of Seller No. 1 or Seller No. 2 (whether or not
covered by insurance);
(vii) Any material changes in the accounting practices,
depreciation or amortization policy or rates theretofore adopted
by Seller No. 1 or Seller No. 2, 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 Seller No. 1 or Seller No. 2 of
its respective 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 Seller
No. 1's or Seller No. 2'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 Seller No. 1 or Seller No. 2, any payments made or
declared into any profit-sharing, pension, or other retirement
plan for the benefit of employees of Seller No. 1 or Seller No.
2, except in the ordinary course of business;
(x) Any material contract canceled 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;
(xi) Any transfer or grant of any material rights under
any leases, licenses, agreements, or with respect to any trade
secrets or know-how;
(xii) Any labor trouble or employee controversy
materially adversely affecting its Business or assets; or
(xiii) Any dividend or other distribution on or in
E-60
<PAGE>
respect of shares of its capital stock.
(b)Seller No. 1 and Seller No. 2 are not
(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 No. 1 and Seller No. 2 have 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 best knowledge of Seller
No. 1 or Seller No. 2, threatened to revoke or limit any of them.
(c)No claim, litigation, action or proceeding is pending or,
to the knowledge of Seller No. 1 or Seller No. 2, threatened, and
no order, injunction or decree is outstanding, against or
relating to the Business or its assets.
(d)To the best of Seller No. 1's and Seller No. 2's
knowledge, Seller No. 1 and Seller No. 2 are 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 No. 1
or Seller No. 2 relating to the Business pending before the
National Labor Relations Board or similar agency or body and, to
the best of Seller No. 1's and Seller No. 2'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 best knowledge of Seller
No. 1 or Seller No. 2, threatened against or involving the
Business.
6.15 Environmental Laws.
(a) To the best of Seller No. 1's and Seller No. 2's
knowledge, the real estate located at 3144 North Shadeland
Avenue, Indianapolis, Indiana 46226 has 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 No.
1's and Seller No. 2'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. 651, et
seq.; Federal Resource Conservation and Recovery Act ("RCRA"), 42
U.S.C. 6901, et seq.; Federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
9601, et seq.; the Federal Clean Air Act, 42 U.S.C. 2401, et
seq.; the Federal Clean Water Act, 33 U.S.C. 1251, et seq.; and
E-61
<PAGE>
all state and local laws that correspond therewith or supplement
such laws.
(b) To the best of Seller No. 1's and Seller No. 2'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 No.
1's and Seller No. 2'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 No. 1's and Seller No. 2'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 Seller No. 1 or Seller No. 2, whether real or personal,
owned or leased, or stored on any real property owned or leased
by Seller No. 1 or Seller No. 2.
(d) Neither Seller No. 1 nor Seller No. 2 is engaged in,
and to the best of Seller No. 1's and Seller No. 2's knowledge,
is not threatened with any litigation, or governmental or other
proceeding which may give rise to any claim against the Real
Estate.
(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 Seller No.
1 or Seller No. 2 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 No. 1's and Seller No. 2's
knowledge, Seller No. 1 and Seller No. 2 have 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.
6.16 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 Seller No. 1 and Seller No. 2.
(b) The Disclosures Schedule contains a true, complete and
accurate list of the following: the names, positions, and
compensation of the present employees of Seller No. 1 and Seller
No. 2, 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
E-62
<PAGE>
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 No. 1's and Seller No.
2's knowledge, all employees of Seller No. 1 and Seller No. 2 are
employees-at-will.
(c) Seller No. 1 and Seller No. 2 have no retired
employees who are receiving or are entitled to receive any
payments, health or other benefits from Seller No. 1 and Seller
No. 2.
6.17 Payments to Employees.
All accrued obligations of Seller No. 1 and Seller No. 2
relating to employees and agents of Seller No. 1 and Seller No.
2, 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 No. 1 and Seller No. 2. Except as otherwise provided
herein, all obligations of Seller No. 1 and Seller No. 2 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 No. 1
and Seller No. 2.
6.18 Change of Corporate Name.
At the Closing, Seller No. 1, if requested by Purchaser will
adopt and file with the Secretary of State of Indiana an
amendment to the Articles of Incorporation of Seller No. 1
changing the name of Seller No. 1 to a name substantially
dissimilar to "Microcare, Inc." and Seller No. 1 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
"Microcare, Inc." In addition, Seller No. 2, if requested by
Purchaser, will adopt and file with the Secretary of State of
Indiana an amendment to the Articles of Incorporation of Seller
No. 2 changing the name of Seller No. 2 to a name substantially
dissimilar to "Microcare Computer Services, Inc." and Seller No.
2 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 "Microcare Computer Services, Inc."
6.19 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 No. 1 or Seller No. 2 in
bringing about the transaction herein contemplated, or rendered
any service with respect thereto or been in any way involved
therewith.
6.20 Preservation of Organization.
Except as set forth on the Disclosure Schedule, since March
31, 1997, Seller No. 1 and Seller No. 2 have kept intact the
Business and organization of Seller No. 1 and Seller No. 2;
retained the services of all Seller No. 1's and Seller No. 2's
material employees and agents, retained Seller No 1's and Seller
No. 2's arrangements with the manufacturers of the products
distributed by Seller No. 1 and Seller No. 2 in the same manner
E-63
<PAGE>
as conducted prior to such date, and engaged in no transaction
other than in the ordinary course of Seller No. 1's or Seller No.
2's Business.
6.21 Absence of Certain Payments.
To the best of Seller No 1's and Seller No. 2's knowledge,
neither Seller No. 1 nor Seller No. 2, 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 Seller No. 1 or Seller No. 2, for
purposes other than the satisfaction of lawful obligations, or
established or maintained any unlawful or unrecorded funds.
6.22 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
Seller No. 1 and Seller No. 2 by sales or services in dollars.
Assuming that Purchaser continues to conduct the Business in the
ordinary course consistent with Seller No. 1's and Seller No. 2's
prior practices generally and specifically with respect to Seller
No. 1's and Seller No. 2's current suppliers, neither Seller No.
1 nor Seller No. 2 has any actual knowledge that any of the
current suppliers of Seller No. 1 or Seller No. 2 will, or intend
to, (a) cease doing business with Seller No. 1 or Seller No. 2;
or (b) materially alter the amount of business they are currently
doing with Seller No. 1 or Seller No. 2; or (c) not do business
with the Purchaser after the Closing.
6.23 Product Liability Claims.
To the best of Seller No. 1's and Seller No. 2's knowledge,
there are no material product liability claims against Seller No.
1 or Seller No. 2, either potential or existing, which are not
fully covered by product liability insurance coverage with a
responsible company which, if determined adversely to Seller No.
1 or Seller No. 2, would have a material adverse effect upon
Seller No. 1's or Seller No. 2's Business.
6.24 Employee Benefit Plans.
For the purposes of this Section 6.24, "Seller No. 1" and
"Seller No. 2" 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 Seller No. 1
or Seller No. 2 is a member.
(a) The Employee Benefit Plans presently maintained by
Seller No. 1 and Seller No. 2 or to which Seller No. 1 or Seller
No. 2 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:
(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
E-64
<PAGE>
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 Seller No. 1
or Seller No. 2 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
Seller No. 1 or Seller No. 2 either by contract or by operation
of law.
(b) With respect to any such Employee Benefit Plans, Seller
No. 1 and Seller No. 2 represent and warrant that, to the best of
Seller No. 1's and Seller No. 2's knowledge;
(i) Neither Seller No. 1 nor Seller No. 2 has, 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) Seller No. 1 and Seller No. 2 have, 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 Seller No. 1's
and Seller No. 2's Financial Statements reflect any liability of
Seller No. 1 or Seller No. 2 to make contributions to the
Employee Pension Benefit Plans.
(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 No. 1's and Seller No. 2'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
E-65
<PAGE>
Employee Benefit Plan, the plan administrator of any Employee
Benefit Plan, or Seller No. 1 or Seller No. 2.
(viii) Seller No 1 and Seller No. 2 have made
available for inspection all annual reports for Seller No. 1 and
Seller No. 2 filed on Internal Revenue Service ("IRS") Form 5500
or 5500C, all reports for Seller No. 1 and Seller No. 2 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 Seller No. 1 and Seller No. 2 have 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) Seller No. 1 and Seller No. 2 have timely made any
contributions they are obligated to make to any multi-employer
plan within the meaning of Section 3(37) of ERISA. Neither
Seller No. 1 nor Seller No. 2 has any 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.
6.25 Full Disclosure.
None of the representations and warranties made by Seller
No. 1 or Seller No. 2 herein, including any disclosures made in
the Disclosure Schedule, contains or will contain, to the best of
Seller No. 1's or Seller No. 2's actual knowledge, any untrue
statement of a material fact.
7.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller No. 1, Seller
No. 2 and Shareholder 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 corporate power and lawful authority to
execute, deliver and perform this Agreement and conduct the
Business of Seller No. 1 and Seller No. 2 currently conducted by
Seller No. 1 and Seller No. 2 in each of the jurisdictions in
E-66
<PAGE>
which Seller No. 1 or Seller No. 2 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.
7.2 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, subject to principles of equity, bankruptcy laws, and
laws affecting creditors' rights generally. 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,
subject to principles of equity, bankruptcy laws, and laws
affecting creditors' rights generally.
(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 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.
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.
7.4 MD&A Update.
Since April 5, 1997, there has been no material adverse
change in the results of operations or financial condition of
Purchaser, nor are there any trends, demands, commitments, events
or uncertainties known to Purchaser which could affect the
Purchaser's liquidity, capital resources or results of operations
as of the date hereof or as of the Closing (other than those
previously disclosed by Purchaser in its periodic reports filed
E-67
<PAGE>
with the Securities and Exchange Commission) that would require
discussion in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") prepared in
accordance with Item 303 of Regulation S-K promulgated by the
Securities and Exchange Commission if such MD&A were required to
be updated through the date hereof and through the Closing.
7.5 Shares.
The shares of Common Stock of the Purchaser that are to be
issued to Seller No. 2 pursuant to this Agreement have been duly
authorized and, when issued in accordance with the terms of this
Agreement, will be validly issued and outstanding, fully paid and
non-assessable. Purchaser's common stock is properly listed and
authorized for quotation on the NASDAQ National Market System.
7.6 Full Disclosure
None of the representations and warranties made by Purchaser
herein, contains or will contain, to the best of Purchaser's
knowledge, any untrue statement of a material fact.
8.
COMPETITION
8.1 As an inducement for and in consideration of Purchaser
entering into this Agreement and based on the acknowledgement by
Seller No. 1, Seller No. 2 and Shareholder that Seller No. 1 and
Seller No. 2 and Shareholder as the sole Shareholder of such
corporations have received substantial consideration pursuant to
this Agreement, Seller No. 1, Seller No. 2 and Shareholder agree
to enter into Covenant Not to Compete Agreements, in the form of
Exhibits "N", "N-1" and "N-2", respectively, attached hereto and
made a part hereof.
9.
INTERIM OPERATIONS
9.1 Seller No. 1's and Seller No. 2'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
No. 1 or Seller No. 2 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 Seller No. 1 or Seller No. 2 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;
(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 Purchased Assets No. 1 or
E-68
<PAGE>
Purchased Assets No. 2, except in the ordinary course of
business;
(vi) mortgage, pledge or subject to any security interest
any of the Purchased Assets No. 1 or Purchased Assets No. 2;
(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 certain assets of Seller No. 1 or Seller No. 2;
(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.
9.2Conduct of Business.
Seller No. 1 and Seller No. 2 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, neither Seller No. 1
nor Seller No. 2 will take any of the actions contemplated by, or
which would give rise to, a result contemplated by Section
6.14(a) hereof.
9.3 Access to Information.
From the date hereof until Closing, Seller No. 1 and Seller
No. 2 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, leases, commitments,
records and other documents of every character relating to the
Business.
9.4 Other Actions.
From the date hereof until Closing, Seller No. 1 and Seller
No. 2 shall not take any action which shall prevent the
representations, warranties and covenants of Seller No. 1 and
Seller No. 2 set forth herein from being true and correct at the
Closing.
10.
BULK SALES ACT
10.1 Compliance with Bulk Sales Act.
Purchaser waives compliance with the provisions of any
applicable bulk sales law and Seller No. 1, Seller No. 2 and
Shareholder, jointly and severally, agree to indemnify and hold
harmless Purchaser from any liability incurred as a result of the
E-69
<PAGE>
failure to so comply, except to liabilities explicitly assumed
hereunder by Purchaser.
11.
SURVIVAL OF AND RELIANCE UPON
REPRESENTATIONS, WARRANTIES AND AGREEMENTS; INDEMNIFICATION
11.1 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 11.3 and 11.4
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 3.1, 3.2, 3.3, 4.2, 4.4, 6.3, 6.11, 6.15,
7.2 and 7.5 which shall survive the Closing and shall terminate
in accordance with the statute of limitations governing written
contracts in the State of Indiana and Exhibits "J", "M". "N", "N-
1" and "N-2", which shall terminate as provided therein.
11.2 Reliance Upon and Enforcement of Representations, Warranties
and Agreements.
(a) Seller No. 1 and Seller No. 2 hereby agree that,
notwithstanding any right of Purchaser to fully investigate the
affairs of Seller No. 1 and Seller No. 2, 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 No. 1 and Seller No. 2
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 No. 1 and Seller No. 2 to fully investigate the affairs
of Purchaser, and notwithstanding knowledge of facts determined
or determinable by Seller No. 1 and Seller No. 2 pursuant to such
investigation or right of investigation, Seller No. 1 and Seller
No. 2 have 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 No. 1 and Seller No. 2
pursuant to the provisions of this Agreement.
11.3 Indemnification by Seller No. 1, Seller No. 2 and
Shareholder.
Provided Purchaser makes a written claim for indemnification
against Seller No. 1, Seller No. 2 and/or Shareholder within any
applicable survival period specified in Section 11.1, Seller No.
1, Seller No. 2 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 No. 1 or Seller No. 2 herein or in any other
agreement, instrument or document delivered by or on behalf of
Seller No. 1 or Seller No. 2 pursuant to the provisions of the
Agreement;
E-70
<PAGE>
(ii) any imposition (including by operation of law) or
attempted imposition by a third party upon Purchaser of any
liability of Seller No. 1 or Seller No. 2 which Purchaser has not
specifically agreed to assume pursuant to Sections 3.1 and 3.2 of
this Agreement;
(iii) any liability (except for any Assumed Liabilities
described in Section 3.1 and 3.2) 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;
(iv) any liability relating to the correction of defective
work as described in Section 2.4; and
(v) any and all costs and expenses (including reasonable
legal and accounting fees) related to any of the foregoing,
subject to the provisions of Section 11.5.
Except as otherwise provided in this Agreement, nothing in this
Section 11.3 shall be construed to limit the amount to which, or
the time by which, by reason of offset or otherwise, the
Purchaser may recover from Seller No. 1, Seller No. 2 or the
Shareholder pursuant to this Agreement resulting from Seller No.
1's, Seller No. 2's or the Shareholder's breach or violation of
any representation, warranty, covenant or agreement contained
herein.
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 11.5, shall first
be offset against the amount payable to Seller No. 2 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. Prior to any setoff,
Purchaser shall send written notice to the holder of the
Promissory Note (the "Holder") stating with reasonable
specificity the basis for Purchaser's right to such
indemnification payment. If within fifteen (15) days after
receipt of such notice of setoff, the Holder contests in writing
sent to Purchaser, Purchaser's claim of indemnification under
this Section 11, then the amount which Purchaser could otherwise
have paid to the holder but for the exercise of such right of
setoff shall be paid into an interest bearing escrow account
maintained by a bank selected by Purchaser pursuant to a written
escrow agreement signed by the parties to this Agreement or a
bank account under the joint control of the parties to this
Agreement, to be held in such account until Purchaser and the
Holder have reached Agreement as to the amount, if any, of such
indemnification payment and setoff, or until there has been a
judicial resolution of such matter, at which time the amount held
in such segregated account, together with any interest accrued
thereon, shall be released to the prevailing party, as
appropriate and/or instructed. Purchaser and the Holder agree
that they will use their best efforts to resolve any such dispute
within thirty (30) days of receipt of notice by Purchaser of the
Holder's objections to the setoff.
11.4Indemnification by Purchaser.
Provided Shareholder, Seller No. 1 and/or Seller No. 2,
makes a written claim for indemnification against Purchaser
within any applicable survival period specified in Section 11.1,
Purchaser shall indemnify Seller No. 1 and Seller No. 2 and
E-71
<PAGE>
Shareholder 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 No. 1 or Seller No. 2
hereunder); (iii) any inaccuracy in or breach of any
representation, warranty, covenant or obligation made or incurred
by Purchaser herein or in any other agreement, instrument, or
document delivered by or on behalf of Purchaser pursuant to the
provisions of this Agreement; and (iv) any and all related costs
and expenses (including reasonable legal and accounting fees),
subject to the provisions of 11.5. Except as otherwise provided
herein, nothing in this Section 11.4 shall be construed to limit
the amount to which, or the time by which, by reason of offset or
otherwise, that Seller No. 1 or Seller No. 2 may recover from
Purchaser pursuant to this Agreement resulting from its breach or
violation of any representation, warranty, covenant or agreement
contained herein.
11.5 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 No. 1/Seller No.2 and 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. The Indemnifying Party may
elect, within thirty (30) days after receipt of such notice, or
five (5) days before the return date required by any citation,
claim or other statute, whichever occurs earlier, to contest or
defend against such claim at the Indemnifying Party's expense,
and shall give written notice to the Party to be Indemnified of
the commencement of such defense with reasonable promptness after
giving of the written notice of the claim by the Party to be
Indemnified. The Party to be Indemnified shall be entitled to
participate with the Indemnifying Party in such event (at the
cost and expense of the Party to be Indemnified) but shall not be
entitled in any way to release, waive, settle, modify, or pay
such claim without the consent of the Indemnifying Party if the
Indemnifying Party has assumed such defense. In the event that
the Party to be Indemnified determines to settle any such claim
without such prior consent of the Indemnifying Party, the
Indemnifying Party shall have no further indemnification
obligations under this Section 11 with respect to such claim. In
the event that the Indemnifying Party does not elect to contest,
defend, settle or pay the claim as provided above, the Party to
be Indemnified shall have the exclusive right to prosecute,
defend, compromise, settle or pay the claim in its sole
discretion and pursue its rights under this Agreement. In the
event the Indemnifying Party shall assume the defense, the
Indemnifying Party and the Party to be Indemnified shall
cooperate in the defense of such action and the records of each
shall be available to the other with respect to such defense.
11.6 Limitation on Liability
E-72
<PAGE>
Notwithstanding anything expressed or implied to the
contrary in this Agreement:
(a) Seller No. 1's liability under Section 11.3 shall not
exceed in the aggregate $536,600;
(b) Seller No. 2's liability under Section 11.3 shall not
exceed in the aggregate $1,659,800, plus any amount paid to
Seller No. 2 under Section 4.4;
(c) The liability of Shareholder, Seller No. 1 and Seller
No. 2 under Section 11.3 shall not exceed in the aggregate
$2,196,400, plus any amount paid to Seller No. 2 under Section
4.4; and
(d) Shareholder, Seller No. 1 and Seller No. 2 shall have
no liability under Section 11.3 until the aggregate amount of all
claims under Section 11.3 exceed a deductible of Ten Thousand
Dollars ($10,000); provided, however, that if such claims exceed
Ten Thousand Dollars ($10,000), then the indemnification provided
for in Section 11.3 shall apply to claims in excess of the Ten
Thousand Dollars ($10,000) deductible provided for above.
12.
EXPRESS CONDITIONS
12.1 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 business in the State of Indiana.
(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.
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 July 24, 1997.
13.
THE CLOSING
13.1 Date, Time and Place of Closing.
Consummation of the transactions contemplated hereby (the
"Closing") shall take place on July 24, 1997 (the "Closing
Date"), at 10:00 a.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.
13.2 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
E-73
<PAGE>
conditions at or before the Closing:
(a) Seller No. 1 and Seller No. 2 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 No. 1 and Seller 2 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
Seller No. 1 and Seller No. 2 since March 31, 1997;
(d) Seller No. 1 and Seller No. 2 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 required by Sections
2.5 and 2.6;
(ii) Releases (or copies thereof) of all liens, claims,
charges, encumbrances, security interests and restrictions on
Purchased Assets No. 1 and Purchased Assets No. 2 necessary to
provide Purchaser with good, marketable and indefeasible title to
each of the Purchased Assets No. 1 and Purchased Assets No. 2 at
the Closing;
(iii) Certified copies of the corporate actions taken by
the Board of Directors and Shareholder of Seller No. 1 and Seller
No. 2, authorizing the execution, delivery and performance of
this Agreement;
(iv) Certificates of Existence for Seller No. 1 and
Seller No. 2 from the Secretary of State of Indiana dated no
earlier than fifteen (15) days prior to Closing;
(v) Opinion letter of Leagre, Chandler & Millard, 9100
Keystone Crossing #800, Indianapolis, Indiana 46240, counsel for
Seller No. 1 and Seller No. 2 containing the opinion set forth in
Exhibit "O";
(vi) Seller No. 1 and Seller No. 2 shall have entered
into the Subordination Agreement in the form attached hereto as
Exhibit "K";
(vii) Seller No. 1, Seller No. 2 and the Shareholder
shall have entered into the non-competition agreements set forth
in Exhibits "N", "N-1" and "N-2";
(viii) Shareholder shall have entered into the Employment
Agreement set forth in Exhibit "M";
(ix) The express conditions set forth in Section 12
have been satisfied or waived.
(e)Seller No. 1 will adopt and file with the Secretary of State
of Indiana an amendment to the Articles of Incorporation of
Seller No. 1 changing the name of Seller No. 1 to a name
E-74
<PAGE>
substantially dissimilar to "Microcare, Inc." and Seller No. 1
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 "Microcare, Inc." In addition, Seller No. 2 will adopt
and file with the Secretary of State of Indiana an amendment to
the Articles of Incorporation of Seller No. 2 changing the name
of Seller No. 2 to a name substantially dissimilar to "Microcare
Computer Services, Inc." and Seller No. 2 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
"Microcare Computer Services, Inc."
13.3Conditions Precedent to Seller No. 1's and Seller No. 2's
Obligations.
The obligation of Seller No. 1 and Seller No. 2 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 No. 1 and Seller No.
2 at or before the Closing the following documents, all of which
shall be in form and substance acceptable to Seller No. 1, Seller
No. 2 and its counsel:
(i) A certified or bank cashier's check or wire
transfer for the aggregate amount to be paid to Seller No. 1 at
the Closing pursuant to Section 4.2 hereof;
(ii) A certified or bank cashier's check or wire
transfer for the aggregate amount to be paid to Seller No. 2 at
the Closing pursuant to Section 4.3(a) hereof;
(iii) Assumption of Liabilities Agreement under which
Purchaser assumes the Liabilities set forth in Sections 3.1 and
3.2;
(iv) A subordinated promissory note as set forth in
Section 4.3(e);
(v) The stock of Purchaser is delivered to Seller No.
2 pursuant to Section 4.3(d);
(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 No. 1 and
Seller No. 2 and dated the Closing Date, containing the opinions
set forth on Exhibit "P";
(ix) All of the express conditions set forth in Section
E-75
<PAGE>
12 have been satisfied or waived.
(d)Purchaser shall have entered into the Employment Agreement
set forth in Exhibit "M".
14.
GENERAL PROVISIONS
14.1 Publicity.
All public announcements relating to this Agreement or the
transactions contemplated hereby will be made by Purchaser with
the consent of Seller No. 1 and Seller No. 2, 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.
14.2 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 No. 1 and
Seller No. 2 shall bear and pay all of the expenses incident to
the transactions contemplated by this Agreement which are
incurred by Seller No. 1 or Seller No. 2 or their respective
representatives.
14.3 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
(b) If to Seller No. 1, to:
Microcare, Inc.
14348 Strawtown Avenue
Noblesville, Indiana 46060
If to Seller No. 2, to:
Microcare Computer Services, Inc.
14348 Strawtown Avenue
Noblesville, Indiana 46060
With a copy to:
David Millard, Esq.
E-76
<PAGE>
Leagre, Chandler & Millard
9100 Keystone Crossing #800
Indianapolis, Indiana 46240
(c) If to Shareholder, to:
Robert L. Versprille
14348 Strawtown Avenue
Noblesville, Indiana 46060
14.4 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.
14.5 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.
14.6 Exhibits.
The Exhibits referred to in this Agreement constitute an
integral part of this Agreement as if fully rewritten herein.
14.7 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.
14.8 Governing Law.
This Agreement shall be construed in accordance with and
governed by the laws of the State of Indiana, without regard to
its laws regarding conflict of laws.
14.9 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.
14.10 Waivers; Remedies Exclusive.
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. 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. Except as otherwise provided in the
note issued pursuant to Section 4.3, the Employment Agreement and
the Covenant Not to Compete Agreements, the indemnification
provided for by Section 11 herein shall constitute the exclusive
remedy of any party with respect to (i) the matters for which
such indemnification is provided and (ii) any other matters
E-77
<PAGE>
arising out of, relating to or connected with this Agreement or
the transactions contemplated hereby, and whether any claims or
causes of action asserted with respect to any such matters are
brought in contract, tort or other legal theory whatsoever.
14.11 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.
14.12 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.
14.13 Business Records.
Seller No. 1, Seller No. 2 and Shareholder shall be
permitted to retain copies of such books and records relating to
Purchased Assets No. 1 and Purchased Assets No. 2 and relating 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.
14.14 No Third Party Beneficiaries.
This Agreement shall not confer any rights or remedies upon
any persons or entities other than the parties hereto and their
respective successors, legal representatives, heirs and assigns.
The parties hereto have executed this Agreement as of the
date first above written.
WITNESSES: MICROCARE, INC.
___________________________
___________________________
By:________________________________
Robert L. Versprille,
President
___________________________ MICROCARE COMPUTER SERVICES, INC.
E-78
<PAGE>
___________________________
By:________________________________
Robert L. Versprille,
President
___________________________ POMEROY COMPUTER RESOURCES, INC.
___________________________
By:________________________________
___________________________
___________________________
__________________________________
ROBERT L. VERSPRILLE
E-79
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 24th day of July, 1997, by and
between POMEROY COMPUTER RESOURCES, INC., a Delaware corporation
("Company"), and ROBERT L. VERSPRILLE ("Employee").
W I T N E S S E T H :
WHEREAS, Company has entered into an Asset Purchase Agreement
("Purchase Agreement") of even date pursuant to which it bought
certain assets of MICROCARE, INC. and MICROCARE COMPUTER
SERVICES, INC. (collectively, "MICROCARE"); and
WHEREAS, Employee owns one hundred percent (100%) of the
outstanding stock of MICROCARE; and
WHEREAS, as an inducement for and in consideration of Company
entering into the Purchase Agreement with MICROCARE and
purchasing certain of its assets, Employee has agreed to enter
into and execute this Employment Agreement pursuant to Section 5
thereof; and
WHEREAS, Company desires to engage the services of Employee,
pursuant to the terms, conditions and provisions as hereinafter
set forth.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants herein set forth, the parties hereby
covenant and agree as follows:
1. Employment. The Company agrees to employ the Employee, and
the Employee agrees to be employed by the Company, upon the
following terms and conditions.
2 Term. The initial term of Employee's employment pursuant to
this Agreement shall begin on the 24th day of July, 1997, and
shall continue for a period of three (3) years ending July 23,
2000 unless terminated earlier pursuant to the provisions of
Section 10, provided that Sections 8, 9, 10(b), 10(c), 11, if
applicable, and 20, shall survive the termination of such employ
ment and shall expire in accordance with the terms set forth
therein.
3. Renewal Term. The term of Employee's employment shall
automatically renew for additional consecutive renewal terms of
one (1) year unless either party gives written notice of his/its
intent not to renew the terms of this Agreement sixty (60) days
prior to expiration of the then expiring term. Employee's base
salary for each renewal term shall be determined by Company,
provided, however, Employee's annual base salary for any renewal
term shall not be less than the base salary in effect for the
prior year.
4. Duties. Employee shall serve as Vice President of
Operations for the Company's Indiana Division. Employee shall
perform such duties in Marion County, Indiana or the counties
contiguous to Marion County, Indiana. Employee shall be
responsible to and report directly to the corporate officers of
Company. The duties assigned to Employee shall not be
inconsistent with those typically assigned to a person holding
the position set forth above and Employee shall at all times have
such powers and authority as shall be reasonably required to
E-80
<PAGE>
discharge such duties in an efficient manner, together with such
facilities and services as are appropriate to his position.
Employee shall devote his best efforts and substantially all his
time during normal business hours to the diligent, faithful and
loyal discharge of the duties of his employment and towards the
proper, efficient and successful conduct of the Company's
affairs. Employee further agrees to refrain during the term of
this Agreement from making any sales of competing services or
products or from profiting from any transaction involving
computer services or products for his account (except pursuant to
Section 4.4 of the Asset Purchase Agreement) without the express
written consent of Company.
5. Compensation. For all services rendered by the Employee
under this Agreement (in addition to other monetary or other
benefits referred to herein), compensation shall be paid to
Employee as follows:
Base Salary: During the term of this Employment Agreement,
Employee shall be paid an annual base salary of One Hundred
Twenty-Five Thousand Dollars ($125,000.00) per year, Said annual
base salary shall be payable in accordance with the historical
payroll practices of the Company.
6. Fringe Benefits. During the term of this Agreement,
Employee shall be entitled to the following benefits:
(a) Health Insurance - Employee shall be provided with the
standard family 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 three (3) 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) 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.
(d) Other Company Programs - Employee shall be eligible to
participate in any other plans or programs implemented by the
Company for all of its employees with duties and responsibilities
similar to Employee.
(e) 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 reasonable and customary travel and
entertainment expenses or other out-of-pocket business expenses
incurred by Employee in fulfilling the Employee's duties and
responsibilities hereunder, including, all expenses of travel and
living expenses while away from home on business or at the
request of and in the service of the Company, provided that such
expenses are incurred and accounted for in accordance with the
reasonable policies and procedures established by the Company.
8. Non-Competition. Employee expressly acknowledges the
provisions of Section 8 of the Purchase Agreement relating to
Employee's Covenant Not to Compete with Company. Accordingly,
E-81
<PAGE>
such provisions of Section 8 are incorporated herein by reference
to the extent as if restated in full herein. In addition to the
consideration received under this Agreement, Employee
acknowledges that as a shareholder of MICROCARE, he has received
substantial consideration pursuant to such Purchase Agreement and
that as an inducement for, and in consideration of Company
entering into this Agreement, Employee has agreed to be bound by
such provisions of Section 8 of the Purchase Agreement.
Accordingly, such provisions of Section 8 and Exhibit N-2 and the
restrictions on Employee thereby imposed shall apply as stated
therein.
9. Non-Disclosure and Assignment of Confidential Information.
The Employee acknowledges that the Company's trade secrets and
confidential and proprietary information, including without
limitation:
(a) unpublished information concerning the Company's:
(i) research activities and plans,
(ii) marketing or sales plans,
(iii) pricing or pricing strategies,
(iv) operational techniques,
(v) customer and supplier lists, and
(vi) strategic plans;
(b) unpublished financial information, including
unpublished information concerning revenues, profits and profit
margins;
(c) internal confidential manuals; and
(d) any "material inside information" as such phrase is
used for purposes of the Securities Exchange Act of 1934, as
amended;
all constitute valuable, special and unique proprietary and trade
secret information of the Company. In recognition of this fact,
the Employee agrees that the Employee will not disclose any such
trade secrets or confidential or proprietary information (except
(i) information which becomes publicly available without
violation of this Employment Agreement, (ii) information of which
the Employee did not know and should not have known was disclosed
to the Employee in violation of any other person's
confidentiality obligation, and (iii) disclosure required in
connection with any legal process), nor shall the Employee make
use of any such information for the benefit of any person, firm,
operation or other entity except the Company and its subsidiaries
or affiliates. The Employee's obligation to keep all of such
information confidential shall be in effect during and for a
period of five (5) years after the termination of his employment
in those states where Company has business offices; provided,
however, that the Employee will keep confidential and will not
disclose any trade secret or similar information protected under
law as intangible property (subject to the same exceptions set
forth in the parenthetical clause above) for so long as such
protection under law is extended.
10. Termination.
(a) The Employee's employment with the Company may be
terminated at any time as follows:
(i) By the Employee at his discretion, upon sixty (60)
days written notice to Company;
E-82
<PAGE>
(ii) By Employee's death;
(iii) By Employee's physical or mental disability which
renders Employee unable to perform his duties hereunder for a
consecutive period of ninety (90) days or for an aggregate of
one hundred twenty (120) days or more during any twelve (12)
month period.
(iv) By the Company, for cause upon fifteen (15) day's
written notice to Employee. For purposes of this Agreement, the
term "cause" shall mean termination upon: (i) the continuous
failure by Employee to substantially perform his duties with the
Company (other than any such failure resulting from his
incapacity due to physical or mental disability), 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 continuously substantially
performed his duties; (ii) the engaging by Employee in conduct
which is demonstrably and materially injurious to the Company,
monetarily or otherwise, including but not limited to any
material misrepresentation related to the performance of his
duties; (iii) the conviction of Employee of a felony or other
crime involving theft or fraud, (iv) Employee's gross neglect or
gross misconduct in carrying out his duties hereunder resulting,
in either case, in material harm to the Company; or (v) any
material breach by Employee of this Agreement. Notwithstanding
the foregoing, Employee shall not be deemed to have been
terminated for cause unless and until there shall have been
delivered to 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 or abated such
conduct to the reasonable satisfaction of the Board within thirty
(30) days of receipt of such resolution.
(v) By the Company at its discretion, without cause,
upon thirty (30) days written notice to Employee; provided that
Company complies with the provisions of Section 10(c).
(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.
(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 for the remaining term, including
the current renewal term, if applicable, of the Agreement and (as
set forth in Section 2) as due.
11. Disability. In the event that Employee becomes temporarily
disabled and/or totally and permanently disabled, physically or
mentally, which renders him unable to perform his duties
hereunder, Employee shall receive one hundred percent (100%) of
his base annual salary (in effect at the time of such disability)
for a period of one (1) year following the initial date of such
disability (offset by any payments to the Employee received
pursuant to disability benefit plans, if any, maintained by the
Company.) Such payments shall be payable in twelve consecutive
equal monthly installments and shall commence thirty (30) days
after the determination by the physicians of such disability as
set forth below.
For purposes of this Agreement, Employee shall be deemed to
E-83
<PAGE>
be temporarily disabled and/or totally and permanently disabled
if attested to by two qualified physicians, (one to be selected
by Company and the other by Employee) competent to give opinions
in the area of the disabled Employee's physical and/or mental
condition. If the two physicians disagree, they shall select a
third physician, whose opinion shall control. Employee shall be
deemed to be temporarily disabled and/or totally and permanently
disabled if he shall become disabled as a result of any medically
determinable impairment of mind or body which renders it
impossible for such Employee to perform satisfactorily his duties
hereunder, and the qualified physician(s) referred to above
certify that such disability does, in fact, exist. The opinion
of the qualified physician(s) shall be given by such
physician(s), in writing directed to the Company and to Employee.
The physician(s) decision shall include the date that disability
began, if possible, and the 12th month of such disability, if
possible. The decision of such physician(s) shall be final and
conclusive and the cost of such examination shall be paid by
Employer.
12. Severability. In case any one (1) or more of the provisions
or part of a provision contained in this Agreement shall be held
to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement. In
such a situation, this Agreement shall be reformed and construed
as if such invalid, illegal or unenforceable provision, or part
of a provision, had never been contained herein, and such
provision or part shall be reformed so that it will be valid,
legal and enforceable to the maximum extent possible.
13. Governing Law. This Agreement shall be governed and
construed under the laws of the State of Indiana 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 re
quested, postage prepaid to the following addresses (or to such
other address for a party as shall be specified by notice
pursuant hereto):
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
With a copy to: David Millard, Esq.
Leagre Chandler & Millard
9100 Keystone Crossing #800
Indianapolis, Indiana 46240
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 in
E-84
<PAGE>
Marion County, Indiana, either at law or in equity, to obtain
damages for any breach of this Agreement, or to enforce the
specific performance of this Agreement by each party or to enjoin
any party from activities in violation of this Agreement. Should
either party engage in any activities prohibited by this
Agreement, such party agrees to pay over to the other party all
compensation, remuneration, monies 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 and the Purchase Agreement
referred to herein contain the entire understanding of the
parties with respect to the subject matter contained herein and
may be altered, amended or superseded only by an agreement in
writing, signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
17. Parties in Interest.
(a) This Agreement is personal to each of the parties
hereto. No party may assign or delegate any rights or
obligations hereunder without first obtaining the written consent
of the other party hereto; provided, however, that nothing in
this Section 17 shall preclude (i) Employee from designating a
beneficiary to receive any benefit payable hereunder upon his
death, or (ii) executors, administrators, or legal
representatives of Employee or his estate from assigning any
rights hereunder to person or persons entitled thereto.
Notwithstanding the foregoing, this Agreement shall be binding
upon and inure to the benefit of any successor corporation of
Company
(b) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the assets of the Company or the
business with respect to which the duties and responsibilities of
Employee are principally related, to expressly assume and agree
to perform this Agreement in the same manner and to the same
extent that Company would have been required to perform it if no
such succession had taken place. As used in this Agreement
"Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which
executes and delivers the assumption agreement provided for in
this Section 17 or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
18. Representations of Employee. Employee represents and
warrants that he is not party to or bound by any agreement or
contract or subject to any restrictions including without
limitation any restriction imposed in connection with previous
employment which prevents Employee from entering into and
performing his obligations under this Agreement.
19. Counterparts. This Agreement may be executed simultaneously
in several counterparts, each of which shall be deemed an
original part, which together shall constitute one and the same
instrument.
20. Attorneys' Fees. In the event of any dispute arising
between Employee and Company, pursuant to this Agreement, the
prevailing party shall be entitled to recover from the non-
prevailing party, the prevailing party's reasonable attorneys'
fees and costs.
E-85
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed effective as
of the day and year first above written.
WITNESSES: POMEROY COMPUTER RESOURCES, INC.
__________________________
__________________________
By:_________________________________
__________________________
__________________________
____________________________________
ROBERT L. VERSPRILLE
E-86
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-05-1997
<PERIOD-END> OCT-05-1997
<CASH> 54
<SECURITIES> 0
<RECEIVABLES> 89881
<ALLOWANCES> 719
<INVENTORY> 42560
<CURRENT-ASSETS> 133560
<PP&E> 16052
<DEPRECIATION> 6018
<TOTAL-ASSETS> 159888
<CURRENT-LIABILITIES> 75034
<BONDS> 0
0
0
<COMMON> 113
<OTHER-SE> 82115
<TOTAL-LIABILITY-AND-EQUITY> 159888
<SALES> 349313
<TOTAL-REVENUES> 349313
<CGS> 291741
<TOTAL-COSTS> 291741
<OTHER-EXPENSES> 79
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 648
<INCOME-PRETAX> 17916
<INCOME-TAX> 6449
<INCOME-CONTINUING> 11467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11467
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.01
</TABLE>
<TABLE>
Pomeroy Computer Resources, Inc.
Exhibit 11 - Computation of Earnings Per Share
( in thousands, except per share amounts )
Primary Earnings Per Common Share
<CAPTION>
Quarter ended October 5, Nine months ended October 5,
________________________ ___________________________
1996 1997 1996 1997
______ _______ ______ ______
<S> <C> <C> <C> <C>
Net income for the period $ 2,619 $ 4,540 $ 3,117 $ 11,647
========= ========= ======== ========
Weighted common share 9,424 11,269 7,228 10,949
Dilutive effect of
options outstanding
during the period 288 348 249 317
______ _______ ______ ______
Total common and common
equivalent shares 9,712 11,617 7,477 11,266
========= ========= ======== ========
Earnings per common share $ 0.27 $ 0.39 $ 0.42 $ 1.02
Fully Diluted Earnings Per Common Share
Quarter ended October 5, Nine months ended October 5,
________________________ ___________________________
1996 1997 1996 1997
______ _______ ______ ______
Net income for the period $ 2,619 $ 4,540 $ 3,117 $ 11,647
========= ========= ======== ========
Weighted common share 9,424 11,269 7,228 10,949
Dilutive effect of
options outstanding
during the period 401 433 401 433
______ _______ ______ ______
Total common and common
equivalent shares 9,825 11,702 7,629 11,382
========= ========= ======== ========
Earnings per common share $ 0.27 $ 0.39 $ 0.41 $ 1.01
</TABLE>
E-88
