UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 5, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
1020 Petersburg Road, Hebron, Kentucky 41048
______________________________________ _____
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area (606)586-0600
code _____________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
___________________ on which registered
None ______________________
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01
____________________________
Title of Class
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained , to the best of the
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock of the Registrant
held by non affiliates was $200,508,000 as of March 30, 1998.
The number of shares outstanding of the Registrant's common
stock as of March 30, 1998 was 11,431,876.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K Into Which
________ Portions of
Documents are Incorporated
____________________________
Definitive Proxy Statement Part III
for the 1998Annual Meeting of
Stockholders to be Filed with
the Securities and Exchange
Commission prior to May 5,
1998
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
FORM 10-K
YEAR ENDED JANUARY 5, 1998
TABLE OF CONTENTS
PART I Page
____
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a
Vote of Security Holders 5
PART II
Item 5. Market for the Registrant's
Common Stock and Related 5
Stockholder Matters
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and
Analysis of Financial 8
Condition and Results of
Operations
Item 8. Financial Statements and 10
Supplementary Data
Item 9. Disagreements on Accounting
and Financial Disclosures 10
PART III
Item 10. Directors and Executive 10
Officers of the Registrant
Item 11. Executive Compensation 10
Item 12. Security Ownership of
Certain Beneficial Owners 10
and Management
Item 13. Certain Relationships and 10
Transactions
PART IV
Item 14. Exhibits, Financial
Statement Schedules and 11
Reports on Form 8-K
SIGNATURE
Chief Executive Officer,
Chief Financial Officer and 21
Chief Accounting Officer
Directors 21
Independent Auditor's Report F-1
Financial Statements F-2 to F-18
Exhibits
<PAGE>
Special Cautionary Notice Regarding Forward-Looking Statements
______________________________________________________________
Certain of the matters discussed under the captions "Business"
and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" may constitute 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 and in documents incorporated herein
by reference, including, without limitation, those statements
made in conjunction with the forward-looking statements under
"Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the factors
discussed under "Business - Certain Business Factors." . All
written or oral forward-looking statements attributable to the
Company are expressly qualified in their entirety by such
factors.
PART I
ITEM 1. BUSINESS
Pomeroy Computer Resources, Inc. (the "Company" ) is a Delaware
Corporation organized in February 1992 to consolidate and
reorganize predecessor companies. All of the predecessor
companies were controlled by David B. Pomeroy, the Company's
Chairman of the Board, President and Chief Executive Officer.
The Company operates primarily in one industry segment -- sales
and services of desktop computer products, configuration,
network integration and technology support services to
businesses nationwide -- and no
separate industry segment information is presented.
The Company offers a broad range of microcomputers and related
products and provides a comprehensive selection of integration
and support services including network and system design,
equipment selection and procurement, complex network
configuration, integration, Internet and electronic commerce
services, depot repair, on-site maintenance, staffing and
network management. The Company provides products and services
to large and medium sized commercial, health care, governmental,
financial and educational customers.
The Company's strategy for building shareholder value is to
provide comprehensive solutions to improve the productivity of
its clients' information systems. Key elements of the Company
strategy are: (1) to leverage client relationships to continue
expanding higher-margin services revenues, (2) to capitalize on
the trend toward build-to-order/configure-to-order systems, and
(3) to expand offerings and geographic coverage through
strategic acquisitions.
The Company offers microcomputer products from an array of
manufacturers including Compaq, Hewlett-Packard, IBM, Lexmark
and Toshiba. The Company sells these products together with a
broad selection of networking, integration and software products
from manufacturers including 3Com, Bay Networks, Intel,
Microsoft, and Novell. Services provided by the Company allow
customers to outsource the selection, installation, integration
and maintenance of their microcomputer systems.
The Company is an authorized dealer or reseller for the products
of over 35 major vendors. The Company believes that its access
to major vendors enables it to offer a wide range of products to
meet the diverse requirements of its customers. However, the
increasing demand for microcomputers has resulted in significant
product supply shortages from time to time because manufacturers
have been unable to produce sufficient quantities of certain
products to meet demand. The Company has in the past and expects
in the future to experience some difficulty in obtaining an
adequate supply of products from its major vendors which has
resulted, and may continue to result, in delays in completing
sales. These delays have not had, and are not anticipated to
have, a material adverse effect on the Company's results of
operations, although failure to obtain adequate product supply
could have a material adverse effect on the Company's results of
operations.
The Company has entered into dealer agreements with its major
vendors/manufacturers. These agreements are typically subject to
periodic renewal and to termination on short notice.
Substantially all of the Company's dealer agreements may be
terminated by the vendor without cause upon 30 to 90 days
advance notice, or immediately upon the occurrence of certain
events. A vendor could also terminate an authorized dealer
agreement for reasons unrelated to the Company's performance.
<PAGE>
Although the Company has never lost a major vendor/manufacturer,
the loss of such a vendor/product line or the deterioration of
the Company's relationship with such a vendor/manufacturer would
have a material adverse effect on the Company.
The Company is a participant in the IBM channel assembly program.
To date, this program has not been utilized in a significant
portion of the Company's shipments , but the Company expects
this program to be utilized in a larger proportion of its
shipments during fiscal 1998. The Company is in discussion with
other major manufacturers regarding channel assembly. The
objective of channel assembly programs is to achieve cost
savings through lower finished goods inventory, higher inventory
turns and lower price protection requirements and passing
such cost savings on to the customer, minimizing the direct
marketers' pricing advantage. The Company believes that being
able to effectively utilize its vendors' channel assembly
programs will play an important role in its competitiveness
and future financial performance.
The Company's sales are generated primarily by its 217 person
direct sales and sales support personnel located in 20 regional
offices in Kentucky, Iowa, Tennessee, Florida, Alabama, Indiana,
Ohio, West Virginia, North Carolina and South Carolina. The
Company's business strategy is to provide its customers with a
complete package of advanced microcomputer products, high level
services and support, including designing and installing
systems, training system users, maintaining and repairing
hardware and software and brokering used equipment. The Company
believes that its ability to combine competitive pricing of
microcomputer hardware and related products with higher margin
sophisticated services and support allows it to compete
effectively against a variety of alternative microcomputer
distribution channels, including independent dealers,
superstores, mail order and direct sales by manufacturers. With
many businesses seeking assistance to optimize their information
technology investments and control ongoing costs throughout the
life cycle of technology systems, the Company is using its
resources to assist customers in their decision-making, project
implementation and equipment management.
Most microcomputer products are sold pursuant to purchase
orders. For larger procurements, the Company will enter into
written contracts with customers. These contracts typically
establish prices for certain equipment and services and require
short delivery dates for equipment and services ordered by the
customer. These contracts do not require the customer to
purchase microcomputer products or services exclusively from the
Company and may be terminated without cause upon 30 to 90 days'
notice. Most contracts are for a term of 12 to 24 months and, in
order to be renewed, may require submission of a new bid in
response to the customer's request for proposal. As of January
5, 1998, the Company had been awarded contracts which it
estimates will result in an aggregate of approximately $35.8
million of net sales and revenues after January 5, 1998. Of this
amount, the Company estimates that $29.5 million of net sales
and revenues will be generated during fiscal year 1998 and the
remainder will be generated after the end of fiscal year 1998.
As of January 5, 1997, the Company had been awarded contracts
which it estimated would result in an aggregate of approximately
$71.3 million of net sales and revenues after January 5, 1997.
Of this amount, the Company estimated that $35.5 million of net
sales and revenues will be generated during fiscal year 1997 and
the remainder will be generated after the end of fiscal year
1997.The estimates of management could be materially less than
stated as a result of factors which would cause one or more of
these customers to order less product or services than is
anticipated. Such factors include that the customer finds
another supplier for the desired products at a lower price or on
better terms, the internal business needs of the customer change
causing the customer to require less or different products and
services, or a significant change in technology or other
industry conditions occurs which alters the customer's needs or
timing of purchases. An estimate of the value of contracts
awarded as of a comparable date in the preceding fiscal year is
not available.
For fiscal years 1995, 1996 and 1997, sales of microcomputers,
peripheral products, supplies and software accounted for
approximately 91.5%, 91.2% and 89.7%, respectively, of the
consolidated net sales and revenues of the Company. The
Company's revenues from its service and support activities have
also grown over the last several years. For fiscal years 1995,
1996 and 1997, revenues from service and support activities were
approximately $19.6 million, $29.6 million and $50.5 million,
respectively, and accounted for approximately 8.5%, 8.8% and
10.3%, respectively, of the consolidated net sales and revenues
of the Company.
Competition
The microcomputer products and services market is highly
competitive. Distribution has evolved from manufacturers selling
through direct sales forces to sales by manufacturers to
aggregators (wholesalers), resellers and value-added resellers.
Competition, in particular the pressure on pricing, has resulted
in industry consolidation. In the future the Company may face
fewer but larger and better financed competitors as a
consequence of such consolidation. In response to continuing
competitive pressures, including specific price pressure from
the direct telemarketing and mail order distribution channels,
the microcomputer distribution channel is currently undergoing
segmentation into value-added resellers who emphasize advanced
systems together with service and support for business networks,
as compared to computer "superstores," who offer retail
purchasers a relatively low cost, low service alternative and
direct-mail suppliers which offer low cost and limited service.
Certain superstores have expanded their marketing efforts to
target segments of the Company's customer base, which could have
a material adverse impact on the Company's operations and
financial results.
While price is an important competitive factor in the Company's
business, the Company believes that its sales are principally
dependent upon its service, technical expertise, reputation and
experience. The Company's principal competitive strengths
include: (i) quality assurance; (ii) service and technical
support; (iii) lower pricing of products through alternative
distribution sources; (iv) prompt delivery of products to
customers; and (v) various financing alternatives.
<PAGE>
The Company competes for product sales directly with local,
national and international distributors and resellers. In
addition, the Company competes with microcomputer manufacturers
that sell their product through their own direct sales forces
and to distributors. Although the Company believes its prices
and delivery terms are competitive, certain competitors offer
more aggressive hardware pricing to their customers.
CERTAIN BUSINESS FACTORS
DEPENDENCE ON MAJOR CUSTOMERS
During fiscal 1997, approximately 41.2% of the Company's total
net sales and revenues were derived from its top 10 customers,
including one customer which accounted for 12.3% of total net
sales and revenues. This customer did not select the Company as
its fiscal 1998 computer product supplier. The Company does not
expect that this loss will have a near-term material impact on
its financial condition or results of operations.
RAPID GROWTH
The Company has experienced rapid growth both internally and
through acquisitions, and the Company intends to continue to
pursue both types of growth opportunities as part of its
business strategy. There can be no assurance that the Company
will be successful in maintaining its rapid growth in the
future. The Company expects that more of its future growth will
result from acquisitions. In 1997, the Company completed several
acquisitions and continues to evaluate expansion and acquisition
opportunities that would complement its ongoing operations.
There can be no assurance that the Company will be able to
identify, acquire or profitably manage additional companies or
successfully integrate such additional companies into the
Company without substantial costs, delays or other problems. In
addition, there can be no assurance that companies acquired in
the future will be profitable at the time of their acquisition
or will achieve levels of profitability that justify the
investment therein. Acquisitions may involve a number of special
risks, including, but not limited to, adverse short-term effects
on the Company's reported operating results, diversion of
management's attention, dependence on retaining, hiring and
training key personnel, risks associated with unanticipated
problems or legal liabilities and amortization of acquired
intangible assets, some or all of which could have a material
adverse effect on the Company's operations and financial
results.
VENDOR REBATES AND VOLUME DISCOUNTS
The Company's profitability has been favorably affected by its
ability to obtain rebates and volume discounts from
manufacturers and through aggregators and distributors. Any
change in the level of rebates, volume discount schedules or
other marketing programs offered by manufacturers that results
in the reduction or elimination of rebates or discounts
currently received by the Company could have a material adverse
effect on the Company's operations and financial results. In
particular, a reduction or elimination of rebates related to
government and educational customers could adversely affect the
Company's ability to serve those customers profitably.
MANUFACTURER MARKET DEVELOPMENT FUNDS
Several manufacturers offer market development funds,
cooperative advertising and other promotional programs to
computer resellers. These funds are accounted for as a reduction
in selling, general and administrative expenses, thereby
increasing net income. While such programs have been available
to the Company in the past, there is no assurance that these
programs will be continued. Any discontinuance or material
reduction of these programs could have an adverse effect on the
Company's operations and financial results.
MANAGEMENT INFORMATION SYSTEM
The Company relies upon the accuracy and proper utilization of
its management information system to provide timely distribution
services, manage its inventory and track its financial
information. To manage its growth, the Company is continually
evaluating the adequacy of its existing systems and procedures
(including Year 2000 issues) and has recently implemented a new
warehouse management system and continues to integrate
additional functions. The Company anticipates that it will
regularly need to make capital expenditures to upgrade and
modify its management information system, including software and
hardware, as the Company grows and the needs of its business
change. There can be no assurance that the Company will
anticipate all of the demands which its expanding operations
will place on its management information system. The occurrence
of a significant system failure or the Company's failure to
expand or successfully implement its systems could have a
material adverse effect on the Company's operations and
financial results.
<PAGE>
DEPENDENCE ON TECHNICAL EMPLOYEES
The success of the Company's services business, in particular
its network and integration services, depends in large part upon
the Company's ability to attract and retain highly skilled
technical employees in competitive labor markets. There can be
no assurance that the Company will be able to attract and retain
sufficient numbers of skilled technical employees. The loss of a
significant number of the Company's existing technical personnel
or difficulty in hiring or retaining technical personnel in the
future could have a material adverse effect on the Company's
operations and financial results.
INVENTORY MANAGEMENT
The PC industry is characterized by rapid product improvement
and technological change resulting in relatively short product
life cycles and rapid product obsolescence. While most of the
inventory stocked by the Company is for specific customer
orders, inventory devaluation or obsolescence could have a
material adverse effect on the Company's operations and
financial results. Current industry practice among manufacturers
is to provide price protection intended to reduce the risk of
inventory devaluation, although such policies are subject to
change at any time and there can be no assurance that such price
protection will be available to the Company in the future. Many
manufacturers have announced plans to reduce the number of days
for which they will provide price protection. Also, the Company
currently has the option of returning inventory to certain
manufacturers and distributors, subject to certain limitations.
The amount of inventory that can be returned to manufacturers
without a restocking fee varies under the Company's agreements
and such return policies may provide only limited protection
against excess inventory. There can be no assurance that new
product developments will not have a material adverse effect on
the value of the Company's inventory or that the Company will
successfully manage its existing and future inventory. In
addition, the Company stocks parts inventory for its services
business. Parts inventory is more likely to experience a
decrease in valuation as a result of technological change and
obsolescence and there are no price protection practices offered
by manufacturers with respect to parts.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is dependent on the services of David
B. Pomeroy,II, its Chairman of the Board, President and Chief
Executive Officer and other key personnel. The Company maintains
$1.0 million in key man life insurance insuring the life of Mr.
Pomeroy. The loss of the services of Mr. Pomeroy or other key
personnel could have a material adverse effect on the Company's
business. The Company has entered into employment agreements
with certain of its key personnel, including Mr. Pomeroy. The
Company's success and plans for future growth will also depend
on its ability to attract and retain highly skilled personnel in
all areas of its business.
Employees
As of January 5, 1998 the Company had 1,287 full-time employees
consisting of the following: 685 service and technical personnel
including 180 systems engineers; 217 direct sales
representatives and sales support personnel; 63 management
personnel; and 322 administrative and distribution personnel.
The Company has no collective bargaining agreements and believes
its relations with its employees are good.
Backlog
The Company does not have a significant backlog of business
since it normally delivers and installs products purchased by
its customers within 10 days from the date of order.
Accordingly, backlog is not material to the Company's business
or indicative of future sales. From time to time, the Company
experiences difficulty in obtaining products from its major
vendors as a result of general industry conditions. These delays
have not had, and they are not anticipated to have, a material
adverse effect on the Company's results of operations.
Patents and Trademarks
The Company owns no trademarks or patents. Although the
Company's various dealer agreements do not generally allow the
Company to use the trademarks and trade names of these various
manufacturers, the agreements do permit the Company to refer to
itself as an "authorized dealer" of the products of those
manufacturers and to use their trademarks and trade names for
marketing purposes. The Company considers the use of these
trademarks and trade names in its marketing efforts to be
important to its business.
Acquisitions
Acquisitions have contributed significantly to the Company's
growth. The Company believes that acquisitions are one method of
increasing its presence in existing markets, expanding into new
geographic markets, adding experienced service personnel,
<PAGE>
gaining new product offerings and services, obtaining more
competitive pricing as a result of increased purchasing volumes
of particular products and improving operating efficiencies
through economies of scale. In recent years, there has been
consolidation among providers of microcomputer products and
services and the Company believes that this consolidation will
continue, which, in turn, may present additional opportunities
for the Company to grow through acquisitions. The Company
continually seeks to identify and evaluate potential acquisition
candidates. The Company is currently engaged in preliminary
discussions with potential acquisition candidates. Although it
has no binding commitments to acquire such candidates,
management believes that the Company may acquire one or more of
these candidates in the future.
During fiscal 1997, the Company completed several acquisitions.
The total consideration given consisted of $3.7 million in cash,
subordinated notes of $1.3 million and 37 thousand unregistered
shares of the Company's common stock with an approximate value
of $1.0 million. Interest on the subordinated notes is payable
quarterly. Principal is payable in equal annual installments.
ITEM 2. Properties
The Company's principal executive offices and distribution
facility are located in Hebron, Kentucky, comprised of
approximately 36,000 and 161,000 square feet of space,
respectively. These facilities are leased from Pomeroy
Investments, LLC ( "Pomeroy Investments" ), a Kentucky limited
liability company controlled by David B. Pomeroy, II, Chief
Executive Officer of the Company, under a ten year triple-net
lease agreement which expires in May 2006. The lease agreement
provides for 2 five year renewal options. The Company expanded
the distribution facility by 70,000 square feet in 1997 to
include a new depot repair facility. Pomeroy Investments
financed, purchased and owns the land and improvements necessary
which accommodate the new depot repair facility. The Company
leases the additional space from Pomeroy Investments at an
annual lease rate no less favorable to the Company than can be
obtained from unaffiliated third parties.
The Company also has noncancelable operating leases for its
regional offices, expiring at various dates between 1997 and
2006. The Company believes there will be no difficulty in
negotiating the renewal of its real property leases as they
expire or in finding other satisfactory space. In the opinion of
management, the properties are in good condition and repair and
are adequate for the particular operations for which they are
used. The Company does not own any real property.
ITEM 3. Legal Proceedings
There are various legal actions arising in the normal course of
business that have been brought against the Company. Management
believes these matters will not have a material adverse effect
on the Company's consolidated financial position or results of
operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
The following table sets forth, for the periods indicated, the
high and low sales price for the Common Stock for the quarters
indicated as reported on the NASDAQ National Market. The
following prices have been adjusted to reflect the three-for-two
stock splits in the form of a stock dividend effected on October
4, 1996 and October 6, 1997, respectively.
1996 1997
_________________ ____________________
High Low High Low
First quarter $7.00 $5.33 $25.33 $12.1
Second quarter $7.56 $5.67 $19.17 $12.5
Third quarter $14.67 $6.11 $29.17 $16.6
Fourth quarter $25.33 $13.58 $31.25 $14.0
As of March 30, 1998, there were approximately 289 holders of
record of the Company's common stock.
Dividends
_________
The Company has not paid any cash dividends since its
organization and the completion of its initial public offering.
The Company has no plans to pay cash dividends in the foreseeable
future, and the payment of such dividends are precluded under
the Company's current borrowing agreement.
<PAGE>
SELECTED FINANCIAL DATA
(In Thousands Except Per Share Data
For the Fiscal Years Ended January
_____________________________________________
1994 1995(1) 1996 1997(2) 1998(3)
Consolidated Statement of Income Data:
Net sales and revenues $112,178 $144,575 $230,710 $336,358 $491,448
Cost of sales and service 94,151 120,901 197,174 281,753 410,063
________ ________ ________ ________ ________
Gross profit 18,027 23,674 33,536 54,605 81,385
Operating expenses:
Selling, general and
administrative 12,969 17,231 23,247 35,175 50,597
Royalty expense 605 - - - -
Depreciation and
amortization 400 886 1,004 2,561 3,940
________ ________ ________ ________ ________
Total operating expenses 13,974 18,117 24,251 37,736 54,537
Income from operations 4,053 5,557 9,285 16,869 26,848
Other expense (income):
Interest expense 850 1,031 1,999 2,170 974
Litigation settlement
and related costs - - - 4,392 -
Miscellaneous (57) (57) (64) (221) 54
________ ________ ________ ________ ________
Total other expense 793 974 1,935 6,341 1,028
Income before income taxes 3,260 4,583 7,350 10,528 25,820
Income tax expense 1,360 1,856 2,983 4,296 9,507
________ ________ ________ ________ ________
Net income $1,900 $2,727 $4,367 $6,232 $16,313
Earnings per common
share (diluted)(5) $0.35 $0.50 $0.73 $0.77 $1.44
Consolidated Balance Sheet Data:
Working capital $6,339 $6,556 $10,340 $27,203 $63,028
Long-term debt, net
of current maturities - 167 100 2,189 1,434
Equity 10,594 13,130 19,200 46,593 88,777
Total assets 34,086 57,061 63,985 121,380 167,264
(1) During fiscal 1994 the Company acquired the outstanding stock
of Xenas Communications Corp.
(2) In March 1996 and October 1996, the Company acquired the assets
of TCSS and DILAN, respectively. See Note 12 of Notes to
Consolidated Financial Statements.
(3) In 1997 the Company acquired Magic Box, Micro Care and The
Computer Store. See Note 12 of Notes to Consolidated Financial
Statements.
(4) Fiscal year 1996 reflects the Vanstar litigation settlement and
related costs of $4,392. Without this charge, net income would
have been $8,845 and diluted earnings per common share would have
been $1.09.
(5) Earnings per common share are calculated using weighted average
shares outstanding adjusted for the three-for-two stock split in
the form of a stock dividend effective on October 6, 1997.
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (in thousands, except per share da
The following table sets forth certain unaudited operating results
This information is unaudited, but in the opinion of management in
consisting of normal recurring adjustments, necessary for a fair p
operations of such periods.
Fiscal 1997(1)
__________________________________________
First Second Third Fourth
Quarter Quarter(2) Quarter(3) Quarter
__________ _________ _________ _________
Net sales and revenues $ 100,366 $ 118,218 $ 130,729 $ 142,135
Gross profit 16,904 19,135 21,533 23,813
Net income $ 2,958 $ 3,969 $ 4,540 $ 4,846
Earnings per common share:
Basic $ 0.29 $ 0.35 $ 0.40 $ 0.43
Diluted $ 0.28 $ 0.34 $ 0.39 $ 0.41
Fiscal 1996(1)
__________________________________________
First Second Third Fourth
Quarter(5) Quarter Quarter Quarter(6)
__________ _________ _________ _________
Net sales and revenues $ 63,224 $ 77,836 $ 92,975 $ 102,323
Gross profit 9,600 12,846 14,667 17,492
Net income(loss) $ (1,355) $ 1,853 2,619 $ 3,115
Earnings(loss) per common share:
Basic $ (0.23) $ 0.30 $ 0.28 $ 0.32
Diluted $ (0.22) $ 0.28 $ 0.27 $ 0.31
(1) All per share amounts have been restated to reflect the stock
split effected as a stock dividend in the fourth quarter of 1997
and the adoption of SFAS No. 128.
(2) During the second quarter of fiscal 1997 the Company acquired
substantially all of the assets of Magic Box. See Note 12 of Notes
to Consolidated Financial Statements.
(3) During the third quarter of fiscal 1997 the Company acquired
certain assets of Micro Care. See Note 12 of Notes to Consolidated
Financial Statements.
(4) During the fourth quarter of fiscal 1997 the Company acquired
CSI. See Note 12 of Notes to Consolidated Financial Statements.
(5) During the first quarter of fiscal 1996, the Company acquired
certain assets of TCSS. See Note 12 of Notes to Consolidated
Financial Statements. The first quarter of 1996 also includes the
effect of the Vanstar litigation settlement and related costs of
$4.4 million. Without this charge, net income would have been $1.3
million and earnings per common share would have been $0.21.
(6) During the fourth quarter of fiscal 1996, the Company acquired
certain assets of DILAN. See Note 12 of Notes to Consolidated
Financial Statements.
<PAGE>
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Total Net Sales and Revenues. Total net sales and revenues
increased $155.0 million, or 46.1%, to $491.4 million in fiscal
1997 from $336.4 million in fiscal 1996. This increase was
attributable to an increase in sales to existing and new customers
and to acquisitions completed in fiscal years 1997 and 1996.
Excluding acquisitions completed in fiscal years 1997 and 1996,
total net sales and revenues increased 35.8%.
Sales of equipment and supplies increased $134.2 million, or
43.8%, to $440.9 million in fiscal 1997 from $306.7 million in
fiscal 1996. On a comparable basis, as described above, sales of
equipment and supplies increased 33.9%. Service and other revenues
increased $20.8 million, or 70.0%, to $50.5 million in fiscal 1997
from $29.7 million in fiscal 1996. On a comparable basis, as
described above, service revenues increased 55.3%.
Gross Profit. Gross profit margin was 16.6% in fiscal 1997
compared to 16.2% in fiscal 1996. The Company improved its gross
margin by increasing the volume of higher-margin service revenues
which offset a decrease in hardware gross margins and the growth in
equipment sales. Service and other revenues increased to 10.3% of
total net sales and revenues in fiscal 1997 compared to 8.8% of
total net sales and revenues in fiscal 1996. Factors that may have
an impact on gross margin 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.
Operating Expenses. Selling, general and administrative
expenses (including rent expense and provision for doubtful
accounts) expressed as a percentage of total net sales and revenues
decreased to 10.3% in fiscal 1997 from 10.5% for fiscal 1996. This
decrease is primarily attributable to the increased productivity of
technical personnel which contributed to the growth of the
Company's service business. Total operating expenses expressed as a
percentage of total net sales and revenues decreased to 11.1% in
fiscal 1997 from 11.2% in fiscal 1996 due to the factor described
above.
Income from Operations. Income from operations increased $9.9
million, or 58.6 %, to $26.8 million in fiscal 1997 from $16.9
million in fiscal 1996. The Company's operating margin increased to
5.5% in fiscal 1997 from 5.0% in fiscal 1996 because of the
increase in gross margin and the decrease in operating expenses as
a percentage of total net sales and revenues.
Interest Expense. Total interest expense was $1.0 million in
fiscal 1997 compared with $2.2 million in fiscal 1996. This
decrease is primarily related to lower average borrowings during
fiscal 1997 as a result of the secondary public offering in
February 1997.
Income Taxes. The Company's effective tax rate was 36.8% in
fiscal 1997 compared to 40.8% in fiscal 1996. This reduction is the
result of Kentucky state income tax credits earned in fiscal 1997.
Net Income. Net income increased $10.1 million, or 162.9%, to
$16.3 million in fiscal 1997 from $6.2 million in fiscal 1996. The
increase was a result of the factors described above. Net income,
excluding the impact of the Vanstar settlement in fiscal 1996,
increased $7.5 million, or 85.2%, in fiscal 1997 compared with $8.8
million in fiscal 1996.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Total Net Sales and Revenues. Total net sales and revenues
increased $105.7 million, or 45.8%, to $336.4 million in fiscal
1996 from $230.7 million in fiscal 1995. This increase was
attributable to the acquisitions in fiscal 1996 and increased sales
to existing and new customers. Excluding acquisitions completed in
fiscal 1996, total net sales and revenues increased 14.9%.
Sales of equipment and supplies increased $95.6 million, or
45.3%, to $306.7 million in fiscal 1996 from $211.1 million in
fiscal 1995. On a comparable basis, as described above, sales of
equipment and supplies increased 12.7%. Service and other revenues
increased $10.0 million, or 51.0%, to $29.6 million in fiscal 1997
from $19.6 million in fiscal 1996. On a comparable basis, as
described above, service revenues increased 39.6%.
<PAGE>
Gross Profit. Gross profit margin was 16.2% in fiscal 1996
compared to 14.5% in fiscal 1995. This increase was primarily
attributable to a lesser number of lower margin, high volume
equipment roll-outs, larger vendor rebates and the increase in
higher margin service revenues. Vendor rebates increased $3.7
million, or 78.9%, to $8.4 million in fiscal 1996 from $4.7 million
in fiscal 1995. Provided there are no changes in rebate programs,
the level of vendor rebates is expected to continue into fiscal
1997 as volume purchases with major manufacturers continue to
increase.
Operating Expenses. Selling, general and administrative
expenses (including rent expense and provision for doubtful
accounts) expressed as a percentage of total net sales and revenues
increased to 10.5% in fiscal 1996 from 10.1% for fiscal 1995. This
increase is primarily attributable to the addition of technical
personnel as a result of the growth of the Company's service
business. As the personnel reach full productivity, their costs as
a percentage of services revenues are expected to decrease. In
addition, market development funds, which reduce selling, general
and administrative expenses, have declined as a percentage of total
net sales and revenues during fiscal 1996 to 1.0% from 1.3% in
fiscal 1995 primarily as a result of vendors shifting funds to
rebates. Total operating expenses expressed as a percentage of
total net sales and revenues increased to 11.2% in fiscal 1996 from
10.5% in fiscal 1995 due to the reduction of market development
funds and the increase in depreciation related to the new
headquarters and distribution facilities and amortization of
goodwill related to the acquisitions of TCSS and DILAN.
Income from Operations. Income from operations increased $7.6
million, or 81.7 %, to $16.9 million in fiscal 1996 from $9.3
million in fiscal 1995. The Company's operating margin increased to
5.0% in fiscal 1996 from 4.0% in fiscal 1995 because the increase
in gross margin more than offset the increase in operating expenses
as a percentage of total net sales and revenues.
Interest Expense. Total interest expense was $2.2 million in
fiscal 1996 compared with $2.0 million in fiscal 1995.
Income Taxes. The Company's effective tax rate was 40.8% in
fiscal 1996 compared to 40.6% in fiscal 1995.
Litigation Settlement and Related Costs. On April 29, 1996, the
Company agreed to a settlement of the litigation with Vanstar. The
settlement of $3.3 million consisted of a payment made by the
Company to Vanstar of $1.65 million in cash and a $1.65 million
note which was paid on August 27, 1996. The settlement agreement
also provided for mutual forgiveness of any and all claims or
obligations of the parties, resulting in a write-off of $0.5
million of receivables from Vanstar and additional expenses of $0.5
million for costs related to the litigation.
Net Income. Net income increased $1.8 million, or 42.7%, to $6.2
million in fiscal 1996 from $4.4 million in fiscal 1995. The
increase was a result of the factors described above. Excluding the
impact of the Vanstar settlement, net income in fiscal 1996 would
have been $8.8 million, an increase of 102.2% over the comparable
period in 1995.
Liquidity and Capital Resources
_______________________________
Cash used in operating activities was $22.9 million in fiscal
1997. Cash used in investing activities included $3.5 million for
acquisitions and $2.4 million for capital expenditures. Cash
provided by financing activities included $23.3 million of net
proceeds from a stock offering, $1.5 million from the exercise of
stock options less $1.5 million of net payments on bank notes
payable and $0.8 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 January 5, 1998,
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"). 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 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 financing of receivables is provided through its
Credit Facility, which during fiscal 1997 permited the Company to
borrow up to the lesser of $20.0 million or an amount based upon a
formula of eligible trade receivables. The Credit Facility carries
a variable interest rate based on (i) Star Bank's prime rate less
the Incentive Pricing Spread or (ii) LIBOR plus the Incentive
Pricing Spread, at the Company's election. The Incentive Pricing
Spread is adjusted quarterly. At January 5, 1998, the amount
outstanding was $22.6 million, including $6.5 million of overdrafts
on the Company's books in accounts at Star Bank, which was at an
interest rate of 7.5%. The overdrafts were subsequently funded
through the normal course of business. The 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 Credit Facility, the Company
is prohibited from paying any cash dividends and is subject to
various financial covenants.
<PAGE>
In January 1998 the Company revised its Credit Facility to
borrow up to $40.0 million. The revised Credit Facility, which
expires May 31, 1998, carries a variable interest rate based
solely on the prime rate of Star Bank less 125 basis points.
Further, the Company is in the process of finalizing a $ 120.0
million line of credit, under terms similar to the revised Credit
Facility, with DFS and Star Bank is expected to have a
participation interest in the new Credit Facility. When finalized
this line of credit will replace the $40.0 million Credit Facility.
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. 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 fiscal 1997 was not 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 completed a secondary public offering of its stock
on February 28, 1997. Net proceeds to the Company were
approximately $23.3 million from the issuance of 1.02 million
shares of common stock. The proceeds were used to reduce amounts
outstanding under its line of credit.
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 twelve
months. Historically, the Company has financed acquisitions using a
combination of cash, shares of its Common Stock and seller
financing. The Company anticipates that any future acquisitions
will be financed in a similar manner.
OTHER
The Company is heavily dependent upon complex computer systems for
all phases of its operations, which include sales and distribution.
The Company began addressing the affect of the Year 2000 compliance
issue in 1996.The Year 2000 date issue arises from the fact that
many computer programs use only two digits to identify a year in a
date field. The Company has completed an assessment of its own
systems and determined that its principle systems are Year 2000
compliant. Management does not expect that any costs associated
with the Company becoming Year 2000 compliant will have a material
adverse impact on the Company's financial position, results of
operations or cash flows. The Company is continuing to assess the
Year 2000 issue with respect to its customers and suppliers. The
Company could be adversely impacted by the Year 2000 date issue if
its suppliers, customers and other businesses do not address this
issue successfully. Management continues to assess these risks in
order to be able to respond in a manner which would reduce any
impact on the Company.
Item 8. Financial Statements and Supplementary Data
Registrant hereby incorporates the financial information required
by this item by reference to Item 14 hereof.
Item 9. Disagreements on Accounting and Financial Disclosure
None
PART III
Items 10-13.
The Registrant hereby incorporates the information required by
Form 10-K, Items 10-13 by reference to the Company's definitive
proxy statement for its 1998 Annual Meeting of shareholders
which will be filed with the Commission prior to May 5, 1998.
PART IV
Item. 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K - Index
(a) The following documents are filed as a part of this report:
1997 Form
10-K Page
_________
1. Financial Statements:
<PAGE>
Independent Auditor's Report F-1
Consolidated Balance Sheets,
January 5, 1997 and January 5, 1998 F-2 to F-3
For each of the three fiscal years in
the period ended January 5, 1998:
Consolidated Statements of Income F-4
Consolidated Statements of Cash F-5
Flows
Consolidated Statements of Equity F-6
Notes to Consolidated Financial F-7 to F-xx
Statements
2. Financial Statement Schedules:
None
Filed Herewith
(page #) or
Incorporated
by Reference to:
________________
3. Exhibits
________
3(a) Certificate of Incorporation Exhibit 3(a)
of the Company of Company's
Form S-1 filed
Feb. 14, 1992
3(b) Bylaws of the Company Exhibit 3(b)
of Company's
Form S-1 filed
Feb. 14, 1992
4 Rights Agreement between the Exhibit 4 of
Company and The Fifth Third Company's Form
Bank, as Rights Agent dated 8-K filed March
as of February 23,1998 xx, xxxx
10(i) Material Agreements
(a)(1) Loan Agreement between Star Exhibit
Bank, NA and the Company 10(i)(a)(1) of
dated November 19, 1992 Company's Form
10-K filed March
31, 1993
(a)(2) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(2) of
December 16, 1992 by and Company's Form
among Star Bank, NA, the 10-K filed March
Company and C&N Corp. 31, 1993
(a)(3) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(3) of
March 12, 1993 by and among Company's Form
Star Bank, N.A., the Company 10-K filed April
and C&N Corp. 7, 1994
(a)(4) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(4) of
April 30, 1993 by and among Company's Form
Star Bank, N.A., the Company 10-K filed April
and C&N Corp. 7, 1994
<PAGE>
(a)(5) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(5) of
June 30, 1993 by and among Company's Form
Star Bank, N.A., the Company 10-K filed April
and C&N Corp. 7, 1994
(a)(6) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(6) of
August 5, 1993 by and among Company's Form
Star Bank, N.A., the Company 10-K filed April
and C&N Corp. 7, 1994
(a)(7) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(7) of
November 29, 1993 by and Company's Form
among Star Bank, N.A., the 10-K filed April
Company and C&N Corp. 7, 1994
(a)(8) Amendment to Loan Agreement Exhibit
by Letter Agreement dated May 10(i)(a)(8) of
6, 1994 by and among Star Company's Form
Bank, N.A., the Company and 10-K filed April
C&N Corp. 4, 1995
(a)(9) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(9) of
November 3, 1994 by and among Company's Form
Star Bank, N.A., the Company 10-K filed April
and C&N Corp. 4, 1995
(a)(10) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(10) of
November 8, 1994 by and among Company's Form
Star Bank, N.A., the Company 10-K filed April
and C&N Corp. 4, 1995
(a)(11) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(11) of
November 30, 1994 by and Company's Form
among Star Bank, N.A., the 10-K filed April
Company and C&N Corp. 4, 1995
(a)(12) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(12) of
January 30, 1995 by and among Company's Form
Star Bank, N.A., the Company 10-K filed April
and C&N Corp. 4, 1995
(a)(13) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(13) of
March 31, 1995 by and among Company's Form
Star Bank, N.A., the Company, 10-Q filed May
C&N Corp. and Xenas 18, 1995
Communications Corp.
(a)(14) Amendment to Loan Agreement Exhibit
by Letter Agreement date May 10(i)(a)(14) of
31, 1995 by and among Star Company's Form
Bank, N.A., the Company, C&N 10-Q filed
Corp. and Xenas August 18,1995
Communications Corp.
(a)(15) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(15) of
October 19,1995 by and among Company's Form
Star Bank, N.A., the Company, 10-Q filed
C&N Corp. and Xenas November 17,
Communications Corp. 1995
(a)(16) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(16) of
December 18,1995 by and among Company's Form
Star Bank, N.A., the Company, 10-K filed April
C&N Corp. and Xenas 4, 1996
Communications Corp.
(a)(17) Amended and Restated Loan Exhibit
Agreement dated March 14, 10(i)(a)(17) of
1996 by and between Star Company's Form
Bank, N.A., the Company, C&N S-1 filed June
Corp., Xenas Communications 4, 1996
Corp. and Pomeroy Computer
Leasing Company, Inc.
(a)(18) Letter Agreement and Exhibit
Promissory Note dated June 10(i)(a)(18) of
12, 1996 by and among Star Company's Form
Bank, N.A., the Company, C&N 10-Q filed
Corp. and Xenas August 15, 1996
Communications Corp.
<PAGE>
(a)(19) Waiver Letter dated June 20, Exhibit
1996 by and among Star Bank, 10(i)(a)(19) of
N.A., the Company, C&N Corp. Company's Form
and Xenas Communications 10-Q filed
Corp. August 15, 1996
(a)(20) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(20) of
June 21, 1996 by and among Company's Form
Star Bank, N.A., the Company, 10-Q filed
C&N Corp. and Xenas August 15, 1996
Communications Corp.
(a)(21) Amendment to Loan Agreement Exhibit 10.1 of
by Letter Agreement dated Company's Form
June 27, 1996 by and among S-3 filed
Star Bank, N.A., the Company, January 3, 1997
C&N Corp. and Xenas
Communications Corp.
(a)(22) Amendment to Loan Agreement Exhibit
by Letter Agreement dated 10(i)(a)(22) of
October 18, 1996 by and among Company's Form
Star Bank, N.A., the Company, 10-Q filed
C&N Corp. and Xenas November 19,
Communications Corp. 1996
(a)(23) Amendment to Loan Agreement Exhibit 10.2 of
by Letter Agreement dated Company's Form
December 20, 1996 by and S-3 filed
among Star Bank, N.A., the January 3, 1997
Company, C&N Corp., Xenas
Communications Corp. and
Pomeroy Computer Leasing
Company, Inc.
(a)(24) Promissory Note dated April Exhibit
30, 1997 by and among Star 10(i)(a)(24) of
Bank, N.A., the Company, Company's Form
Pomeroy Computer Leasing 10-Q filed
Company, Inc. and Xenas August 11, 1997
Communications Corp.
(b)(1) Agreement for Wholesale Exhibit
Financing (Security 10(i)(b)(1) of
Agreement) between IBM Credit Company's Form
Corporation and the Company 10-K filed April
dated April 2, 1992 7, 1994
(b)(2) Addendum to Agreement for Exhibit
Wholesale Financing between 10(i)(b)(2) of
IBM Credit Corporation and Company's Form
the Company dated July 7, 10-K filed April
1993 7, 1994
(c)(1) Agreement for Wholesale Exhibit
Financing (Security 10(i)(c)(1) of
Agreement) between ITT Company's Form
Commercial Finance 10-K filed April
Corporation and the Company 7, 1994
dated March 27, 1992
(c)(2) Addendum to Agreement for Exhibit
Wholesale Financing between 10(i)(c)(2) of
ITT Commercial Finance Company's Form
Corporation and the Company 10-K filed April
dated July 7, 1993 7, 1994
(c)(3) Amendment to Agreement for Exhibit
Wholesale Financing between 10(i)(c)(3) of
Deutsche Financial Services Company's Form
f/k/a ITT Commercial Finance 10-Q filed May
Corporation and the Company 18, 1995
dated May 5, 1995.
(d)(1) Asset Purchase Agreement Exhibit 10(i)(z)
among the Company; TCSS; and of Company's
Richard Feaster, Victoria Form 8-K dated
Feaster, Harry Feaster, March 14, 1996
Carolyn Feaster, Victoria
Feaster, trustee of the Emily
Patricia Feaster Trust, and
Victoria Feaster, as trustee
of the Nicole Ann Feaster
Trust dated March 14, 1996
(d)(2) Lease between the Company and Exhibit 10.48 of
TCSS dated March 15, 1996 Company's Form
S-1 filed June
4, 1996
(d)(3) Lease between Arthur K. Jones Exhibit 10.49 of
Trust, Firststar Bank Des Company's Form
Moines, N.A., and William A. S-1 filed June
Jones, Trustees, and The 4, 1996
Computer Supply Store, Inc.
dated July 1, 1994 (assigned
to the Company effective as
of March 14, 1996)
<PAGE>
(d)(4) Registration Rights Agreement Exhibit 10.50 of
between the Company and TCSS Company's Form
dated March 14, 1996 S-1 filed June
4, 1996
(d)(5) Employment Agreement between Exhibit 10.51 of
the Company and Richard Company's Form
Feaster dated March 14, 1996 S-1 filed June
4, 1996
(d)(6) Employment Agreement between Exhibit 10.52 of
the Company and Victoria Company's Form
Feaster dated March 14, 1996 S-1 filed June
4, 1996
(e)(1) IBM Agreement for Authorized Exhibit
Dealers 10(i)(e)(1)
and Industry Remarketers with of Company's
the
Company, dated September 3, Form S-1 filed
1991
Feb. 14, 1992
(e)(2) Schedule of Substantially Exhibit
10(i)(e)(2)
Identical IBM Agreements for of Company's
Authorized Dealers and Form S-1 filed
Industry
Remarketers Feb. 14, 1992
(f) Compaq Computer Corporation Exhibit 10(i)(f)
United
States Dealer Agreement with of Company's
the
Company, dated September 27, Form S-1 filed
1990
Feb. 14, 1992
(g) Dealer Sales Agreement Exhibit 10(i)(g)
between
Apple Computer, Inc. and the of Company's
Company, dated April 1, 1991 Form S-1 filed
Feb. 14, 1992
(h) Lease between Sydney A. Warm Exhibit 10(i)(h)
and the
Company for 1021 West Eighth of Company's
Street,
Cincinnati, OH, dated May Form S-1 filed
15, 1990
Feb. 14, 1992
(i) Lease between F.G.&H. Exhibit 10(i)(i)
Partnership
and the Company for 908 of Company's
DuPont Road,
Louisville, KY, dated May 9, Form S-1 filed
1990
Feb. 14, 1992
(j)(1) Purchase Agreement between Exhibit 10.86 of
the Company and First of Company's Form
Michigan Corporation dated S-1 filed June
March 28, 1996 4, 1996
(j)(2) Purchase Agreement between Exhibit 10.87 of
the Company and John C. Company's Form
Donnelly dated March 28, 1996 S-1 filed June
4, 1996
(j)(3) Purchase Agreement between Exhibit 10.88 of
the Company and Dan B. French Company's Form
dated March 28, 1996 S-1 filed June
4, 1996
(j)(4) Purchase Agreement between Exhibit 10.89 of
the Company and James C. Company's Form
Penman dated March 28, 1996 S-1 filed June
4, 1996
(k)(1) Lease between Industrial Exhibit
Developments International, 10(i)(k)(1) of
Inc., and the Company for Company's Form
1840 Airport Exchange Blvd., 10-K filed March
Suite 240, Erlanger, KY dated 31, 1993
November 2, 1992
(k)(2) Amendment to lease between Exhibit
Industrial Developments 10(i)(k)(2) of
International, Inc., and the Company's Form
Company for 1840 Airport 10-K filed March
Exchange Blvd., Suite 240, 31, 1993
Erlanger, KY dated December
31, 1992
<PAGE>
(k)(3) Lease between Industrial Exhibit
Developments International, 10(i)(k)(3) of
Inc., and the Company for Company's Form
1850 Airport Exchange Blvd., 10-K filed March
Suite 600, Erlanger, KY dated 31, 1993
November 2, 1992
(k)(4) Amendment to lease between Exhibit
Industrial Developments 10(i)(k)(4) of
International, Inc., and the Company's Form
Company for 1850 Airport 10-K filed March
Exchange Blvd., Suite 600, 31, 1993
Erlanger, KY dated December
31, 1992
(l) Covenant not to Compete Exhibit
between the Company and 10(i)(l)(2) of
Richard C. Mills dated July Company's Form
7, 1993 10-K filed April
7, 1994
(m)(1) Asset Purchase Agreement Exhibit 10.5 of
among the Company, AA Company's Form
Microsystems, Inc. and Stuart S-3 filed
Raburn dated August 2, 1996 January 3, 1997
(m)(2) Promissory Note dated August Exhibit 10.6 of
2, 1996 of the Company in Company's Form
favor of AA Microsystems, S-3 filed
Inc. January 3, 1997
(n)(1) Lease between Crown Exhibit 10(i)(n)
Development Group and the of Company's
Company for 3740 St. Johns Form 10-K filed
Bluff Road, Suite 19, March 31, 1993
Jacksonville, FL dated
September 17, 1992
(n)(2) Amendment to Lease between Exhibit
Crown Development Group and 10(i)(n(2 of
the Company for 3740 St. Company's Form
Johns Bluff Road, Suite 19, 10-K filed April
Jacksonville, FL dated 4, 1996
December 11, 1995
(o) Lease between Lincoln Exhibit 10(i)(o)
National Investment of Company's
Management Company and the Form 10-K filed
Company for Suite 150F in the March 31, 1993
Terraces on Market Place
Blvd., Knoxville, TN dated
September 30, 1992
(p)(1) Remarketing and Agency Exhibit
Agreement (the "Remarketing 10(i)(p)(1) of
Agreement") between Company's Form
Information Leasing S-1 filed Feb.
Corporation and the Company 14, 1992
dated January 7, 1990
(p)(2) Amendment No. 1 to the Exhibit
Remarketing Agreement dated 10(i)(p)(2) of
November 12, 1991 Company's Form
S-1 filed Feb.
14, 1992
(p)(3) Letter, dated February 2, Exhibit
1994, extending term of 10(i)(p)(3) of
Remarketing Agreement to May Company's Form
1, 1996 10-K filed April
4, 1996
(p)(4) Amendment No. 2 to the Exhibit
Remarketing Agreement dated 10(i)(p)(4) of
October 10, 1995 Company's Form
10-K filed April
4, 1996
(q) Lease between Athens Exhibit 10(i)(q)
Properties and the Company of Company's
for Crosspark Drive, Form 10-K filed
Knoxville, TN dated October April 4, 1996
31, 1995
(r)(1) Asset Purchase Agreement Exhibit 10.7 of
among the Company, Company's Form
Communications Technology, S-3 filed
Inc. d/b/a DILAN and Robert January 3, 1997
Martin dated October 11, 1996
(r)(2) Subordinated Promissory Note Exhibit 10.8 of
dated October 11, 1996 of the Company's Form
Company in favor of S-3 filed
Communications Technology, January 3, 1997
Inc.
<PAGE>
(r)(3) Subordination Agreement among Exhibit 10.9 of
the Company, Communications Company's Form
Technology, Inc. and Star S-3 filed
Bank, N.A. dated October 11, January 3, 1997
1996
(s) Services Agreement between Exhibit 10.13 of
the Company and Nationwide Company's Form
Mutual Insurance and the S-3 filed
Company dated December 11, January 3, 1997
1996
(t1) Asset Purchase Agreement Exhibit
among the Company and Magic 10(i)(t)(1) of
Box, Inc. dared June 26, 1997 Company's Form
10-Q filed
August 11, 1997
(t)(2) Employment Agreement between Exhibit
the Company and Israel Fintz, 10(i)(t)(2) of
dated June 26, 1997 Company's Form
10-Q filed
August 11, 1997
(t)(3) Incentive Deferred Exhibit
Compensation Agreement 10(i)(t)(3) of
between the Company and Company's Form
Israel Fintz, dated June 26, 10-Q filed
1997 August 11, 1997
(t)(4) Employment Agreement between Exhibit
the Company and Allison 10(i)(t)(4) of
Sokol, dated June 26, 1997 Company's Form
10-Q filed
August 11, 1997
(t)(5) Incentive Deferred Exhibit
Compensation Agreement 10(i)(t)(5) of
between the Company and Company's Form
Allison Sokol, dated June 26, 10-Q filed
1997 August 11, 1997
(t)(6) Power of Attorney given to Exhibit
the Company by Magic Box, 10(i)(t)(6) of
Inc. for the collection of Company's Form
Accounts Receivable, dated 10-Q filed
June 26, 1997 August 11, 1997
(t)(7) Agreement for the Assumption Exhibit
of Liabilities between the 10(i)(t)(7) of
Company and Magic Box, Inc. Company's Form
10-Q filed
August 11, 1997
(t)(8) Subordination Agreement by Exhibit
and among the Company, Magic 10(i)(t)(8) of
Box, Inc. and Star Bank, Company's Form
N.A., dated June 26, 1997 10-Q filed
August 11, 1997
(t)(9) Subordinated Promissory Note Exhibit
between the Company and 10(i)(t)(9) of
Israel Fintz, dated June 26, Company's Form
1997 10-Q filed
August 11, 1997
(t)(10) Subordinated Promissory Note Exhibit
between the Company and 10(i)(t)(10) of
Allison Sokol, dated June 26, Company's Form
1997 10-Q filed
August 11, 1997
(t)(11) Subordinated Promissory Note Exhibit
between the Company and 10(i)(t)(11) of
Marvin Rosen, dated June 26, Company's Form
1997 10-Q filed
August 11, 1997
(t)(12) Subordinated Promissory Note Exhibit
between the Company and M. 10(i)(t)(12) of
Ronald Krongold, dated June Company's Form
26, 1997 10-Q filed
August 11, 1997
(t)(13) General Bill of Sale between Exhibit
the Company and Magic Box, 10(i)(t)(13) of
Inc., dated June 26, 1997 Company's Form
10-Q filed
August 11, 1997
(t)(14) Non Compete Agreement between Exhibit
the Company and Israel Fintz, 10(i)(t)(14) of
dated June 26, 1997 Company's Form
10-Q filed
August 11, 1997
<PAGE>
(t)(15) Non Compete Agreement between Exhibit
the Company and Allison 10(i)(t)(15) of
Sokol, dated June 26, 1997 Company's Form
10-Q filed
August 11, 1997
(t)(16) Non Compete Agreement between Exhibit
the Company and Marvin Rosen, 10(i)(t)(16) of
dated June 26, 1997 Company's Form
10-Q filed
August 11, 1997
(t)(17) Non Compete Agreement between Exhibit
the Company and M. Ronald 10(i)(t)(17) of
Krongold, dated June 26, 1997 Company's Form
10-Q filed
August 11, 1997
(t)(18) Non Compete Agreement between Exhibit
the Company and Magic Box, 10(i)(t)(18) of
Inc., dated June 26, 1997 Company's Form
10-Q filed
August 11, 1997
(u) Lease between NWI Airpark Exhibit 10(i)(u)
L.P. and the Company for 717 of Company's
Airpark Center Drive, Form 10-K filed
Nashville, TN dated February April 4, 1995
24, 1994
(v)(1) Promissory Note dated May 30, Exhibit
1997 by and among Star Bank, 10(i)(v)(1) of
N.A., the Company and Pomeroy Company's Form
Computer Leasing Company, 10-Q filed
Inc. August 11, 1997
(v)(2) Loan Agreement dated October E-1 to E - 53
31,1997 between The Fifth
Third Bank of Northern
Kentucky, Inc. and Technology
Integration Financial
Services, Inc.
(v)(3) Guarantor Agreement dated E-54
October 31,1997 between
Pomeroy Computer Resoucres,
Inc and The Fifth Third Bank
of Northern Kentucky, Inc.
(v)(4) Addendum 1 to Guarantor E-55 to E-57
Agreement dated October
31,1997 between Pomeroy
Computer Resoucres, Inc and
The Fifth Third Bank of
Northern Kentucky, Inc.
<PAGE>
(v)(5) Assignment Agreement between E-58 to E-60
dated October 31,1997 between
The Fifth Third Bank of
Northern Kentucky, Inc. and
Technology Integration
Financial Services, Inc.
(v)(6) Incumbency and Authorization E-61
Agreement dated October
31,1997 between The Fifth
Third Bank of Northern
Kentucky, Inc. and Technology
Integration Financial
Services, Inc.
(v)(7) Draw Facility Note dated E-62 to E-67
October 31,1997 between The
Fifth Third Bank of Northern
Kentucky, Inc. and Technology
Integration Financial
Services, Inc.
(v)(8) Revolving Credit Note dated E-68 to E72
October 31,1997 between The
Fifth Third Bank of Northern
Kentucky, Inc. and Technology
Integration Financial
Services, Inc.
(v)(9) Security Agreement dated E-73 to E-95
October 31,1997 between The
Fifth Third Bank of Northern
Kentucky, Inc. and Technology
Integration Financial
Services, Inc.
(w)(1) Non Compete Agreement between Exhibit
the Company and Microcare 10(i)(w)(1) of
Computer Services, Inc., Company's Form
dated July 24, 1997 10-Q filed
November 10,
1997
(w)(2) Non Compete Agreement between Exhibit
the Company and Microcare, 10(i)(w)(2) of
Inc., dated July 24, 1997 Company's Form
10-Q filed
November 10,
1997
(w)(3) Assignment and Assumption Exhibit
Agreement between the 10(i)(w)(3) of
Company, and Microcare Company's Form
Computer Services, Inc., and 10-Q filed
Microcare Inc., dated July November 10,
24, 1997 1997
(w)(4) Assumption of Liabilities Exhibit
Agreement between the 10(i)(w)(4) of
Company, and Microcare Company's Form
Computer Services, Inc., and 10-Q filed
Microcare Inc., dated July November 10,
24, 1997 1997
(w)(5) Non Compete Agreement between Exhibit
the Company, and Robert L. 10(i)(w)(5) of
Versprille, dated July 24, Company's Form
1997 10-Q filed
November 10,
1997
(w)(6) Consent for Use of Similar Exhibit
Name between the Company and 10(i)(w)(6) of
Microcare, Inc., dated July Company's Form
24, 1997 10-Q filed
November 10,
1997
(w)(7) Subordination Agreement Exhibit
between the Company, and 10(i)(w)(7) of
Microcare Computer Services, Company's Form
Inc., and Star Bank, N.A., 10-Q filed
dated July 24, 1997 November 10,
1997
(w)(8) Subordinated Promissory Note Exhibit
between the Company and 10(i)(w)(8) of
Microcare Computer Services, Company's Form
Inc., dated July 24, 1997 10-Q filed
November 10,
1997
<PAGE>
(w)(9) Registration Rights Agreement Exhibit
between the Company and 10(i)(w)(9) of
Microcare Computer Services, Company's Form
Inc., dated July 24, 1997 10-Q filed
November 10,
1997
(w)(10) General Bill of Sale and Exhibit
Assignment between the 10(i)(w)(10) of
Company and Microcare Company's Form
Computer Services, Inc., 10-Q filed
dated July 24, 1997 November 10,
1997
(w)(11) General Bill of Sale and Exhibit
Assignment between the 10(i)(w)(11) of
Company and Microcare, Inc., Company's Form
dated June 24, 1997 10-Q filed
November 10,
1997
(w)(12) Asset Purchase Agreement Exhibit
between the Company, and 10(i)(w)(12) of
Microcare Computer Services, Company's Form
Inc., Microcare Inc., and 10-Q filed
Robert L. Versprille dated November 10,
July 24, 1997 1997
(w)(13) Employment Agreement between Exhibit
the Company and Robert L. 10(i)(w)(13) of
Versprille, dated July 24, Company's Form
1997 10-Q filed
November 10,
1997
(x) Lease between the Company and Exhibit 10(i)(x)
Pomeroy Investments, LLC for of Company's
buildings at Airpark Form 10-Q filed
International dated September November 17,
5, 1995 1995
(y) Lease between the Company and Exhibit 10(i)(y)
New England Mutual Life of Company's
Insurance Company for Form 10-Q filed
building at Lexington November 17,
Business Center dated October 1995
4, 1995
(z)(1) Asset Purchase Agreement Exhibit
between the Company and 10(i)(z)(1) of
Cabling Unlimited, Inc. dated Company's Form
October 13, 1995 10-K filed April
4, 1996
(z)(2) Agreement between Cabling Exhibit
Unlimited, Inc. and the 10(i)(z)(2) of
Company dated October 13, Company's Form
1995 10-K filed April
4, 1996
(z)(3) Agreement between Karen Exhibit
Epperson and the Company 10(i)(z)(3) of
dated October 13, 1995 Company's Form
10-K filed April
4, 1996
(z)(4) Employment Agreement between Exhibit
Karen Epperson and the 10(i)(z)(4) of
Company dated October 13, Company's Form
1995 10-K filed April
4, 1996
(z)(5) Assumption of Liabilities Exhibit
between Cabling Unlimited, 10(i)(z)(5) of
Inc. and the Company dated Company's Form
October 13, 1995 10-K filed April
4, 1996
(aa) Lease between Gleeson, Inc. Exhibit
and the Company for 115 10(i)(aa) of
Wiltshire Ave., Louisville, Company's Form
KY dated May 10, 1995 10-K filed April
(assigned to the Company 4, 1996
effective October 13, 1995)
(bb) Columbia/HCA Agreement Exhibit
between Columbia/HCA 10(i)(bb) of
Information Services, Inc. Company's Form
and the Company dated 10-K filed April
December 12, 1995 4, 1996
<PAGE>
(cc)(1) Plan of Reorganization dated E-96 to E-137
October 17,1997 between
Pomeroy Computer Resources of
South Carolina and The
Computer Store, Inc.
(cc)(2) Plan of Merger dated October E-138 to E142
17,1997 between Pomeroy
Computer Resources of South
Carolina and The Computer
Store, Inc.
(cc)(3) Articles of Merger dated E-143 to E-145
October 17,1997 between
Pomeroy Computer Resources of
South Carolina and The
Computer Store, Inc.
(cc)(4) Employment Agreement dated E-146 to E-153
October 17,1997 between
Pomeroy Computer Resources of
South Carolina, Inc. and
Jeffrey F. Hipp
(cc)(5) Employment Agreement dated E-154 to E-163
October 17,1997 between
Pomeroy Computer Resources of
South Carolina, Inc. and
Ronald D. Hildreth
(cc)(6) Employment Agreement dated E-164 to E-172
October 17,1997 between
Pomeroy Computer Resources of
South Carolina, Inc. and
Authur M. Cox
(cc)(7) Guarnaty of Employment E-173 to E-175
Agreement dated October
17,1997 between Pomeroy
Computer Resources of South
Carolina, Inc. and Authur M.
Cox
(cc)(8) Guarnaty of Employment E-176 to E-178
Agreement dated October
17,1997 between Pomeroy
Computer Resources of South
Carolina, Inc. and Ronald D.
Hildreth
(cc)(9) Guarnaty of Employment E-179 to E-181
Agreement dated October
17,1997 between Pomeroy
Computer Resources of South
Carolina, Inc. and Jeffery F.
Hipp
(cc)(10)Non-Compete Agreement dated E-182 to E-186
October 17,1997 between
Pomeroy Computer Resources of
South Carolina, Inc. and
Authur M. Cox
(cc)(11)Non-Compete Agreement dated E-187 to E-191
October 17,1997 between
Pomeroy Computer Resources of
South Carolina, Inc. and
Ronald D. Hildreth
(cc)(12)Non-Compete Agreement dated E-192 to E-196
October 17,1997 between
Pomeroy Computer Resources of
South Carolina, Inc. and
Jeffrey F. Hipp
(cc)(13)Investor's Certificate dated E-197 to E-199
October 17,1997 between
Pomeroy Computer Resources of
South Carolina, Inc. and
Jeffrey F. Hipp
(cc)(14)Investor's Certificate dated E-200 to E-202
October 17,1997 between
Pomeroy Computer Resources of
South Carolina, Inc. and
Ronald D. Hildreth
(cc)(15)Investor's Certificate dated E-203 to E-205
October 17,1997 between
Pomeroy Computer Resources of
South Carolina, Inc. and
Authur M. Cox
<PAGE>
(cc)(16)Escrow Agreement dated E-206 to E-212
October 17,1997 between
Pomeroy Computer Resources of
South Carolina, Inc., Authur
M. Cox, Ronald D. Hildreth,
and Jeffrey F. Hipp
(cc)(17)Opinion Letter on Plan of E-213 to E-215
Merger dated October 17,1997
between Pomeroy Computer
Resources of South Carolina
and The Computer Store, Inc.
10(iii) Material Employee Benefit and
Other Agreements
(a)(1) Employment Agreement between Exhibit
the Company 10(iii)(a)
and David B. Pomeroy, dated of Company's
March 12, 1992 Form S-1 filed
Feb. 14, 1992
(a)(2) First Amendment to Employment Exhibit
Agreement between the Company 10(iii)(a)(2) of
and David B. Pomeroy Company's Form
effective July 6, 1993 10-K filed April
7, 1994
(a)(3) Second Amendment to Exhibit
Employment Agreement between 10(iii)(a)(3) of
the Company and David B. Company's Form
Pomeroy dated October 14, 10-K filed April
1993 7, 1994
(a)(4) Agreement between the Company Exhibit
and David B. Pomeroy related 10(iii)(a)(4) of
to the personal guarantee of Company's Form
the Datago agreement by David 10-K filed April
B. Pomeroy and his spouse 7, 1994
effective July 6, 1993
(a)(5) Third Amendment to Exhibit
Employment Agreement between 10(iii)(a)(5) of
the Company and David B. Company's Form
Pomeroy effective January 6, 10-Q filed
1995 November 17,
1995
(a)(6) Supplemental Executive Exhibit
Compensation Agreement 10(iii)(a)(6) of
between the Company and David Company's Form
B. Pomeroy effective January 10-Q filed
6, 1995 November 17,
1995
(a)(7) Collateral Assignment Split Exhibit
Dollar Agreement between the 10(iii)(a)(7) of
Company; Edwin S. Weinstein, Company's Form
as Trustee; and David B. 10-Q filed
Pomeroy dated June 28, 1995 November 17,1995
(a)(8) Fourth Amendment to Exhibit
Employment Agreement between 10(iii)(a)(8) of
the Company and David B. Company's Form
Pomeroy dated December 20, 10-Q filed May
1995, effective January 6, 17, 1996
1995
(a)(9) Fifth Amendment to Exhibit
Employment Agreement between 10(iii)(a)(9) of
the Company and David B. Company's Form
Pomeroy effective January 6, 10-Q filed May
1996 17, 1996
(a)(10) Sixth Amendment to Exhibit 10.10 of
Employment Agreement between Company's Form
the Company and David B. S-3 filed
Pomeroy effective January 6, January 3, 1997
1997
(a)(11) Award Agreement between the Exhibit 10.11 of
Company and David B. Pomeroy Company's Form
effective January 6, 1997 S-3 filed
January 3, 1997
(a)(12) Registration Rights Agreement Exhibit 10.12 of
between the Company and David Company's Form
B. Pomeroy effective January S-3 filed
6, 1997 January 3, 1997
(b) Employment Agreement between Exhibit
the Company and Edwin S. 10(iii)(c) of
Weinstein dated February 13, Company's Form
1992 S-1 filed Feb.
14, 1992
(c)(1) Employment Agreement between Exhibit
the Company and Victor Eilau 10(iii)(c)(1) of
dated July 6, 1997 Company's Form
10-Q filed
August 11, 1997
<PAGE>
(c)(2) Performance Share Right Exhibit
Agreement between the Company 10(iii)(c)(2) of
and Victor Eilau dated July Company's Form
6, 1997 10-Q filed
August 11, 1997
(d) The Company Savings 401(k) Exhibit
Plan, 10(iii)(d)
effective July 1, 1991 of Company's
Form S-1 filed
Feb. 14, 1992
(e) The Company's Employee Stock Exhibit
Ownership Plan and Trust, 10(iii)(e) of
effective July 1, 1992 Company's Form
10-K filed March
31, 1993
(f) The Company's 1992 Non- Exhibit
Qualified 10(iii)(f)
and Incentive Stock Option of Company's
Plan,
dated February 13, 1992 Form S-1 filed
February 14,
1992
(g) The Company's 1992 Outside Exhibit
Directors 10(iii)(g)
Stock Option Plan, dated of Company's
February 13,
1992 Form S-1 filed
Feb. 14, 1992
(h) Employment Agreement between Exhibit
the Company and Richard C. 10(iii)(h) of
Mills dated July 7, 1993 Company's Form
10-K filed April
7, 1994
(I) Employment Agreement between Exhibit 10.64 of
the Company and James Eck Company's Form
dated February 6, 1996, and S-1 filed June
effective as of September 18, 4, 1996
1995
(j)(1) Employment Agreement between Exhibit 10.3 of
the Company and Stephen E. Company's Form
Pomeroy dated November 13, S-3 filed
1996 January 3, 1997
(j)(2) Incentive Deferred Exhibit 10.4 of
Compensation Agreement Company's Form
between the Company and S-3 filed
Stephen E. Pomeroy dated January 3, 1997
November 13, 1996
11 Computation of Per Share E-216
Earnings
21 Subsidiaries of the Company E-217
27 Financial Data Schedule E-218 to E-219
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ David B. Pomeroy
David B. Pomeroy
Chairman of the Board, President and
Chief Executive Officer
By: /s/ Stephen E. Pomeroy
Stephen E. Pomeroy
Chief Financial Officer and Chief
Accounting Officer
Dated: April 5, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the date
indicated.
Signature and Title Date
___________________ ____
By: /s/ David B. Pomery April 5, 1998
___________________________
David B. Pomeroy, Director
By: /s/ Stephen E. Pomeroy April 5, 1998
___________________________
Stephen E. Pomeroy, Director
By: /s/ James H. Smith April 5, 1998
___________________________
James H. Smith III, Director
By:
___________________________
Dr. David W. Rosenthal, Director
By:
___________________________
Michael E. Rohrkemper, Director
By:
___________________________
Kenneth E. Waters, Director
By: /s/ Richard C. Mills April 5, 1998
___________________________
Richard C. Mills, Director
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Pomeroy Computer Resources, Inc.
We have audited the accompanying consolidated balance sheets
of Pomeroy Computer Resources, Inc. as of January 5, 1997 and
1998, and the related consolidated statements of income,
equity, and cash flows for each of the three years in the
period ended January 5, 1998. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of Pomeroy Computer
Resources, Inc. at January 5, 1997 and 1998, and the
consolidated results of its operations and its consolidated
cash flows for each of the three years in the period ended
January 5, 1998 in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Cincinnati, Ohio
February 6, 1998, except for Note 18 as to which the date is
March 6, 1998
F-1
<PAGE>
<TABLE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
January 5, January 5,
1997 1998
__________ __________
<S> <C> <C>
ASSETS
Current assets:
Cash................................... $ 6,809 $ 380
Accounts receivable:
Trade, less allowance of $372
and $355 at January 5, 1997
and 1998, respectively............... 53,374 79,531
Vendor receivables, less allowance of
$137 and $223 at January 5, 1997
and 1998, respectively............... 14,411 19,575
Other................................ 309 601
__________ __________
Total receivables.............. 68,094 99,707
__________ __________
Inventories............................ 23,426 39,160
Other.................................. 739 816
__________ __________
Total current assets........... 99,068 140,063
__________ __________
Equipment and leasehold improvements:
Furniture, fixtures and equipment...... 8,639 12,174
Leasehold improvements................. 4,437 5,142
__________ __________
Total.......................... 13,076 17,316
Less accumulated depreciation.......... 3,864 6,770
__________ __________
Net equipment and
leasehold improvements......... 9,212 10,546
__________ __________
Investment in lease residuals............ 3,043 3,480
Goodwill and other intangible assets..... 9,435 12,697
Other assets............................. 622 478
__________ __________
Total assets................... $ 121,380 $ 167,264
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
F - 2
<PAGE>
<TABLE>
POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(in thousands) January 5, January 5,
1997 1998
__________ __________
<S> <C> <C>
LIABILITIES AND EQUITY
Current liabilities:
Current portion of notes payable....... $ 907 $ 2,077
Accounts payable:
Floor plan financing................. 34,609 22,818
Trade................................ 5,734 17,220
__________ __________
Total accounts payable......... 40,343 40,038
Bank notes payable..................... 24,146 22,611
Deferred revenue....................... 2,318 3,503
Accrued liabilities:
Employee compensation and benefits... 2,016 2,938
Income taxes......................... 1,544 5,051
Interest............................. 147 76
Miscellaneous........................ 444 741
__________ __________
Total current liabilities...... 71,865 77,035
Notes payable............................ 2,189 1,434
Deferred income taxes.................... 733 18
Equity:
Preferred stock
(no shares issued or outstanding)...... - -
Common stock (6,469 and 11,402 shares
issued and outstanding at January 5,
1997 and 1998, respectively)........... 65 114
Paid-in capital........................ 34,402 60,226
Retained earnings...................... 12,330 28,641
__________ __________
46,797 88,981
Less treasury stock, at cost (21 shares
at January 5, 1997 and 1998,
respectively).......................... 204 204
__________ __________
Total equity................... 46,593 88,777
__________ __________
Total liabilities and equity... $ 121,380 $ 167,264
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
F - 3
<PAGE>
<TABLE>
POMEROY COMPUTER RESOURCES, INC.
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years Ended January 5,
____________________________________
(in thousands, except per share data) 1996 1997 1998
__________ __________ __________
<S> <C> <C> <C>
Net sales and revenues:
Sales - equipment and supplies....... $ 211,149 $ 306,745 $ 440,983
Service.............................. 19,561 29,613 50,465
__________ __________ __________
Total net sales and revenues. 230,710 336,358 491,448
__________ __________ __________
Cost of sales and service:
Equipment and supplies............... 192,839 275,272 400,059
Service.............................. 4,335 6,481 10,004
__________ __________ __________
Total cost of sales
and service.................. 197,174 281,753 410,063
__________ __________ __________
Gross profit......................... 33,536 54,605 81,385
__________ __________ __________
Operating expenses:
Selling, general and administrative.. 21,863 33,384 48,316
Rent expense......................... 894 1,546 1,956
Depreciation......................... 770 1,925 2,958
Amortization......................... 234 636 982
Provision for doubtful accounts...... 490 245 325
__________ __________ __________
Total operating expenses..... 24,251 37,736 54,537
__________ __________ __________
Income from operations................. 9,285 16,869 26,848
Other expense (income):
Interest expense..................... 1,999 2,170 974
Litigation settlement and related costs - 4,392 -
Miscellaneous........................ (64) (221) 54
__________ __________ __________
Total other expense................ 1,935 6,341 1,028
__________ __________ __________
Income before income tax............... 7,350 10,528 25,820
Income tax expense..................... 2,983 4,296 9,507
__________ __________ __________
Net income............................. $ 4,367 $ 6,232 $ 16,313
========== ========== ==========
Weighted average shares outstanding:
Basic................................ 5,660 7,834 11,052
========== ========== ==========
Diluted.............................. 6,007 8,106 11,367
========== ========== ==========
Earnings per common share:
Basic................................ $0.77 $0.80 $1.48
========== ========== ==========
Diluted.............................. $0.73 $0.7 7 $1.44
========== ========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
F - 4
<PAGE>
<TABLE>
POMEROY COMPUTER RESOURCES, INC.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended January 5,
___________________________________
(in thousands, except per share data) 1996 1997 1998
__________ __________ __________
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income........................ $ 4,367 $ 6,232 $ 16,313
Adjustments to reconcile net
income to net cash flows from
operating activities:
Depreciation.................... 771 1,925 2,958
Amortization.................... 234 636 982
Deferred income taxes........... 258 57 (638)
Net acquisition of
lease residuals................. (1,294) (273) (437)
Issuance of common shares for
stock awards.................... 40 40 65
Changes in working capital accounts,
net of effects of subsidiary
company purchased:
Accounts receivable........... (2,130) (24,007) (29,618)
Inventories................... (1,814) (1,959) (16,369)
Floor plan financing.......... (1,298) 16,932 (11,791)
Trade payables................ (688) (3,949) 10,321
Deferred revenue.............. 586 (355) 1,031
Income tax payable............ 67 426 3,270
Other, net.................... 486 (591) 973
__________ __________ __________
Net operating activities........... (415) (4,886) (22,940)
__________ __________ __________
Cash Flows from Investing Activities:
Capital expenditures.............. (1,070) (3,459) (2,399)
Payments for covenants
not to compete................... (238) - -
Acquisition of subsidiary companies,
net of cash acquired............. (20) - (509)
Acquisition of reseller assets.... (425) (9,934) (2,990)
__________ __________ __________
Net investing activities.......... (1,753) (13,393) (5,898)
__________ __________ __________
Cash Flows from Financing Activities:
Payments on notes payable......... (305) (1,288) (843)
Net proceeds of stock offering.... - 17,924 23,256
Net proceeds (payments) under
bank notes payable............... 1,435 6,419 (1,535)
Proceeds from exercise of
stock options.................... 1,560 1,767 1,531
Retirement of stock warrants...... - (330) -
__________ __________ __________
Net financing activities........ 2,690 24,492 22,409
__________ __________ __________
Increase (decrease) in cash ...... 522 6,213 (6,429)
Cash:
Beginning of period............. 74 596 6,809
__________ __________ __________
End of period................. $ 596 $ 6,809 $ 380
========== ========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
POMEROY COMPUTER RESOURCES, INC.
<CAPTION>
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except for Common Paid-in Retained Treasury Total
share amounts) stock capital earnings stock equity
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Balances at January 5, 1995.. $ 22 $ 8,158 $ 5,153 $ (204) $ 13,129
Net income........... 4,367 4,367
4,000 common shares
issued for stock
awards............. 40 40
5,755 common shares
issued for
acquisition ....... 100 100
Stock options exercised
and related tax
benefit............ 2 1,558 1,560
Stock dividend....... 2 3,420 (3,422)
Tax benefit of costs
related to initial
public offering.... 3 3
________ ________ ________ ________ ________
Balances at January 5, 1996.. 26 13,279 6,098 (204) 19,199
Net income........... 6,232 6,232
3,076 common shares issued
for stock awards... 40 40
113,316 common shares issued
for acquisitions .. 1 1,474 1,475
Stock options exercised and
related tax benefit 4 2,049 2,053
Retirement of
stock warrants..... (330) (330)
Effect of 3 for 2
stock split........ 20 (20)
1,402,500 common shares
issued by
public offering... 14 17,910 17,924
________ ________ ________ ________ ________
Balances at January 5, 1997.. 65 34,402 12,330 (204) 46,593
Net income........... 16,313 16,313
5,188 common shares issued
for stock awards... 65 65
36,953 common shares issued
for acquisitions .. 1,021 1,021
Stock options exercised and
related tax benefit 1 1,530 1,531
Effect of 3 for 2
stock split........ 38 (38) (2) (2)
1,020,000 common shares
issued by
public offering... 10 23,246 23,256
________ ________ ________ ________ ________
Balances at January 5, 1998.. $ 114 $ 60,226 $ 28,641 $ (204) $ 88,777
======== ======== ======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997 AND JANUARY
5, 1998
1. Company Description
Pomeroy Computer Resources, Inc. (the "Company" ) was
organized in February 1992 to consolidate and reorganize
predecessor companies. Since the owner of the Company and
the predecessor businesses were the same, this transaction
constituted a combination of the predecessor businesses
under common control and was accounted for at historical
cost in a manner similar to that followed for a pooling of
interests. The Company has 15 million shares of $.01 par
value common stock authorized, with 11.4 million shares
outstanding. The Company is also authorized to issue 2
million shares of $.01 par value preferred stock. In
fiscal 1995 the Company formed a wholly-owned subsidiary,
Technology Integration Financial Services, Inc. ( "TIFS")
(f/k/a - Pomeroy Computer Leasing Company, Inc. ( "PCL")),
for the purpose of leasing computer equipment to the
Company's customers. In fiscal 1997 the Company formed a
wholly-owned subsidiary, Pomeroy Computer Resources of
South Carolina, Inc. ( "PCR-SC") for the purpose of
acquiring The Computer Store ( "TCS" ) , a computer
reseller and service provider located in Columbia, South
Carolina.
The Company sells, installs and services microcomputers
and microcomputer equipment primarily for commercial,
health care, governmental, financial and educational
customers. The Company also derives revenue from customer
support services, including network analysis and design,
systems configuration, cabling, custom installation,
training, maintenance and repair. The Company has twenty
regional offices in Kentucky, Ohio, Indiana, Tennessee,
Florida, Alabama, Iowa, West Virginia, North Carolina and
South Carolina, and grants credit to substantially all
customers in these areas.
2. Summary of Significant Accounting Policies
Principles of Consolidation - The accompanying
consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries Xenas
Communication Corp., TIFS, and PCR-SC. All significant
intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications
have been made to the 1996 financial statements included
herein to conform with the presentation used in 1997.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Fiscal Year - The Company's fiscal year is a 12- month
period ending January 5. References to fiscal 1995, 1996
and 1997 are for the fiscal years ended January 5, 1996,
January 5, 1997 and January 5, 1998, respectively.
Goodwill and Other Intangible Assets - Goodwill is
amortized using the straight-line method over periods of
fifteen to twenty-five years. In accordance with SFAS No.
121, "Accounting for The Impairment of Long-Lived
Assets", the Company evaluates its goodwill on an ongoing
basis to determine potential impairment by comparing the
carrying value to the undiscounted estimated expected
future cash flows of the related assets. Other intangible
assets are amortized using the straight-line method over
periods up to ten years.
Equipment and Leasehold Improvements - Equipment and
leasehold improvements are stated at cost. Depreciation on
equipment is computed using the straight-line method over
estimated useful lives. Depreciation on leasehold
improvements is computed using the straight-line method
over estimated useful lives or the term of the lease,
whichever is less. Expenditures for repairs and
maintenance are charged to expense as incurred and
additions and improvements that significantly extend the
lives of assets are capitalized. Upon sale or retirement
of depreciable property, the cost and accumulated
depreciation are removed from the related accounts and any
gain or loss is reflected in the results of operations.
Income Taxes - Deferred tax assets and liabilities are
recognized for the estimated future tax consequences
attributable to differences between the financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary
differences are expected to be
F-7
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Vendor Incentive Rebates - Certain vendors provide
incentive rebates to perform product training, advertising
and other sales and market development activities. The
Company recognizes these rebates when it has completed its
obligation to perform under the specific incentive
arrangement. Incentive rebates are recorded as reductions
of selling, general and administrative expense or, if
volume based, cost of sales.
Inventories - Inventories are stated at the lower of cost
or market. Cost is determined by the average cost method.
Revenue Recognition - The Company recognizes revenue on
the sale of equipment and supplies when the products are
shipped. Service revenue is recognized when the applicable
services are provided.
Deferred Revenue - Revenues received on maintenance
contracts are recognized ratably over the lives of the
contracts. Costs related to maintenance contracts are
recognized when incurred.
Stock-Based Compensation - The Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation" , in the Fall of 1995. The
statement encourages, but does not require, companies to
record compensation cost for stock-based employee
compensation plans at fair value beginning in fiscal 1996.
The Company elected to account for stock-based
compensation using the intrinsic value method prescribed
in "Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees" . Accordingly,
compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the
Company's common stock at the date of grant over the
amount an employee must pay to acquire the stock. The
Company adopted SFAS No. 123 for disclosure purposes and
for non-employee stock options. This had no material
effect on the results of operations or financial position
of the Company.
Earnings per Common Share - The computation of
basic earnings per common share is based upon the weighted
average number of common shares outstanding during the
period. Diluted earnings per common share is based upon
the weighted average number of common shares outstanding
during the period plus, in periods in which they have a
dilutive effect, the effect of common shares contingently
issuable, primarily from stock options.
In the fourth quarter of 1997, the Company adopted
Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128"). SFAS 128 changed the
computation, presentation and disclosure requirements for
earnings per share ("EPS") . Under SFAS 128, EPS is
presented as basic earnings per share ( "basic EPS" ) and
diluted earnings per share ( "diluted EPS" ) and replaces
the presentation of primary EPS and fully diluted EPS.
The adoption of SFAS 128 resulted in the restatement of
earnings per share for all periods presented in the
Company's consolidated financial statements.
The following is a reconciliation of the number of shares
used in the basic EPS and diluted EPS computations:
(in thousands, except per share data)
1995 1996 1997
______________ _____________ _____________
Per Share Per Share Per Share
Shares Amount Shares Amount Shares Amount
Basic EPS 5,660 $ 0.77 7,834 $ 0.80 11,052 $ 1.48
Effect of
dilutive
stock options 332 (0.44) 272 (0.03) 315 (0.04)
Contingent
shares 25 - - - - -
______ ______ _____ ______ ______ ______
Diluted EPS 6,007 $ 0.73 8,106 $ 0.77 11,367 $ 1.44
Use of Estimates in Financial Statements - In preparing
financial statements in conformity with generally accepted
accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and
liabilities at the
F-8
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair Value Disclosures - The fair value of financial
instruments approximates carrying value.
New Pronouncements
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income ( "SFAS No. 130" )
with an effective date for fiscal years beginning after
December 15, 1997. SFAS No. 130 establishes standards for
the reporting of comprehensive income in a company's
financial statements. Comprehensive income includes all
changes in a company's equity during the period that
result from transactions and other economic events other
than transactions with its stockholders.
In the fourth quarter of 1997, the Company elected to
early adopt SFAS No. 130 retroactive to January 6, 1997.
The adoption of SFAS No. 130 did not affect the financial
reporting in the accompanying consolidated financial
statements because the Company does not presently have any
comprehensive income other than net income.
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and
Related Information ( "SFAS No. 131" ) with an effective
date for fiscal years beginning after December 15, 1997. A
reportable segment, referred to as an operating segment,
is a component of an entity about which separate financial
information is produced internally, that is evaluated by
the chief operating decision-maker to assess performance
and allocate resources. The Company does not presently
believe that it operates in more than one identifiable
segment.
3. Accounts Receivable
The following table summarizes the activity in the
allowance for doubtful accounts for fiscal 1995, 1996 and
1997
(in thousands) Trade Other
__________ __________
Balance January 5, 1995 $ 65 $ 225
Provision 1995 94 417
Accounts written-off (89) (444)
Recoveries 131 12
__________ __________
Balance January 5, 1996 201 210
Provision 1996 250 31
Accounts written-off (249) (604)
Recoveries 170 500
__________ __________
Balance January 5, 1997 372 137
Provision 1997 125 200
Accounts written-off (601) (415)
Recoveries 459 301
__________ __________
Balance January 5, 1998 $ 355 $ 223
F-9
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
4. Inventories
Inventories consist of items held for resale and are
comprised of the following components as of the end of
fiscal:
(in thousands) 1996 1997
_________ _________
Equipment and supplies $ 21,730 $ 36,265
Service parts 1,696 2,895
_________ _________
Total $ 23,426 $ 39,160
5. Goodwill and Other Intangible Assets
Goodwill and other intangible assets consist of the
following as of the end of the fiscal year, net of
accumulated amortization of $984 thousand (1996) and
$1,826 thousand (1997), respectively:
(in thousands) 1996 1997
__________ ___________
Goodwill $ 8,698 $ 12,159
Covenants not to compete 208 61
Customer lists 529 477
__________ ___________
$ 9,435 $ 12,697
As a result of its litigation with Vanstar Corporation,
the Company in fiscal 1994 wrote-off unamortized costs in
the amount of $251 thousand related to its agreement with
Vanstar which are included in amortization expense. On
April 29, 1996 the Company and Vanstar entered into a
settlement agreement which in effect terminated all
agreements between the parties.
In 1993, the Company acquired certain assets, principally
customer lists, of a computer reseller in Louisville,
Kentucky. Also, the Company entered into a five year
covenant not to compete with the reseller and its owners.
Amounts paid to the reseller for these intangibles were
$194 thousand for customer lists and $241 thousand for the
covenant not to compete. The Company entered into an
additional covenant not to compete with a former owner of
the reseller whereby the Company paid a total of $277
thousand in two installments during 1994 and 1995.
In fiscal 1996, the Company acquired certain assets of
The Computer Supply Store, Inc. ("TCSS") a privately held
computer reseller located in Des Moines, Iowa, AA
Microsystems, Inc. ("AA Micro"), a network service
provider located in Birmingham, Alabama, and
Communications Technology, Inc. ( "DILAN" ), a privately
held network integrator located in Hickory, North Carolina
(See Note 12). The Company recorded $5.7 million, $0.4
million and $2.5 million of goodwill in connection with
those acquisitions, respectively.
In fiscal 1997, the Company acquired certain assets of
Magic Box, Inc. ( "Magic Box" ) , a privately held network
integrator located in Miami, Florida, and Micro Care, Inc.
( "Micro Care" ), a privately held systems integrator
located in Indianapolis, Indiana. A wholly owned
subsidiary of the Company, Pomeroy Computer Resources of
South Carolina, Inc., acquired all the assets and
liabilities of The Computer Store Inc., a network
integrator located in Columbia, South Carolina. The
Company recorded $1.7 million, $1.9 million and $0.4
million in connection with those acquisitions,
respectively.
6. Borrowing Arrangements
The Company has an available line of credit up to the
lesser of $20 million, or an amount based upon a formula
of eligible trade receivables, at an interest rate that
varies based on the prime rate of the bank or the LIBOR
rate at the Company's election. At January 5, 1997 and
1998, bank notes payable include $2.2 million and $6.5
million, respectively, of overdrafts in accounts with the
Company's primary lender. These amounts were subsequently
funded through the normal course of business. The interest
rate charged was 7.25% and 7.50% at January 5, 1997 and
January 5, 1998 respectively. The agreement, which expires
in June 1998, is collateralized by substantially all
assets of the Company, except those assets which
collateralize certain other financing arrangements. Under
the revolving credit
F-10
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
agreement, the Company may not make any cash dividend
payments.
The maximum amount outstanding and the average amount
outstanding on bank revolving credit agreements were as
follows:
(in thousands) Maximum Average
Amount Amount
Period Ending Outstanding Outstanding
_______________ ___________ ___________
January 5, 1996 $ 19,000 $ 14,741
January 5, 1997 $ 26,687 $ 17,402
January 5, 1998 $ 25,800 $ 8,002
The above average amounts outstanding are calculated by
dividing the sum of the average daily balances for each
month by the number of months in the period. The weighted
average interest rate on the bank revolving credit
agreements was 8.7%, 8.2% and 7.3% in fiscal 1995, 1996
and 1997, respectively.
In November 1994 the Company exercised an option in its
revolving credit agreement to borrow $500 thousand on a
term note with interest at a rate 0.5% above the bank's
prime rate. The interest rate was raised to the bank's
prime rate in March, 1995. The term note matured July 31,
1996 and was paid off.
The Company finances inventory through floor plan
arrangements with two finance companies. As of January 5,
1998 the floor plan lines of credit were $12 million with
IBM Credit Corporation ("ICC") and $35 million with
Deutsche Financial Services ("DFS"). 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. Financing on many of the
arrangements which are subsidized by manufacturers is
interest free. The average rate on the plans overall is
less than 1.0%.
The maximum amount outstanding and the average amount
outstanding on each of the floor plan arrangements were as
follows:
(in thousands) ICC DFS
__________________ ___________________
Maximum Average Maximum Average
Amount Amount Amount Amount
Period Ending Outstanding Outstanding
_______________ ______ ______ _______ _______
January 5, 1996 $6,300 $4,191 $21,045 $15,979
January 5, 1997 $9,045 $5,779 $27,349 $18,532
January 5, 1998 $19,985 $10,459 $39,092 $25,069
The average amount outstanding is calculated by dividing
the sum of the outstanding balances at the end of each
month by the number of months in the applicable period.
F-11
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
7. Income Taxes
The provision for income taxes consists of the following:
(in thousands) 1995 1996 1997
Current:
Federal $ 2,071 $ 3,205 $ 8,742
State 654 1,034 1,036
________ ________ ________
Total current 2,725 4,239 9,778
________ ________ ________
Deferred:
Federal 206 46 (21)
State 52 11 (54)
________ ________ ________
Total deferred 258 57 (271)
Total income
tax provision $ 2,983 $ 4,296 $ 9,507
The approximate tax effect of the temporary differences
giving rise to the Company's deferred income tax assets
(liabilities) are:
(in thousands) 1996 1997
Deferred Tax Assets:
Bad debt provision $208 $282
Depreciation - 193
Deferred compensation 210 409
_______ _______
Total deferred tax assets 418 884
_______ _______
Deferred Tax Liabilities:
Acquisition of
lease residuals (847) (620)
Depreciation (96) -
Accounts Receivable - (518)
_______ ________
Total deferred tax liabilities (943) (1,138)
_______ ________
Net deferred tax liability $ (525) $ (254)
======= ========
The Company's effective income tax rate differs from the
Federal statutory rate as follows:
1995 1996 1997
_____ _____ _____
Tax at Federal statutory rate 34.0% 34.0% 35.0%
State taxes 6.3 6.6 4.7
Kentucky Relocation Credits - - (2.2)
Other 0.3 0.2 (0.7)
_____ _____ _____
Effective tax rate 40.6% 40.8% 36.8%
===== ===== =====
F-12
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
8. Operating Leases
The Company leases office and warehouse space, vehicles
and certain office equipment from various lessors. Lease
terms vary in duration and include various option periods.
The leases generally require the Company to pay taxes and
insurance. Future minimum lease payments under
noncancelable operating leases with initial or remaining
terms in excess of one year as of January 5, 1998 are as
follows:
(in thousands)
Fiscal Year
1998 $2,153
1999 1,741
2000 1,376
2001 1,019
2002 828
Thereafter 2,554
________
Total minimum lease payments $ 9,671
=======
9. Employee Benefit Plans
In the fourth quarter of 1997, the Company was in the
process of terminating the Employee Stock Ownership Plan
("ESOP"). As of January 5, 1998, the ESOP held 72,661
shares of Company stock. No contributions were made or
accrued in fiscal 1996 and 1997. The distribution to
employees of the ESOP should be completed by the second
quarter of 1998.
The Company also has a savings plan intended to qualify
under sections 401(a) and 401(k) of the Internal Revenue
Code. The plan covers substantially all employees of the
Company. The Company did not contribute to the plan in
1996 or 1997. Beginning in fiscal 1998 the Company will
make contributions to the plan based on a participant's
annual pay.
10. Investment in Lease Residuals
The Company participates in a Remarketing and Agency
Agreement ("Agreement") with Information Leasing
Corporation ("ILC") whereby the Company obtains rights to
50% of lease residual values for services rendered in
connection with locating the lessee, selling the equipment
to ILC and agreeing to assist in remarketing the used
equipment.
During fiscal 1995, 1996 and 1997, the Company sold
equipment and related support services to ILC, for lease
to ILC's customers, in amounts of $23.7 million, $15.2
million and $7.7 million, respectively. The Company also
obtained rights to lease residuals from ILC in the amount
of $875 thousand, $575 thousand and $562 thousand in
1995, 1996 and 1997, respectively. Such amounts are
recorded as a reduction of the related cost of sales.
Residuals acquired in this manner are recorded at the
estimated present value of the interest retained.
The Company also purchases residuals associated with
separate leasing arrangements entered into by ILC. Such
transactions do not involve the sale of equipment and
related support services by the Company to ILC. Residuals
acquired in this manner are accounted for at cost.
The carrying value of investments in lease residuals is
evaluated on a quarterly basis, and is subject only to
downward market adjustments until ultimately realized
through a sale or re-lease of the equipment.
11. Major Customers
Sales to a major customer were approximately $43.8 million
for fiscal 1995. Sales to a major customer were
approximately $40.3 million for fiscal 1996. Sales to a
major customer were approximately $ 60.4 million for
fiscal 1997.
F-13
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
12. Acquisitions
During fiscal 1996, the Company completed several
acquisitions. The total consideration given consisted of
$7.2 million in cash, subordinated notes of $4.0 million
and 170 thousand unregistered shares of the Company's
common stock with an approximate value of $1.5 million.
Interest on the subordinated notes is payable quarterly.
Principal is payable in equal annual installments. The
acquisitions were accounted for as purchases, accordingly
the purchase price was allocated to assets and liabilities
based on their estimated value as of the dates of
acquisition. The results of operations of the acquisitions
are included in the consolidated statement of income from
the dates of acquisition.
The following table summarizes, on an unaudited pro forma
basis, adjusted to reflect a 10% stock dividend paid on
May 22, 1995 and three-for-two splits of the Company's
common stock in the form of a stock dividends paid on
October 4, 1996 and October 6, 1997, the estimated
combined results of the Company and the 1996 acquisitions
assuming the acquisitions had occurred on January 6, 1995.
These results include certain adjustments, primarily
goodwill amortization and interest expense, and are not
necessarily indicative of what results would have been had
the Company owned these businesses during the periods
presented:
(in thousands) Fiscal Year
_________________
1995 1996
__________ __________
Net sales and revenues $ 309,655 $ 364,005
Net income $ 4,630 $ 6,250
Net income per common share:
Basic $ 0.80 $ 0.80
Diluted $ 0.75 $ 0.77
During fiscal 1997, the Company completed several
acquisitions. The total consideration given consisted of
$3.7 million in cash, subordinated notes of $1.3 million
and 37 thousand unregistered shares of the Company's
common stock with an approximate value of $1.0 million.
Interest on the subordinated notes is payable quarterly.
Principal is payable in equal annual installments. The
acquisitions were accounted for as purchases, accordingly
the purchase price was allocated to assets and liabilities
based on their estimated value as of the dates of
acquisition. The results of operations of the acquisitions
are included in the consolidated statement of income from
the dates of acquisition. If the 1997 acquisitions had
occurred on January 6, 1996, the pro forma operations of
the Company would not have been materially different than
that reported in the accompanying consolidated statements
of income.
13. Related Parties
During fiscal 1995 the Company entered into a ten year
triple-net lease agreement commencing in 1996 for a new
headquarters and distribution facility with a company that
is controlled by the Chief Executive Officer of the
Company. During fiscal 1997 the lease agreement was
amended to include an expansion of the distribution
facility. The base rental for 1997 on an annualized basis
is $858 thousand. The annual rental for these properties
was determined on the basis of a fair market value rental
opinion provided by an independent real estate company.
During fiscal 1996, the Company made periodic advances to
a company that is controlled by the Chief Executive
Officer of the Company. No interest was charged on the
advances which were repaid in December 1996.
F-14
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
14. Supplemental Cash Flow Disclosures
Supplemental disclosures with respect to cash flow
information and non-cash investing and financing
activities are as follows:
(in thousands) 1995 1996 1997
Interest paid $2,037 $2,065 $1,045
Income taxes paid $2,658 $3,813 $4,920
Business combinations
accounted for as
purchases:
Assets acquired $774 $24,526 $7,358
Liabilities
assumed (24) (9,121) (1,495)
Note payable (225) (3,996) (1,343)
Stock issued (100) (1,475) (1,021)
________ _________ _________
Net cash paid $ 425 $ 9,934 $3,499
15. Stockholders' Equity and Stock Option Plans
In July 1996, the Company completed a secondary public
offering of 1.4 million new shares of its common stock.
The net proceeds of $17.9 million were used to reduce
amounts outstanding under the line of credit. If this
secondary offering had been completed as of January 6,
1996, pro forma basic and diluted earnings per share would
have been $0.77 and $0.75, respectively, for fiscal 1996.
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 1996.
In February 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 basic and diluted earnings per share would
have been $1.38 and $1.34 , respectively, for 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 6, 1996, the Company's Board of Directors
authorized a three-for-two stock split in the form of a
stock dividend payable October 4, 1996, to shareholders of
record September 19, 1996. The split resulted in the
issuance of 2.1 million new shares of common stock. The
stated par value of each share was not changed from $0.01.
A total of $20 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.
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 3.8 million 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.
The Company's 1992 Non-Qualified and Incentive Stock
Option Plan provides certain employees of the Company with
options to purchase common stock of the Company through
options at an exercise price equal to the market value on
the date of grant. 990,000 shares of the common stock of
the Company are reserved for issuance under the plan. The
plan will terminate ten years from the date of adoption.
Stock options granted under the plan are exercisable in
accordance with various terms as authorized by the
Compensation Committee. To the extent not exercised,
options will expire not more than ten years after the date
of grant.
The Company's 1992 Outside Directors' Stock Option Plan
provides outside directors of the Company with options to
purchase common stock of the Company at an exercise price
equal to the market value of the shares at the date of
grant. 175,000 shares of common stock of the Company are
reserved for issuance under the plan. The plan will
terminate ten years from the date of adoption. Pursuant to
the
F-15
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
plan, an option to purchase 10,000 shares of common stock
automatically will be granted on the first day of the
initial term of a director. An additional 2,500 shares of
common stock automatically will be granted to an eligible
director upon the first day of each consecutive year of
service on the board. Options may be exercised after one
year from the date of grant for not more than one-third of
the shares subject to the option and an additional one-
third of the shares subject to the option may be exercised
for each of the next two years thereafter. To the extent
not exercised, options will expire five years after the
date of grant.
The following summarizes the stock option transactions
under the plans for the three fiscal
years ended January 5, 1998:
Weighted Average
Shares Exercise price
_________ ________________
Options outstanding January 5, 1995 283,832 $8.69
Granted 66,300 10.95
Exercised (164,975) 8.27
Stock dividend effect 33,383 8.32
_________ ________________
Options outstanding January 5, 1996 218,540 8.32
Granted 149,600 13.83
Exercised (197,047) 8.97
Stock split effect 121,082 7.21
_________ ________________
Options outstanding January 5, 1997 292,175 7.27
Granted 216,328 30.10
Exercised (95,260) 8.70
Forfeitures (4,700) 34.19
Stock split effect 227,754 5.61
_________ ________________
Options outstanding January 5, 1998 636,297 $12.01
========= ================
The following summarizes options outstanding and
exercisable at January 5, 1998:
Options Outstanding Options Exercisable
_________________________________________ __________________
Number Weighted Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at 1/5/98 Contractual Exercise at 1/5/98 Exercise
Prices Life Price Price
______________ ___________ _______________ ___________ __________ _________
$2.67 to $5.67 252,264 0.8 $4.38 220,616 $4.45
$6.33 to $16.50 165,000 2.1 $11.00 120,000 $11.31
$17.09 to $25.67 219,033 1.5 $21.56 215,283 $21.63
__________ __________
636,297 1.6 $12.01 555,899 $12.58
========== ==========
The weighted average fair value at date of grant for
options granted during fiscal 1996 and 1997 was $2.75 and
$6.77, respectively. The fair value of options at the date
of grant was estimated using the Black-Scholes model with
the following weighted average assumptions:
Fiscal 1995 Fiscal 1996 Fiscal 1997
___________ ___________ ___________
Expected life (years) 2.4 1.7 1.8
Interest rate 7.3% 5.8% 6.1%
Volatility 50% 55% 56%
Dividend yield 0% 0% 0%
Had compensation cost for the Company's stock option plans
been determined based on the fair value
F-16
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
at the grant date for awards in fiscal 1995 and 1996
consistent with the provisions of SFAS No. 123, the
Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
(in thousands, except per
share amounts)
Fiscal 1995 Fiscal 1996 Fiscal 1997
___________ ___________ ___________
Net income - as reported $4,367 $6,232 $16,313
Net income - pro forma $4,196 $5,777 $14,455
Net income per common
share - as reported
Basic $0.77 $0.80 $1.48
Diluted $0.73 $0.77 $1.44
Net income per common
share - pro forma
Basic $0.74 $0.74 $1.31
Diluted $0.70 $0.71 $1.27
In 1995, 1996 and 1997, 4,000, 3,076 and 544,
respectively, shares of common stock were awarded to
officers of the Company. Compensation expense resulting
from the awards was $40 thousand in fiscal 1995 and 1996
and $20 thousand in fiscal 1997.
16. Litigation
There are various legal actions arising in the normal
course of business that have been brought against the
Company. Management believes these matters will not have a
material adverse effect on the Company's consolidated
financial position or results of operations.
17. Risk of Loss from Concentrations
During fiscal 1997, approximately 41.2% of the Company's
total net sales and revenues were derived from its top
ten customers, including one customer which accounted for
12.3% of total net sales and revenues. The Company was not
selected as the fiscal 1998 product supplier by the
largest customer. The Company does not expect that this
loss will have a near-term material impact on its
financial condition or results of operation.
Due to the demand for the products sold by the Company,
significant product shortages occur from time to time
because manufacturers are unable to produce certain
products to meet increased demand. Failure to obtain
adequate product shipments could have a material adverse
effect on the Company's operations and financial results.
The Company is required to have authorizations from
manufacturers in order to sell their products. The loss of
a significant vendor's authorization could have a material
adverse effect on the Company's business.
18. Subsequent Events
Stockholder Rights Plan. On February 18, 1998, the
Company's Board of Directors declared a dividend of one
preferred share purchase right (a "Right" ) for each
outstanding share of common stock, par value $.01 per
share (the "Common Share" ) on March 15, 1998 (the
"Record Date" ) to the stockholders of record on that
date. The Rights become exercisable only if a person or
group (an "Acquiring Person" ) acquires, or makes a
tender offer to acquire, beneficial ownership of 15% or
more of the outstanding Common Shares of the Company. The
Rights expire on March 1, 2008, unless extended or are
earlier redeemed by the Company.
When the Rights become exercisable, the holder of each
Right, other than the Acquiring Person, is entitled to
purchase from the Company one one-thousandth of a share of
Series A Junior Participating Preferred Stock, par value
$.01 per share (the "Preferred Shares" ), of the Company,
at a price of $115.00 per one one-thousandth of a
Preferred Share (the "Purchase Price" ), subject to
adjustment. Alternatively, under certain circumstances
each holder of a Right, other than Rights beneficially
owned by the Acquiring Person, will thereafter have the
right to receive upon exercise, in lieu of Preferred
F-17
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Shares, that number of Common Shares having a market value
of two times the exercise price of the Right. In the event
that, at any time after a Person becomes an Acquiring
Person, the Company is acquired in a merger or other
business combination transaction or 50% or more of its
consolidated
assets or earning power is sold, proper provision will be
made so that each holder of a Right will thereafter have
the right to receive, upon the exercise thereof at the
then current exercise price of the Right, that number of
shares of common stock of the acquiring company which at
the time of such transaction will have a market value of
two times the exercise price of the Right.
Acquisitions. In March 1998, the Company completed two
acquisitions. The total consideration given consisted of
$11.5 million in cash and subordinated notes of $2.0
million. Interest on the subordinated notes is payable
quarterly while principal is payable in equal annual
installments. The acquisitions will be accounted for as
purchases, accordingly the purchase prices will be
allocated to assets and liabilities based on their
estimated values as of the dates of acquisition. The
results of operations of the acquisitions will be included
in the consolidated statement of income from the dates of
acquisition. If these acquisitions had occurred on January
6, 1997, the pro forma operations of the Company would not
have been materially different than that reported in the
accompanying consolidated statements of income.
Amendment to Line of Credit. In January 1998, the Company
amended its revolving credit agreement. The amended
agreement provides for borrowings up to $40.0 million at
the bank's prime rate minus 1.25%. A new financial
covenant requires that the Company maintain trade accounts
receivable less than ninety days old at a ratio greater
than 1.25 to 1.0 to amounts outstanding under the
revolving credit agreement at any time. The revolving
credit agreement expires May 31, 1998.
Repricing of Stock Options. In January 1998, the Board of
Directors of the Company approved the repricing of certain
unexercised options granted under the 1992 Non-Qualified
and Incentive Stock Option Plan. As a result, 109,649
options granted during fiscal 1997 will be repriced to
$16.63 per share from $34.19 per share. These amounts
approved by the Board of Directors do not give effect to
the stock split approved after the date of the original
grant of the options.
F-18
<PAGE>
LOAN AGREEMENT
dated as of October 31, 1997
by
and
between
THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC.
as the Lender
and
TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC.
as the Borrower
Table of Contents
Page
SECTION I - Definitions. . . . . . . . . . . . . . . . . .
1
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<PAGE>
SECTION II - Purposes. . . . . . . . . . . . . . . . . . .
1
SECTION III - The Revolving Credit Loans . . . . . . . . .
2
3.01 Revolving Credit Loans. . . . . . . . . . .
2
3.02 Maximum Amount. . . . . . . . . . . . . . .
2
3.03 Purposes of the Revolving Credit Loans. . .
2
3.04 Procedures and Conditions . . . . . . . . .
2
3.05 Notation of Disbursements and Payments. . .
5
3.06 Optional and Mandatory Revolving Credit
Loan Note Principal Payment . . . . . . . .
5
3.07 Revolving Credit Loan Note Interest Payments
6
3.08 Mandatory Prepayments; Collateral
Substitution 6
3.09 Termination of Revolving Credit . . . . . .
7
3.10 Extension of Revolving Credit . . . . . . .
7
SECTION IV - The Draw Facility . . . . . . . . . . . . . .
7
4.01 Amount of Draw Facility . . . . . . . . . .
7
4.02 Term of the Draw Facility . . . . . . . . .
7
4.03 Termination of Draw Facility . . . . . . .
7
4.04 Extension of Draw Facility . . . . . . . .
8
4.05 Purposes of the Draw Facility . . . . . . .
8
4.06 Procedures and Conditions . . . . . . . . .
8
4.07 Notation of Disbursements and Payments. . .
11
4.08 Non-Revolving . . . . . . . . . . . . . . .
11
4.09 Interest Rate on the Draw Facility Notes .
11
4.10 Payment of Interest and Principal on
the Draw Facility Notes . . . . . . . . . .
11
4.11 Term of Draw Facility Notes . . . . . . . .
11
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<PAGE>
4.12 Mandatory Prepayments on Draw Facility
Notes . . . . . . . . . . . . . . . . . . .
12
SECTION V - Security for the Revolving Credit Loans. . . .
12
5.01 Security for the Revolving Credit Loans . .
12
SECTION VI - Conditions Precedent. . . . . . . . . . . . .
13
6.01 Conditions Precedent . . . . . . . . . . .
13
6.02 Conditions Precedent to Subsequent
Disbursements . . . . . . . . . . . . . . .
15
SECTION VII - General Covenants. . . . . . . . . . . . . .
15
7.01 Insurance . . . . . . . . . . . . . . . . .
15
7.02 Taxes and Other Payment Obligations . . . .
16
7.03 Financial Statements. . . . . . . . . . . .
17
7.04 Financial Records . . . . . . . . . . . . .
18
7.05 Properties. . . . . . . . . . . . . . . . .
18
7.06 Corporate Existence and Good Standing . . .
18
7.07 Notice Requirements . . . . . . . . . . . .
18
7.08 Compliance with Law . . . . . . . . . . . .
19
7.09 Liens . . . . . . . . . . . . . . . . . . .
19
7.10 Letters of Credit . . . . . . . . . . . . .
20
7.11 Articles of Incorporation and Bylaws. . . .
20
7.12 Mergers, Sales, Transfers and Other
Dispositions of Assets. . . . . . . . . . .
20
7.13 Loans . . . . . . . . . . . . . . . . . . .
21
7.14 Financial Covenants . . . . . . . . . . . .
21
7.15 Location of Inventory . . . . . . . . . . .
21
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<PAGE>
7.16 Control and Operation . . . . . . . . . . .
22
7.17 Lockbox . . . . . . . . . . . . . . . . . .
22
7.18 Compliance with Other Borrower Documents. .
23
SECTION VIII - Representations and Warranties. . . . . . .
23
8.01 Corporate Organization and Existence. . . .
23
8.02 Right to Act. . . . . . . . . . . . . . . .
23
8.03 No Conflicts. . . . . . . . . . . . . . . .
23
8.04 Authorization . . . . . . . . . . . . . . .
24
8.05 Litigation and Taxes. . . . . . . . . . . .
24
8.06 Financial Statements. . . . . . . . . . . .
24
8.07 Compliance with Contractual Obligations,
Laws and Judgments. . . . . . . . . . . . .
25
8.08 Location of Inventory . . . . . . . . . . .
25
8.09 No Undisclosed Liabilities or Guaranties. .
25
8.10 Title to Properties . . . . . . . . . . . .
25
8.11 Trademarks and Permits. . . . . . . . . . .
25
8.12 Disclosure. . . . . . . . . . . . . . . . .
26
SECTION IX - Events of Default . . . . . . . . . . . . . .
26
9.01 Failure to Pay. . . . . . . . . . . . . . .
26
9.02 [INTENTIONALLY OMITTED] . . . . . . . . . .
26
9.03 Notice Required . . . . . . . . . . . . . .
26
9.04 Falsity of Representation or Warranty . . .
26
9.05 Judgments . . . . . . . . . . . . . . . . .
27
9.06 Adverse Financial Change. . . . . . . . . .
27
9.07 Other Obligations to the Lender and its
Affiliates. . . . . . . . . . . . . . . . .
27
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<PAGE>
9.08 Dissolution or Termination of Existence . .
27
9.09 Solvency. . . . . . . . . . . . . . . . . .
27
SECTION X - Remedies Upon Default. . . . . . . . . . . . .
28
10.01 Right to Offset . . . . . . . . . . . . . .
28
10.02 Enforcement of Rights . . . . . . . . . . .
29
10.03 Rights Under Security Instruments . . . . .
29
10.04 Cumulative Remedies . . . . . . . . . . . .
29
SECTION XI - Fees and Expenses . . . . . . . . . . . . . .
29
11.01 Transactions Expenses . . . . . . . . . . .
29
11.02 Enforcement Expenses. . . . . . . . . . . .
30
SECTION XII - Miscellaneous Provisions . . . . . . . . . .
30
12.01 Banking Days. . . . . . . . . . . . . . . .
30
12.02 Term of this Agreement. . . . . . . . . . .
30
12.03 No Waivers. . . . . . . . . . . . . . . . .
30
12.04 Course of Dealing . . . . . . . . . . . . .
31
12.05 Waivers by the Borrower . . . . . . . . . .
31
12.06 Severability. . . . . . . . . . . . . . . .
31
12.07 Time of the Essence . . . . . . . . . . . .
31
12.08 Benefit and Binding Effect. . . . . . . . .
31
12.09 Further Assurances. . . . . . . . . . . . .
31
12.10 Incorporation by Reference. . . . . . . . .
31
12.11 Entire Agreement; No Oral Modifications . .
31
12.12 Headings. . . . . . . . . . . . . . . . . .
32
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<PAGE>
12.13 Governing Law . . . . . . . . . . . . . . .
32
12.14 Assignments . . . . . . . . . . . . . . . .
32
12.15 Multiple Counterparts . . . . . . . . . . .
32
12.16 Notices . . . . . . . . . . . . . . . . . .
33
12.17 Survival of Covenants . . . . . . . . . . .
34
12.18 Consent to Jurisdiction and Venue . . . . .
34
12.19 Acknowledgement . . . . . . . . . . . . . .
34
Exhibit
1 Definitions
2 Financial Covenants
3 List of Prohibited Parties
Annexes
A Form of Assignment
B Form of Guaranty Agreement
C Form of Revolving Credit Note
D Form of Security Agreement
E Form of Draw Facility Note
F Form of Opinion of Counsel
Schedules
8.09 Borrower's Contingent Liabilities
8.10 Encumbrances on the Borrower's Properties
LOAN AGREEMENT
This is a Loan Agreement (this "Agreement") dated as of
October 31, 1997, between THE FIFTH THIRD BANK OF NORTHERN
KENTUCKY, INC., a Kentucky banking corporation (the
"Lender"), and TECHNOLOGY INTEGRATION FINANCIAL SERVICES,
INC., a Kentucky corporation formerly known as Pomeroy
Computer Leasing Company, Inc., (the "Borrower").
Recitals
WHEREAS, the Borrower has requested, and the
Lender has agreed to such request, that the Lender provide a
warehouse revolving credit facility (the "Revolving Credit")
not to exceed Five Million Dollars ($5,000,000.00) and a
draw loan facility (the "Draw Facility") not to exceed
Fifteen Million Dollars ($15,000,000.00); and
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<PAGE>
NOW, THEREFORE, the undersigned parties for full and
valid consideration, desire to enter into this Agreement to
and set forth the terms and conditions of the Revolving
Credit and the Draw Facility.
SECTION I
Definitions
Capitalized terms not otherwise defined herein shall
have the meanings given them in the exhibit attached as
Exhibit 1 to this Agreement which is hereby incorporated
into this Agreement as if set out in full in this Section.
The meanings assigned to capitalized terms, whether defined
herein or in Exhibit 1, shall be equally applicable to both
the singular and plural forms of the terms defined.
SECTION II
Purposes
2.01 Revolving Credit Purpose. The purpose of the
Revolving Credit shall be to provide short term financing,
not to exceed ninety (90) days, to the Borrower to enable
the Borrower to fund Eligible Customer Leases.
2.02 Draw Facility Purpose. The purpose of the Draw
Facility will be to convert, at least every ninety (90)
days, the principal outstanding under the Revolving Credit
to long term, amortizing loans. Draws will be made on the
Draw Facility to pay down the Revolving Credit, with each
draw on the Draw Facility being set up as a separate loan
(each a "Draw Loan"), evidenced by a separate promissory
note (each a "Draw Facility Note").
SECTION III
The Revolving Credit
3.01 Revolving Credit .
(a) Subject to the terms and conditions of this
Agreement, so long as the Revolving Credit remains in effect
and is not terminated, and no Unmatured Default or Event of
Default has occurred, the Lender shall grant the Borrower
such disbursements as the Borrower may request from time to
time in accordance with the provisions of this Agreement.
The unpaid principal balance of each disbursement shall bear
interest at an annual rate equal to the Lending Rate from
the date that disbursement is made pursuant to this
Agreement until the entire principal balance of that
disbursement has been paid in full. The Revolving Credit
shall be evidenced by and payable in accordance with the
terms of the Revolving Credit Note and on the terms of this
E-7
<PAGE>
Agreement. In the event of any discrepancy between the
terms of the Revolving Credit Note and this Agreement, the
terms of the Revolving Credit Note shall prevail.
(b) The "Lending Rate" for the Revolving Credit
shall be the annual rate of interest as determined by the
terms and conditions set forth in the Revolving Credit Note.
3.02 Maximum Amount. At no time shall the aggregate
unpaid principal balance of the Revolving Credit at any time
exceed Five Million Dollars ($5,000,000.00).
3.03 Term of the Revolving Credit. The Revolving
Credit is effective as of the date of this Agreement, and
unless the Revolving Credit is sooner terminated or extended
as provided in this Agreement, shall continue in effect
until October 1, 1998. Unless sooner terminated or
extended, the Revolving Credit shall terminate on October 1,
1998 and thereafter the Borrower shall not be entitled to
any additional disbursements, draws or advances on the
Revolving Credit.
3.04 Procedures and Conditions. Each disbursement
under the Revolving Credit obtained by the Borrower shall be
subject to the following terms and conditions:
(a) General.
(1) Each disbursement obtained by the
Borrower shall be in the minimum principal sum of Ten
Thousand Dollars ($10,000.00).
(2) The Borrower may obtain disbursements
only in connection with Eligible Customer Leases.
(3) The Borrower's right to obtain the
requested disbursement is subject to the Borrower's
compliance with the Assignment in connection with all of the
Customer Leases and Related Documents described in the
Security Agreement delivered under Subsection (c)(2).
(4) The Borrower hereby authorizes the
treasurer of the Borrower, and any person designated by the
board of directors of the Borrower pursuant to a resolution
which has been certified to the Lender by the corporate
secretary or an assistant corporate secretary of the
Borrower, to make either an oral or a written request for
disbursement. As long as the Lender believes in good faith
that the person actually making any oral request for
disbursement is, in fact, such treasurer or other person
designated by the Borrower's board of directors, then any
disbursement made as a result of the request for
disbursement shall be deemed to have been made pursuant to a
valid and authorized request for disbursement, regardless of
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<PAGE>
whether the maker of the request for disbursement was truly
who he or she claimed to be.
(5) The Borrower shall not be entitled to
obtain any disbursement if any Event of Default or Unmatured
Default shall exist at the time of the making of the request
for disbursement, or would exist upon the making of the
disbursement requested, even if the Lender does not elect to
terminate the disbursement as a result of such Event of
Default or Unmatured Default. The Lender agrees to provide
the Borrower with notice of any determination by the Lender
to refuse to make additional advances of the Revolving
Credit because of the existence of an Unmatured Default as
soon as practicable following any such determination, and
the Lender acknowledges that the Borrower shall again be
entitled to advances of the Revolving Credit if, in such
event, such Unmatured Default is cured prior to the
occurrence of any Event of Default.
(6) The Borrower shall not be entitled to
obtain any requested disbursement if immediately after the
disbursement were to be made, a mandatory prepayment would
be required under Section 3.08 below. The Borrower also
shall not be entitled to obtain any disbursement if
immediately after the disbursement were to be made, the
aggregate of the unpaid principal balance of the Revolving
Credit would exceed the maximum amount permitted under
Section 3.02.
(7) All disbursements shall be made in
strict compliance with the terms and provisions of this
Agreement, unless the Lender elects in its sole discretion
to waive any of those terms and conditions. The waiver of
any terms and conditions with respect to any one
disbursement shall not constitute a waiver of
the same or any other terms or conditions with respect to
any other disbursement.
(8) Each request by the Borrower for a
disbursement hereunder shall constitute the making of the
following representations and warranties by the Borrower to
the Lender:
(A) That the Borrower is then, and at
the time the disbursement actually is made will be, entitled
under this Agreement to obtain that disbursement; and
(B) That all of the respective
covenants, agreements, representations and warranties made
by the Borrower in this Agreement, the Security Agreement,
and in any writing delivered to the Lender by or on behalf
of the Borrower are true, correct and complete in all
material respects, and have been complied with in all
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<PAGE>
material respects (to the extent required by the terms
thereof) as of such dates. For purposes of this
representation and warranty, the Borrower is representing
and warranting solely with respect to its respective
covenants, agreements, representations and warranties
contained in the Borrower Documents and in any other writing
expressly stating further covenants, agreements,
representations and warranties of such Person, which is
signed by such Person and delivered to the Lender, by or on
behalf of such Person.
(b) [INTENTIONALLY OMITTED]
(c) Funding. Whenever the Borrower desires to
obtain a disbursement of the Revolving Credit pursuant to
this Agreement, the Borrower shall cause an authorized
representative to:
(1) Request from the Lender a disbursement
either orally or in writing, not less than three (3)
business days prior to the date on which the Borrower
desires that the Revolving Credit be disbursed, stating with
specificity (A) the amount of the disbursement requested,
the amount of which shall not exceed the Borrower's Cost,
and (B) the day on which the Borrower desires the funds to
be made available (the "Funding Date");
(2) Deliver to the Lender on or before the
Funding Date, an original, fully executed Assignment of
Customer Leases and Related Documents (as defined in the
Security Agreement) which describes, with such information
and in such detail as the Lender may reasonably require from
time to time, the specific Customer Leases and Related
Documents that are being assigned in connection with that
particular disbursement, as well as the original Customer
Leases being assigned to the Lender;
(3) Deliver to the Lender on or before the
Funding Date, evidence satisfactory to the Lender, in its
discretion, that the Borrower has created and perfected a
first priority security interest in each and every item of
Leased Equipment leased pursuant to the Customer Lease
assigned to the Lender pursuant to the Security Agreement,
unless this requirement is waived in writing by Lender;
(4) Such information and documentation as
is acceptable to the Lender conclusively establishing the
Borrower's cost of the Leased Equipment to be leased to the
respective Customer ("Borrower's Costs"); and
(5) Deliver to the Lender on or before the
Funding Date with respect to each Customer, all of the
documentation and information reasonably requested by
Lender.
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<PAGE>
3.05 Notation of Disbursements and Payments.
Disbursements of, and payments of principal with respect to,
the Revolving Credit shall be evidenced by notations by the
Lender on its electronic data processing equipment, showing
the date and amount of each advance and each payment of
principal. The principal amount outstanding under the
Revolving Credit from time to time shall also be recorded by
the Lender on that electronic data processing equipment.
The Lender shall give the Borrower monthly written notices
of the outstanding principal balance of the Revolving Credit
not fewer than five (5) days prior to the date on which each
monthly interest payment is due under the Revolving Credit
and shall further disclose the applicable interest rates.
The Borrower agrees and acknowledges that the Lender's
undertaking is for the convenience of the Borrower only, and
that the Lender's failure to provide the principal balance
and interest rate shall not excuse the Borrower from making
any payment or otherwise taking or refraining from any
action that the Borrower would otherwise be required to take
or refrain from taking under this Agreement and/or any other
Borrower Document. The aggregate amount of all
disbursements of the Revolving Credit made and shown on the
Lender's electronic data processing equipment, over all of
the payments of principal made by the Borrower and recorded
on the Lender's electronic data processing equipment, shall
be prima facie evidence of the outstanding principal balance
due under the Revolving Credit.
3.06 Optional and Mandatory Revolving Credit Loan Note
Principal Payment.
(a) The Borrower may make optional prepayments
of principal of the Revolving Credit from time to time
without penalty or additional interest. All payments of
principal of the Revolving Credit shall replenish the
Revolving Credit (up to but not exceeding the maximum amount
provided in Section 3.02), and may be reborrowed (in
accordance with and subject to this Agreement) once repaid.
(b) The Borrower shall pay to the Lender, on the
last calendar day of each March, June, September and
December during the term of this Agreement the outstanding
principal balance of the Revolving Credit as of such date.
For purposes of making such principal payments due on the
last calendar day of March, June, September and December,
Borrower may request a draw on the Draw Facility, in
accordance with and subject to Section IV below, for the
sole and limited purpose of paying in full the principal
outstanding on the Revolving Credit as of such date and
converting such indebtedness into long term financing. The
amount of principal available under the Revolving Credit
shall be replenished in an amount equal to the amount drawn
on the Draw Facility, provided however, that at no time
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shall the maximum amount available under the Revolving
Credit exceed Five Million Dollars ($5,000,000.00).
3.07 Revolving Credit Interest Payments. The Borrower
shall pay all accrued but unpaid interest on the outstanding
principal balance of the Revolving Credit on the 10th day of
each calendar month, beginning on November 10, 1997, and on
the 10th day of each calendar month thereafter during such
time as any principal balance of the Revolving Credit
remains unpaid. At least five (5) days before the date upon
which each interest payment of the Revolving Credit is due,
the Lender shall give the Borrower notice of the amount of
the payment due and the total balance outstanding of all
disbursement of the Revolving Credit. Any failure by the
Lender to give such notice shall not relieve the Borrower of
the obligation to make the payment then due.
3.08 Mandatory Prepayments; Collateral Substitution.
If (a) either (i) payments of $150,000 or more in the
aggregate due under Customer Leases assigned to the Lender
pursuant to the Security Agreement (each an "Assigned
Lease") or (ii) fifteen percent (15%) or more of the regular
monthly lease payments due the Borrower under the Assigned
Leases, are more than ninety (90) days past due, or (b) the
Customer obligor(s) on fifteen percent (15%) of the total,
aggregate dollars volume of Assigned Leases institutes
bankruptcy, insolvency, reorganization, liquidation or
receivership proceedings, or has a petition for any such
proceeding filed against it and does not contest such filing
within thirty (30) days thereafter, or (c) an Assigned Lease
has not been assigned and delivered to the Lender under the
Security Agreement, or (d) except as provided in Section
3.04(c)(3) above, the Borrower fails to create, perfect or
maintain a first perfected security interest in any Leased
Equipment securing an Assigned Lease, or (e) any of the
representations or warranties contained in the Security
Agreement related to the Assigned Lease shall be or become
materially untrue, then such Assigned Leases shall no longer
constitute Eligible Collateral and shall be deemed
ineligible collateral ("Ineligible Collateral"). Within ten
(10) days of the occurrence of an Assigned Lease becoming
Ineligible Collateral (an "Occurrence"), the Borrower shall
provide the Lender written notice of an Occurrence. Within
thirty (30) days of an Occurrence, the Borrower shall,
unless it corrects the event resulting in the Occurrence,
eliminate the Ineligible Collateral from the Collateral
securing the Revolving Credit by (1) prepaying all principal
and all accrued but unpaid interest on the Revolving Credit
related to the Ineligible Collateral, or (2) substituting by
assignment a new Customer Lease satisfactory to the Lender,
as determined in the Lender's sole discretion.
3.09 Termination of Revolving Credit. The Lender
shall have the right, at its sole option and absolute
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discretion, to terminate the Revolving Credit upon the
occurrence of any Event of Default
and upon giving the Borrower notice of termination. The
termination of the Revolving Credit shall not in any way
release the Borrower from its obligations under this
Agreement and the other Borrower Documents, nor shall it
terminate this Agreement or the other Borrower Documents,
and the security shall continue in full force and effect
until all amounts owed by the Borrower to the Lender on the
Revolving Credit, the Draw Facility and the Draw Facility
Notes, including, without limitation, interest, penalties,
and other charges, shall have been paid in full.
3.10 Extension of Revolving Credit. The Lender is
under no duty to extend the period of the Revolving Credit
beyond October 1, 1998. Before, at or after the termination
of the Revolving Credit, the Lender may extend the term of
the Revolving Credit on a basis and with terms and
conditions satisfactory to the Lender in its sole
discretion, for one or more successive one year terms. Any
such extension must be done in writing signed by the Lender
and specifically providing for an extension of the Revolving
Credit in order to be binding on the Lender. Upon any
extension of the period of the Revolving Credit, the
Security Agreement, the Guaranty Agreement and the other
Borrower Documents shall remain in effect and shall continue
to apply to the Revolving Credit, as extended, until the
Revolving Credit, as extended, renewed or replaced, shall
have been paid in full.
SECTION IV
The Draw Facility
The Lender hereby establishes a non-revolving draw
facility (the "Draw Facility") in favor of the Borrower as
follows:
4.01 Amount of Draw Facility. The maximum principal
amount of the Draw Facility shall not exceed Fifteen Million
Dollars ($15,000,000.00).
4.02 Term of the Draw Facility. The Draw Facility is
effective as of the date of this Agreement, and unless the
Draw Facility is sooner terminated or extended as provided
in this Agreement, shall continue in effect until October 1,
1998. Unless sooner terminated or extended, the Draw
Facility shall terminate on October 1, 1998, and thereafter
the Borrower shall not be entitled to obtain any additional
draws or advances on the Draw Facility.
4.03 Termination of Draw Facility. The Lender shall
have the right, at its sole option and absolute discretion,
to terminate the Draw Facility upon the occurrence of any
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Event of Default and upon giving the Borrower notice of
termination. The termination of the Draw Facility shall not
in any way release the Borrower from its obligations under
this Agreement and the other Borrower Documents, nor shall
it terminate this Agreement or the other Borrower Documents,
and the security shall continue in full force and effect
until all amounts owed by the Borrower to the Lender on the
Revolving Credit, the Draw Facility or the Draw Facility
Notes, including, without limitation, interest, penalties,
and other charges, shall have been paid in full.
4.04 Extension of Draw Facility. The Lender is under
no duty to extend the period of the Draw Facility beyond
October 1, 1998. Before, at or after the termination of the
Draw Facility, the Lender may extend the term of the Draw
Facility, on a basis and with terms and conditions
satisfactory to the Lender in its sole discretion, for one
or more successive one year terms. Any such extension must
be done in a writing signed by the Lender and specifically
providing for an extension of the Draw Facility in order to
be binding on the Lender. Upon any extension of the period
of the Draw Facility, the Security Agreement, the Guaranty
Agreement and the other Borrower Documents shall remain in
effect and shall continue to apply to the Draw Facility, as
extended, until the Draw Facility, as extended, renewed or
replaced, shall have been paid in full. The failure of the
Lender to extend the Draw Facility shall not, in itself, act
as an acceleration of the Draw Facility Notes (as defined
below).
4.05 Purposes of the Draw Facility. Proceeds of the
Draw Facility shall be used by the Borrower strictly and
solely to pay down the principal outstanding on the
Revolving Credit, as provided in Section 3.06 above, and
refinance such principal in accordance with the terms and
conditions of a Draw Facility Note.
4.06 Procedures and Conditions. Each draw on the Draw
Facility that is requested by the Borrower shall be subject
to the following terms and conditions:
(a) General.
(1) Each draw by the Borrower on the Draw
Facility pursuant to Section 3.06(b) shall be secured by the
Eligible Customer Leases previously assigned to the Lender
as security for the respective disbursements of the
Revolving Credit. Each draw made by the Borrower on the
Draw Facility shall be evidenced by a separate Draw Facility
Note dated as of the date of such draw in a principal amount
equal to such draw. Borrower agrees to pay the Lender a
note processing fee of One Hundred Dollars ($100.00) for
each Draw Facility Note established hereunder.
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(2) The Borrower may obtain draws on the
Draw Facility only in connection with principal payments
required to be made on the Revolving Credit as provided in
Section 3.06(b) above.
(3) The Borrower's right to obtain the
requested draw on the Draw Facility is subject to the
Borrower's continued compliance with the Security Agreement
in connection with all of the Customer Leases and Related
Documents described in the Security Agreement.
(4) The Borrower hereby authorizes the
treasurer of the Borrower, and any person designated by the
board of directors of the Borrower pursuant to a resolution
which has been certified to the Lender by the corporate
secretary or an assistant corporate secretary of the
Borrower, to make either an oral or a written request for
disbursement. As long as the Lender believes in good faith
that the person actually making any oral request for
disbursement is, in fact, such treasurer or other person
designated by the Borrower's board of directors, then any
draw made as a result of the request for a draw on the Draw
Facility shall be deemed to a have been made pursuant to a
valid and authorized request for a draw on the Draw
Facility, regardless of whether the maker of the request for
the draw was truly who he or she claimed to be.
(5) The Borrower shall not be entitled to
obtain any draw on the Draw Facility if any Event of Default
or Unmatured Default shall exist at the time of the making
of the request for the draw, or would exist upon the making
of the draw on the Draw Facility requested, even if the
Lender does not elect to terminate the Draw Facility as a
result of such Event of Default or Unmatured Default. The
Lender agrees to provide the Borrower with notice of any
determination by the Lender to refuse to make additional
draws of the Draw Facility because of the existence of an
Unmatured Default as soon as practicable following any such
determination, and the Lender acknowledges that the Borrower
shall again be entitled to request draws of the Draw
Facility if, in such event, such Unmatured Default is cured
prior to the occurrence of any Event of Default.
(6) The Borrower shall not be entitled to
obtain any draw on the Draw Facility if immediately after
the draw were to be made, a mandatory prepayment would be
required under Section 4.12 below. The Borrower also shall
not be entitled to obtain any draw on the Draw Facility if
immediately after the draw were to be made, the aggregate of
the unpaid principal balance of the Draw Facility would
exceed the maximum amount permitted under Section 4.01.
(7) All draws on the Draw Facility shall be
made in strict compliance with the terms and provisions of
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this Agreement, unless the Lender elects in its sole
discretion to waive any of those terms and conditions. The
waiver of any terms and conditions with respect to any one
draw shall not constitute a waiver of the same or any other
terms or conditions with respect to any other draw.
(8) Each request by the Borrower for a draw
hereunder shall constitute the making of the following
representations and warranties by the Borrower to the
Lender:
(A) That the Borrower is then, and at
the time the draw actually is made will be, entitled under
this Agreement to obtain that draw; and
(B) That all of the respective
covenants, agreements, representations and warranties made
by the Borrower in this Agreement, the Security Agreement,
and in any writing delivered to the Lender by or on behalf
of the Borrower are true, correct and complete in all
material respects, and have been complied with in all
material respects (to the extent required by the terms
thereof) as of such dates. For purposes of this
representation and warranty, the Borrower is representing
and warranting solely with respect to its covenants,
agreements, representations and warranties contained in the
Borrower Documents and in any other writing expressly
stating further covenants, agreements, representations and
warranties of such Person, which is signed by such Person
and delivered to the Lender, by or on behalf of such Person.
(b) [INTENTIONALLY OMITTED]
(c) Funding. Whenever the Borrower desires to
obtain a draw on the Draw Facility pursuant to this
Agreement, the Borrower shall cause an authorized
representative to:
(1) Request from the Lender a draw,
either orally or in writing, not less than three (3)
business days prior to the date on which the Borrower
desires that the draw be disbursed, stating with specificity
(A) the amount of the draw requested, the amount of which
shall not exceed the principal amount then outstanding on
the Revolving Credit as of the Funding Date, and (B) the day
on which the Borrower decides the funds are to be made
available (the "Funding Date"), which shall be either the
last calendar day of March, June, September or December;
(2) Deliver to the Lender, if the
Borrower has not already done so, on or before the Funding
Date, an Assignment of Customer Leases and Related Documents
(as defined in the Security Agreement) which describes with
such information and in such detail as the Lender may
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<PAGE>
require from time to time, the specific Customer Leases and
Related Documents that are being assigned in connection with
that particular Draw Facility Note;
(3) Deliver to the Lender, if the
Borrower has not already done so, on or before the Funding
Date, evidence satisfactory to the Lender, in its sole
discretion, that the Borrower has created and perfected a
first priority security interest in each item of Leased
Equipment leased pursuant to a Customer Lease assigned to
the Lender pursuant to the Security Agreement;
(4) Deliver to the Lender, if the
Borrower has not already done so, on or before the Funding
Date with respect to each Customer, all of the documentation
and information identified in this section to the extent not
previously submitted to the Lender; and
(5) Such other documentation that the
Lender may reasonably require.
4.07 Notation of Disbursements and Payments.
Disbursements of principal with respect to the Draw Facility
shall be evidenced by notations by the Lender on its
electronic data processing equipment, showing the date and
amount of each advance of principal. The principal amount
outstanding under each Draw Facility Note from time to time
shall also be recorded by the Lender on that electronic data
processing equipment.
4.08 Non-Revolving. The Draw Facility is a non-
revolving credit facility, and the amount of principal
repaid on the Draw Facility Notes shall not be available to
be reborrowed or redrawn under the Draw Facility or under
the respective Draw Facility Note.
4.09 Interest Rate on the Draw Facility Notes. At the
time there is a draw on the Draw Facility and a
corresponding Draw Facility Note is executed, the Borrower
shall have the option of choosing one of the five (5)
methods of determining the per annum interest rate that will
accrue on such loan that are set forth in the Draw Facility
Note. Other terms and conditions of the Draw Facility
Notes, which shall be in a form substantially similar to
Annex E attached hereto, with appropriate insertions, are
incorporated herein by reference, specifically including but
not limited to terms concerning the calculation of interest
and when interest is to be paid.
4.10 Payment of Interest and Principal on the Draw
Facility Notes. There shall be monthly interest and
principal payments on a respective Draw Facility Note. The
principal payments shall be equal payments amortized over
the term of the respective Draw Facility Note. The monthly
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<PAGE>
aggregate lease payments received by the Borrower on the
Assigned Leases securing the respective Draw Facility Notes
shall be applied first to any accrued but unpaid interest,
and all remaining lease payments shall then be applied to
the principal payment due on such Draw Facility Note.
Payments shall be due on the dates set forth in the
respective Draw Facility Note.
4.11 Term of Draw Facility Notes. The term of each
respective Draw Facility Note shall be for a period not to
exceed three (3) years without the Lender's prior consent,
which term shall commence on the execution date of such Draw
Facility Note.
4.12 Mandatory Prepayments on Draw Facility Notes. If
(a) either (i) payments of $150,000 or more in aggregate due
under one or more Customer Leases assigned to the Lender to
secure a Draw Facility Note pursuant to the Assignment (an
"Assigned Lease") or (ii) fifteen percent (15%) or more of
the regular monthly lease payments due the Borrower under
the Assigned Leases, are more than ninety (90) days past
due, or (b) the Customer obligor(s) on fifteen percent (15%)
of the total, aggregate dollars volume of Assigned Leases
institutes bankruptcy, insolvency, reorganization,
liquidation or receivership proceedings, or has a petition
for any such proceedings filed against it and does not
contest such filing within thirty (30) days thereafter, or
(c) an Assigned Lease had not been assigned and delivered to
the Lender under the Security Agreement, or (d) except as
provided in Section 3.04(c)(3) above, the Borrower fails to
create, perfect or maintain a first priority security
interest in any Leased Equipment securing an Assigned Lease,
or (e) any of the representations or warranties contained in
the Security Agreement related to the Assigned Lease shall
be or become materially untrue, then such Assigned Leases
shall no longer constitute Eligible Collateral and shall be
deemed ineligible collateral ("Ineligible Collateral").
Within (10) days of the occurrence of an Assigned Lease
becoming Ineligible Collateral (an "Occurrence"), the
Borrower shall provide the Lender written notice of an
Occurrence. Within thirty (30) days of an Occurrence, the
Borrower shall, unless it corrects the event resulting in
the Occurrence, eliminate the Ineligible Collateral from the
Collateral securing the respective Draw Facility Note by (1)
prepaying all principal and all accrued but unpaid interest
on the respective Draw Facility Note related to the
Ineligible Collateral, or (2) substituting by assignment a
new Eligible Customer Lease satisfactory to the Lender, as
determined in the Lender's sole discretion. Furthermore, in
the event any Customer makes a prepayment on a respective
Eligible Customer Lease, then the Borrower shall make a
principal prepayment on the respective Draw Facility Note in
an amount equal to the amount prepaid by the Customer.
Provided however, in the event the Borrower makes a
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prepayment, such prepayment shall not change any such
payment due date or the amount on the regularly scheduled
installment of
principal due on the respective Draw Facility Note.
SECTION V
5.01 Security for the Loans. The Revolving Credit and
the Draw Facility Loans are and shall be individually and
collectively secured by and entitled to the benefits of all
of the following:
(a) Right of Offset. The right of offset
provided in Section 10.01 of this Agreement.
(b) Security Interest in the Collateral. A
security interest granted by the Borrower in the Collateral,
pursuant to the Security Agreement substantially in the form
attached hereto as Annex D.
(c) Guaranty. By the payment guaranty of the
Guarantor pursuant to the Guaranty Agreement substantially
in the form attached hereto as Annex B.
SECTION VI
Conditions Precedent
6.01 Conditions Precedent. The Lender's obligation to
provide the Borrower with draws under the Revolving Credit
and/or the Draw Facility shall be conditioned upon the
fulfillment of all the following conditions:
(a) Resolutions. The Borrower and the Guarantor
shall have each furnished the Lender with a certified copy
of the resolutions of their respective board of directors
(1) authorizing the execution of the following documents to
which they are parties: this Agreement, the Revolving
Credit Note, the Draw Facility Notes, the Security
Agreement, the Guaranty Agreement, and any other documents,
instruments and agreements referred to herein which are
required to be executed and delivered by the Borrower or the
Guarantor and (2) authorizing consummation of the
transactions contemplated by, and performance of this
Agreement.
(b) Opinion of Counsel. The Borrower shall have
furnished the Lender, at the Borrower's expense, with the
legal opinion of Lindhorst and Dreidame, as counsel for the
Borrower and Guarantor addressed to the Lender, dated as of
the Date hereof, satisfactory to the Lender and its counsel
and substantially in the form attached hereto as Annex F.
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<PAGE>
(c) Certificate of Incumbency. The Borrower and
the Guarantor shall have furnished the Lender with
certificates of their respective secretaries certifying the
names of the respective officers of the Borrower and
Guarantor authorized to sign the Borrower Documents,
together with the true signatures of such officers.
(d) Executed Agreements. The Borrower and the
Guarantor shall have duly executed each of the following
documents to which they are parties and shall have delivered
to the Lender the following:
(1) this Agreement;
(2) the Revolving Credit Note and the Draw
Facility Notes (each to be executed
and delivered at the time of the related advance
of funds);
(3) the Security Agreement;
(4) the Guaranty Agreement; and
(5) such financing statements or other
documents for filing with public
officials with respect to the Assignment
and the Security Agreement as the Lender
may request.
(e) Representations and Warranties. Each and
every representation and warranty made by or on behalf of
the Borrower, the Guarantor or either of them at the time of
or after the execution of this Agreement relating to the
Borrower Documents to which they are a party or the
transactions contemplated thereby shall be substantially
true, complete and correct on and as of the date draw or
disbursement is to be made under the Revolving Credit and/or
the Draw Facility.
(f) No Defaults. There shall exist no Event of
Default or Unmatured Default which has not been cured to the
Lender's satisfaction.
(g) No Change in the Borrower's or the
Guarantor's Condition. There shall have been no material
adverse change in the condition, financial or otherwise, of
the Borrower and the Guarantor, from that existing on the
date of the financial statements described in Section 8.06
of this Agreement. For purposes hereof, "material adverse
change" shall mean a 25% or greater decrease in the Tangible
Net Worth of the Guarantor and the Borrower on an aggregate
basis.
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(h) Documentation. The Borrower shall have
complied with Section 3.04 of this Agreement in all
respects, and delivered all documents and instruments
required thereby.
(i) Recordings and Filings. All financing
statements or other instruments as the Lender may reasonably
request have been executed and delivered by the Borrower and
filed or recorded in such public offices as the Lender may
request to perfect and maintain the perfection of the
security interests which secure the Revolving Credit and/or
the Draw Facility.
(j) Assurances and Opinions for Property Outside
Kentucky. The Lender shall have received reports of
searches of personal property records from the appropriate
reporting agency in the states outside of Kentucky in which
any Collateral is located, which do not disclose any
security interest in the Collateral or any purchase money
security interests existing as of the date of this Agreement
except as disclosed on Schedule 8.10, that is prior to the
Lender's security interest in such Collateral, on or after
the perfection of the Lender's security interest in such
Collateral. The Lender may obtain such reports, but the
Borrower shall pay all reasonable costs associated with
obtaining them.
(k) Insurance Certificates. The Lender shall
have received the certificates of insurance required by
Section 7.01 of this Agreement.
(l) Counsel Fees. The Borrower shall have paid
the Lender's counsel fees and expenses in accordance with
Section X of this Agreement.
(m) [INTENTIONALLY OMITTED]
6.02 Conditions Precedent to Subsequent Disbursements.
The Lender's obligation to make disbursements of Revolving
Credit and/or the Draw Facility after the first disbursement
shall be conditioned upon the fulfillment prior to the
making of each such disbursement, of the conditions set out
in Section 6.01 of this Agreement and to the further
condition that the representations set out in Section
3.04(a)(8) are true, complete and correct.
SECTION VII
General Covenants
During the term of this Agreement, the Borrower shall
comply with all of the following provisions:
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7.01 Insurance. The Borrower shall maintain insurance
as follows:
(a) Casualty Insurance. Maintain
and/or cause to be maintained insurance policies on all real
and personal property of Borrower (including, but not by way
of limitation, the Collateral and other security for the
obligations provided for herein) with reputable carriers
acceptable to the Lender to such extent and against such
hazards and liabilities as is commonly maintained by
companies similarly situated, such policies to specify the
Lender as the "loss payee" of Borrower and carry
endorsements that require thirty (30) days advance notice to
the Lender of any alteration to or cancellation of same, and
at least annually (and more frequently if requested by the
Lender) provide the Lender with certificates of insurance or
other satisfactory evidence thereof.
(b) Liability Insurance. Maintain in
full force and effect such liability insurance with respect
to the activities of Borrower and other insurance as is
commonly maintained by similar companies and as may be
reasonably required by Lender, all such insurance to be
provided by reputable carriers acceptable to Lender.
(c) General Insurance Requirements.
(1) All insurance shall provide
that any loss thereunder shall be payable notwithstanding
any action, inaction, breach of warranty or condition,
breach of declarations, misrepresentation or negligence of
the Borrower.
(2) Prior to the expiration date
of any policy of insurance maintained pursuant to this
Agreement, the Borrower shall provide the Lender with a
certificate of insurance evidencing the acquisition of a new
policy, or an extension or renewal of an existing policy,
evidencing the Borrower's due compliance with this section.
(3) If the Borrower fails to
acquire any policy of insurance required to be maintained
pursuant to this section, or fails to renew or replace any
such policy at least ten (10) days prior to the expiration
thereof, or fails to keep any such policy in full force and
effect, the Lender shall have the option (but not the
obligation) to pay the premiums on any such policy of
insurance or to take out new insurance in amount, type,
coverage and terms satisfactory to the Lender, after first
notifying the Borrower of the Lender's intent to pay it.
Any amount paid therefor by the Lender shall be immediately
due and payable to the Lender by the Borrower upon demand.
No exercise by the Lender of such option shall in any way
affect the provisions of this Agreement, including the
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<PAGE>
provision that failure by the Borrower to maintain the
prescribed insurance shall constitute an Event of Default.
7.02 Taxes and Other Payment Obligations.
(a) The Borrower shall pay and discharge, or
cause to be paid and discharged, before any of them become
in arrears, all taxes, assessments, governmental charges,
levies, and claims for labor, materials or supplies which if
unpaid might become a lien or charge upon any of their
property, and all of their other debts, obligations and
liabilities.
(b) The Borrower may refrain from paying any
amount it would be required to pay pursuant to subparagraph
(a) of this section if the validity or amount thereof is
being contested in good faith by appropriate proceedings
timely instituted which shall operate to prevent the
collection or enforcement of the obligation contested,
provided that if the Borrower engaged in such a contest,
shall have set aside on its books appropriate reserves with
respect thereto. If the validity or amount of any such
obligations in excess of Fifty Thousand Dollars ($50,000.00)
shall be contested pursuant to the provisions of this
subparagraph, the Borrower shall notify the Lender
immediately upon the institution of the proceedings
contesting the obligation.
7.03 Financial Statements.
(a) Statements. As soon as available, and in
any event within ninety (90) days after the end of each
fiscal year of the Guarantor, the Guarantor shall furnish to
the Lender a copy of its annual audited consolidated
financial statements of Guarantor (specifically including
but not limited to Borrower) prepared in accordance with
generally accepted accounting principle applied on a basis
consistent with that of preceding fiscal year, with detail
consistent with past financial statements ((i) including, at
a minimum, a profit and loss statement with proper
footnotes, a balance sheet, statement of retained earnings
and sources and application of funds), and signed by an
independent certified public accountant; (ii) as filed at
the time with SEC, but in any event within seventy five (75)
days after the last day of each fiscal quarter, a copy of
its Form 10-Q with attached balance sheet and income
statement for such quarters.
(b) Additional Corporate Financial Information.
The Borrower shall deliver to the Lender:
(1) Within ten (10) days after the filing
thereof in the office of the Secretary of State of the
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Commonwealth of Kentucky, certified copies of all amendments
to the Borrower's Articles of Incorporation.
(2) Such additional information with respect
to its financial condition as may be reasonably requested by
the Lender from time to time.
(c) Lease Register. Within fifteen (15) days
after the end of each fiscal month, the Borrower shall
deliver to the Lender a lease register covering all Assigned
Leases which are current (the "Current Register") and a
separate lease register covering all Assigned Leases which
are delinquent (the "Delinquent Lease Register"). The
Current Register shall set forth the name of each Customer
obligor on an Assigned Lease who is current as of the last
day of the immediately preceding month, the total payment
made by each of those Customers during that month, and the
remaining lease balance at the end of the month owed by each
of those Customers under its respective Assigned Lease. The
Delinquent Register shall set forth the name of the each
Customer obligor on an Assigned Lease who is delinquent as
of the last day of the immediately preceding month, the
amount of the delinquent payment or payments which each of
those Customers has failed to make, the duration of each
delinquent payment and the remaining lease balance at the
end of the month owed by each of those Customers under its
respective Assigned Lease.
7.04 Financial Records. The Borrower shall maintain a
standard modern system of accounting in which full, true and
correct entries shall be made of all dealings or
transactions in relation to its business and affairs in
accordance with generally accepted accounting principles
applied on a basis consistent with prior years and, without
limitation, making appropriate accruals.
7.05 Properties. The Borrower shall maintain its
facilities, if any, and other fixed assets in good
condition, subject only to normal wear and tear (fire and
other acts of God excepted), and make all necessary and
proper repairs, renewals and replacements. The Borrower
shall comply with all material leases and other material
agreements in order to prevent loss or forfeiture, unless
compliance is being contested in good faith by appropriate
proceedings timely instituted which shall operate to prevent
enforcement of the loss or forfeiture. The Lender shall
have the right to inspect the Borrower's facilities, if any,
and other fixed assets at all reasonable times, and from
time to time.
7.06 Corporate Existence and Good Standing. The
Borrower shall preserve its corporate existence in good
standing and shall be and remain qualified to do business
and in good standing in all states and countries in which
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the nature and conduct of its business operations requires
qualification and in which the failure to be so qualified
would have a materially adverse affect on the business
operation and financial condition of the Borrower taken as a
whole.
7.07 Notice Requirements.
(a) Default. The Borrower shall cause its
President, or in his absence an officer of the Borrower
designated by it, to notify the Lender in writing within
five (5) days, after the Borrower, or any of the Borrower's
officers or directors, has notice of any Event of Default or
Unmatured Default or has notice that any representation or
warranty made in this Agreement, or in any related document
or instrument, for any reason was not true and complete and
not misleading in any material respect when made. Such
notice shall specify the nature of such Event of Default or
Unmatured Default and the action the Borrower has taken or
will take to correct it.
(b) Material Litigation. The Borrower promptly
shall notify the Lender in writing of the institution or
existence of any litigation or administrative proceeding to
which the Borrower may be or become a party which might
involve any material risk of any judgment or liability which
(1) would be in excess of Five Hundred Thousand Dollars
($500,000.00), (2) would otherwise result in any material
adverse change in the Borrower's business, assets or
condition, financial or otherwise or (3) would monetarily
affect the Lender's Security interest in the Collateral.
(c) Other Information. From time to time, upon
request by the Lender, the Borrower shall furnish to the
Lender such information regarding the Borrower's business,
assets and condition, financial or otherwise, as the Lender
may reasonably request. The Lender shall have the right
during reasonable business hours to examine all of the
Borrower's business and financial books and records and to
make notes and abstracts therefrom, to make an independent
examination of the Borrower's books and records for the
purposes of verifying the accuracy of reports delivered by
the Borrower and ascertaining compliance with this
Agreement.
7.08 Compliance with Law. The Borrower shall comply
in all material respects with (a) all valid and applicable
statutes, rules and regulations of the United States of
America, of the States thereof and their counties,
municipalities and other subdivisions and of any other
jurisdiction applicable to the Borrower; (b) the orders,
judgments and decrees of all courts or administrative
agencies with jurisdiction over the Borrower; or its
business; and (c) the provisions of licenses issued to the
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Borrower pursuant thereto, except where compliance therewith
shall be currently contested in good faith by appropriate
proceedings, timely instituted, which shall operate to stay
any order with respect to such non-compliance.
7.09 Liens. Except for security interests previously
granted by the Borrower to the Lender and those disclosed in
Section 8.10(c) of this Agreement, and except for liens
permitted in this Agreement or the other Borrower Documents,
the Borrower shall not (a) create or incur or suffer to be
created or incurred or to exist any encumbrance, mortgage,
pledge, lien, charge, restriction or other security interest
of any kind upon any of the Collateral, whether owned or
held on the date of this Agreement or acquired thereafter,
or upon the income or profits therefrom, or (b) transfer any
such Collateral or the income or profits therefrom for the
purpose of subjecting the same to payment of indebtedness or
performance of any other obligation except payments made in
accordance with Section 7.02 of this Agreement or payments
made to the Lender in accordance with the terms and
provisions of this Agreement, or (c) acquire, or agree or
have an option to acquire, any Collateral upon conditional
sale or other title retention or purchase money security
agreement, device or arrangement, or (d) sell or transfer
(except Inventory sold in the ordinary course of business),
assign, or pledge any Collateral, with or without recourse.
The Borrower may incur or create, or suffer to be incurred
or created or to exist, the following liens (the "Permitted
Liens") without violating the provisions of this Section
7.09:
(1) Statutory liens to secure claims for labor,
material or supplied to the extent that payment thereof
shall not at the time be required to be made in accordance
with Section 7.02 of this Agreement.
(2) Deposits or pledges made in connection with,
or to secure payment of, workers' compensation, unemployment
insurance, old age pensions or other social security, or in
connection with contests, to the extent that payment thereof
shall not at that time be required to be made in accordance
with Section 7.02 of this Agreement.
(3) Statutory liens for taxes or assessments or
governmental charges or levies if payment shall not at the
time be required to be made in accordance with Section 7.02
of this Agreement.
(4) Purchase money liens or security interests
in property acquired by the Borrower and granted to vendors
and lending institutions, which arise in the ordinary course
of business, including but not necessarily limited to any
Inventory acquired by Borrower through financing obtained on
a non-recourse basis from such vendors and/or lending
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institutions (including but not limited to the Lender and
its affiliates).
(5) Statutory liens (and contractual liens that
provide to the secured party no greater rights than
equivalent statutory liens) to secure payment of rent or
lease payments with respect to leases of real property to
the extent that such payments shall not at the time be
required to be made in accordance with Section 7.02 of this
Agreement.
(6) Liens granted in the normal course of
business to procure bid, performance or surety bonds (so
long as any of the liens noted in Subsections 1, 3, 5 and 6
herein, separately or in the aggregate, do not materially
adversely offset the property or operations of the Borrower
or materially diminish the Collateral or Lender's interest
therein).
Lender agrees that, in the event any promissory
note is paid in full as a result of the Borrower obtaining
non-recourse financing from a lending institution (including
but not limited to affiliates of the Lender), the Lender
shall subordinate its security interest in the specific
item(s) of Leased Equipment and the Assigned Leases securing
such promissory note to such lending institution.
7.10 Letters of Credit. Without the Lender's prior
written consent which shall not be unreasonably withheld,
the Borrower shall not have outstanding any letters of
credit upon which the Borrower is the obligor or guarantor.
7.11 Articles of Incorporation and Bylaws. Without
the Lender's prior written consent, which shall not be
withheld or delayed unreasonably the Borrower shall not make
any changes in or amendments to its articles of
incorporation.
7.12 Mergers, Sales, Transfers and Other Dispositions
of Assets.
(a) Except as set forth in Subsection (b) of
this Section, the Borrower shall not do any of the following
without the Lender's prior written consent, which shall not
be unreasonably withheld or delayed:
(1) Be a party to any consolidation,
reorganization (including without limitation those types
referred to in Section 368 of the United States Internal
Revenue Code of 1986, as amended), "stock-swap" or merger;
(2) Sell or otherwise transfer any material
part of its assets;
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(3) Purchase all or a substantial part of
the capital stock or assets of any corporation or other
business enterprise;
(4) Effect any change in their respective
capital structure;
(5) Sell, assign, or otherwise dispose of,
with or without recourse, settle or compromise any of its
Accounts Receivable or notes receivable or other
intangibles, except the endorsement of negotiable
instruments for the purpose of collection in the ordinary
course of business and as permitted in Section 12 of the
Security Agreement; or
(6) Liquidate or dissolve or take any
action with a view toward liquidation or dissolution.
(b) Without the Lender's prior written consent,
the Borrower may sell or otherwise transfer from time to
time its property, tangible or intangible, in the normal
course of business or involving the sale of damaged,
obsolete or discontinued assets.
7.13 Loans. The Borrower shall not make any loan or
advance any funds whatsoever to any business, entity, party
or individual, except advances not to exceed One Hundred
Thousand Dollars
($100,000.00) in the aggregate at any one time outstanding.
7.14 Financial Covenants. The Borrower shall at all
times comply with the financial covenants set forth in
Exhibit 2 to this Agreement.
7.15 Location of Inventory. The initial location of
the Leased Equipment will be disclosed by Borrower to the
Lender at the time the Assigned Lease is assigned to Lender.
Borrower and Lender acknowledge that a portion of the Leased
Equipment are and will be mobile goods, and will be moved
from one jurisdiction to another and Borrower will be unable
to inform Lender as to such movement. Borrower will use its
best efforts, if it has actual knowledge of the relocation
of any Inventory (including but not limited to Leased
Equipment) to:
(a) Notify the Lender of the location to which
the Inventory is being moved, located or relocated;
(b) Pay the Lender's reasonable expenses
incurred in obtaining searches of the public records of such
proposed Inventory locations, or reimbursing the Lender for
its reasonable expenses in obtaining such record searches;
and
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(c) File or causing to be filed such financing
statements or other documents as the Lender may require with
such public authorities as the Lender shall deem necessary
to perfect and protect the Lender's security interest in the
Borrower's Inventory.
7.16 Control and Operation. Borrower shall remain as
a wholly owned subsidiary of the Guarantor and the
Guarantor shall be managed by persons reasonably acceptable
to the Lender.
7.17 Lockbox.
(a) On or before the tenth (10th) day following
the assignment of an Assigned Lease to the Lender, the
Borrower shall notify each obligor of the Assigned Lease of
the Lender's security interest in the Assigned Lease created
pursuant to the Assignment and direct each obligor to remit
all future payments or other amounts provided in such
Assigned Lease directly to a post office box designated by
the Lender (the "Lockbox"). The Borrower may, from time to
time, direct particular obligors of Assigned Leases to remit
specific payments directly to the Borrower as part of the
Borrower's usual and customary procedures for collecting
payments from obligors whose payments are or have been paid
late or otherwise require special handling or attention as a
collection matter.
(b) If any Unmatured Default or Event of Default
has occurred and is continuing, the Lender may, at its
option, have sole access to, and control and power of
withdrawal over the Lockbox and use the proceeds from any
payments collected through the Lockbox, beginning twenty-
four (24) hours after such Unmatured Default or Event of
Default and while it is continuing, to satisfy any
Indebtedness of the Borrower to the Lender. In the event of
such satisfaction, the Lender shall credit the proceeds as
payment of the Revolving Credit, the Draw Facility Notes,
and other Indebtedness first to reasonable costs incurred by
Lender, then to interest, then to principal, but otherwise,
as the Lender may desire, in its discretion. Any credit
given to the Borrower in cash or solvent credit for the
conditional upon final payment to the Borrower in cash or
solvent credit for the items, and if any item is not paid
the amount of any credit given for it shall be charged to
the Borrower whether or not the item is returned, and such
amount shall be a part of the obligations secured by the
Security Agreement and the Guaranty Agreement.
7.18 Compliance with Other Borrower Documents. The
Borrower shall pay the Revolving Credit Note and the Draw
Facility Notes, in accordance with their respective terms,
and the Borrower shall comply with the provisions of the
Security Agreement and all other Borrower Documents. The
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Guarantor shall comply with the provisions of the Guaranty
Agreement.
7.19 Depository Account. The Borrower shall
contemporaneously with the execution hereof open a non-
interest bearing depository account with the Lender and
shall at all times maintain a minimum average daily balance
of $200,000 in said account until the latter of (i) all
amounts outstanding under the Revolving Credit Note are paid
in full or (ii) the Lender is no longer obligated to
disburse sums under the Revolving Credit pursuant to this
Agreement.
SECTION VIII
Representations and Warranties
To induce the Lender to enter into this Agreement and
to make the Revolving Credit and the Draw Facility, the
Borrower represents and warrants to the Lender as follows
(which warranties and representations shall be deemed to be
remade and restated in full (subject only to changes of
circumstances which (1) are fully disclosed by the Borrower
to the Lender in writing, describing the changed
circumstances, and (2) do not result in any material
violation of any condition, provision, promise and/or
covenant of this Agreement, or otherwise result in an
Unmatured Default or an Event of Default) whenever a
disbursement under the Revolving Credit or Draw Facility is
requested by the Borrower):
8.01 Corporate Organization and Existence. The
Borrower is a corporation duly organized, validly existing,
and in good standing under the laws of the Commonwealth of
Kentucky. The Borrower has all necessary power and
authority to carry on its business conducted on the date of
this Agreement. The Borrower is qualified to do business as
a foreign corporation, is in good standing, in all states
and in all foreign countries in which it is required to be
so qualified pursuant to Section 7.06 hereof, and is duly
authorized, qualified and licensed under all laws,
regulations, ordinances or orders of public authorities to
carry on its business in the places and in the manner
conducted on the date of this Agreement.
8.02 Right to Act. No registration with or consent or
approval of any governmental agency of any kind is required
for the execution, delivery performance and enforceability
of the Borrower Documents. The Borrower has full power and
authority, corporate and otherwise, to execute, deliver and
perform the Borrower Documents to which it is a party.
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8.03 No Conflicts. The Borrower's execution, delivery
and performance of the Borrower Documents to which it is a
party does not, and will not, (a) violate any existing
provision of the articles of incorporation or bylaws of the
Borrower, or any law, rule, regulation, or judgment, order
or decree applicable to the Borrower, or (b) otherwise
constitute a default, or result in the imposition of any
lien under (1) any existing contract or other obligation
binding upon the Borrower or its respective property, with
or without the passage of time or the giving of notice or
both, or (2) any law, rule or regulation applicable to the
Borrower or its business, or (3) any judgment, order or
decree of any court or administrative agency applicable to
the Borrower or its business.
8.04 Authorization. The execution, delivery and
performance by the Borrower of the Borrower Documents to
which it is a party has been duly authorized, and the
Borrower Documents have been duly executed and delivered and
constitute legal, valid and binding obligations enforceable
against the Borrower.
8.05 Litigation and Taxes.
(a) Except for those matters described in the
financial statements referenced in Section 8.06 of this
Agreement, there is no litigation, at law or in equity, or
any proceeding before any federal, state or municipal court,
board or other governmental or administrative agency
pending, or to the knowledge of the Borrower, threatened
which is likely to involve any material judgment or
liability against the Borrower or which might otherwise
result in any material adverse change in the Borrower's
business, assets or condition, financial or otherwise. No
judgment, decree or order of any federal, state or municipal
court, board or other governmental or administrative agency
has been issued against the Borrower or any of its assets
which has, or might have, a material adverse effect on the
Borrower's business, assets or condition, financial or
otherwise.
(b) The Borrower has filed all tax returns which
are required to be filed and has paid, or made adequate
provision for the payment of, all taxes which have or may
become due pursuant to such returns or pursuant to
assessments received. The Borrower knows of no material
additional assessments for which adequate reserves have not
been established, and the Borrower has made adequate
provision for all current taxes.
8.06 Financial Statements. The Borrower's most recent
financial statements of the type described in Subsections
(a), (b) and (c) of Section 7.03 and dated as of their
respective dates, have been furnished to the Lender. Those
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financial statements are true and complete, have been
prepared in accordance with generally accepted accounting
principles, do not omit reference to any material contingent
liabilities of any kind, and fairly present the financial
condition of the Borrower as of the date of the financial
statements.
8.07 Compliance with Contractual Obligations, Laws and
Judgments.
(a) The Borrower is not in default in the
payment, performance, observance or fulfillment of any of
the material obligations, covenants or conditions contained
in any lease, indenture, mortgage, deed of trust, promissory
note, agreement or undertaking to which it is a party or by
which its assets are bound.
(b) The Borrower has not violated any applicable
statute, regulation or ordinance of the United States of
America or of any state, municipality or any other
subdivision, jurisdiction or agency thereof, in any respect
materially and adversely affecting the Borrower's business,
property, assets, operations or conditions, financial or
otherwise.
(c) The Borrower is not in default with respect
to any judgment, order, writ, injunction, decree or demand
of any court, arbitrator or governmental agency or body.
8.08 Location of Inventory. The Borrower's Inventory
is located at the locations set out on Schedule 1 to the
Security Agreement.
8.09 No Undisclosed Liabilities or Guaranties. The
Borrower has no material liabilities, direct or contingent,
except as disclosed or referred to in the financial
statements referred to in Section 8.06 of this Agreement or
incurred by the Borrower after such date and not prohibited
by the express terms of this Agreement, nor has the Borrower
guaranteed, or otherwise become responsible for, the
material obligations of any Person, other than as set out on
Schedule 8.09 of this Agreement or otherwise not in
contravention of any of the Borrower Documents.
8.10 Title to Properties. The Borrower has good and
marketable title to all of its property and assets of all
character, free and clear of all mortgages, liens and
encumbrances except (a) encumbrances granted to the Lender,
(b) minor irregularities in title which do not materially
interfere with the use and enjoyment by the Borrower of such
properties and assets in the normal course of business as
presently conducted, or materially impair the value thereof
for such business, (c) those encumbrances described on
Schedule 8.10 to this Agreement, (d) those Permitted Liens
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<PAGE>
permitted in Section 7.09, and (e) any other encumbrances
permitted under the express terms of the Borrower Documents.
8.11 Trademarks and Permits. The Borrower possesses
adequate licenses, patents, copyrights, trademarks and trade
names to conduct its businesses as now conducted. Neither
the Borrower nor any of its officers, directors or employees
has received notice or has knowledge of any claim that the
Borrower has violated any other Person's license, patent,
copyright, trademark or trade name, or that the Borrower's
licenses, patents, copyrights, trademarks or trade names are
currently being infringed. The Borrower has all
governmental permits, certificates, consents and franchises
necessary to carry on its businesses as now conducted and to
own or lease and operate its properties as now owned, leased
or operated. All such governmental permits, certificates,
consents and franchises are valid, and in effect, and the
Borrower is not in violation thereof, and none of them
contains any term, provision, condition or limitation more
burdensome than generally applicable to persons engaged in
the same or similar business.
8.12 Disclosure. Neither this Agreement, nor any
agreement, document, certificate or statement furnished to
the Lender by or on behalf of the Borrower in connection
with the transactions contemplated by this Agreement
contains any untrue statement of any material fact or omits
to state any material fact necessary to make the statements
contained herein or therein not misleading. There is no
fact known to the Borrower which materially and adversely
affects, or in the future is likely to materially and
adversely affect, the Borrower's business, operations,
affairs or condition, financial or otherwise, which has not
been disclosed to the Lender.
SECTION IX
Events of Default
The occurrence of any one or more of the following
shall constitute an Event of Default under this Agreement
(an "Event of Default"):
9.01 Failure to Pay. If the Borrower shall fail to
pay in full any installment of principal or interest on the
Revolving Credit or any Draw Facility Note, or payments
required by Section III and/or IV of this Agreement, within
five (5) calendar days after Lender has sent written notice
to the Borrower that such payment has become due and is
unpaid.
9.02 [INTENTIONALLY OMITTED]
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9.03 Notice Required. If any Event of Default occurs
under any other Loan Document or the obligor with respect to
any term, obligation, covenant, agreement, condition or
other provision (other than those referred to in Section
9.01 hereof) contained or referred to in this Agreement
shall fail to observe, perform or comply with those
provisions, and such occurrence or failure shall not have
been fully corrected to Lender's reasonable satisfaction
within thirty (30) calendar days after the Lender has sent
written notice thereof to the Borrower.
9.04 Falsity of Representation or Warranty. If any
representation or warranty or other statement of fact
contained in any of the Borrower Documents or in any
writing, certificate, report or statement at any time
furnished the Lender by or on behalf of the Borrower or the
Guarantor pursuant to or in connection with this Agreement,
the Revolving Credit or the Draw Facility shall have been
false or misleading in any material respect or which shall
omit a material fact, whether or not made with knowledge, at
the time it was made.
9.05 Judgments. If a final judgment or judgments for
the payment of money in excess of the sum of One Million
Dollars ($1,000,000.00) in the aggregate, or with respect to
property with a value in excess of such amount, shall be
rendered against the Borrower or Guarantor and such judgment
or judgments shall remain unsatisfied for a period of thirty
(30) consecutive days after the entry thereof and within
that thirty (30) days has not been (a) stayed pending
appeal, or (b) discharged.
9.06 Adverse Financial Change. If there should be any
material adverse change in the financial condition of the
Borrower and Guarantor as determined on an aggregate basis
in the Lender's reasonable discretion, from their respective
financial conditions as shown on the financial statements
referred to in Section 8.06 of this Agreement, and such
adverse change is not fully corrected to Lender's reasonable
satisfaction within thirty (30) days after notice with
respect thereto has been sent from the Lender. "Material
adverse change" as used herein shall have the meaning
ascribed to such term in Section 6.01(g) of this Agreement.
9.07 Other Obligations to the Lender and its
Affiliates. If the Borrower or Guarantor shall fail to
observe, perform or comply with the terms, obligations,
covenants, agreements, conditions or other provisions of any
material agreement, document or instrument other than this
Agreement and the other Borrower Documents which the Lender
or any of its affiliates has entered into with the Borrower
or Guarantor, as applicable, and which involves Indebtedness
to the Lender or any of its affiliates and such failure
shall not have been fully corrected to Lender's reasonable
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<PAGE>
satisfaction after notice with respect thereto has been sent
from Lender.
9.08 Dissolution or Termination of Existence. If the
Borrower or Guarantor or any Person affiliated with either
of them, takes any action that is intended to result in the
termination, dissolution or liquidation of the Borrower or
Guarantor.
9.09 Solvency.
(a) If the Borrower or Guarantor shall (1) have
an order of relief entered in any proceeding filed by it, as
the case may be, under the federal bankruptcy laws (as in
effect on the date of this Agreement or as they may be
amended from time to time); (2) admit its inability to pay
its debts generally as they become due; (3) become insolvent
in that its total assets are in the aggregate worth less
than all of its liabilities or it is unable to pay its debts
generally as they become due; (4) make a general assignment
for the benefit of creditors; (5) file a petition, or admit
(by answer, default or otherwise) the material allegations
of any petition filed against it, in bankruptcy under the
federal bankruptcy laws (as in effect on the date of this
Agreement or as they may be amended from time to time), or
under any other law for the relief of debtors, or for the
discharge, arrangement or compromise of their debts; or (6)
consent to the appointment of a receiver, conservator,
trustee or liquidator of all or part of its assets.
(b) If a petition shall have been filed against
the Borrower in proceedings under the federal bankruptcy
laws (as in effect on the date of this Agreement, or as they
may be amended from time to time), or under any other laws
for the relief of debtors, or for the discharge, arrangement
or compromise of their debts, or an order shall be entered
by any court of competent jurisdiction appointing a
receiver, conservator, trustee or liquidator of all or part
of the Borrower's assets, and such petition or order is not
dismissed or stayed within sixty (60) consecutive days after
entry thereof.
SECTION X
Remedies Upon Default
Notwithstanding anything to the contrary, if any Event
of Default under this Agreement occurs, the Lender, in its
sole discretion, and without notice to the Borrower, may (a)
terminate the Revolving Credit and/or the Draw Facility, and
the Lender shall be under no further obligation to grant any
further disbursements or drawings under either the Draw
Facility or the Revolving Credit to the Borrower, (b)
declare the entire unpaid balance of the Revolving Credit
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Note, the Draw Facility Notes, and all other obligations of
the Borrower under this Agreement to be immediately due and
payable in full, without any presentment, demand or notice
of any kind, all of which are hereby waived by the Borrower.
In addition, upon the occurrence of any Event of Default,
and at any time thereafter, unless all Events of Default
have been remedied to the full satisfaction of the Lender or
waived in a writing signed by the Lender specifically
providing the waiver, the Lender shall have all of the
following rights and remedies and it may exercise one or
more of them singularly or in conjunction with others.
10.01 Right to Offset. The Lender shall have the
right to set off against, or appropriate and apply toward
the payment of, the obligations of the Borrower to the
Lender, pursuant to this Agreement or as evidenced by the
Draw Facility Notes or the Revolving Credit Note whether
such obligations shall have matured in due course or by
acceleration, any and all deposit balances and other sums
and indebtedness then held or owed by the Lender to or for
the credit or account of the Borrower. Such offsets
following an Event of Default may occur without notice to or
demand upon the Borrower or any other person, all of such
notices and demands being hereby waived.
10.02 Enforcement of Rights. The Lender shall have
the right, to proceed to protect and enforce its rights by
suit in equity, action at law or other appropriate
proceedings either for specific performance of any covenant
or condition contained in any of the Borrower Documents, or
in aid of the exercise of any power granted in any of the
Borrower Documents.
10.03 Rights Under Security Instruments. The Lender
shall also have all rights and remedies granted it under any
and all agreements, including without limitation, the
Security Agreement, and the Guaranty Agreement, securing or
intending to secure the Borrower's obligations under the
Draw Facility Notes, the Revolving Credit Note, or any other
indebtedness or obligation of the Borrower under the
Borrower Documents.
10.04 Cumulative Remedies. All of the rights and
remedies of the Lender upon occurrence of an Event of
Default shall be cumulative to the greatest extent permitted
by law, may be exercised successively or concurrently, from
time to time, and shall be in addition to all of those
rights and remedies afforded the Lender at law, or in
equity, or in bankruptcy. Notwithstanding the foregoing,
the Lender shall be entitled to recover from the cumulative
exercise of all remedies an amount no greater than the sum
of (a) the outstanding principal amount of all Draw Facility
Notes and the Revolving Credit Note, (b) all accrued but
unpaid interest with respect to the principal amount of the
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Draw Facility Notes and the Revolving Credit Note, (c) any
other amounts that the Borrower is required by this
Agreement to pay to the Lender (for example, and without
limitation, the reimbursement of expenses and legal fees,
and late charges), and (d) any costs, expenses or damages
which the Lender is otherwise permitted to recover by the
terms of this Agreement. Any exercise of any right or
remedy shall not be deemed to be an election of that right
or remedy to the exclusion of any other right or remedy.
SECTION XI
Fees and Expenses
11.01 Transactions Expenses. The Borrower shall pay
to the Lender $5,000.00 for the Lender's attorneys' fees
incurred in preparing the Borrower Documents and shall pay
up to $500.00 for other out-of-pocket expenses and any and
all costs and fees incurred by Lender in connection with the
initial recording or filing of any documents or instruments
in any public office, pursuant to or as a consequence of
this Agreement, or to initially perfect or protect any
security for the Draw Facility and/or the Revolving Credit.
The Borrower shall also pay to the Lender upon demand all
reasonable out-of-pocket expenses subsequently incurred from
time to time in the administration of the Revolving Credit
and the Draw Facility, including, without limitation, any
out-of-pocket expenses (including, but not limited to,
reasonable attorneys' fees), filing fees, recording fees or
other costs incurred by the Lender if any of the Borrower
Documents should be amended, extended and/or renewed from
time to time.
11.02 Enforcement Expenses. If any Event of Default
shall occur under this Agreement, or any default shall occur
under any of the Borrower Documents or any related
documents, the Borrower shall pay to the Lender, to the
extent allowable by applicable law, such amounts as shall be
sufficient to reimburse the Lender fully for all of its
costs and expenses incurred in enforcing its rights and
remedies under the Borrower Documents and any related
documents, including without limitation the Lender's
reasonable attorney's fees and court costs. Such amounts
shall be deemed to be included in the obligations secured by
the Security Agreement and the Guaranty Agreement.
SECTION XII
Miscellaneous Provisions
12.01 Banking Days. If any provision of this
Agreement or any of the other Borrower Documents requires
E-37
<PAGE>
that the Borrower make any payment, or otherwise perform any
act, on a day on which the Lender is not open for business,
then that payment or action shall be deemed to be due on the
first day thereafter that the Lender is open for business.
12.02 Term of the Agreement. The term of this
Agreement shall commence as of the date hereof, and continue
until all obligations of the Borrower under the Draw
Facility and the Revolving Credit and accrued but unpaid
interest thereon shall have been paid in full (regardless of
the fact that Lender may have elected not to extend the
Revolving Credit and/or the Draw Facility) and the Borrower
shall have paid or performed all of its obligations
hereunder.
12.03 No Waivers. Failure of delay by the Lender in
exercising any rights shall not be deemed to be or operate
as a waiver of that right, nor shall any right be exclusive
of any other right referred to in this Agreement, or in any
other related document, or available at law or in equity, by
statute or otherwise. Any single or partial exercise of any
right shall not preclude the further exercise of that right.
Every right of the Lender shall continue in full force and
effect until such right is specifically waived in a writing
signed by the Lender.
12.04 Course of Dealing. No course of dealing between
the Borrower and Lender shall operate as a waiver of any of
the Lender's rights under any of the Borrower Documents.
12.05 Waivers by the Borrower. The Borrower hereby
waives, to the extent permitted by applicable law, (a) all
presentments, demands for performances, notices of
nonperformance (except to the extent specifically required
by this Agreement or any other of the Borrower Documents),
protests, notices of protest and notices of dishonor in
connection with the Draw Facility Notes and the Revolving
Credit Note (b) any requirement of diligence or promptness
on the part of the Lender in enforcement of its rights under
the provisions of any of the Borrower Documents, and (c) any
requirement of marshalling assets or proceeding against
persons or assets in any particular order.
12.06 Severability. If any part, term or provision of
the Agreement is held by any court to be unenforceable or
prohibited by any law applicable to this Agreement, the
rights and obligations of the parties shall be construed and
enforced with that part, term or provision limited so as to
make it enforceable to the greatest extent allowed by law,
or, if it is totally unenforceable, as if this Agreement did
not contain that particular part, term or provision.
E-38
<PAGE>
12.07 Time of the Essence. Time shall be of the
essence in the performance of all of the Borrower's
obligations under the Borrower Documents.
12.08 Benefit and Binding Effect. This Agreement
shall incur to the benefit of the Lender, its successors and
assigns, and all obligations of the Borrower shall bind its
respective successors and, if and to the extent assignment
is otherwise permitted by this Agreement, its assigns.
12.09 Further Assurances. The Borrower shall sign
such financing statements or other documents or instruments
as the Lender may request from time to time to more fully
create, perfect, continue, maintain or terminate the rights
and security interests intended to be granted or created
pursuant to this Agreement and the other Borrower Documents.
12.10 Incorporation by References. All schedules,
annexes, exhibits or other attachments to this Agreement are
incorporated into this Agreement as if set out in full at
the first place in this Agreement that reference is made
thereto.
12.11 Entire Agreement; No Oral Modifications. This
Agreement, the schedules, annexes and exhibits hereto, and
the documents and instruments referred to herein constitute
the entire agreement of the parties with respect to the
subject matter hereof, and supersede all prior
understandings with respect to the subject matter hereof.
No change, modification, addition or termination of this
Agreement or any of the Borrower Documents shall be
enforceable unless in writing and signed by the party
against whom enforcement is sought.
12.12 Headings. The headings used in this Agreement
are included for ease of reference only and shall not be
considered in the interpretation or construction of this
Agreement.
12.13 Governing Law. This Agreement and the related
documents and instruments shall be governed by and construed
in accordance with the laws of the Commonwealth of Kentucky,
except to the extent that the laws of any other state,
province or country where the Collateral is located require
that the laws of such other state, province or country shall
govern the creation, perfection or enforcement of the
Lender's rights and security interests in such Collateral.
12.14 Assignments. The Borrower may not assign its
rights under this Agreement to any other party. Any
attempted assignment shall be a default under this Agreement
and shall be null and void. The Lender shall have the right
and ability to sell, assign or transfer all or any part of
its rights and/or obligations under this Agreement, and/or
E-39
<PAGE>
to participate its rights and obligations under this
Agreement with other lenders, and/or to sell participation
or participating interests in its rights and/or obligations
under this Agreement (provided however, that should the
Lender assign, prior to October 1, 1998, its rights or
obligations hereunder, in whole or in part, to any lender
unacceptable to Borrower, and should Borrower terminate its
ability to seek further draws under the Revolving Credit,
the Lender will reimburse one-half of the legal fees
incurred by the Borrower in connection herewith). In
furtherance thereof, the Lender shall have the right to
provide to any Person who expresses an interest in becoming
such a buyer, assignee, transferee, participant and/or
purchaser, or who actually does become such a buyer,
assignee, transferee, participant, and/or purchaser, such
information concerning the financial, business and other
affairs of the Borrower as the Lender may deem appropriate
in the circumstances. The Borrower hereby authorizes all
such disclosures. Provided however, anything in the
foregoing to the contrary notwithstanding, that Lender shall
not sell, assign or transfer any or all of its rights
hereunder to, nor participate its rights and obligations
hereunder with, nor provide any information concerning the
financial, business or other officers of the Borrower or the
Guarantor to those parties listed on Exhibit 3 attached
hereto.
12.15 Multiple Counterparts.
(a) This Agreement may be signed by each party
upon a separate copy, and in such case one counterpart of
this Agreement shall consist of enough of such copies to
reflect the signature of each party.
(b) This Agreement may be executed in two or
more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of
this Agreement or the terms thereof to produce or account
for more than one of such counterparts.
12.16 Notices.
(a) Any requirement of the Uniform Commercial
Code or other applicable law of reasonable notice shall be
met if such notice is given at least ten (10) business days
before the time of sale, disposition or other event or thing
giving rise to the requirement of notice.
(b) Except as provided in Subsection (c) below,
all notices or communications under this Agreement shall be
in writing and shall be hand-delivered, sent by courier, or
mailed to the parties addressed as follows, and any notice
so addressed and (1) hand-delivered, shall be deemed to have
been given when so delivered, or (2) mailed by registered or
E-40
<PAGE>
certified mail, return receipt requested, shall be deemed to
have been given when mailed, or (3) delivered to a
recognized shall package overnight courier service to the
address of the intended recipient with shipping prepaid,
shall be deemed to have been given when so delivered to such
courier.
(1) If to the Borrower:
Technology Integration
Financial Services, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
Attn: Edwin S. Weinstein
with a copy to:
James H. Smith, III, Esq.
Lindhorst & Dreidame Co.,
LPA
312 Walnut Street, Suite 2300
Cincinnati, Ohio 45202
(2) If to the Lender:
The Fifth Third Bank of
Northern Kentucky, Inc.
8100 Burlington Pike
Florence, Kentucky 41042
Attn: Brian Mauntel
with a copy to:
R. Jeffrey Schlosser, Esq.
Adams, Brooking, Stepner,
Woltermann & Dusing
421 Garrard Street
P.O. Box 861
Covington, KY 41012-0861
(c) The Borrower and the Lender may at any
time, and from time to time, change the address or addresses
to which notice shall be mailed by written notice setting
forth the changed address or addresses.
12.17 Survival of Covenants. All covenants,
agreements, warranties and representations made by the
Borrower herein shall survive the making of each draw and/or
disbursement of the Revolving Credit and the Draw Facility.
12.18 Consent to Jurisdiction and Venue. The Borrower
consents to one or more actions being instituted and
maintained in the Boone County, Kentucky, Circuit Court to
enforce this Agreement and/or one or more of the other
Borrower Documents, and waives any objection to any such
action based upon lack of personal or subject matter
E-41
<PAGE>
jurisdiction or improper venue. The Borrower agrees that
any process or other legal summons in connection with any
such action or proceeding may be served by mailing a copy
thereof by certified mail, or any substantially similar form
of mail, addressed to the Borrower, as the case may be, as
provided in Section 12.16 above.
12.19 Acknowledgment. The Borrower acknowledges that
it has received a copy of this Agreement and each of the
other Borrower Documents, as fully executed by the parties
thereto. The Borrower acknowledges that it (a) HAS READ
THIS AGREEMENT AND THE OTHER BORROWER DOCUMENTS OR HAS
CAUSED SUCH DOCUMENTS TO BE EXAMINED BY THEIR RESPECTIVE
REPRESENTATIVES OR ADVISORS; (b) is thoroughly familiar with
the transactions contemplated in this Agreement and the
other Borrower Documents; and (c) has had the opportunity to
ask such questions or representatives of the Lender, and
receive answers thereto, concerning the terms and conditions
of the transactions contemplated in this Agreement and the
other Borrower Documents as it deems necessary in connection
with its decision to enter into this Agreement.
IN WITNESS WHEREOF, the Borrower and the Lender have
signed this Agreement as of the date set forth in the
preamble hereto, but actually on the dates set forth below.
THE FIFTH THIRD BANK OF NORTHERN
KENTUCKY, INC.
By:
Title:
__________________________________
TECHNOLOGY INTEGRATION FINANCIAL
SERVICES, INC.
By:
Title:___________________________________
COMMONWEALTH OF KENTUCKY )
)ss
COUNTY OF )
The foregoing instrument was acknowledged before me
this day of November, 1997 by Brian Mauntel, a vice
president of The Fifth Third Bank of Northern Kentucky,
E-42
<PAGE>
Inc., a state banking corporation, on behalf of the
corporation.
Notary Public
Commission expires:
COMMONWEALTH OF KENTUCKY )
)ss
COUNTY OF )
The foregoing instrument was acknowledged before me
this day of November, 1997 by ____________________,
_________ of Technology Integration Financial Services,
Inc., a Kentucky
corporation, on behalf of the corporation.
Notary Public
Commission expires:
C:\WPDOCS\POMEROY\LOANAGR.CLE
EXHIBIT 2
FINANCIAL COVENANTS
None
E-43
<PAGE>
___________________________________
Borrower's Signature
EXHIBIT 3
LIST OF PROHIBITED PARTIES
The Provident Bank
PNC Bank
E-44
<PAGE>
___________________________________
Borrower's Signature
SCHEDULE 8.09
BORROWER'S CONTINGENT LIABILITIES
E-45
<PAGE>
___________________________________
Borrower's Signature
SCHEDULE 8.10
ENCUMBRANCES ON THE BORROWER'S PROPERTIES
E-46
<PAGE>
___________________________________
Borrower's Signature
ANNEX A
FORM OF ASSIGNMENT
E-47
<PAGE>
_________________________________
Borrower's Signature
ANNEX B
FORM OF GUARANTY AGREEMENT
E-48
<PAGE>
_________________________________
Borrower's Signature
ANNEX C
FORM OF REVOLVING CREDIT NOTE
E-49
<PAGE>
_________________________________
Borrower's Signature
ANNEX D
FORM OF SECURITY AGREEMENT
E-50
<PAGE>
_________________________________
Borrower's Signature
ANNEX E
FORM OF DRAW FACILITY NOTE
E-51
<PAGE>
_________________________________
Borrower's Signature
ANNEX F
FORM OF OPINION OF COUNSEL
E-52
<PAGE>
_________________________________
Borrower's Signature
??
E-53
<PAGE>
INCUMBENCY AND AUTHORIZATION CERTIFICATE
OF GUARANTOR
The undersigned hereby certifies that he/she is
Secretary of POMEROY COMPUTER RESOURCES, INC., a Delaware
corporation (the "Guarantor"), and the undersigned does
hereby further certify that the representations hereinafter
set forth are true and correct as of the date hereof.
The undersigned further certifies that the exhibits
attached hereto are true and correct copies of the
following:
(a) Exhibit A - Articles of Incorporation of the
Guarantor
(b) Exhibit B - Bylaws of the Guarantor; and
(c) Exhibit C - Resolution of Board of Directors of
the
Guarantor duly adopted on _________________ by
unanimous written consent, which Resolution is now in full
force and effect.
The undersigned hereby certifies that ________________,
______________, has been duly authorized by action duly
taken by the Board of Directors of the Guarantor, as
reflected in Exhibit C hereto, to execute and deliver on
behalf of the Guarantor the Guaranty, referred to in Exhibit
C hereto, as well as all additional documents and
instruments and to take such other action as he deems
necessary and proper on behalf of the Guarantor in
connection with the guaranteeing of the Loans referenced in
Exhibit C hereto.
IN WITNESS WHEREOF, the undersigned hereby certifies
the above to be true and has hereunto set his/her signature
this ____ day of ________, 1997.
POMEROY COMPUTER RESOURCES, INC.,
a Delaware corporation
By:
Secretary
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<PAGE>
ADDENDUM 1
TO
GUARANTY AGREEMENT
This First Addendum ("Addendum") to that certain
Payment Guaranty ("Guaranty") made by POMEROY COMPUTER
RESOURCES, INC., a Delaware corporation ("Guarantor") to THE
FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC., a Kentucky
banking corporation ("Bank") dated October 31, 1997, is
entered into contemporaneously with the execution of the
Guaranty. This Addendum modifies, amends and supplements
the Guaranty as follows:
1. The following sentences are added to the end of
Numbered Paragraph 1 entitled Guaranty:
"This Payment Guaranty shall not extend to any
non-recourse loans made by Bank or any of its affiliates to
Borrower. Obligations shall specifically include, but not
be limited to, the Revolving Credit Facility, the Draw
Facility (both as defined in that certain Loan Agreement
dated October 31, 1997 by and between the Bank and Borrower)
and any promissory notes evidencing such facilities."
2. The following sentence is added to the end of
Numbered Paragraph 3 entitled Waiver of Notice:
"Provided however, Bank shall provide Guarantor
with written notice at the above address of the occurrence
of an Event of Default under the Loan Agreement prior to any
enforcement of this Guaranty as a result of such Event of
Default".
3. The following paragraph is added to the Guaranty:
6. WARRANTIES AND REPRESENTATIONS: To induce
the Bank to make the loans to the Borrower, the Guarantor
warrants and represents to the Bank as follows:
a. The Guarantor is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Delaware. The Guarantor has all
necessary power and authority to carry on its business
conducted on the date of this Guaranty. The Guarantor is
qualified to do business as a foreign corporation in the
State of Kentucky.
b. No registration with or consent or
approval of any governmental agency of any kind is required
for the execution, delivery, performance and enforceability
of this Guaranty.
E-55
<PAGE>
c. The Guarantor's execution, delivery, and
performance of this Guaranty does not and will not (a)
violate any existing provision of the articles of
incorporation or bylaws of the Guarantor, or any law, rule,
regulation, or judgment, order or decree applicable to the
Guarantor, or (b) otherwise constitute a default, or result
in the imposition of any lien under (1) any existing
contract or other obligation binding upon the Guarantor or
its respective property, with or without the passage of time
or the giving of notice or both, or (2) any law, rule or
regulation applicable to the Guarantor or its business, or
(3) any judgment, order or decree of any court or
administrative agency applicable to the Guarantor or its
business.
d. The execution, delivery and performance
by the Guarantor of the Guaranty has been duly authorized,
and the Guaranty has been duly executed and delivered and
constitute legal, valid and binding obligations enforceable
against the Guarantor.
e. The Guarantor is not in default with
respect to any judgment, order, writ, injunction, decree or
demand of any court, arbitrator or governmental agency or
body.
4. In the preamble paragraph, in the third line,
delete the words "jointly and severally, if more than one,".
5. In Numbered Paragraph 1 entitled Guaranty, in the
second line, delete the words "each" and "jointly and
severally".
6. In Numbered Paragraph 5, in subparagraph (a),
delete the words "heirs, executors, administrators" and the
words "and if there be more than one Guarantor their
obligations shall be joint and several"; delete subparagraph
(g) in its entirety; in subparagraph (j), delete the word
"Each" and add the words "pursuant to the terms of the Loan
Agreement" after the word "proceedings"; and in subparagraph
(k), delete the word "EACH".
7. Except as specifically and expressly modified,
amended or supplemented hereby, the terms and conditions of
the Guaranty shall be and remain in full force and effect.
IN WITNESS WHEREOF, this Addendum is executed as of
this 31st day of October, 1997.
THE FIFTH THIRD BANK OF
NORTHERN KENTUCKY, INC.
E-56
<PAGE>
By:____________________________
Title:_________________________
POMEROY COMPUTER
RESOURCES, INC.
By:____________________________
Title:_________________________
E-57
<PAGE>
ASSIGNMENT
TO: THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC.
RE: Lease between _________________________, as lessee and
undersigned, dated _________________, 199_, having aggregate
unpaid rental of $_______________.
For value received undersigned ("Assignor") hereby
sells, assigns, transfers and sets over to The Fifth Third
Bank of Northern Kentucky, Inc., its successors and assigns
("Assignee"), the attached above named lease ("lease"),
together with all rental payments due and to become due in
connection with the exercise by lessee of an option, if any,
to purchase the property described in the lease.
Assignor also assigns to Assignee all of Assignor's
rights and remedies under the lease and any guaranty
thereof, including the right to take in, in Assignor's or
Assignee's name, any and all proceedings, legal, equitable
or otherwise, that Assignor might otherwise take, save for
this assignment.
As security for all amounts due to Assignor under the
lease, and all other present and future indebtedness or
obligations of Assignor to Assignee of every kind and nature
whatsoever set forth in a certain Loan Agreement dated
October 31, 1997 by and between Assignor and Assignee (the
"Loan Agreement"), Assignor hereby grants to Assignee a
security interest in all property covered by and described
in the lease. Title to all such property shall remain in
the Assignor and is not transferred to Assignee for any
purpose.
Assignee shall have no obligation of Assignor as lessor
under the lease.
Assignor warrants that: Assignor is the owner of the
property described in the lease free of all liens and
encumbrances except the lease and Permitted Liens as defined
in the Loan Agreement; the lease and any accompanying
guaranties, waivers and/or other instruments are genuine,
enforceable, the only lease executed concerning the property
described in the lease and is and will continue free from
defenses, set-offs and counterclaims; all signatures, names,
addresses, amounts and other statements and facts contained
therein are true and correct; the aggregate unpaid rentals
shown above is correct; the property has been delivered to
lessee under the lease on the date set forth below in
satisfactory condition and has been accepted by lessee, and
that Assignor will comply with all its warranties and other
obligations with respect thereto; the lease transaction
conforms to all applicable laws and regulations; the lease
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<PAGE>
constitutes and will continue to constitute a valid
reservation of unencumbered title to or first lien upon or
security interest in the property covered thereby, effective
against all persons; except as otherwise provided in the
Loan Agreement, if filing, recordation or any other action
or procedure is permitted or required by statute or
regulation to perfect such reservation of title, lien or
security interest, the same has been accomplished. Subject
to the items and provisions of any applicable underlying
agreement between Assignor and Assignee, Assignor guarantees
the payment promptly when due of the amount of each and
every sum payable under the lease and, except as otherwise
provided in the Loan Agreement, the payment on demand of the
entire unpaid balance at the date of default in the event of
any default by lessee under the lease, without first
requiring Assignee to proceed against lessee or any other
person or any security. Assignor agrees that Assignee may
audit its books and records relating to all leases and paper
assigned to Assignee and may in Assignor's name endorse all
remittances received, and Assignor gives express permission
to Assignee to release, on terms satisfactory to Assignee,
or by operation of law or otherwise, or to compromise or
adjust any and all rights against and grant extensions of
time of payment to lessee or any other persons obligated on
the lease or on any accompanying guaranty, or agree to the
substitution of a lessee, without notice to Assignor and
without affecting Assignor's obligations hereunder.
Assignor waives presentment and demand for payment, protest
and notice of non-payment and protest as to all leases and
paper heretofore, now or hereafter endorsed or assigned to
Assignee and Assignor subordinates to any rights Assignee
may now or hereafter have against the lessee, any rights
Assignor may now or hereafter have or acquire by reason of
payment to Assignee of any rental payments under the lease
or otherwise. Unless otherwise agreed under the provisions
of any applicable underlying agreement, any amounts retained
by Assignee as a reserve or holdback shall be held by
Assignee as security for the performance of Assignor's
obligations under the underlying agreement and hereunder,
and shall be paid to Assignor without interest, when all
payments under the lease have been paid in full, provided no
obligation of any kind, direct or contingent, of Assignor
whether hereunder or otherwise and no other leases or paper
acquired by Assignee from Assignor or from any of Assignor's
subsidiary or affiliated companies be in default; but in the
event of any such default, Assignee may collect any amount
owing by making an appropriate charge against any reserve or
holdback which otherwise would be payable to Assignor in
cash. Assignor shall have no authority to, and will not,
without Assignee's prior written consent, accept payments of
rents or of option prices, repossess or consent to the
return of property described in the lease or modify the
terms thereof or of any non-compliance with any of the
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<PAGE>
foregoing shall not constitute any waiver by Assignee.
Assignor waives notice of acceptance hereof.
To the extent any term or condition of this Assignment
is materially inconsistent or materially conflicts with the
terms of the Loan Agreement, the terms of the Loan Agreement
shall govern.
The property covered by the lease was delivered to
lessee on _________________, 199_.
Dated: ________________, 199_ Lessor/Assignor:
TECHNOLOGY INTEGRATION
FINANCIAL SERVICES, INC.
By:_____________________________
Title:__________________________
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<PAGE>
INCUMBENCY AND AUTHORIZATION CERTIFICATE
OF BORROWER
The undersigned hereby certifies that he/she is
Secretary of TECHNOLOGY INTEGRATION FINANCIAL SERVICES,
INC., a Kentucky corporation (the "Borrower"), and the
undersigned does hereby further certify that the
representations hereinafter set forth are true and correct
as of the date hereof.
The undersigned further certifies that the exhibits
attached hereto are true and correct copies of the
following:
(a) Exhibit A - Articles of Incorporation of the
Borrower
(b) Exhibit B - Bylaws of the Borrower; and
(c) Exhibit C - Resolution of Board of Directors of
the
Borrower duly adopted on _________________ by
unanimous written consent, which Resolution is now in full
force and effect.
The undersigned hereby certifies that ________________,
______________, has been duly authorized by action duly
taken by the Board of Directors of the Borrower, as
reflected in Exhibit C hereto, to execute and deliver on
behalf of the Borrower the Loan Documents, referred to in
Exhibit C hereto, as well as all additional documents and
instruments and to take such other action as he deems
necessary and proper on behalf of the Borrower in connection
with the making of the Loans referenced in Exhibit C hereto.
IN WITNESS WHEREOF, the undersigned hereby certifies
the above to be true and has hereunto set his/her signature
this ____ day of ________, 1997.
TECHNOLOGY INTEGRATION FINANCIAL
SERVICES, INC.,
a Kentucky corporation
By:
Secretary
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<PAGE>
DRAW FACILITY NOTE
Officer No. Note No.
_____________
$__________
______________________
(Effective Date)
City - Florence, State - Kentucky
On or before ________________ (the "Maturity Date"), the
undersigned, TECHNOLOGY INTEGRATION FINANCIAL SERVICES,
INC., a Kentucky corporation (the "Borrower") for value
received, promises to pay to the order of THE FIFTH THIRD
BANK OF NORTHERN KENTUCKY, INC., 8100 Burlington Pike,
Florence, Kentucky 41042 (hereinafter referred to as
"Bank") the sum of _________________________________ Dollars
($__________) (hereinafter referred to as the "Borrowing")
plus interest per annum at the rate set forth below.
The Borrower shall have the option of having the outstanding
principal under this Note bear interest under the following
rates:
(A) "30 Day Rate": The Thirty (30) Day LIBOR plus 100
basis points, fixed for a thirty day period. The Thirty
(30) Day LIBOR shall mean the per annum rate rounded upward
(if rounding is necessary) to the nearest 1/16th of 1% of
which U.S. dollar deposits, of an amount equal or comparable
to the Loan are afforded to the Bank by other Prime Banks in
the London interbank market, selected in the Bank's
discretion, at approximately 11:00 AM London time on the
third Business Day prior to any applicable thirty (30) day
incremental period, all as conclusively determined by the
Bank.
(B) "60 Day Rate": The Sixty (60) Day LIBOR plus 100
basis points, fixed for a sixty day period. The Sixty (60)
Day LIBOR shall mean the per annum rate rounded upward (if
rounding is necessary) to the nearest 1/16th of 1% of which
U.S. dollar deposits, of an amount equal or comparable to
the Loan are afforded to the Bank by other Prime Banks in
the London interbank market, selected in the Bank's
discretion, at approximately 11:00 AM London time on the
third Business Day prior to any applicable sixty (60) day
incremental period, all as conclusively determined by the
Bank.
(C) "90 Day Rate": The Ninety (90) Day LIBOR plus 100
basis points, fixed for a ninety day period. The Ninety
(90) Day LIBOR shall mean the per annum rate rounded upward
(if rounding is necessary) to the nearest 1/16th of 1% of
which U.S. dollar deposits, of an amount equal or comparable
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<PAGE>
to the Loan are afforded to the Bank by other Prime Banks in
the London interbank market, selected in the Bank's
discretion, at approximately 11:00 AM London time on the
third Business Day prior to any applicable ninety (90) day
incremental period, all as conclusively determined by the
Bank.
(D) "Prime Minus Rate": The Prime Rate minus 100
basis points. Prime Rate shall mean the rate announced by
the Bank from time to time as its Prime Rate. In the event
of a change in said Prime Rate, the interest rate shall be
immediately changed to an interest rate which shall be less
than the new Prime Rate by 100 basis points.
(E) "Treasury Plus Rate": The Like Treasury Rate plus
150 basis points. The Like Treasury Rate shall be a fixed
rate equal to the weekly average yield on United States
Treasury Securities adjusted to a constant at maturity of a
term equal to the term remaining on this Note as of the date
the Treasury Plus Rate becomes effective.
Interest shall be computed on a year of 360 days and charged
for the actual number of days elapsed.
Principal shall be due and payable in ____________ (__)
installments of ___________________________________ Dollars
($________) per month with the first installment being due
on the first (1st) day of each month commencing on
________________ and continuing on the first (1st) day of
each month thereafter through and including the Maturity
Date. Principal may be prepaid in whole or in part, without
premium or penalty, at any time. Any prepaid amounts shall
be applied to the amounts due in reverse order of their due
date. No partial payment shall change any due date or the
amount of any regular scheduled installment of principal
due.
Unless directed to the contrary in writing by the Borrower
prior to the execution hereof, the principal outstanding
under this Note shall bear interest at the Treasury Plus
Rate. In the event the Borrower has elected in writing to
have the principal outstanding bear interest initially at an
interest rate mode other than the Treasury Plus Rate, except
as provided in the immediately succeeding paragraphs, for
each succeeding applicable period commencing upon the
expiration of the initial applicable period, the principal
shall continue to bear interest at the chosen interest rate
mode for such applicable period as established on the
Interest Rate Determination Date (as defined below)
immediately preceding such period.
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<PAGE>
In the event the Borrower has initially selected an interest
rate mode other than the Treasury Plus Rate, the Borrower
shall have the option to convert the interest rate to either
the 30 Day Rate, the 60 Day Rate, the 90 Day Rate, the Prime
Minus Rate or the Treasury Plus Rate by notifying the Bank
in writing of its decision to convert the interest rate and
the selected interest rate (the "Conversion Notice").
ANYTHING TO THE CONTRARY NOTWITHSTANDING, ONCE THE BORROWER
HAS ELECTED TO HAVE THE PRINCIPAL BEAR INTEREST AT THE
TREASURY PLUS RATE, THE INTEREST MAY NOT BE CONVERTED TO ANY
OTHER INTEREST RATE MODE. Said Conversion Notice must be
received by the Bank on the Interest Rate Determination Date
preceding the end of the pending applicable period.
Subsequent to the conversion, the principal outstanding
shall bear interest at the rate selected by the Borrower for
the respective period. Thereafter, the principal shall
continue to bear interest at the selected interest rate mode
for the respective periods, unless the Borrower again elects
to select a different interest rate on the Interest Rate
Determination Date preceding the end of the respective
interest period. For example, if the Borrower has
previously chosen the 90 Day Rate interest rate mode, at the
end of the current 90-day period, the Borrower elects to
convert the interest rate to the 30 Day Rate, it must
deliver the Conversion Notice to the Bank on or before the
Interest Rate Determination Date preceding the end of the
subject 90-day period. The Borrower shall thereafter have
the option to again convert the interest rate at the end of
the 30-day period to either the 60 Day Rate, the Prime Minus
Rate or the Treasury Plus Rate or back to the 90 Day Rate by
providing the Conversion Notice to the Bank as provided
above. The Borrower shall have the option to convert the
interest rate on each and every Interest Rate Determination
Date. ANYTHING TO THE CONTRARY NOTWITHSTANDING, ONCE THE
BORROWER HAS ELECTED TO HAVE THE PRINCIPAL BEAR INTEREST AT
THE TREASURY PLUS RATE, THE INTEREST MAY NOT BE CONVERTED TO
ANY OTHER INTEREST RATE MODE.
"Interest Rate Determination Date" shall mean the third
Business Day preceding the expiration of the respective
period for the then current interest rate. For example, if
the interest rate is then currently the 30 Day Rate, the
Interest Rate Determination Date would be the third Business
Day prior to the end of the applicable 30-day period. If
the interest rate is currently the Prime Minus Rate, the
Interest Rate Determination Date would be the third Business
Day prior to the date that the Borrower desires to convert
to a different interest rate. While the selected interest
rate will be determined and set on the Interest Rate
Determination Date, it will not become effective until the
expiration of the then current interest period, and in the
case of the Prime Minus Rate, if the Borrower desires to
convert from the Prime Minus Rate to another rate, the new
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<PAGE>
rate would not become effective until three Business Days
after the date the Bank receives the Conversion Notice.
"Business Day" shall mean a day of the year, other than
Saturday or Sunday, on which commercial banks located in
Cincinnati, Ohio are not required or authorized to remain
closed and on which The New York Stock Exchange is not
closed.
Interest on the outstanding principal shall be due and
payable, in arrears, on the first day of each month
commencing on
________________, and on the first (1st) day of each next
succeeding month through and including the Maturity Date.
Principal and interest payments shall be made at the Bank's
address above unless otherwise designated by Bank in
writing.
To secure repayment of this Note and all modifications,
extensions and renewals thereof, and all other Obligations
(as herein defined) of the undersigned to Bank, the
undersigned grants Bank a security interest (subject to all
Permitted Liens as set forth in the Loan Agreement) in all
of the undersigned's now owned or hereafter acquired
interests in all property in which Bank is, at any time,
granted a lien for any Obligation, and all property in
possession of Bank including, without limitation, money,
securities, instruments, documents, letters of credit,
chattel paper, or other property delivered to Bank in
transit, for safekeeping, or for collection or exchange for
other property, and other rights in addition to such
property, all rights in payment from and claims against
Bank, all proceeds thereof and any other collateral granted
to the Bank pursuant to that certain Security Agreement by
and between the Bank and the Borrower dated October __, 1997
(the "Security Agreement") (collectively, the "Collateral").
The undersigned agrees to immediately deliver such
additional property or rights thereto to Bank immediately
upon receipt as additional Collateral and until delivery to
hold same in trust for Bank. All documents executed in
connection with this Note, including without limitation the
following, further secure the Obligations: a payment
guaranty of Pomeroy Computer Resources, Inc. dated October
31, 1997 (the "Guaranty").
The Obligations secured by the Collateral (herein, the
"Obligations") shall include this Note and each and every
liability of the undersigned jointly or severally to Bank
and all affiliates of Fifth Third Bancorp however created,
direct or contingent, due or to become due, whether now
existing or hereafter arising, participated in whole or in
part, created by trust agreement, lease, overdraft,
agreement, or otherwise, in any manner by the undersigned
(other than certain non-recourse financing provided to
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<PAGE>
Borrower by The Fifth Third Leasing Company or any other
affiliate of Bank). Except as set forth above regarding
such non-recourse financing, the undersigned also grants
Bank a security interest in all of the Collateral as agent
for all affiliates of Fifth Third Bancorp for all
Obligations of the undersigned to such affiliates. Said
security interest shall not be enforced to the extent
prohibited by the Truth in Lending Act as implemented by
Federal Reserve Regulation Z.
The undersigned certifies that the proceeds of the Loan are
to be used for business purposes. This Note is a renewal of
a loan previously made by the Bank to the Borrower which was
previously evidenced by a certain Revolving Credit Note
dated October 31, 1997. The execution of this Note shall
not act as, or be interpreted to be, a novation of such
loan.
Events of Default:
This Note, and all other Obligations of the undersigned to
Bank, shall be and become immediately due and payable at the
option of the Bank, without any demand or notice whatsoever,
upon the occurrence of an Event of Default as defined in the
Loan Agreement.
Upon the occurrence of an Event of Default herein described,
Bank may, at its option, without any demand or notice
whatsoever, immediately declare this Note and all other
Obligations of the undersigned to be fully due and payable
in their aggregate amount together with accrued interest
plus any applicable fees, and charges, without notice, and
exercise any or all remedies provided for in the Loan
Agreement, Security Agreement and/or by law.
If any payment is not paid when due (whether by acceleration
or otherwise) or within 10 days thereafter, the undersigned
agrees to pay to Bank a late payment fee as provided for in
the Loan Agreement or 5% of the payment amount, whichever is
greater, with a minimum fee of $20.00. After an Event of
Default, the undersigned agrees to pay to Bank a fixed
charge of $25.00, or the undersigned agrees that Bank may,
without notice, increase the interest rate then in effect by
6%, whichever is greater. Under no circumstances shall said
interest rate be raised to a rate which shall be in excess
of the maximum rate of interest allowable under the state
and/or federal usury laws in force at the time of such
change.
ENTIRE AGREEMENT: The undersigned agrees that there are no
conditions or understandings which are not expressed in this
Note and the documents referred to herein.
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<PAGE>
WAIVER: No failure on the part of Bank to exercise any of
its rights hereunder shall be deemed a waiver of any such
rights or of any default. Demand, presentment, protest,
notice of dishonor, notice of protest, notice of default and
all suretyship defenses are hereby waived.
JURY WAIVER: THE UNDERSIGNED, AND ANY ENDORSER OR GUARANTOR
HEREOF, WAIVE THE RIGHT TO A TRIAL BY JURY OF ANY MATTERS
ARISING OUT OF THIS NOTE OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
The declaration of invalidity of any provision of this Note
shall not affect any part of the remainder of the
provisions.
This Note is supplemented by the terms and conditions of a
Loan Agreement dated October 31, 1997 between the
undersigned and Bank.
TECHNOLOGY INTEGRATION
FINANCIAL SERVICES, INC.
By:
_______________________
Title:
Address: 1020 Petersburg
Road
Hebron, KY
41048
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<PAGE>
REVOLVING CREDIT NOTE
Officer No. _______ Note No. ________
$5,000,000.00 31 October, 1997
City of Florence, State of Kentucky
On or before the Maturity Date below, TECHNOLOGY INTEGRATION
FINANCIAL SERVICES, INC., a Kentucky corporation (the
"Borrower") for value received promises to pay to the order
of THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC., a
Kentucky banking corporation, at 8100 Burlington Pike,
Florence, Kentucky 41042 (hereinafter referred to as "Bank")
the sum of FIVE MILLION DOLLARS ($5,000,000.00) or such
portion thereof as may have been advanced hereunder
(hereinafter referred to as the "Borrowing") plus interest
as provided herein, less such amounts as shall have been
repaid in accordance with this Note. The outstanding
balance of this Note will appear on a supplemental bank
record and is not necessarily the face amount of this Note.
Such record shall be conclusive as to the balance due of
this Note at any time, absent manifest error.
The Borrower shall have the option of having the outstanding
principal under this Note bear interest under the following
rates:
(A) "30 Day Rate": The Thirty (30) Day LIBOR plus 100
basis points, fixed for a thirty day period. The Thirty
(30) Day LIBOR shall mean the per annum rate rounded upward
(if rounding is necessary) to the nearest 1/16th of 1% of
which U.S. dollar deposits, of an amount equal or comparable
to the Loan are afforded to the Bank by other Prime Banks in
the London interbank market, selected in the Bank's
discretion, at approximately 11:00 AM London time on the
third Business Day prior to any applicable thirty (30) day
incremental period, all as conclusively determined by the
Bank.
(B) "60 Day Rate": The Sixty (60) Day LIBOR plus 100
basis points, fixed for a sixty day period. The Sixty (60)
Day LIBOR shall mean the per annum rate rounded upward (if
rounding is necessary) to the nearest 1/16th of 1% of which
U.S. dollar deposits, of an amount equal or comparable to
the Loan are afforded to the Bank by other Prime Banks in
the London interbank market, selected in the Bank's
discretion, at approximately 11:00 AM London time on the
third Business Day prior to any applicable sixty (60) day
incremental period, all as conclusively determined by the
Bank.
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<PAGE>
(C) "90 Day Rate": The Ninety (90) Day LIBOR plus 100
basis points, fixed for a ninety day period. The Ninety
(90) Day LIBOR shall mean the per annum rate rounded upward
(if rounding is necessary) to the nearest 1/16th of 1% of
which U.S. dollar deposits, of an amount equal or comparable
to the Loan are afforded to the Bank by other Prime Banks in
the London interbank market, selected in the Bank's
discretion, at approximately 11:00 AM London time on the
third Business Day prior to any applicable ninety (90) day
incremental period, all as conclusively determined by the
Bank.
(D) "Prime Minus Rate": The Prime Rate minus 100
basis points. Prime Rate shall mean the rate announced by
the Bank from time to time as its Prime Rate. In the event
of a change in said Prime Rate, the interest rate shall be
immediately changed to an interest rate which shall be less
than the new Prime Rate by 100 basis points.
Interest shall be computed based on a year of 360 days and
charged for the actual number of days elapsed.
The principal outstanding under this Note shall initially
bear interest at the Prime Minus Rate. Thereafter, except
as provided in the immediately succeeding paragraphs, the
principal shall continue to bear interest at the Prime Minus
Rate.
The Borrower shall have the option to convert the interest
rate to either the 30 Day Rate, the 60 Day Rate or the 90
Day Rate by notifying the Bank in writing of its decision to
convert the interest rate and the selected interest rate
(the "Conversion Notice"). Said Conversion Notice must be
received by the Bank on the applicable Interest Rate
Determination Date. Subsequent to the conversion, the
principal outstanding shall bear interest at the rate
selected by the Borrower for the respective period.
Thereafter, the principal shall continue to bear interest at
the selected rate for the respective periods, unless the
Borrower again elects to select a different interest rate on
the Interest Rate Determination Date preceding the end of
the respective interest period. For example, if at the end
of a 90-day period, the Borrower elects to convert the
interest rate from the 90 Day Rate to the 30 Day Rate, it
must deliver the Conversion Notice to the Bank on or before
the Interest Rate Determination Date preceding the end of
the subject 90-day period. The Borrower shall thereafter
have the option to again convert the interest rate at the
end of the 30-day period to either the 60 Day Rate, back to
the 90 Day Rate or the Prime Minus Rate by providing the
Conversion Notice to the Bank as provided above. The
Borrower shall have the option to convert the interest rate
on each and every Interest Rate Determination Date.
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<PAGE>
"Interest Rate Determination Date" shall mean the third
Business Day preceding the expiration of the respective
period for the then current interest rate. For example, if
the interest rate is then currently the 30 Day Rate, the
Interest Rate Determination Date would be the third Business
Day prior to the end of the applicable 30-day period. If
the interest rate is currently the Prime Minus Rate, the
Interest Rate Determination Date would be the third Business
Day prior to the date that the Borrower desires to convert
to a different interest rate. While the selected interest
rate will be determined and set on the Interest Rate
Determination Date, it will not become effective until the
expiration of the then current interest period, and in the
case of the Prime Minus Rate, if the Borrower desires to
convert from the Prime Minus Rate to another rate, the new
rate would not become effective until three Business Days
after the date the Bank receives the Conversion Notice.
"Business Day" shall mean a day of the year, other than
Saturday or Sunday, on which commercial banks located in
Cincinnati, Ohio are not required or authorized to remain
closed and on which The New York Stock Exchange is not
closed.
Prior to October 1, 1998 (the "Maturity Date"), Bank may
lend to the Borrower such amounts as may from time to time
be requested by the Borrower in accordance with the terms
and conditions of that certain loan agreement entered into
by and between the Borrower and the Bank dated October 31,
1997 (the "Loan Agreement") provided that the principal
amount borrowed shall not at any time exceed the Borrowing
and further provided that no Event of Default as defined
herein shall exist.
Principal shall be due and payable in accordance with
Section 3.06(b) of the Loan Agreement. Interest on the
outstanding principal shall be due and payable in accordance
with Section 3.07 of the Loan Agreement. Principal and
interest payments shall be made at the Bank's address above
unless otherwise designated by Bank in writing. Principal
may be prepaid in whole or in part, without premium or
penalty, at any time. Any prepaid amounts shall be applied
to the amounts due in reverse order of their due date. No
partial payment shall change any due date or the amount of
any regular scheduled installment of principal due.
To secure repayment of this Note and all modifications,
extensions, and renewals thereof, and all other Obligations
(as herein defined) of the Borrower to Bank, the Borrower
grants Bank a security interest (subject to all Permitted
Liens as set forth in the Loan Agreement) in all of the
Borrower's now owned or hereafter acquired interests in all
property in which Bank is, at any time, granted a lien for
any Obligation, and all property in possession of Bank
including, without limitation, money, securities,
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<PAGE>
instruments, documents, letters of credit, chattel paper, or
other property delivered to Bank in transit, for
safekeeping, or for collection or exchange for other
property, or other rights in addition to such property, all
rights to payment from and claims against Bank, all proceeds
thereof and any other collateral granted to the Bank
pursuant to that certain security agreement by and between
Borrower and Bank dated October 31, 1997 (the "Security
Agreement") (collectively, the "Collateral"). The Borrower
agrees to immediately deliver such additional property or
rights thereto to Bank immediately upon receipt as
additional Collateral and until delivery to hold same in
trust for Bank. All documents executed in connection with
this Note, including without limitation the following,
further secure the Obligations: a payment guaranty of
Pomeroy Computer Resources, Inc., dated October 31, 1997
(the "Guaranty").
The Obligations secured by the Collateral (herein,
"Obligations") shall include this Note and each and every
liability of the Borrower to Bank and all affiliates of
Fifth Third Bancorp however created, direct or contingent,
due or to become due whether now existing or hereafter
arising, participated in whole or in part, created by trust
agreement, lease, overdraft, agreement or otherwise, in any
manner by the Borrower (other than certain non-recourse
financing provided to Borrower by The Fifth Third Leasing
Company or any other affiliate of Bank). Except as set
forth above regarding such non-recourse financing, the
Borrower also grants Bank a security interest in all of the
Collateral as agent for all affiliates of Fifth Third
Bancorp for all Obligations of the Borrower to such
affiliates. Said security interest shall not be enforced to
the extent prohibited by the Truth in Lending Act as
implemented by Federal Reserve Regulation Z.
The Borrower certifies that the proceeds of this loan are to
be used for business purposes. If this Note is a renewal,
in whole or in part, of a previous Obligation, the
acceptance by Bank of this Note shall not effectuate a
payment but rather a continuation of the previous
Obligation.
Bank may charge and the Borrower agrees to pay a note
processing fee of $100.00 on the above Effective Date.
Events of Default:
This Note, and all other Obligations of the Borrower to
Bank, shall be and become immediately due and payable at the
option of the Bank, without any demand or notice whatsoever,
upon the occurrence of any Event of Default as defined in
the Loan Agreement.
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<PAGE>
Upon the occurrence of an Event of Default herein described
Bank may, at its option cease making advances hereunder
immediately, declare this Note and all other Obligations of
the Borrower, to be fully due and payable in their aggregate
amount together with accrued interest plus any applicable
fees and charges and exercise any or all other remedies
provided for in the Loan Agreement, the Security Agreement
and/or by law.
If any payment is not paid when due (whether by acceleration
or otherwise) or within 10 days thereafter, the Borrower
agrees to pay to Bank a late payment fee as provided for in
any loan agreement or 5% of the payment amount, whichever is
greater, with a minimum fee of $20.00. After an Event of
Default, the Borrower agrees to pay to Bank a fixed charge
of $25.00, or the Borrower agrees that Bank may, without
notice, increase the interest rate then in effect by 6%,
whichever is greater. Under no circumstances shall said
interest rate be raised to a rate which shall be in excess
of the maximum rate of interest allowable under the state
and/or federal usury laws in force at the time of such
change.
ENTIRE AGREEMENT: The Borrower agrees that there are no
conditions or understandings which are not expressed in this
Note and the documents referred to herein.
WAIVER: No failure on the part of Bank to exercise any of
its rights hereunder shall be deemed a waiver of any such
rights or of any default. Demand, presentment, protest,
notice of dishonor, notice of protest, notice of default and
all suretyship defenses are hereby waived.
JURY WAIVER: THE BORROWER, AND ANY ENDORSER OR GUARANTOR
HEREOF, WAIVE THE RIGHT TO A TRIAL BY JURY OF ANY MATTERS
ARISING OUT OF THIS NOTE OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
The declaration of invalidity of any provision of this Note
shall not affect any part of the remainder of the
provisions.
This Note is supplemented by the terms and conditions of the
Loan Agreement.
BORROWER:
TECHNOLOGY INTEGRATION
FINANCIAL SERVICES, INC.,
a Kentucky corporation
ADDRESS 1020 Petersburg Road By:
_________________________
Hebron, Kentucky 41048
Title: _______________________
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<PAGE>
SECURITY AGREEMENT
dated as of October 31, 1997
between
THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC.
as the Lender
and
TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC.
as the Borrower
SECURITY AGREEMENT
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<PAGE>
This Security Agreement dated as of October 31, 1997
(this "Agreement"), is entered into by and between THE FIFTH
THIRD BANK OF NORTHERN KENTUCKY, INC., a state banking
corporation (the "Lender"), and TECHNOLOGY INTEGRATION
FINANCIAL SERVICES, INC., a Kentucky corporation (the
"Borrower").
Recitals
WHEREAS, the Borrower has requested that the Lender
provide certain credit facilities to the Borrower; and
WHEREAS, subject to certain conditions, the Lender has
agreed to make a certain draw loan (the "Draw Facility") to
be used in conjunction with a certain warehouse line of
credit (the "Revolving Credit"); and
WHEREAS, pursuant to a certain Loan Agreement of even
date herewith (the "Loan Agreement"), the Borrower is
required, inter alia, to provide certain additional
collateral to the Lender to secure the obligations of the
Borrower under the Loan Agreement.
NOW, THEREFORE, the Borrower and the Lender agree as
follows:
1. Definitions. Capitalized terms not otherwise
defined herein shall have the meanings given them in the
Loan Agreement. In addition, the following terms shall have
the following meanings, and the meanings assigned to all
capitalized terms used herein shall be equally applicable to
both the singular and plural forms of the terms defined:
"Assignment of Customer Leases and Related
Documents" shall mean an assignment of Customer Leases and
Related Documents from the Borrower to the Lender, in form
and substance satisfactory to the Lender, and substantially
in the form of the Assignment attached hereto as Exhibit A,
which shall be physically attached to the lease, security
agreement, instrument or chattel paper executed by each
Customer creating a leasehold interest security instrument
in or lien upon or retaining title to the Leased Equipment
and associated equipment leased by the Customer.
"Collateral" shall mean (i) all of Borrower's
"Equipment", "General Intangibles", "Inventory" and
"Receivables" (all as defined below); (ii) all proceeds
(whether cash or non-cash) including, without limitation,
proceeds of any insurance, and all products of all of
Borrower's Equipment, General Intangibles, Inventory and
Receivables; (iii) all of Borrower's books and records
related to any of the foregoing; (iv) all of Borrower's
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<PAGE>
rights, title and interest in and to all cash, bank
accounts, deposits and similar sums, whether maintained with
Lender, an Affiliate of Lender or any other entity; and (v)
all of the foregoing, whether now owned or existing or
hereafter acquired or arising, or in which Borrower now has
or hereafter acquires any rights. Lender acknowledges that
its security interests in certain Collateral may be
subordinate to certain Permitted Liens as defined in the
Loan Agreement.
"Customer Lease and Related Documents" shall have
the meaning given that term in the Loan Agreement, including
all extensions of the term of the Customer Lease, together
with all rights, powers, privileges, options and other
benefits of the Borrower as lessor under the Customer Lease
and Related Documents.
"Customer Lease Payments" shall mean, with respect
to each Assigned Lease, any and all payments, penalties,
late charges and other amounts of money due or to become due
under such Assigned Lease, including payments with respect
thereto which might be in arrears.
"Equipment" shall mean the Equipment as defined in
the Loan Agreement and all of Borrower's now owned and
hereafter acquired equipment and fixtures, including,
without limitation, furniture, tools, furnishings, leasehold
improvements, other goods, machinery, vehicles, computers
and associated hardware and equipment and trade fixtures,
together with any and all attachments, accessions, parts and
appurtenances thereto, substitutions therefor and
replacements thereof.
"Event of Default" shall mean any of the events
listed in Paragraph 8 of this Security Agreement.
"General Intangibles" shall mean all choses in
action, causes of action and all other tangible personal
property of Borrower of every kind and nature (other then
Receivables), now owned and hereafter acquired, including,
without limitation, corporate or other business records,
inventions, designs, patents, patent applications, service
marks, trademarks, trademark applications, tradenames, trade
secrets, goodwill, registrations, copyrights, all
intellectual property used by Borrower in the operation of
computers and associated hardware and other equipment,
licenses, franchises, customer lists, tax refunds, tax
refund claims, rights and claims against carriers and
shippers and rights to indemnification.
"Inventory" shall mean and include all of
Borrower's now owned and hereafter acquired goods,
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<PAGE>
merchandise and other personal property furnished under any
contract of service or intended for sale, rental or lease,
including, without limitation, all farm products, all
product and sales catalogs and literature, raw materials,
work in process, finished goods and materials and supplies
of any kind, nature or description which are used or
consumed in Borrower's business or are or might be used in
connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, merchandise
and other personal property and all documents of title or
documents representing the same.
"Leased Equipment" shall mean the Leased Equipment
as defined in the Loan Agreement.
"Receivables" shall mean and include all of
Borrower's presently existing and hereafter arising or
acquired accounts, receivables and all present and future
rights of Borrower to payment for goods sold, rented or
leased or for services rendered, including, without
limitation, those which are not evidenced by instruments or
chattel paper, and whether or not they have been earned by
performance; proceeds of any letters of credit on which
Borrower is named as beneficiary; contract rights; chattel
paper; instruments; documents; insurance proceeds; and all
such obligations whatsoever owing to Borrower, together with
all instruments and all documents of title representing any
of the foregoing, all rights in any merchandise or goods
which any of the same may represent, and all right, title,
security and guaranties with respect to each of the
foregoing, including, without limitation, any right of
stoppage in transit.
"Secured Obligations" shall mean all of the
obligations secured by this Agreement as set forth in
Section 3 of this Agreement.
Any accounting terms used in this Security
Agreement which are not specifically defined shall have the
meanings customarily given them in accordance with generally
accepted accounting principles. All other terms contained
in this Security Agreement shall, unless the context
indicates otherwise, have the meanings provided for by the
applicable state's version of the Uniform Commercial Code
(the "Code") to the extent the same are defined therein.
2. Grant of Security Interests and Assignment.
(a) As security for all Secured Obligations, the
Borrower grants to the Lender a security interest in the
following property whether now existing or arising or
acquired after the date of this Agreement.
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<PAGE>
(1) All of Borrower's right, title and
interest in, to and under all of the Customer Leases and
Related Documents in which it now has, or in which it might
later acquire any interest as a "lessor" to Customer
obligors, including all Customer Leases assigned or to be
assigned pursuant to the terms and conditions of this
Agreement, Section 4.06 of the Loan Agreement and one or
more Assignments of Customer Leases and Related Documents;
(2) All of the Borrower's right, title and interest in, to
and under all Customer Lease Payments; (3) All of the
Borrower's right, title and interest in and to the Leased
Equipment; (4) All of the Borrower's right, title and
interest in, to and under any and all warranties,
guaranties, and indemnities, whether express or implied, and
all similar rights which a Customer obligor may have under
an agreement or instrument associated with any Customer
Lease assigned to Lender against the manufacturer, vendor,
supplier, engineer, contractor or maker of the Leased
Equipment; (5) Any property which the Borrower receives or
which the Borrower is or may hereafter become entitled to
receive on account of any sale, exchange, transfer or other
disposition of any or all Leased Equipment; (6) Any property
which the Borrower receives or which the Borrower is or may
hereafter be entitled to receive on account of any
collections of or with respect to any and all Customer
Leases and Related Documents assigned or to be assigned
pursuant to the terms and conditions of this Agreement,
Section 4.06 of the Loan Agreement and one or more
Assignments of Customer Leases and Related Documents,
including without limitation, any instrument, document
and/or chattel paper in payment of or in substitution for
any of the assigned Customer Leases and Related Documents;
(7) All other Collateral; and (8) All sums which become
payable under any insurance covering the Collateral,
including but not limited to all Leased Equipment.
(b) The Borrower grants a further security
interest to the Lender in the proceeds and products of any
sale, exchange, collection or other disposition of the
Collateral or any part thereof.
(c) From time to time, and in any event, at the
time each particular Customer Lease and Related Documents is
assigned to the Lender by one or more Assignments of
Customer Leases and Related Documents, in connection with a
draw on the Revolving Credit and/or Draw Facility and the
execution of the Revolving Credit Note and/or Draw Facility
Note evidencing such draw, the Borrower shall do all of the
following.
(1) Deliver to the Lender all originals of
all agreements or documents evidencing any obligation of any
Customer obligor to make lease payments under or in
connection with such Customer Lease and Related Documents,
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as well as any and all agreements or documents in the nature
of security agreements, conditional sale contracts or other
title retention agreements or devices which retain, grant or
otherwise create a lien or other security interest in any
Leased Equipment to secure such Customer obligation; (2)
Duly assign to Lender via a properly prepared and executed
Assignment, which shall be physically attached to the
Assigned Lease and delivered to Lender, any and all leases
or other instruments which are part of or constitute any
Customer Lease or otherwise obligate a Customer to make
lease payments under or in connection with any Customer
Lease and Related Documents, and all associated documents;
(3) Deliver to Lender all financing statements as the Lender
may require with respect to such Customer Lease and Related
Documents and any and all Leased Equipment associated with
or related thereto, together with evidence satisfactory to
the Lender, in its discretion, of the proper recordation,
filing or other publication of notice with respect thereto
in all places which the Lender may require, in its
discretion, all at the Borrower's expense; and (4) Deliver
to the Lender copies of any and all applications, documents
or other instruments delivered to any public official with
respect to the title to any and all Leased Equipment
associated with or related to such Customer Lease and
Related Documents, together with evidence satisfactory to
the Lender, in its discretion, that the lien of the Borrower
has been duly filed and perfected.
All of the foregoing documentation and evidence must be
satisfactory to the Lender in its discretion, as to both
form and content.
(d) Furthermore and in addition thereto, the
Borrower hereby grants, and acknowledges that the Lender
shall have a purchase money security interest in any and all
Leased Equipment that is purchased using the proceeds of the
Revolving Credit and/or the Draw Facility, and such shall
also be considered part of the Collateral. All moneys,
securities and other properties of Borrower and the proceeds
thereof now or hereafter held or received by Lender from or
for the account of Borrower, including any and all deposits
(general or special), account balances and credits of
Borrower with Lender at any time existing, shall be deemed
Collateral hereunder and held as security for the Secured
Obligations and may be set-off and applied against any
Secured Obligations, and Borrower further authorizes
Lender's Affiliates to pay or deliver to Lender any deposits
or other sums credited by or due from Lender's Affiliates to
Borrower for application against any Secured Obligation, at
any time upon the occurrence of any Event of Default and
without further notice to Borrower (such notice being
expressly waived) and without any necessity on Lender's part
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to resort to other security or sources of reimbursement for
the Secured Obligations. The rights given to Lender
hereunder are cumulative with Lender's other rights and
remedies, including other rights of setoff. Lender will
promptly notify Borrower of Lender's receipt of such funds
for application against the Secured Obligations, but failure
to do so will not affect the validity or enforceability
thereof. Lender may give notice of the above grant of
security interest and assignment of the aforesaid deposits
and other sums, and authorization to, and make any suitable
arrangements with, any such Affiliate of Lender for
effectuation thereof, and Borrower hereby irrevocably
appoints Lender as its attorney to collect any and all such
deposits or other sums to the extent any such payment is not
made to Lender by such Affiliate.
3. Obligations Secured. The security interests
granted by the Borrower hereby secure the payment and
performance of all of the following obligations
(collectively, the "Secured Obligations"): (a) any and all
indebtedness of the Borrower to the Lender evidenced by the
Revolving Credit Note and/or the Draw Facility Notes, and
any and all obligations contained in the Revolving Credit
Note and/or the Draw Facility Notes; (b) any and all of the
representations, warranties, obligations, agreements,
covenants and promises of the Borrower contained in the Loan
Agreement, the Revolving Credit Note, the Draw Facility
Notes, this Agreement and/or the other Borrower Documents,
whether or not now or hereafter evidenced by any note,
instrument or other writing; and (c) any and all
indebtedness, obligations and liabilities of the Borrower to
the Lender, however evidenced, whether now existing or
hereafter arising, direct or indirect, absolute or
contingent, or acquired by the Lender, including without
limitation, any and all other indebtedness, liabilities and
obligations of Borrower to the Lender that exist on the date
of this Agreement, or arise or are created or acquired after
the date of this Agreement, regardless of whether of the
same or of a different class or type as the indebtedness
evidenced by or contained in the Draw Facility Notes and/or
the Revolving Credit Note and/or the Guaranty Agreement
and/or the other Borrower Documents, and whether or not the
creation thereof was reasonably foreseeable or would be
naturally contemplated by the Borrower or the Lender as the
date of this Agreement; provided however, anything to the
contrary notwithstanding, any non-recourse financing
provided to Borrower by Lender or its affiliates shall not
be construed as "Secured Obligations". The Revolving Credit
and the Draw Facility are recourse financing and are
specifically intended to be Secured Obligations.
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4. Representations and Warranties. To induce the
Lender to enter into this Agreement, any and all of the
representations and warranties made by the Borrower in the
Loan Agreement and the other Borrower Documents are
incorporated herein by reference, and the Borrower further
represents, warrants and agrees as follows:
(a) The Borrower has full right, power, authority
and capacity to enter into and perform each Assignment of
Customer Leases and Related Documents; and each Assignment
of Customer Leases and Related Documents has been or will be
duly entered into and delivered and constitutes or will
constitute a legal, valid and binding obligation of the
Borrower enforceable in accordance with its terms, all at
such time as the Assignment of Customer Lease and Related
Documents is executed and delivered; (b) The Borrower has
good and marketable title to the Borrower's Collateral, and
the Collateral is not subject to any lien, charge, pledge,
encumbrance, claim or security interest other than the
security interests created by this Agreement (except for
Permitted Liens, the interest of the Customer obligors and
the security interest created in the Customer Lease and
Related Documents); (c) The books and records with respect
to the Borrower's Collateral are kept at the Borrower's
chief place of business in Kentucky; (d) The Borrower's
chief place of business is located at 1020 Petersburg Road,
Hebron, Kentucky 41048; (e) The Collateral is used and will
be used for business use only; (f) The registered office of
the Borrower's registered agent in Kentucky is located in
Boone County, Kentucky; (g) No consent, waiver, order,
license, permit or approval of any Person or franchise
governmental authority is required in connection with the
Borrower's execution and delivery of this Security
Agreement; (h) The Borrower does not own any Collateral of a
type or nature which cannot be encumbered by a security
interest perfectible under Article 9 of the Uniform
Commercial Code as presently enacted in the Commonwealth of
Kentucky; (i) Borrower has full power and authority to enter
into this Security Agreement and to grant Lender the
security interest in the Collateral in accordance herewith,
the grant of the security interest in the Collateral by
Borrower in the manner and for the purposes contemplated
herein has been duly authorized by all requisite corporate
action, and this Security Agreement has been duly executed
and delivered; (j) The execution, delivery and/or
performance by Borrower of this Security Agreement will not
(i) constitute a violation of any applicable law or a breach
of any provision contained in Borrower's
Articles/Certificate of Incorporation or ByLaws/Regulations
or contained in any order of any court or other governmental
agency or in any agreement, instrument or document to which
Borrower is a party or by which Borrower of any of its
assets or properties is bound or (ii) result in the creation
or imposition of any lien, charge or encumbrance of any
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nature whatsoever upon any of Borrower's assets or
properties (other than in favor of Lender hereunder); (k)
the office where Borrower keeps its records concerning the
Receivables and General Intangibles is at the location set
forth on Exhibit B attached hereto; (l) all of Borrower's
Inventory, Equipment and other tangible Collateral are at
the locations set forth on Exhibit C attached hereto; (m)
all other locations of Borrower's registered offices and
agents and other offices and places of business during the
five years prior to the date hereof are set forth on Exhibit
D attached hereto; (n) all trade names, assumed names,
fictitious names and other names used by Borrower during the
five years prior to the date hereof set forth on Exhibit E
attached hereto; (o) except as may otherwise be permitted in
the Loan Agreement, Borrower has executed UCC financing
statements, containing sufficient legal descriptions of the
Collateral and otherwise in form and substance sufficient
for filing in every governmental, municipal or other office
in every jurisdiction necessary to perfect Lender's security
interest in the Collateral, and Borrower hereby irrevocably
authorizes Lender to file the same; and (p) Borrower has
good, indefeasible and merchantable title to and ownership
of the Collateral, free and clear of all liens, claims,
security interests and encumbrances whatsoever, except
Permitted Liens and those held by Lender.
These representations and warranties shall be deemed to be
remade and restated in full each time the Borrower assigns a
Customer Lease and Related Documents to the Lender pursuant
to an Assignment of Customer Leases and Related Documents.
5. Duration of Security Interests. The Lender, its
successors and assigns, shall hold the security interests
created hereby upon the terms of this Agreement, and this
Agreement shall continue until the Revolving Credit Note and
the Draw Facility Notes have been paid in full, the other
Secured Obligations have been performed, executed, or
satisfied in their entirety, and no commitment to lend or
extend credit which is intended to be secured hereby remains
outstanding. After payment of any part of the Secured
Obligations, the Lender may, at its option, retain all or
any portion of the Collateral as security for any remaining
Secured Obligations and retain this Agreement as evidence of
such security. The security interests granted hereunder
shall not be impaired or affected by any renewals or
extensions of time for payment of any of the Secured
Obligations, or by release of any party liable on the
Secured Obligations; by any acquisition, release or
surrender of other security, collateral or guaranty; by
delay in enforcement of payment of any of the Secured
Obligations; or by delay in enforcement of any security.
6. Certain Notices. The Borrower shall notify the
Lender of any and all changes of location of the Borrower's
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chief place of business and of the registered office of the
Borrower's registered agent in Kentucky at least thirty (30)
days prior to effecting any such change.
7. Covenants. To induce the Lender to enter into
this Agreement, the Borrower agrees as follows:
(a) Covenant Not to Dispose of or Impair
Collateral. The Borrower shall not, except to the extent
permitted in the Loan Agreement, without the prior written
consent of the Lender, sell, transfer or otherwise dispose
of the Collateral, or any part thereof or interest therein;
provided however, that Inventory may be sold, transferred or
otherwise disposed of by Borrower in the ordinary course of
business and for fair market value, without the Lender's
prior written consent. The Borrower shall not permit any of
the Collateral to be levied upon under any legal process,
nor permit anything to be done that may impair the value of
the Collateral or the security intended to be provided by
this Agreement.
(b) Collateral to be Free from Encumbrances. The
Collateral shall be and shall remain free and clear of
security interest, claims, liens, encumbrances and rights of
others, created by or through Borrower, except the rights of
the Lender under this Agreement and for Permitted Liens.
(c) Payment of Taxes. The Borrower shall pay or
cause to be paid all taxes and charges, including, without
limitation, all taxes imposed on or measured by its net
income, if the failure to pay such taxes could result in any
reduction of the amounts payable to the Lender or the
imposition of any lien against any Leased Equipment, the
assigned Customer Leases and Related Documents, the Customer
Lease Payments or any other Collateral. The Borrower shall
not be required to pay, or cause so long as it shall in good
faith and by appropriate legal proceedings contest the
validity of such tax or charge in any reasonable manner that
will not endanger the interest of a Customer obligor in the
Leased Equipment under an assigned Customer Lease or the
interest of the Lender in any of the Collateral under this
Agreement.
(d) Insurance. The Borrower, at its own cost and
expense, shall maintain insurance as required in the Loan
Agreement. The Borrower shall also cause the Customer to
maintain insurance for liability and property damage and
against loss or damage to the Leased Equipment in amounts
and coverages, and with insurers, satisfactory to the
Lender, in its reasonable discretion.
(e) No Customer Lease Prepayments; No Releases.
Without prior written notice by Borrower to Lender, the
Borrower shall not cause or permit a Customer obligor to
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prepay any Customer Lease Payments or waive, excuse,
condone, forgive or in any manner release or discharge a
Customer obligor from such obligor's obligations, covenants,
conditions and agreements under an assigned Customer Lease
and Related Documents that are intended to satisfy the
Borrower's obligations under this Agreement or to preserve
and protect the interest of the Lender in such an assigned
Customer Lease and Related Documents and any Leased
Equipment, including, without limitation, the obligations of
Customer obligor to pay Customer Lease Payments in the
manner and at the time and place specified in such Assigned
Note. Without prior written notice by Borrower to Lender,
the Borrower shall not enter into any agreement or take any
action the result of which would be to amend, modify or
terminate any assigned Customer Lease and Related Documents
or any Customer obligor's obligations thereunder. Any
prepayment of any Customer Lease Payments shall be promptly
paid to Lender as a prepayment under Section 3.08 or 4.12 as
applicable, of the Loan Agreement.
(f) The Borrower's Rights Subordinate. The
Borrower's rights to any Customer Lease Payments and
payments under any Customer Lease and Related Documents
shall be subordinate to the Lender's rights assigned under
this Agreement. Upon any Event of Default, at any time the
Lender is entitled to exercise its remedies under this
Agreement, the Lender shall have the sole and exclusive
right to exercise and enjoy the benefits, rights and
privilege of the "lessor" under the assigned Customer Lease
and Related Documents. To that end, at all such times and
unless and until the obligations of the Borrower under this
Agreement have been discharged in full, the Borrower shall
not seek recovery of any amounts which are a part of the
Collateral, shall not modify or terminate any assigned
Customer Lease and Related Documents, shall not exercise the
remedies available under the assigned Customer Lease and
Related Documents against any Leased Equipment, shall not
seek to enforce any security provided under the Customer
Lease and Related Documents, except in cooperation with and
for the benefit of the Lender.
(g) Notice of Events of Default by Customers.
The Borrower promptly shall notify the Lender of any event
of default (as defined in an assigned Customer Lease and
Related Documents), or any event that, with the giving of
notice or the lapse of time or both would become an event of
default, of which the Borrower has or obtains knowledge.
8. Default. The occurrence of an Event of Default
under the Loan Agreement shall constitute a default under
this Agreement (an "Event of Default").
9. Loan Remedies. Upon any Event of Default, the
Lender may at its option declare the Revolving Credit Note
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and/or any and all of the Draw Facility Notes and the other
Secured Obligations to be immediately due and payable; and,
in addition to that right, and in addition to exercising all
other rights or remedies, the Lender may proceed to exercise
with respect to the Collateral all rights, options and
remedies of a secured party upon default as provided for
under the Uniform Commercial Code. The rights of the Lender
upon an Event of Default shall include, without limitation,
any and all rights and remedies in any and all other
documents, instruments, agreements and other writings
between the Lender and the Borrower, all rights and remedies
as provided by law, in equity or otherwise, and in addition
thereto, the following:
(a) The right to enter any premises where any
Collateral may be located, subject to the rights of the
Customer obligors, for the purpose of taking possession or
removing the same.
(b) The right to require the Borrower to assemble
the Collateral and the books and records with respect to
assigned Customer Leases and Related Documents and make them
available to the Lender at a place or places to be
designated by the Lender which is reasonably convenient to
the Borrower and the Lender.
(c) The right to require the Borrower to store
any Leased Equipment and other Collateral, at the Borrower's
own cost and risk, on behalf of the Lender after the Lender
has taken possession of such Leased Equipment and other
Collateral. Storage shall be in such manner as to prevent
any deterioration of such Leased Equipment and other
Collateral, and shall be for a reasonable time pending the
sale or other disposition of such Leased Equipment and other
Collateral.
(d) The right to sell the Collateral at public or
private sale in one or more lots in accordance with Uniform
Commercial Code. The Lender may bid upon and purchase any
or all of the Collateral at any public sale thereof, and
shall be entitled to apply the unpaid portion to the Secured
Obligations as a credit against the purchase price. The
Lender's purchase of all or any of the Collateral shall
extinguish the Borrower's rights under section 9-506 of the
Uniform Commercial Code upon application of the unpaid
portion of the Secured Obligations. The Lender shall be
entitled to apply the proceeds of any such sale to the
satisfaction of the Secured Obligations and to expenses
incurred in realizing upon the Collateral in accordance with
the Uniform Commercial Code.
(e) The right to notify any or all of the
Customer obligors under or with respect to any assigned
Customer Lease and Related Documents of the Lender's
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<PAGE>
interest therein and to require such Customer obligor to
begin making payments directly to the Lender regardless of
whether the Borrower was previously making collections on
all or any part of the assigned Customer Leases and Related
Documents. The Lender shall have the right to proceed
against any such Customer obligor in its own name, or in the
name of the Borrower (as appropriate) with or without the
consent of the Borrower. The Lender may retain any such
payments or collections and apply them to the satisfaction
of the Secured Obligations and to expenses incurred in
collection, all in accordance with the Uniform Commercial
Code.
(f) The right to recover the reasonable expenses
of taking possession of any of the Collateral that may be
reduced to possession, preparing the Collateral for sale,
selling the Collateral, collecting all or any part of the
Customer Lease Payments, payments of or collections on any
security provided in connection with an assigned Customer
Lease and Related Documents and other like expenses.
(g) The right to recover all of the Lender's
expenses of collection, including, without limitation, court
costs and reasonable attorneys' fees and disbursements
incurred in realizing upon the Collateral or enforcing or
attempting to enforce any provision of this Agreement and
any and all Assignments of Customer Leases and Related
Documents.
(h) The right to proceed by appropriate legal
process at law or in equity to enforce any provision of this
Agreement or in aid of the execution of any power of sale,
or for foreclosure of the security interests of the Lender,
or for the sale of the Collateral under the judgment or
decree of any court.
10. Cumulative Remedies. The rights and remedies of
the Lender shall be deemed to be cumulative, and any
exercise of any right or remedy shall not be deemed to be an
election of that right or remedy to the exclusion of any
other right or remedy. Notwithstanding the foregoing, the
Lender shall be entitled to recover by the cumulative
exercise of all remedies no more than the sum of (a) the
Secured Obligations at the time of exercise of remedies,
plus (b) the reasonable costs, fees and expenses the Lender
is otherwise entitled to recover.
11. Waivers. The Borrower acknowledges that this
Agreement involves the grant of multiple security interests,
and the Borrower hereby waives, to the extent permitted by
applicable law, (a) any requirement of marshalling assets or
proceeding against Persons or assets in any particular
order, and (b) any and all notices of every kind and
description which may be required to be given by any statute
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or rule of law and any defense of any kind which the
Borrower may now or hereafter have with respect to the
Collateral under this Agreement.
12. Collections from Assigned Notes. Collections with
respect to Customer Lease Payments regarding each Assigned
Lease shall be made to the Lockbox pursuant to Section 7.17
of the Loan Agreement.
13. The Lender as Agent. The Borrower hereby
irrevocably constitutes the Lender as the Borrower's agent
and attorney-in-fact at any time during any period when the
Lender may exercise the remedies set forth in Section 9 of
this Agreement, to (a) proceed against Customer obligors
with respect to any assigned Customer Lease and Related
Documents in the Borrower's name or in the Lender's name,
and (b) sign and endorse all checks, drafts and other
instruments in payment of Customer Lease Payments, (c)
perform all such other acts with respect to Customer Lease
Payments as the Lender may in its discretion deem necessary
to effectuate the security intended to be granted in this
Agreement, and (d) to send requests for verification of
Receivables to customers or account debtors; to sign and
endorse Borrower's name on any checks, notes, acceptances,
money orders, drafts or other forms of payment or security
in payment of Receivables or from the sale of Inventory or
that may otherwise come into Lender's possession; to sign
Borrower's name on any invoice or bill of lading relating to
any Receivable, on drafts against customers, on schedules
and assignments of Receivables, on notices of assignment,
financing statements and other public records, on
verifications of accounts and on notices to customers; to
collect, enforce, compromise, settle and adjust all
Receivables and take other actions with respect thereto as
Lender determines in its reasonable discretion; to give
receipts in Borrower's name and to perform such other acts
in connection with the Receivables as Lender in its
reasonable discretion may determine to be appropriate; to
notify the post office authorities to change the address
designated by Lender, which may be a post office box opened
by Lender for such purpose or any other address, at Lender's
discretion; to receive, open and dispose of all mail
addressed to Borrower; and to do all things necessary to
perfect Lender's security interest in the Collateral, to
preserve and protect the Collateral and to otherwise carry
out this Security Agreement; all at the cost of Borrower,
and Borrower hereby ratifies and approves all acts of such
attorney except as provided below. Provided Lender acts in
a commercially reasonable manner, neither Lender nor the
attorney will be liable for any acts or omissions nor for
any error of judgment or mistake of fact or law. This
power, being coupled with an interest, is irrevocable until
the Secured Obligations have been fully satisfied and this
Security Agreement terminated, whichever shall later occur.
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Borrower agrees to execute and deliver promptly to Lender
all instruments necessary or appropriate, as determined in
Lender's discretion, to further Lender's exercise of the
rights and powers granted it in this Paragraph 13.
14. Books and Records. The Borrower shall maintain
books and records with respect to the assigned Customer
Leases and Related Documents, the Leased Equipment and other
Collateral in form and manner reasonably satisfactory to the
Lender, and the Lender shall have the right during business
hours with reasonable notice to inspect any and all of the
business properties, premises or books and records of the
Borrower relating to the assigned Customer Leases and
Related Documents, the Leased Equipment and other Collateral
or the proceeds thereof. The Borrower further agrees from
time to time to furnish such reports, data and financial
statements with respect to the Collateral as the Lender may
reasonably request from time to time.
15. Insurance. The Borrower hereby assigns to the
Lender all sums which become payable under any insurance
covering the Collateral, directs any insurer to pay all such
proceeds to the Lender, and authorizes the Lender to act as
the Borrower's attorney in obtaining, adjusting, settling
and compromising such insurance and endorsing any drafts
drawn to the Borrower pursuant to such insurance. If an
Unmatured Default or an Event of Default exists at the time
the Lender receives the insurance proceeds, the Lender may
apply those proceeds as a prepayment under the Loan
Agreement at the Lender's discretion; or if the Lender
chooses, it may remit the insurance proceeds to the
Borrower. If no Unmatured Default or Event of Default
exists at the time the Lender receives the insurance
proceeds, the Lender shall remit the insurance proceeds to
the Borrower.
16. Certain Secured Obligations Regarding Collateral.
(a) The Borrower shall (or use its best efforts
to cause each Customer obligor to) keep and maintain the
Leased Equipment in good condition and repair, and otherwise
keep (or use its best efforts to cause the Customer obligor
to keep) the Leased Equipment and other Collateral under
adequate condition of storage to prevent its deterioration
or depreciation in value.
(b) The Borrower shall keep the Collateral free
and clear of any and all liens other than the Permitted
Liens and security interests created in favor of the Lender
under this Agreement (and the interests of Borrower which is
to be assigned to the Lender), and shall declare and pay any
and all fees, assessments, charges and taxes allocable to
the Collateral, or which might result in a lien against the
Collateral if left unpaid unless the Borrower at the
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Borrower's own expense is contesting the validity or amount
thereof in good faith by an appropriate proceeding timely
instituted which shall operate to prevent the collection or
satisfaction of the lien or amount so contested. If the
Borrower fails to pay such amount and is not contesting the
validity or amount thereof in accordance with the preceding
sentence, the Lender may, but is not obligated to, pay such
amount, and such payment shall be deemed conclusive evidence
of the legality or validity of such amount. The Borrower
shall promptly reimburse the Lender for any and all payments
made by the Lender in accordance with the preceding
sentence, and until reimbursement, such payments shall be
part of the Secured Obligations.
(c) If the Borrower fails to provide insurance
pursuant to the Loan Agreement, the Lender may, but is not
obligated to, pay for such insurance after first notifying
the Borrower of the Lender's intent to pay it. The Borrower
shall promptly reimburse the Lender for any payments made
pursuant to this subparagraph, and until reimbursement, such
payments shall be a part of the Secured Obligations.
17. Use and Inspection of Collateral. The Borrower
shall not use the Collateral in violation of any statute or
ordinance, and the Lender shall have the right, at
reasonable hours, to inspect the Collateral (provided
however, that Lender's right to inspect Leased Equipment
shall not exceed the Borrower's right to inspect such Leased
Equipment pursuant to the respective Assigned Lease).
18. Notice.
(a) Any requirement of the Uniform Commercial
Code or other applicable law of reasonable notice shall be
met if such notice is given at least ten (10) business days
before the time of sale, disposition or other event or thing
giving rise to the requirement of notice.
(b) All notices and other communications under
this Agreement shall be given in writing and shall give or
be delivered in one of the methods to the addresses as set
forth in Section 12.16 of the Loan Agreement, as amended
from time to time, and all such notices and communications
shall be deemed to have been given or delivered as set forth
in Section 12.16 of the Loan Agreement, as amended from time
to time.
19. Further Assurance. The Borrower shall sign from
time to time such financing statements and other documents
and instruments and take such other actions as the Lender
may request from time to time to more fully create, perfect,
continue, maintain or terminate the security interests in
the Collateral intended to be created in this Agreement.
The Borrower's obligations hereunder shall include, by way
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of illustration and not by way of limitation, the
requirement of signing and sending notices to Customer
obligors of the Lenders rights hereunder. The Borrower
agrees that its obligations under this Section are material
aspects of the protections intended to be provided to the
Lender under this Agreement and may be specifically
enforced.
20. Miscellaneous.
(a) Failure by the Lender to exercise any right
shall not be deemed a waiver of that right, and any single
or partial exercise of any right shall not preclude the
further exercise of that right. Every right of the Lender
shall continue in full force and effect until such right is
specifically waived in a writing signed by the Lender; (b)
If any part, term or provision of this Agreement is held by
any court to be prohibited by any law applicable to this
Agreement, the rights and obligations of the parties shall
be construed and enforced with that part, term or provision
enforced to the greatest extent allowed by law, or if it is
totally unenforceable, as if this Agreement did not contain
that particular part, term or provision; (c) The headings in
this Agreement have been included for ease of reference
only, and shall not be considered in the construction or
interpretation of this Agreement; (d) This Agreement shall
inure to the benefit of the Lender, its successors and
assigns, and all obligations of the Borrower shall bind the
Borrower's successors and assign; (e) To the extent allowed
under the Uniform Commercial Code, this Agreement shall in
all respects be governed by and construed in accordance with
the laws of the Commonwealth of Kentucky; (f) This Agreement
and any and all Assignments of Customer Leases and Related
Documents constitute the entire agreement of the parties
with respect to the subject matter hereof. No change,
modification, addition or termination of this Agreement
shall be enforceable unless in writing and signed by the
party against whom enforcement is sought; (g) This Agreement
may be signed by each party upon a separate copy, and in
such cases one counterpart of this Agreement shall consist
of enough of such copies to reflect the signature of each
part; (h) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and
it shall not be necessary in making proof of this Agreement
or the terms thereof to produce or account for more than one
such counterpart; (i) Wherever possible, each provision of
this Security Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if
any provision of this Security Agreement shall be prohibited
by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the
remaining provisions of this Security Agreement; (j) This
Security Agreement has been delivered and accepted at and
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shall be deemed to have been made at Florence, Kentucky.
This Security Agreement shall be interpreted and the rights
and liabilities of the parties hereto determined in
accordance with the laws of the State of Kentucky and all
other laws of mandatory application; (k) AS A SPECIFICALLY
BARGAINED INDUCEMENT FOR LENDER TO ENTER INTO THIS SECURITY
AGREEMENT AND TO EXTEND CREDIT TO BORROWER, BORROWER AGREES
THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING
OUT OF THIS SECURITY AGREEMENT, ITS VALIDITY OR PERFORMANCE,
AT THE SOLE OPTION OF LENDER, ITS SUCCESSORS AND ASSIGNS,
AND WITHOUT LIMITATION ON THE ABILITY OF LENDER, ITS
SUCCESSORS AND ASSIGNS, TO EXERCISE ALL RIGHTS AS TO THE
COLLATERAL AND OTHER SECURITY FOR THE Secured Obligations OR
TO INITIATE AND PROSECUTE IN ANY APPLICABLE JURISDICTION
ACTIONS RELATED TO REPAYMENT OF THE Secured Obligations,
SHALL BE INITIATED AND PROSECUTED AS TO ALL PARTIES AND
THEIR SUCCESSORS AND ASSIGNS IN BOONE COUNTY, KENTUCKY.
LENDER AND BORROWER EACH CONSENTS TO AND SUBMITS TO THE
EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY COURT
SITUATED IN BOONE COUNTY, KENTUCKY HAVING JURISDICTION OVER
THE SUBJECT MATTER, WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS BE MADE BY CERTIFIED MAIL DIRECTED TO BORROWER AND
LENDER AT THEIR RESPECTIVE ADDRESSES AS SET FORTH IN
SUBPARAGRAPH (H) BELOW OR AS OTHERWISE PROVIDED UNDER THE
LAWS OF THE STATE OF KENTUCKY. BORROWER WAIVES ANY
OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION
TO VENUE OF ANY ACTION INSTITUTED HEREUNDER, AND CONSENTS TO
THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT; (l) AS A SPECIFICALLY BARGAINED
INDUCEMENT FOR LENDER TO ENTER INTO THIS SECURITY AGREEMENT
AND TO EXTEND CREDIT TO BORROWER, BORROWER AND LENDER EACH
WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT
OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS SECURITY
AGREEMENT AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN
LENDER AND BORROWER; (m) Borrower covenants, warrants and
represents to Lender that all of Borrower's representations
and warranties contained in this Security Agreement are true
at this time, shall survive the executions and delivery
hereof and shall remain true until the Secured Obligations
are fully performed, paid and satisfied, subject to such
changes as may not be prohibited hereby or do not constitute
Events of Default hereunder; (n) All of the Secured
Obligations shall constitute one loan secured by Lender's
security interest in the Collateral and by all other
security interests, mortgages, liens, claims and
encumbrances now and from time to time hereafter granted by
Borrower to Lender. Lender may, in its sole discretion ,
(i) exchange, enforce, waive or release any such security or
portion thereof, (ii) apply such security and direct the
order or manner of sale thereof as Lender may, from time to
time, determine, and (iii) settle, compromise, collect or
otherwise liquidate any such security in any manner
following the occurrence of any Event of Default without
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affecting or impairing its right to take any other further
action with respect to any security or any part thereof.
IN WITNESS WHEREOF, the Borrower and the Lender have
executed and delivered this Agreement as of the date first
set forth above.
BORROWER: LENDER:
TECHNOLOGY INTEGRATION FINANCIAL THE FIFTH THIRD BANK OF
NORTHERN
SERVICES, INC. KENTUCKY, INC.
By: By:
Title: Title:
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<PAGE>
SECURITY AGREEMENT
List of Exhibits
Exhibit A - Form of Assignment
Exhibit B - Address where Receivable and General
Intangible records are located
Exhibit C - Address where Inventory is located
Exhibit D - Addresses of Prior Office and Places of
Business for last 5 years
Exhibit E - List of Trade Names, Assumed Names and
Fictitious Names
EXHIBIT A
Form of Assignment
EXHIBIT B
Location of Receivables and
General Intangibles Records
1. 1020 Petersburg Road, Hebron, Kentucky 41048
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________________________________
Borrower's Signature
EXHIBIT C
Location of Inventory
1. Part of Borrower's Inventory includes Leased Equipment.
The
initial location of the Leased Equipment will be
disclosed to Lender at time of Assignment. Lender
acknowledges that a portion of the Leased Equipment are
mobile goods which will be moved from jurisdiction to
jurisdiction, and Borrower will generally be unable to
inform Lender of such movements.
2. 1020 Petersburg Road, Hebron, Kentucky 41048
________________________________
Borrower's Signature
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EXHIBIT D
Location of Prior Offices and Places
of Business for Last 5 Years
1. 1840 Airport Exchange Boulevard
Suite 240
Erlanger, Kentucky 41018
________________________________
Borrower's Signature
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EXHIBIT E
List of Trade Names, Assumed Names,
Fictitious Names and Other Names
Used in Last 5 Years
1. Pomeroy Computer Leasing, Inc.
________________________________
Borrower's Signature
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT and PLAN OF REORGANIZATION made and
entered into this ____ day of _______________, 1997 by,
between and among POMEROY COMPUTER RESOURCES OF SOUTH
CAROLINA, a South Carolina corporation ("Subsidiary"), a
wholly owned subsidiary of POMEROY COMPUTER RESOURCES, INC.,
a Delaware corporation ("Pomeroy"), and THE COMPUTER STORE,
INC., a South Carolina corporation ("CSI"), and ARTHUR M.
COX ("Cox"), RONALD D. HILDRETH ("Hildreth") and JEFFREY
F. HIPP ("Hipp") (Cox, Hildreth and Hipp are also
hereinafter referred to collectively as the "CSI
Shareholders").
W I T N E S S E T H:
WHEREAS, the CSI Shareholders are the owners of 16,000
total common shares of CSI (the "CSI Shares"), said CSI
Shares being one hundred percent (100%) of the total issued
and outstanding shares of CSI; and
WHEREAS, CSI, Subsidiary and Pomeroy desire to effect a
plan of reorganization pursuant to Section 368(a)(2)(D) of
the Internal Revenue Code whereby CSI shall be acquired by
and merge into Subsidiary in exchange for stock of Pomeroy
and other good and valuable consideration, which stock and
cash shall be delivered to CSI Shareholders upon the
cancellation of their CSI stock, pursuant to the terms of
this Agreement;
WHEREAS, the shareholders of CSI and Subsidiary and the
Boards of Directors of Subsidiary, Pomeroy and CSI have
adopted resolutions declaring advisable the merger of CSI
into Subsidiary on the terms and conditions hereinafter set
forth;
WHEREAS, at or prior to the Effective Date of the
merger ("Effective Date") as hereinafter defined, Subsidiary
will acquire or otherwise make available from Pomeroy the
number of shares of Pomeroy common stock (par value $.01 per
share) necessary to complete the merger provided for herein;
and
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements herein set forth, for
other good and valuable consideration, and for the purpose
of prescribing the terms and conditions of such merger, the
parties hereto covenant and agree as follows:
SECTION 1. MERGER
1.1 Agreement to Merge. Subject to the terms and
conditions set forth herein, CSI and Subsidiary agree to
effect a merger of CSI into Subsidiary with Subsidiary being
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the surviving corporation (the "Surviving Corporation") in
accordance with the Plan of Merger attached hereto as
Exhibit "A". CSI's obligation to merge into Subsidiary is
expressly conditioned upon CSI's Shareholders surrendering
all CSI Shares at the Closing Date pursuant to the terms,
conditions and covenants set forth in this Agreement and the
Plan of Merger.
CERTAIN PORTIONS OF THIS AGREEMENT
ARE SUBJECT TO BINDING ARBITRATION
1.2 Pomeroy Common Stock. Pomeroy will make available
to Subsidiary a sufficient number of its common shares (par
value of $.01 per share) ("Pomeroy Stock") to effect the
merger pursuant to the Plan of Merger.
SECTION 2. ELEMENTS OF MERGER TRANSACTION
2.1 Conversion of Shares. Each share of CSI common
stock issued and outstanding immediately prior to the
Effective Date exclusive of shares held in the treasury of
CSI, which shares shall be cancelled upon the Effective Date
and shall, without any action on the part of Pomeroy,
Subsidiary or any holder of such shares, be converted by the
merger into 1.55319 shares of Pomeroy Stock which has been
determined by dividing $700,002.97 by the base period price
(28.168) and dividing such result by 16,000. As used in
this section, the base period price of Pomeroy Stock shall
be the average of the closing prices of stock on the NASDAQ
Exchange for the twenty (20) trading days immediately
preceding the third day before the Effective Date. In
determining the base period price of Pomeroy Stock, the
closing price of Pomeroy Stock for the dates that preceded
the Stock Split that was effectuated on October 7, 1997
shall be recalculated to give effect to such Stock Split.
(a) At Closing, the CSI Shareholders shall
deposit with Nexsen Pruet Jacobs and Pollard, LLP and
Lindhorst & Dreidame Co., L.P.A. as escrow agents the number
of shares of Pomeroy Stock having an aggregate value of
$74,983.72 (based on the base period price set forth in
Section 2.1 of this Agreement). Such shares shall be
deposited by the CSI Shareholders proportionately. Such
shares shall be held pursuant to the terms of an Escrow
Agreement which is attached hereto as Exhibit "B".
(b) Incident to the issuance of the Pomeroy
shares, each CSI Shareholder shall execute such
documentation containing such representations regarding the
holding of Pomeroy Shares, including that each respective
CSI Shareholder 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 Pomeroy
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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 each CSI Shareholder incident to the issuance
of these shares pursuant to the merger is attached hereto as
Exhibit "C".
2.2 Non-Stock Consideration Transferred at the
Effective Date.
(a) At the Effective Date, the CSI Shareholders
shall each receive cash in the amount of Forty-three and
749,814/1,000,000 Dollars ($43.749814) for each share of CSI
Common Stock owned by each CSI Shareholder, totaling Six
Hundred Ninety-Nine Thousand Nine Hundred Ninety-seven and
03/100 Dollars ($699,977.03) in the aggregate.
(b) At Closing, the CSI Shareholders shall
deposit with the escrow agents the sum of Seventy-Five
Thousand Sixteen and 78/100 Dollars ($75,016.78) in the
aggregate, which amount shall be deposited by the CSI
Shareholders proportionately. Such funds shall be held
pursuant to the terms of the Escrow Agreement attached
hereto as Exhibit "B".
(c) Not later than the applicable date set forth
in Section 2.2(d) (the "Post Merger Date"), the CSI
Shareholders and Subsidiary agree to determine any
adjustment to the consideration issued incident to the
merger if the book value of the shareholder equity of CSI is
less than One Million Forty-two Thousand Nine Hundred
Twenty-two Dollars ($1,042,922.00) as reflected in the
Closing Balance Sheet referred to in Section 5.6 below. To
the extent the book value of the shareholder's equity of CSI
on the Closing Balance Sheet is less than One Million
Forty-two Thousand Nine Hundred Twenty-two Dollars
($1,042,922.00),, the consideration issued incident to the
merger shall be decreased, on a dollar for dollar basis, to
the extent of such shortfall. Any net reduction in the
consideration for the merger, as a result of such
adjustment, if any, shall be implemented by decreasing
proportionately the amount of cash and Pomeroy Stock paid to
the CSI Shareholders, which amount shall first be repaid
from the escrow funds in the manner set forth in the Escrow
Agreement, and if such escrow funds are insufficient to
repay such amount, then from the CSI Shareholders. To the
extent the book value of the shareholder's equity of CSI is
greater than One Million Forty-Two Thousand Nine Hundred
Twenty-Two Dollars ($1,042,922.00) on the Closing Balance
Sheet, the consideration issued incident to the merger shall
be increased on a dollar-for-dollar basis, to the extent of
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such increase. Any net increase in the consideration for
the merger, as a result of such adjustment, if any, shall be
implemented by increasing proportionately the amount of cash
and Pomeroy Stock paid to the CSI Shareholders. Any
reduction or increase in the amount of Pomeroy Stock repaid
by the CSI Shareholders or paid to the CSI Shareholders as
set forth above shall be based on the average of the closing
price of the Pomeroy Stock on the NASDAQ Exchange for the
twenty (20) trading days immediately preceding the third day
before an agreement is made by the parties in the manner set
forth in Section 2.2(d) regarding the Closing Balance Sheet
of CSI.
(d) Within forty-five (45) days after the
Effective Date, the CSI Shareholders will deliver to the
Subsidiary a copy of the Closing Balance Sheet prepared by
the CSI Shareholders for the subject period along with any
supporting documentation reasonably requested by Subsidiary.
Within thirty (30) days following delivery to Subsidiary of
such report (the "BV Objection Period"), the Subsidiary
shall have the right to object in writing to the results
contained in such determination. If timely objection is not
made by Subsidiary of such determination, such determination
shall become final and binding for purposes of this
Agreement. If timely objection is made by Subsidiary to the
CSI Shareholders, and the CSI Shareholders and Subsidiary
are able to resolve their differences in writing within
thirty (30) days following the expiration of the BV
Objection Period, then such determination as resolved shall
become final and binding as it relates to this Agreement.
If timely objection is made by Subsidiary to the CSI
Shareholders, and CSI Shareholders and Subsidiary are unable
to resolve their differences in writing within thirty (30)
days following the expiration of the BV Objection 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 Subsidiary and CSI Shareholders. If the
Subsidiary and the CSI Shareholders are unable to agree
promptly on an accounting firm to serve as the Arbitrator,
each shall select, by not later than the seventy-fifth day
following the BV Objection Period, an accounting firm, and
each selected accounting firm shall be instructed to jointly
select promptly another accounting firm, such third selected
firm to serve as the Arbitrator. The Arbitrator shall
consider only the disputed matters pertaining to the
determination and shall act promptly and fairly to resolve
all disputed matters and its decision with respect to all
disputed matters shall be final and binding upon CSI
Shareholders and Subsidiary. Expenses of the arbitration
(including reasonable attorney and accounting fees) shall be
borne by the Subsidiary unless the Arbitrator determines
that the book value of the shareholders' equity as reflected
on the Closing Balance Sheet made by the CSI Shareholder
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exceeds by $25,000 or more the Arbitrator's determination of
the book value of the Shareholder's equity of CSI as of the
Effective Date, in which case, the expense of the
arbitration (including reasonable attorney and accounting
fees) shall be borne by the CSI Shareholders.
2.3 Potential Adjustment for Consideration Transferred
Incident to the Merger.
(a) If during the calendar year 1997, the sum of
(i) CSI's EBIT from January 1, 1997 to the Effective Date
and (ii) Subsidiary's EBIT from its operation, from the
Effective Date to December 31, 1997 (a) exceeds $220,000.00
, then fifty percent (50%) of such excess not to exceed
$100,000.00, shall be paid fifty percent (50%) in cash and
fifty percent (50%) in Pomeroy Stock to the CSI Shareholders
in accordance with the procedures set forth in Section 2.1
and 2.2 of the Agreement within five (5) days after the
applicable time period set forth below (unless extended as
provided below due to a dispute by the CSI Shareholders) or
(b) is less than $180,000, then fifty percent (50%) of such
deficiency, not to exceed $100,000, shall serve as a
reduction to the consideration paid for the merger, which
reduction will be repaid to Subsidiary from the escrow
account, fifty percent (50%) in cash and fifty percent (50%)
in Pomeroy Stock according to the procedures set forth in
the Escrow Agreement and if such Escrow Agreement is not
sufficient to repay such amount, then from the CSI
Shareholders. Any reduction or increase in the amount of
Pomeroy Stock to be repaid by the CSI Shareholders or paid
to the CSI Shareholders, if any, shall be based on the
average of the closing price of the Pomeroy Stock on the
NASDAQ Exchange for the twenty (20) trading days immediately
preceding the third day before an agreement is made by the
parties in the manner set forth in this Section regarding
the EBIT determination.
For purposes of this section, "EBIT" shall
mean the earnings of CSI and Subsidiary from the operation
of CSI and Subsidiary, before interest and taxes, and
without incorporating any gains or losses realized on the
disposition of assets other than in the ordinary course of
business. For purposes of determining Subsidiary's EBIT for
the period from the Effective Date to December 31, 1997, no
item of income or expense shall be allocated by Pomeroy to
Subsidiary unless such items are reasonably calculated to
contribute to the increased profits of Subsidiary, it being
the intent of the parties that Pomeroy shall exercise the
utmost good faith with respect to allocation of income and
expense to the Subsidiary. Incident to the determination of
Subsidiary's EBIT, no compensation of any executive or other
employee of Pomeroy or its affiliates shall be allocated to
Subsidiary. Except as set forth above, no other
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administrative, overhead or any other expense of Pomeroy
shall be allocated to Subsidiary. Subsidiary's EBIT will be
calculated on a basis consistent with CSI's financial
statement determining EBIT for the period January 1, 1997 to
the Effective Date, using the same methodologies, judgments,
variances, assumptions, adjustments and estimates employed
by CSI in preparing such financial statements.
Within sixty (60) days after December 31,
1997, Subsidiary will deliver to the CSI Shareholders a copy
of the reported EBIT prepared by Subsidiary's certified
public accountants for the subject period along with any
supporting documentation reasonably requested by the CSI
Shareholders. Within thirty (30) days following delivery to
the CSI Shareholders of such report (the "EBIT Objection
Period"), the CSI Shareholders shall have the right to
object in writing to the results contained in such
determination. If timely objection is not made by the CSI
Shareholders of such determination, such determination shall
become final and binding for purposes of this Agreement. If
timely objection is made by CSI Shareholders to Subsidiary,
and the CSI Shareholders and Subsidiary are able to resolve
their differences in writing within thirty (30) days
following the expiration of the EBIT Objection Period, then
such determination as resolved shall become final and
binding as it relates to this Agreement. If timely
objection is made by CSI Shareholders to Subsidiary, and CSI
Shareholders and Subsidiary are unable to resolve their
differences in writing within thirty (30) days following the
expiration of the EBIT Objection 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 Subsidiary and
CSI Shareholders. If the Subsidiary and the CSI
Shareholders are unable to agree promptly on an accounting
firm to serve as the Arbitrator, each shall select, by not
later than the seventy-fifth day following the EBIT
Objection Period, an accounting firm, and each selected
accounting firm shall be instructed to jointly select
promptly another accounting firm, such third selected firm
to serve as the Arbitrator. The Arbitrator shall consider
only the disputed matters pertaining to the determination
and shall act promptly and fairly to resolve all disputed
matters and its decision with respect to all disputed
matters shall be final and binding upon CSI Shareholders and
Subsidiary. Expenses of the arbitration (including
reasonable attorney and accounting fees) shall be borne by
the CSI Shareholders unless the Arbitrator determines that
EBIT for calendar year 1997 exceeds by at least $25,000, the
determination made by Subsidiary's accounting firm, in which
case, the expense of the arbitration (including reasonable
attorney and accounting fees) shall be borne by Subsidiary.
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The Escrow Agreement shall terminate and any remaining
property contained therein shall be paid to the CSI
Shareholders proportionately as set forth in the Escrow
Agreement on the later of April 1, 1997 or the date upon
which the EBIT determination is resolved and all adjustments
hereunder, if any, have been made by the parties.
SECTION 3. NON-COMPETITION AGREEMENT.
3.1 Non-Competition Agreements. As an inducement for
and consideration of Subsidiary entering into this
Agreement, the CSI Shareholders shall each enter into a non-
competition Agreement for a period of the later of five (5)
years from the Effective Date or one (1) year after the
termination of such individual's employment with Subsidiary.
Such Non-Competition Agreements are set forth in Exhibit
"D", Exhibit "D-1" and Exhibit "D-2", attached hereto and
made a part hereof.
SECTION 4. EMPLOYMENT AGREEMENTS.
4.1 Employment Agreements. Upon the Effective Date,
Subsidiary shall enter into an Employment Agreements with
Cox, Hildreth and Hipp. Copies of said Employment
Agreements are attached hereto and made a part hereof as
Exhibits "E", "E-1" and "E-2". Subsidiary's obligations
under said Employment Agreements shall be guaranteed by
Pomeroy. Copies of said Guarantees are attached hereto and
made a part hereof as Exhibits "E-3", "E-4" and "E-5".
SECTION 5. REPRESENTATIONS AND WARRANTIES
OF CSI AND CSI SHAREHOLDERS
Except as set forth in the Disclosure Schedule attached
hereto, CSI and CSI Shareholders, jointly and severally,
represent, warrant and covenant to Subsidiary that the
following statements are materially true as of the date
hereof and shall remain materially true and correct as of
the Effective Date as if made again at and as of that time:
5.1 Organization and Good Standing. CSI is a
corporation duly organized, validly existing and in good
standing under the laws of the State of South Carolina and
is duly authorized and has full corporate power under its
Articles of Incorporation, as amended, and under applicable
laws, to own or lease all of its properties and to engage in
the business carried on by it, and is fully qualified to do
business in those states in which the nature and conduct of
its present business operations requires qualification and
in which the failure to be so qualified, if required, would
have a materially adverse effect on the business operations
and financial condition of CSI taken as a whole. Copies of
CSI's Articles of Incorporation and By-Laws (certified to be
correct by the Secretary of CSI) have been delivered to
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Subsidiary and are complete and correct as of the date
hereof. The Disclosure Schedule correctly lists, with
respect to CSI, each jurisdiction, if any, in which it is
qualified to do business as a foreign corporation.
5.2 Capitalization. CSI has One Hundred Thousand
(100,000) authorized shares of Common Stock, One Dollar
($1.00) par value, of which Sixteen Thousand (16,000) shares
are outstanding; that such outstanding shares of CSI have
been duly and validly authorized and issued and are fully
paid and non-assessable; that such CSI Common Stock is the
only class of stock or securities authorized by CSI's
Articles of Incorporation and By-Laws as amended; and there
are no purchase commitments, purchase agreements,
subscriptions, options, warrants, contracts, other
commitments and/or agreements of any kind expressed or
implied, outstanding for the issuance of any additional
shares of CSI common stock, the issuance of any additional
shares of any other class of stock or the issuance of any
type or class of security.
5.3 Ownership of CSI Common Stock. The Disclosure
Schedule sets forth a complete list of the common stock of
CSI and the owners thereof. The CSI Shareholders are the
lawful record and beneficial owners of the number of shares
of CSI common stock set opposite their names, free and clear
of any liens, claims, encumbrances or restrictions of any
kind.
5.4 Subsidiaries. CSI has no subsidiaries.
5.5 Authority. The execution, delivery and
performance of this Agreement and the Plan of Merger, and
the consummation of the transactions contemplated therein,
have been duly authorized and approved by all requisite
action of CSI's Board of Directors and the CSI Shareholders,
and this Agreement and the Plan of Merger have been duly
executed and delivered and constitute the valid and binding
obligation of CSI in accordance with their respective terms.
Neither the execution and delivery of this Agreement nor the
Plan of Merger nor the consummation of the transactions
contemplated hereby will:
(i) violate, or conflict with, or require any
consent under, or result in a breach of any provisions of,
or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance
required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties
or assets of CSI under any of the terms, conditions or
provisions of the Articles of Incorporation or By-laws of
CSI or of any note, bond, mortgage, indenture, deed of
trust, license, agreement, or other instrument or obligation
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to which CSI, or any CSI Shareholder is a party, or by which
CSI or any CSI Shareholder or any of their properties or
assets may be bound or affected, or
(ii) violate any order, writ, injunction or
decree applicable to any CSI Shareholder or CSI or to any of
their properties or assets or, to the knowledge of CSI
Shareholders violate any statute, rule or regulation
applicable to any CSI Shareholder or CSI or any of their
properties or assets; or,
(iii) except as set forth in the Disclosure
Schedule, Exhibit "5.5(iii)", constitute a default or event
that, with notice or lapse of time, or both, would be a
default, breach, or violation of any lease, license,
promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust or other agreement,
instrument or arrangement to which CSI is a party or by
which it is bound; or,
(iv) except as set forth in the Disclosure
Schedule, Exhibit "5.5(iv)", constitute an event that would
permit any party to terminate any agreement or to accelerate
the maturity of any indebtedness or other obligation of CSI.
No consent or approval by, notice to or registration with
any governmental authority is required on the part of any
CSI Shareholder or CSI prior or subsequent to the Closing
Date in connection with the execution, delivery and
performance by CSI or the CSI Shareholders of this Agreement
or the consummation of any of the transactions contemplated
hereby.
5.6 Closing Balance Sheet. The Closing Balance Sheet,
which shall be attached hereto as Exhibit "F" on the Post-
Closing Date, reflects only the assets and liabilities of
CSI as of the Effective Date and does not include any assets
or liabilities of any corporation or entity except CSI. As
of the Effective Date, CSI did not have any liabilities or
obligations of any nature (whether absolute, accrued,
contingent or otherwise and whether due or to become due),
including without limitation, any tax liabilities, of the
nature required by generally accepted accounting principles
to have been reflected or reserved against in financial
statements, which are not accurately and fully reflected or
reserved against in the Closing Balance Sheet; provided,
however, that the Closing Balance Sheet shall not be
accompanied by notes and shall not include normal year-end
adjustments (if any) other than depreciation or any other
accrual of a nature set forth on Exhibit "5.6", attached
hereto, which are not material in the aggregate.
5.7 Year End and Interim Financials.
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(a) Attached to the Disclosure Schedule are the
audited financial statements of CSI for the year ended
December 31, 1996 and the unaudited financial statements of
CSI for the year ended December 31, 1995 and the unaudited
interim balance sheets as of August 31, 1997, including any
and all notes thereto ("Year End and Interim Financials").
The Year End statements are in accordance with the books and
records of CSI, and have been prepared in accordance with
general accepted accounting principles (except that the
unaudited financial statements for the year ended December
31, 1995 are not accompanied by notes and normal year-end
adjustments) as applied by CSI on a consistent basis
throughout the periods covered by such statements and fairly
present the financial condition of CSI as of the respective
dates and the results of operations of CSI for the period
then ended. The Interim Financials are in accordance with
the books and records of CSI and are prepared on a
consistent basis throughout the period covered by such
statements and fairly present the financial condition of CSI
as of such date and the results of operations of CSI for the
period then ended; provided, however, that the Interim
Financials do not include normal year-end adjustments (if
any) which are not material in the aggregate. Except as
stated in the Year End and Interim Financials there have
been no unusual accounting practices engaged in which have
affected the amount or trend of net income of CSI, or any
unusual or nonrecurring transactions, during the periods
reflected in the Year End and Interim Financials. All
charges, expenses and accruals of the nature required by
generally accepted accounting principles to have been
reflected or reserved against in financial statements
relating to the operations or to any aspect of the business
of CSI have been deducted in the preparation of the income
and expenses statements included in the Year End and Interim
Financials and are in accordance with the books and records
kept by CSI. The Year End statements and the Interim
Financials are referred to herein as the "Financial
Statements". In determining whether a Financial Statement
is correct and fairly represents the financial position at
the requisite date, any understatement or omission of a
liability or expense shall be offset by any understatement
or omission of an asset or revenue, and vice versa.
(b) Absence of Undisclosed Liability. Except as
to the extent specifically reflected in the Financial
Statements, and except for trade payables and liabilities
arising in the ordinary course of business and expenses of
CSI relating to the merger which shall be properly accrued
for on the Closing Balance Sheet since the date of the
Financial Statements, CSI, on the Effective Date, does not
have any other liabilities of any nature, whether accrued,
absolute or contingent, or otherwise, and whether due or to
become due of the nature required by generally accepted
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accounting principles to have been reflected or reserved
against in financial statements.
(c) No Liabilities as Guarantor. Except as set
forth in the Disclosure Schedule, CSI is not directly or
indirectly obligated to guaranty or assume any debt,
dividend, or other obligation of any person, corporation,
association, partnership, or other entity, except
endorsements made in the ordinary course of business in
connection with the deposit of items for collection.
(d) Absence of Material Change. Except as set
forth in the Disclosure Schedule or as otherwise set forth
in this Agreement or the exhibits hereto, since the date of
the Interim Financials there has not been:
(i) any change in the condition (financial
or otherwise), properties, business, operations or prospects
of CSI which is materially adverse, singly or in the
aggregate;
(ii) any material loss, damage or destruction
in the nature of a casualty loss or otherwise, whether
covered by insurance or not, adversely affecting any
property or asset of CSI;
(iii) an actual or any threatened strike
or other labor trouble or dispute;
(iv) any loss or any threatened loss of any
governmental permit, license, qualification, special charter
or certificate of authority held or enjoyed or formerly held
or enjoyed by CSI which loss has had or upon occurrence
would have an adverse effect, singly or in the aggregate, on
the condition (financial or otherwise), properties,
business, operations or prospects of CSI;
(v) to the knowledge of the CSI
Shareholders, any statute, regulation, order, ordinance or
other law the adoption, amendment or rescission of which
adversely affects, singly or in the aggregate, the condition
(financial or otherwise), properties, business, operations
or prospects of CSI;
(vi) any indebtedness, liability or
obligation (whether absolute, accrued, contingent or
otherwise) incurred by CSI, or other transaction entered
into by CSI, other than in the ordinary course of business
and consistent with past practice, or any guarantee of any
indebtedness, liability or obligation made by CSI;
(vii) any declaration, setting aside or
payment of any dividend or other distribution in respect of
any capital stock or other securities of CSI;
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(viii) any issuance, sale, combination or
reclassification of any capital stock or other securities
of CSI;
(ix) any issuance or grant of any option,
warrant or other right in respect of any capital stock or
other securities of CSI;
(x) any direct or indirect redemption,
purchase or other acquisition of any capital stock or other
securities of CSI;
(xi) any obligation, liability, lien or
encumbrance paid, discharged or satisfied by CSI other than
current liabilities reflected in the Interim Financials and
current liabilities incurred since August 31, 1997 in the
ordinary course of business;
(xii) any mortgage, lien, pledge, charge
or encumbrance (except for liens for current taxes not yet
due and payable), created, incurred or assumed by CSI;
(xiii) except in the ordinary course of
business, any sale, transfer or other disposition of any
tangible asset of CSI, any cancellation of any debt or claim
of CSI or any disposition of any intangible properties,
assets or rights of CSI;
(xiv) any salary or wage increase granted
or committed to be made, other than normal merit or cost-of-
living increases pursuant to CSI's general prevailing
practices, with respect to any officer, director, employee
or agent of CSI, or any bonus (except bonuses to Cox and
Hildreth in the amounts of $12,000.00 and $12,000.00
respectively, provided that such amounts are properly
accrued for on the Closing Balance Sheet), incentive or
deferred compensation, profit sharing, retirement, pension,
group insurance, death benefit or other fringe benefit plan
or trust agreement entered into or amended or any employment
or consulting agreement entered into or amended or altered;
(xv) any termination (whether by discharge,
retirement or otherwise) of any officer, director, employee
or agent of CSI or any notice to so terminate given or
received by any of the foregoing;
(xvi) any loan made, increased or
forgiven to any officer, director, employee or agent of CSI
or to any member of any of their families;
(xvii) any capital expenditure, addition
or improvement made or committed to be made by CSI in excess
of $5,000.00 with respect to any single expenditure,
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addition or improvement or in excess of $10,000.00 with
respect to all such expenditures, additions and
improvements;
(xviii) any failure on the part of CSI to
operate its business in the ordinary course or to use its
best efforts to preserve its business organization intact,
to retain the services of its employees and to preserve its
goodwill and relationships with suppliers, creditors and
others having business relationships with it;
(xix) any known material loss of
business, termination or discontinuance of any relationship
or dispute between CSI and any customer or supplier;
(xx) any loss, amendment, termination or
waiver of any material right of CSI other than in the
ordinary course of business;
(xxi) any known write-off as
uncollectible of any notes or accounts receivable, or any
portions thereof, in excess of $5,000.00 with respect to any
single note or account or in excess of $10,000.00 with
respect to all such write-offs;
(xxii) any action taken or omitted to be
taken by CSI which would constitute the breach, default or
result in the acceleration of or cause (after lapse of time,
notice or both) the breach, default or acceleration of any
material right, contract, commitment or other obligation of
CSI;
(xxiii) any agreement or commitment by CSI
to do any of the foregoing;
(xxiv) any failure to maintain the books
and records of CSI consistently and in the usual, regular
and ordinary manner and in accordance with good business
practice;
(xxv) any other event or condition of any
character which, singly or in the aggregate, has materially
adversely affected, or any event or condition known to CSI
or to any CSI Shareholder or any of CSI's officers which it
is reasonable to expect will, singly or in the aggregate,
materially adversely affect in the future, the condition
(financial or otherwise), properties, business, operations
or prospects of CSI, except for events, trends, etc.,
generally affecting and known to the industry as a whole.
5.8 Assets. Except as provided in Disclosure Schedule
Exhibit 5.8, CSI has good and marketable title to all of its
assets and properties, real, personal or otherwise,
including but not limited to those assets and properties
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reflected in the August 31, 1997 Interim Financials, except
only for assets subsequently disposed of in the ordinary
course of business, free and clear of all liens, claims,
security interests and encumbrances whatsoever, except (a)
as specifically reflected thereon, or (b) as set forth in
the Disclosure Schedule. To the best of the knowledge of
the CSI Shareholders, all of CSI's tangible and other
operating assets, property and equipment are in generally
good operating condition and repair, free of structural or
material mechanical defects and conform with all applicable
laws and regulations. Without limiting the generality of
the foregoing, specific representations are set forth in the
following subparagraphs of this Section 5.8.
5.8.1 Receivables. Accounts Receivable of CSI
as included in the Interim Financials and all Accounts
Receivable of CSI created after such date up to and
including the Effective Date arose from valid sales in the
ordinary course of business and represent valid, collectible
(as to the Accounts Receivable of CSI, net of any bad debt
reserve as reflected on the Interim Financials) and existing
claims. Subject to customer credits, the payment of each
Account Receivable will not be subject to any known defense,
counterclaim or condition (other than CSI's performance in
the ordinary course of business) whatsoever.
5.8.2 Inventory. The inventory reflected in
the Financial Statements were, and those reflected on the
books of CSI on the date hereof, have been, and those
reflected on such books on the Effective Date will have been
determined and valued in accordance with generally accepted
accounting principles, applied on a consistent basis as
reflected in the Financial Statements and consist of items
which are good and merchantable and of a quality and
quantity presently usable or saleable in the ordinary course
of business (except for items of obsolete and slow moving
materials of below standard quality, all of which were
written down to net realizable value or adequately reserved
for in such Financial Statements or returned or are
returnable to the manufacturer or its distributor for
credit).
5.8.3 Real Property. CSI owns no real
property.
5.8.4 Dealer Agreements. All of CSI's Dealer
Agreements are set forth on Exhibit "F" attached hereto.
5.8.5 Trademarks, etc. CSI neither owns nor
uses in its business any patents, trademarks, trade names,
copyrights, service marks or service names except for common
law trademark rights, if any, and registration rights, if
any, under the trademark laws for the State of South
Carolina in the name "The Computer Store", and except for
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off-the-shelf licenses of certain computer software. CSI
has not infringed, misappropriated or misused or been
charged, or threatened to be charged, with infringement,
misappropriation or misuse of, any patent, trademark, trade
name, copyright, trade secret, know-how or confidential
information or data of another.
5.9 Taxes. CSI has filed and will file (for all
periods ending on or prior to the Effective Date) all tax
returns and other reports to governmental bodies required by
law and has paid or has or will have fully reserved for all
taxes due and payable as reflected on such returns or any
returns that may be filed after the Effective Date which
include periods on or before the Effective Date. Except as
set forth on the Disclosure Schedule, Exhibit "5.9", there
are no pending or proposed deficiency assessments,
reassessments or claims of any governmental body for income
taxes, property taxes, sale or usage taxes, social security,
workers' compensation, unemployment contributions or any
other taxes or contributions; and the charges, accruals and
reserves reflected in the Closing Balance Sheet are and will
be sufficient to pay all such taxes reflected on such
returns related to the periods covered by them and any prior
periods. CSI is not a consenting corporation under the
provisions of Section 341(f) of the Internal Revenue Code
("Code"), nor during the past three (3) years has given or
has been requested to give waivers of any statute of
limitations relating to any such taxes or governmental
charges. CSI is not an electing sub-chapter S corporation
under the provisions of Section 1361 of the Code.
5.10 Outstanding Indebtedness. Except for liabilities
incurred in the ordinary course of business and/or reflected
or reserved against in the Financial Statements, and/or as
provided in the Disclosure Schedule, Exhibit "5.10", CSI has
no liabilities of the nature required by generally accepted
accounting principles to have been reflected or reserved
against in financial statements, is not indebted to any
party and has not pledged or hypothecated, voluntarily or
involuntarily, any of its assets. CSI is not in default in
respect of any material term or conditions of any
indebtedness or any liabilities (including trade payables),
and there are no facts in existence on the date hereof and
known by any of the CSI Shareholders which might reasonably
serve as a basis, in whole or in part, for any material
liabilities or obligations not disclosed in this Agreement
or not adequately covered by insurance.
5.11 Obligations. Except as provided by the contracts,
leases and other documents described in the Disclosure
Schedule Exhibit 5.11 or in other Exhibits hereto, CSI is
not a party to or bound by any written or oral (a) contract
or commitment not made in the ordinary course of business,
(b) lease of real property or personal property or fixtures,
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as lessee, (c) promissory note, loan agreement, guaranty,
mortgage, pledge, security agreement, or other credit
agreement, indenture, instrument, agreement or arrangement
providing for or relating to extensions of credit, (d)
franchise, dealership, distributorship, or other like
agreement, (e) contract, agreement or other arrangement or
commitment involving a payment by, or other obligation of,
CSI of more than $5,000.00, or (f) contract or commitment
which cannot or in reasonable probability will not be
performed or terminated without penalty within 90 days from
the Effective Date. CSI is not in default, and is not aware
of any event which with the giving of notice and/or passage
of time would constitute a default by CSI, in any material
respect, under any contract, lease or other document
described in the Disclosure Schedule or other Exhibit.
5.12 Labor. Except as specifically described in the
Disclosure Schedule Exhibit 5.12, CSI is not a party to any
oral or written: (a) employment contract which is not
immediately terminable at will by the employer without
contractual penalty; (b) non-qualified retirement or profit-
sharing, bonus or stock option plan, group insurance
contract for, or agreement with, its employees or any of
them; (c) collective bargaining or other labor union
contract, vacation pay or severance pay or other so-called
fringe benefit agreement or arrangement; or (d) agreement
with any present or former officer, director or shareholder
of CSI. Furthermore, except as described in the Disclosure
Schedule Exhibit 5.12, there are no material labor
controversies, work stoppages, slow-downs or other
significant labor troubles whatsoever pending, or to the
knowledge of the CSI Shareholders threatened or proposed,
against or affecting CSI, nor has CSI been charged with any
unresolved unfair labor practice, nor does any CSI
Shareholder have knowledge of any present union organizing
activity among any employees of CSI; CSI has complied in all
material respects with all laws and regulations relating to
the employment of labor, including without limitation any
provisions thereof relating to wages, hours, or collective
bargaining, or any regulations of the Occupational Safety
and Health Administration, the Environmental Protection
Agency, the Equal Employment Opportunity Commission, other
civil rights commissions, and similar agencies, and
including the payment of social security, withholding taxes,
income taxes, disability, worker's compensation,
unemployment and similar taxes, and it is not liable for any
arrears in wages or any taxes or penalties for failure to
comply with any of the foregoing. To the extent of any
claim pending at the time of Closing with respect to any of
the foregoing, CSI Shareholders shall indemnify and hold CSI
harmless from and against any and all liabilities arising
out of such claim. The Disclosure Schedule, Exhibit
"5.12" sets forth the names of any former employees of CSI
that are exercising any rights under COBRA.
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5.13 Retirement Plans. Except as specifically
described in the Disclosure Schedule Exhibit 5.13, CSI does
not maintain any qualified Retirement Plans, within the
meaning of Code Section 401(a). CSI has not incurred or
accumulated any funding deficiency within the meaning of the
Employees' Retirement Income Security Act of 1974 as amended
(ERISA) or incurred any liability to Pension Benefit
Guarantee Corporation in connection with any employee
benefit plan established or maintained by CSI and no
reportable event or prohibited transaction, as defined in
ERISA, has occurred with respect to any plans of CSI. CSI
is not a party to nor has ever been a party to any multiple
employer pension plan and never incurred any withdrawal
liability incident thereto.
5.13.1 To the best of CSI and CSI Shareholders'
knowledge, all of the qualified Retirement Plans of CSI have
been operated and administered in full compliance with
applicable requirements of all laws, rules and regulations
governing plans of this type (including, without limitation,
applicable provisions of ERISA, pertaining to reporting and
disclosure requirements, fiduciary responsibility and claims
procedures; the Code, pertaining to disclosure and funding
requirements); and CSI has filed all returns and reports as
required incident thereto.
5.13.2 Except as disclosed on the Disclosure
Schedule Exhibit 5.13, CSI is not and has never been a
member of any controlled group of corporations (as defined
in Code Section 414(b)), any group of trade or business
(whether or not incorporated) which are under common control
(as defined in Code Section 414(c)) or any affiliated
service group (as defined in Code Section 414(m)) which
include in such group a corporation or trade or business
other than CSI and, as a result, CSI has no liability which
could arise by reason of the operation of, termination of or
withdrawal from any employee pension benefit plan in which
any other employer has participated.
5.14 Welfare Plans.
5.14.1 Welfare Plans Described. The employees
welfare benefit plans described in the Disclosure Schedule
Exhibit 5.14 are the only employee welfare benefit plans
(within the meaning of Section 3(a) of ERISA), which are
maintained by CSI for the benefit of eligible employees of
CSI (hereinafter collectively referred to as "Welfare
Plans"), and no oral or written promises have been made to
any employees or former employees of CSI as to the current
or future benefits thereunder other than as set forth in the
summary plan booklet describing such plan.
5.14.2 Operation. Each of the Welfare Plans
has been operated and administered in full compliance with
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applicable requirements of all laws, rules and regulations
governing plans of its type (including, without limitation,
applicable provisions of: Title I of ERISA, pertaining to
reporting and disclosure requirements, fiduciary
responsibility and claims procedures; the Code, pertaining
to disclosure and funding requirements; the Pregnancy
Discrimination Act of 1978; the Age Discrimination in
Employment Act, as amended; and the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, pertaining to
continuation of health plan coverage).
5.14.3 Funding. Each of the Welfare Plans is
adequately funded through insurance or otherwise, using
reasonable actuarial assumptions, to provide the benefits
contemplated thereunder.
5.14.4 Liens. No lien has attached and no
person has threatened to attach a lien on any assets of any
of the Welfare Plans or on any property of CSI as a result
of any failure to comply with any of the provisions of any
of the Welfare Plans or with any laws, rules or regulations
to which any of such Welfare Plans is subject, and CSI has
no knowledge that any such lien is likely to attach.
5.14.5 Claims. Except as otherwise set forth
in the Disclosure Schedule Exhibit 5.14, no litigation is
pending or, to the best of CSI and CSI Shareholder's
knowledge, has been threatened against CSI, any of the
Welfare Plans, and/or any fiduciary of such Welfare Plans
claiming either violations of any laws, rules or
regulations, governing any of the Welfare Plans and/or
violations of any provision of the Welfare Plans, and CSI
Shareholders have no knowledge of any claims or potential
claims concerning any such violations.
5.15 Plans Reimbursements. CSI Shareholders shall
reimburse Subsidiary for that portion of CSI's contribution
and/or funding obligation and/or premium costs under the
Welfare Plans which is attributable to any period up to the
Closing which was due and payable but remained unpaid at the
Closing.
5.16 Burdensome Obligations. Except for agreements
described in the Disclosure Schedule Exhibit 5.16, CSI is
not a party to any so-called "requirements" or similar type
of contract limiting its freedom or latitude in the purchase
of its inventory, equipment or other items. CSI is not
subject to or bound by any contract or other obligation
whatsoever outside of the ordinary course of business which
materially adversely affects its business, properties or
prospects, except as expressly disclosed in this Agreement.
5.17 Lawful Operations. To the best of CSI
Shareholder's knowledge: (a) the businesses conducted and
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properties owned or leased by CSI conform in all material
respects with all applicable ordinances, regulations and
other laws; and (b) any licenses, franchises, certificates
and other permits required for the conduct of such
businesses and holding of such properties have been procured
and are in good standing and will not be adversely affected
by the consummation of the transactions hereunder in
accordance with the provisions hereof.
5.18 Legal Proceedings; Claims. Except as set forth in
the Disclosure Schedule Exhibit 5.18, there are no decrees
or order of any regulatory agency, court or public authority
affecting the operations of CSI, and CSI is not a party to
any litigation or other judicial or administrative
proceedings. Neither CSI nor any CSI Shareholder is a party
to any litigation or other judicial, administrative or other
proceeding pending or known by CSI Shareholders to be
threatened which would affect CSI's or CSI Shareholders'
ability to perform this Agreement or would materially
adversely affect the assets or operations of CSI; and, to
the best of CSI and CSI Shareholders' knowledge there are no
claims in existence or threatened against CSI or any of its
properties which may result in litigation. There are no
known existing violations of any Federal, State, local or
foreign laws or regulations which might materially adversely
affect the properties, assets, business, financial condition
or corporate status of CSI; and CSI is not in default with
respect to any order or decree of any court or
administrative regulatory agency.
5.19 Environmental Matters.
5.19.1 To the best of CSI and CSI Shareholders'
knowledge, the real estate located at 810 Dutch Square
Blvd., which CSI leases from Dr. Peter Schmalisch ("Real
Estate"), has not been used or operated by CSI in any
fashion involving producing, handling, and disposing of
chemicals, toxic substances, weights 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 CSI and CSI Shareholders' knowledge, CSI's occupancy and
use of the Real Estate is in material compliance with
applicable laws, regulations, ordinances, decrees and orders
arising under or relating to health, safety, environmental
laws and regulations, including without limitation the
Federal Occupation & Safety Health Act, 29 U.S.C. 651, et
seq., Federal Resource Conservation and Recovery Act (RCRA),
42 U.S.C. Section 6901, et seq., Federal Comprehensive
Environmental Response, Compensation and Liability Act, 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 all state and local laws that correspond
therewith or supplement such laws.
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5.19.2 To the best of CSI and CSI Shareholders'
knowledge, there have been no complaints, citations, claims,
notices, information requests, orders (including but not
limited to clean up orders) or directives on environmental
grounds made or delivered to, pending or served on, or
anticipated by CSI or its agents, or of which CSI or its
agents, are aware or should be aware (i) issued by a
governmental department or agency having jurisdiction over
any of the assets of CSI, real or personal, owned or leased,
and affecting CSI's assets, business, operations, equipment,
property, leaseholds, other facilities, or any part thereof,
including but not limited to clean up orders, or (ii) issued
or claimed by any persons, agencies, or organizations and
affecting CSI's assets, business, operations, equipment,
property, leaseholds, or other facilities or any part
thereof.
5.19.3 To the best of CSI and CSI Shareholders'
knowledge, there have not been, are not now and as of the
Closing Date, there will be no solid waste, hazardous waste,
hazardous substances, toxic substances, toxic chemicals,
pollutants or contaminants, underground storage tanks,
purposeful dumps, or accidental spills in, on or about any
of the assets of CSI, real or personal, owned or leased, or
stored on any real property owned or leased by CSI or by
CSI's lessees, licensees, or invitees at the Real Estate.
5.19.4 To the best of CSI's and CSI
Shareholder's knowledge, there have been no material or
reportable emissions, spills, seepage, damages, releases, or
discharges into or upon the air, soils or improvements
located at the Real Estate, surface water or ground water,
or any sewer or septic system servicing CSI's assets, of any
toxic or hazardous substances, pollutants, contaminants,
solid waste or hazardous waste.
5.19.5 To the best of CSI and CSI Shareholders'
knowledge, CSI has obtained and will maintain all necessary
approvals, permits, licenses, certificates, or satisfactory
clearances for use of its assets from all governmental
authorities, utility companies, or development-related
entities, with respect to CSI's use of its assets and CSI's
discharge of any chemicals, liquids and emissions, into the
atmosphere, ground water or surface water, including but not
limited to sewers or septic systems, from CSI's operations.
5.19.6 To the best of CSI and CSI Shareholders'
knowledge, CSI and its business, operations, assets,
equipment, property, leaseholds or other facilities are in
compliance in all material respects with all applicable
federal, state, and local statutes, laws, regulations and
ordinances.
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5.19.7 To the best of CSI and CSI Shareholders'
knowledge, no asbestos or asbestos containing materials are
installed, used or incorporated into CSI's property, and no
asbestos or asbestos containing materials have been disposed
of on CSI's property.
5.19.8 To the best of CSI and CSI Shareholders'
knowledge, no polychlorinated biphenyls (PCBs) are located
on or in CSI's property in the form of electrical
transformers, fluorescent light fixtures with ballasts,
cooling oils, or in any other device or form.
5.20 Insurance. CSI maintains policies of fire,
extended coverage, liability and other forms of insurance
covering its business, properties and assets in amounts and
against such losses and risks as are generally maintained
for comparable businesses and properties, and valid policies
for such insurance will be outstanding and duly in force
through and on the Effective Date. Set forth in the
Disclosure Schedule is a complete list of all insurance
policies owned by CSI, indicating risks insured against,
carrier, policy number, amount of coverage, premiums and
expiration dates.
5.21 Books and Records. The books of account of CSI
substantially reflect all its known material items of income
and expense and all its known material assets, liabilities
and accruals. The corporate minute books of CSI are
substantially complete as to the records of substantially
all substantial proceedings of incorporators, shareholders
and directors, and there are no substantial and material
minutes or records of the proceedings of any of said person
not included therein. The share ledgers and share
certificate books contain a complete and accurate record of
all issuances and transfers of shares in CSI.
5.22 Certain Debts and Interests. Except as set forth
in the Closing Balance Sheet, there are no debts of CSI owed
to CSI Shareholders or to any officer or director of CSI, or
any family member of the foregoing, or to any corporation,
form or other entity owned or controlled by the foregoing;
and none of such persons is indebted to CSI. CSI
Shareholders do not directly or indirectly own any interest
in any corporation, firm or enterprise engaged in a business
competitive with CSI, except (i) CSI Shares or (ii) any
passive investment by CSI Shareholders in the stock of any
publicly held corporation which is not in excess of five
percent of the issued and outstanding capital stock of such
corporation.
5.23 Officers and Directors; Certain Payments. Exhibit
"G" is a true and complete list showing (a) the names of all
officers and directors of CSI and the directorships and
officerships in CSI held by each; (b) the names and address
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of each financial institution in which CSI has an account,
safe deposit box or investment account, the names of all
persons authorized to draw thereon or to have access
thereto, and the nature of such authorization; and (c) the
names of all persons holding tax or other powers of attorney
from CSI and a summary statement of the terms thereof.
5.24 Commissions or Brokers Fees. Neither CSI nor any
CSI Shareholder has incurred any liability to any person for
investment advisory fees, finder's fees or brokerage
commissions with respect to the transactions contemplated by
this Agreement, which liability may be asserted against CSI,
Subsidiary or any affiliate of Subsidiary.
5.25 Assets Necessary to the Business. CSI owns all
assets and properties (tangible and intangible) materially
necessary to carry on its business and operations as
presently conducted and as shown on the Year-End and Interim
Financials. Such assets and properties are all of the
assets and properties reasonably necessary to carry on the
business and operations of CSI as presently conducted and
none of the CSI Shareholders (other than through their
ownership of stock in CSI) nor any member of their
respective families owns or leases or has any interest in
any assets or properties presently being used to carry on
the business or operations of CSI.
5.26 Illegal Payments. Neither CSI nor, to the
knowledge of any CSI Shareholder, any of its officers,
directors, employees or agents has made or authorized any
payment of funds of CSI prohibited by law and no funds of
CSI have been set aside to be used for any payment
prohibited by law.
5.27 Customers. The Disclosure Schedule includes a
correct list of the fifteen (15) largest customers for CSI
for each of the past two (2) fiscal years and the amount of
business done by CSI with each such customer for each year.
CSI and the CSI Shareholders have no knowledge or
information, and are aware of no facts indicating that any
of the customers will or intend to (a) cease doing business
with CSI; or (b) materially alter the amount of business
they are presently doing with CSI; or (c) not do business
with Subsidiary after the Effective Date.
5.28 Suppliers. The Disclosure Schedule sets forth
the names of and description of contractual arrangements
(whether or not binding or in writing) with the fifteen (15)
largest suppliers of CSI and any sole suppliers of
significant goods or services (other than electricity, gas,
telephone or water) to CSI with respect to which practical
alternative sources of supply are not readily available on
comparable terms and conditions. CSI and each CSI
Shareholder have no knowledge or information, or are aware
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of no facts indicating that any of the suppliers of CSI will
or intend to (a) cease doing business with CSI; or (b)
materially alter the amount of business they are presently
doing with CSI; or (c) not do business with Subsidiary after
the Effective Date.
5.29 Product Liability. There are no product
liability claims against CSI, either potential or existing,
which are not covered by product liability insurance
coverage with a responsible company.
5.30 Transactions with Affiliates. Except as
disclosed on Disclosure Schedule Exhibit 5.30, there is no
lease, sublease, contract, agreement or other arrangement of
any kind whatsoever entered into by CSI with any CSI
Shareholder or with any affiliate (as such term is defined
in the rules and regulations of the Securities and Exchange
Commission under the Securities Act of 1933, as amended) of
any CSI Shareholder, except such of the foregoing which may
be terminated at Closing by Subsidiary without further
liability. As of the Closing, all indebtedness owed by any
CSI Shareholder to CSI shall be repaid.
5.31 Disclosure. None of the representations or
warranties made by CSI and CSI Shareholders herein, or made
in any certificate furnished or to be furnished by them,
pursuant to the requirements of this Agreement, including
any disclosures made in the Disclosure Schedule, contains or
will contain any untrue statement of material fact or omits
or will omit any material fact, an omission of which would,
in light of the circumstances in which it was made, be
misleading. The CSI Shareholders have no knowledge of any
factors materially and adversely affecting the future
prospect of CSI's business which has not been disclosed in
this Agreement and the Disclosure Schedule.
SECTION 6. REPRESENTATIONS OF SUBSIDIARY
Subsidiary and Pomeroy, joint and severally, represent,
warrant and covenant to CSI Shareholders that the following
statements are true and correct as of the date hereof and
shall remain true and correct as of the Effective Date as if
made again at and as of that time:
6.1 Organization. Subsidiary is a corporation duly
organized, validly existing and in good standing under the
laws of the State of South Carolina and has all the
requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is
now being conducted, and it is duly licensed, authorized and
qualified to do business and in good standing in all
jurisdictions in which the nature and conduct of its present
business operation requires qualification and in which the
failure to be so qualified, if required, would have a
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material adverse affect on the business operations and
financial condition of Subsidiary taken as a whole or the
ownership or leasing of its property require it to be so
licensed, authorized or qualified.
6.2 Authority. Subsidiary has full power and
authority to enter into this Agreement, the Plan of Merger
and the Employment Agreements. The execution, delivery and
performance of this Agreement, the Plan of Merger and the
Employment Agreements, and the consummation of the
transactions contemplated therein, have been duly authorized
by all requisite corporate actions and constitute the valid
and binding obligation of Subsidiary enforceable in
accordance with their respective terms. All other
agreements, instruments and documents to be executed and
delivered by or on behalf of Subsidiary in connection
herewith will, when executed and delivered, constitute the
valid and binding obligation of Subsidiary enforceable in
accordance with their respective terms. Except for required
approval or consent of Pomeroy's primary lender, Star Bank,
National Association, which consent shall be procured prior
to Closing, no authorization, approval, consent or order of,
or registration, declaration or filing with, any court,
governmental body or agency or other public or private body,
entity or person, is required in connection with the
execution, delivery or performance of this Agreement or any
other agreement, instrument or document to be delivered by
or on behalf of Subsidiary in connection herewith.
6.3 No Default. Subject to obtaining the required
consent and/or approval as described in Section 6.2, neither
the execution or delivery nor performance of this Agreement
or of any other agreements, instruments or documents to be
delivered by or on behalf of Subsidiary in connection
herewith does or will: (a) conflict with, violate or result
in any breach of the Articles of Incorporation or By-laws of
Subsidiary, or any judgment, decree, order, statute, rule or
regulation applicable to Subsidiary; or (b) conflict with,
violate or result in any breach of any agreement or
instrument to which Subsidiary is a party or by which
Subsidiary is bound, or constitute a default thereunder or
give rise to a right of acceleration of an obligation of
Subsidiary.
6.4 Commissions or Brokers Fees. Subsidiary has not
employed any broker, agent or finder or incurred any
liability for any brokerage fees, agent's commissions or
finder's fees in connection with the transactions hereby.
6.5 Single Purpose Subsidiary. Prior to the
Effective Date, Subsidiary will have engaged only in the
transactions contemplated by this Agreement, will have no
material liabilities (other than its guaranty of Pomeroy's
credit facility to Star Bank, National Association) and will
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have incurred no obligations except in connection with its
performance under the transactions provided in this
Agreement.
6.6 Purchase for Investment. The CSI Common Stock to
be acquired by the Subsidiary for purposes of SEC Rule 145
and cancelled pursuant to the Merger will be acquired for
the Subsidiary's own account for investment purposes only
and without any present intention to resell, transfer, or
otherwise dispose of the shares. Subsidiary does not have
any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such
person, or to any third persons, with respect to any of the
shares to be acquired and cancelled hereunder. Subsidiary
understands that the CSI Common Stock is not registered
under the 1933 Securities Act or any applicable state
securities laws and that any sale, transfer or other
disposition of the shares must be made only pursuant to any
effective registration under applicable federal and state
securities laws or an available exemption therefrom.
Subsidiary and Pomeroy, collectively, have assets valued at
more than $5,000,000; together with their Affiliates, have a
combined net worth in excess of $5,000,000; and through
their officers, directors and professional advisors have
such knowledge and experience in financial, business, and
investment matters that they are capable of evaluating the
risks and merits of acquiring the CSI Common Stock and
investing in CSI. Subsidiary and Pomeroy and their
representatives have examined books, records, and documents
furnished or made available to them by CSI and have been
given the opportunity to ask such questions or, and receive
answers from, the CSI Shareholders and the officers of CSI
as Subsidiary has determined are relevant to the decision to
acquire and cancel the CSI Common Stock and invest in CSI
pursuant to the merger. No compensation or consideration to
be paid by Subsidiary to the CSI Shareholders, CSI or their
Affiliates, or any other person shall, as among the parties
hereto, constitute a commission or other remuneration in
connection with procuring the sale or purchase of the CSI
Common Stock or the soliciting of any prospective buyer or
seller for such shares. The CSI Common Stock to be acquired
and cancelled hereunder was not offered to Subsidiary and
Pomeroy by, and Subsidiary and Pomeroy are not otherwise
aware of, any general advertising or general solicitation in
connection with the sale of the CSI Common Stock or the
business which is the subject hereof.
SECTION 7. REPRESENTATIONS BY POMEROY
7.1 Pomeroy hereby represents and warrants to the CSI
Shareholders that the following statements are true and
correct as of the date hereof and shall remain true and
correct as of the Effective Date as if made again at and as
of that time:
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(a) Pomeroy is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and
authority to own, lease and operate its properties and carry
on its business as is now being conducted. Complete and
corrected copies of Pomeroy's Certificate of Corporation and
By-Laws, as amended, to date hereof, have been delivered to
CSI Shareholders.
(b) Pomeroy's authorized capital stock consists
of Fifteen Million (15,000,000) shares of common stock, par
value .01, of which Eleven Million Three Hundred Thirty-
Seven Thousand Two Hundred Seventy-Eight (11,337,278
including 20,900 shares of Treasury Stock) shares of common
stock were issued and outstanding on October 14, 1997, and
Two Million (2,000,000) shares of preferred stock, none of
which were issued and outstanding on October 14, 1997. A
sufficient number of shares of Pomeroy Stock has been
reserved with Pomeroy's transfer agent to effectuate this
merger. Upon the determination of any adjustments to this
Agreement, if any, that will require the issuance of
additional Pomeroy Stock, Pomeroy agrees to reserve with its
transfer agent at such time sufficient shares to implement
such adjustments.
7.2 Corporate Authority. This Agreement has been
approved by the Board of Directors of Pomeroy. The
execution, delivery and performance of this Agreement by
Pomeroy and the consummation of the transaction contemplated
herein, have been duly authorized by all requisite corporate
action and constitute the valid and binding obligation of
Pomeroy enforceable in accordance with its respective terms.
Neither the execution or delivery of this Agreement, nor
performance hereunder, will conflict with, result in the
breach of the terms, conditions, or provisions of, or
constitute a default under the Certificate of Corporation or
By-laws of Pomeroy or any agreement or instrument to which
Pomeroy is a party or by which it is bound, except for the
consent of Pomeroy's lender, Star Bank, National
Association, which shall be procured prior to the Effective
Date.
7.3 Financial Matters. Pomeroy has furnished the CSI
Shareholders with its audited consolidated Financial
Statements as of January 5, 1997 and January 5, 1996. In
addition, Pomeroy has provided the CSI Shareholders with its
Form 10Q filing for the period ending July 5, 1997. Since
July 5, 1997, there have been no materially adverse changes
in the results of operations or financial condition of
Pomeroy, nor are there any demands, commitments, events of
uncertainty known to Pomeroy which could affect Pomeroy's
liquidity, capital resources, or results of operation as of
the date hereof, or as of the Effective Date (other than
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those previously disclosed by Pomeroy in its periodic
reports filed with the Securities and Exchange Commission)
that would require management's discussion and analysis of
financial conditions and results of operations ("MD&A")
prepared in accordance with Item 303 of Regulation S-K
promulgated by the Securities and Exchange Commission
("SEC") if such MD&A were required to be updated through the
date hereof and through the Effective Date. Until such time
as the CSI Shareholders shall have sold all the Pomeroy
Stock received by them incident to this Agreement, Pomeroy
shall use its best efforts to timely and lawfully make all
periodic filings and disclosures as are required for
purposes of SEC Rule 144(c).
7.4 Pomeroy will vote all of the outstanding shares of
Subsidiary in favor of the merger of CSI into the Subsidiary
prior to the Effective Date.
7.5 Pomeroy will provide Subsidiary with the requisite
cash and the requisite Pomeroy Stock to effectuate the terms
of this Agreement set forth in Section 2.
SECTION 8. RELEASE BY CSI Shareholders
8.1 Each CSI Shareholder as of the Effective Date
shall release and discharge CSI from all actions, claims or
demands of every kind and nature which any of the CSI
Shareholders have or may have against CSI, whether based
upon contract or otherwise, arising before such date.
Nothing contained herein shall constitute a release of any
rights of the CSI Shareholders arising under this Agreement,
with respect to any claims under any medical or dental
plan(s) currently maintained by CSI, with respect to any of
the CSI Shareholder's interests in any Retirement Plans
maintained by CSI, or with respect to anything which may
occur after the Effective Date.
SECTION 9. INTERIM OPERATIONS
9.1 From the date hereof until the Effective Date, CSI
will operate substantially as presently operated in the
ordinary course of business as is consistent with such
operation, will use its best efforts to preserve intact for
the benefit of Subsidiary the present business organization
of CSI and the relationships and good will of suppliers,
customers and others having business relationships with CSI.
Without limiting the generality of the foregoing, CSI will
not, other than in the ordinary course of business, take any
of the actions contemplated by or which would give rise to
the result contemplated by Section 5.7(d) hereof, as set
forth in such Section.
9.2 Access to Information. From the date hereof
until the Effective Date, CSI shall make available or cause
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to be made available to the accountants, attorneys or other
representatives of Subsidiary, for examination during normal
business hours, upon reasonable request, all properties,
assets, books of accounts, title papers, insurance policies,
contracts, leases, commitments, records and other documents
of every character relating to CSI.
9.3 Notice by Subsidiary. Subsidiary agrees that
should its executive officers acquire knowledge prior to
Closing, as a result of their investigation of CSI pursuant
to this Agreement or otherwise, of any breach of the
representations and warranties contained in Section 5 above,
Subsidiary will notify the CSI Shareholders of such breach
in writing prior to Closing; provided such notice shall not
constitute a waiver of any rights that Subsidiary and/or
Pomeroy might have under this Agreement and the CSI
Shareholders shall have the opportunity to cure such breach
prior to Closing.
SECTION 10. SURVIVAL OF AND RELIANCE UPON
REPRESENTATIONS,
WARRANTIES AND AGREEMENTS; INDEMNIFICATION
10.1 Survival of Representations and Warranties. The
parties acknowledge and agree that all the representations,
covenants, 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 shall be
binding upon the party giving such representation, covenant,
warranty or agreement and shall be fully enforceable to the
extent provided for in Sections 10.4 and 10.5 hereof, at law
or in equity, for the period beginning on the date of
Closing and ending two (2) years thereafter, except for
the representations, warranties and agreements designated
and identified in Section 5.9 which shall be fully
enforceable to the extent provided in Sections 10.4 and 10.5
hereof at law or in equity for the period beginning on the
date of Closing and ending three (3) years thereafter and
except for the representations, warranties, and agreements
designated and identified in Sections 5.1, 5.2, 5.3, the
first sentence of 5.5, the first sentence of 5.8, 6.1, the
first two sentences of 6.2, 7.1, the first two sentences of
7.2, and the last sentence of 7.3 which shall survive the
Closing and shall terminate in accordance with the statutes
of limitation governing written contracts and Exhibits "D,"
"D-1," "D-2," "E," "E-1," "E-2," "E-3," "E-4," and "E-5"
which shall terminate as provided therein.
10.2 Reliance Upon and Enforcement of Representations,
Warranties and Agreements of CSI Shareholders and CSI. Each
CSI Shareholder and CSI hereby agrees that, notwithstanding
any right of Subsidiary to fully investigate the affairs of
CSI, and notwithstanding knowledge of facts determined or
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determinable by Subsidiary pursuant to such investigation or
right of investigation, Subsidiary has the right to rely
fully upon the representations, covenants, warranties and
agreements of CSI and each CSI Shareholder contained in this
Agreement and upon the accuracy of any document, certificate
or exhibit given or delivered to Subsidiary pursuant to the
provisions of this Agreement.
10.3 Reliance Upon and Enforcement of Representations,
Warranties and Agreements of Subsidiary and/or Pomeroy.
Subsidiary and/or Pomeroy hereby agrees that,
notwithstanding any right of CSI Shareholders to fully
investigate the affairs of the Subsidiary and/or Pomeroy,
and notwithstanding knowledge of facts determined or
determinable by CSI Shareholders pursuant to such
investigation or right of investigation, CSI Shareholders
have the right to rely fully upon the representations,
covenants, warranties and agreements of Subsidiary and/or
Pomeroy contained in this Agreement and upon the accuracy of
any document, certificate or exhibit given or delivered to
CSI Shareholders pursuant to the provisions of this
Agreement.
10.4 Indemnification by CSI Shareholders. Each CSI
Shareholder (jointly and severally) shall indemnify
Subsidiary 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 CSI or any CSI Shareholder
herein or in any other agreement, instrument or document
delivered by CSI and any CSI Shareholder pursuant to the
terms of this Agreement; and
(ii) any and all reasonable costs and expenses
(including reasonable legal and accounting fees) related to
any of the foregoing, subject to the provisions of Section
10.6.
10.5 A. Indemnification by Subsidiary. Subsidiary
agrees to defend, indemnify and hold harmless the CSI
Shareholders from, against and in respect of (a) any and all
liabilities, losses, damages, deficiencies or expenses
resulting from or arising out of an inaccuracy in or other
breach of any representation, warranty, covenant, or
obligation made or incurred by Subsidiary herein or in any
other agreement, instrument or document delivered by
Subsidiary pursuant to the terms of this Agreement, and (b)
any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including
reasonable attorneys' fees, related to any of the foregoing.
The CSI Shareholders are not required to commence litigation
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or take any other action against any third party prior to
making a claim against Subsidiary hereunder.
B. Indemnification by Pomeroy. Pomeroy agrees
to defend, indemnify and hold harmless the CSI Shareholders
from, against and in respect of (a) any and all liabilities,
losses, damages, deficiencies or expenses resulting from any
misrepresentation or breach of warranty or non-fulfillment
of any agreement by Pomeroy in connection herewith or
inaccuracy in or other breach of any representation,
warranty, covenant or obligation made or incurred by
Subsidiary and Pomeroy pursuant to Sections 2.3, 6, 7,
12.02 and 12.15 of this Agreement (including without
limitation the attached exhibits, schedules and documents to
which Pomeroy is a party) or as provided herein, unless
waived in writing by CSI Shareholders, and (b) any and all
actions, suits, proceedings, claims, demands, assessments,
judgments, costs and expenses, including reasonable
attorneys' fees, related to any of the foregoing. The CSI
Shareholders are not required to commence litigation or take
any other action against any third party prior to making a
claim against Pomeroy hereunder.
10.6 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
CSI Shareholders on the one hand, or Subsidiary or Pomeroy,
as applicable, on the other hand, may have an obligation to
indemnify the other, the party asserting such right to
indemnity (the "Party to be Indemnified") shall give or
cause to be given to the party from whom indemnity is sought
(the "Indemnifying Party") written notice thereof and the
Indemnifying Party shall have the right, at its option and
expense, to participate in the defense of such proceeding,
claim or demand, but not to control the defense, negotiation
or settlement thereof, which control shall at all times rest
with the Party to be Indemnified, unless the Indemnifying
Party irrevocably acknowledges in writing full and complete
responsibility for and agrees to provide indemnification of
the Party to be Indemnified, in which case such Indemnifying
Party may assume such control through counsel of its choice
and at its expense. In the event the Indemnifying Party
assumes control of the defense, the Indemnifying Party shall
not be responsible for the legal costs and expenses of the
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Party to be Indemnified in the event the Party to be
Indemnified decides to join in such defense. The parties
hereto agree to cooperate fully with each other in
connection with the mitigation, defense, negotiation or
settlement of any such third party legal proceeding, claim
or demand.
(b) If the Party to be Indemnified is also the
party controlling the defense, negotiation or settlement of
any matter, and if the Party to be Indemnified determines to
compromise the matter, the Party to be Indemnified shall
immediately advise the Indemnifying Party of the terms and
conditions of the proposed settlement. If the Indemnifying
Party agrees to accept such proposal, the Party to be
Indemnified shall proceed to conclude the settlement of the
matter, and the Indemnifying Party shall immediately
indemnify the Party to be Indemnified pursuant to the terms
of Sections 10.4 and 10.5 hereunder, subject to the
limitations set forth elsewhere in this Section 10. If the
Indemnifying Party does not agree within fourteen (14) days
to accept the settlement (said 14-day period to begin on the
first business day following the date such party receives a
complete copy of the settlement proposal), the Indemnifying
Party shall immediately assume control of the defense,
negotiation or settlement thereof, at that Indemnifying
Party's expense. Thereafter, the Party to be Indemnified
shall be indemnified in the entirety for any liability
arising out of the ultimate defenses, negotiation or
settlement of such matter.
(c) If the Indemnifying Party is the party
controlling the defense, negotiation or settlement of any
matter, and the Indemnifying Party determines to compromise
the matter, the Indemnifying Party shall immediately advise
the Party to be Indemnified of the terms and conditions of
the proposed settlement and irrevocably acknowledge in
writing full and complete responsibility for, and agree to
provide, indemnification of the Party to be Indemnified. If
the Party to be Indemnified agrees to accept such proposal,
the Indemnifying Party shall proceed to conclude the
settlement of the matter and immediately indemnify the Party
to be Indemnified pursuant to the terms of Sections 10.4 or
10.5 hereunder. If the Party to be Indemnified does not
agree within fourteen (14) days to accept the settlement
(said 14-day period to begin on the first business day
following the date such party receives a complete copy of
the settlement proposal), the Party to be Indemnified shall
immediately assume control of the defense, negotiation or
settlement thereof, at the Party to be Indemnified's
expense. If the final amount paid to resolve the claim is
less than the amount of the original proposed settlement
made by the Indemnifying Party, then the Party to be
Indemnified shall receive such indemnification pursuant to
Sections 10.4 or 10.5 hereof, including any and all expenses
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incurred by the Party to be Indemnified incurred in
connection with the defense, negotiation or settlement of
such matter. If the amount finally paid to resolve the
claim is equal to or greater than the amount of the original
proposed settlement proposed by the Indemnifying Party, then
the Indemnifying Party shall provide indemnification
pursuant to Sections 10.4 and 10.5 for the amount of the
original settlement proposal submitted by the Indemnifying
Party, and the Party to be Indemnified shall be responsible
for all amounts in excess of the original settlement
proposal submitted by the Indemnifying Party and all costs
and expenses incurred by the Party to be Indemnified in
connection with such defense, negotiation or settlement.
10.7 Provisions of General Application. With respect
to any right of indemnification arising under this
Agreement, the following provisions shall apply:
(a) Procedures. The Party to be Indemnified and
the Indemnifying Party agree to cooperate in the defense of
any third party claim or action subject to this Section 10,
to permit the cooperation and participation of the other
parties in any such claim or action, and to promptly notify
the other parties of the occurrence of any indemnified event
or any material developments or amounts due respecting any
indemnification event.
(b) No Implications. Neither the rights of any
party to indemnification from another party nor the
obligations of any party to indemnify another party, under
this Agreement, shall in any way imply or create, and each
party specifically disclaims, any responsibility whatsoever
by such party for any other party's liabilities to any other
person or entity or governmental body.
(c) Insurance. Prior to enforcing any claim for
indemnification against the indemnifying parties under this
Agreement, the indemnified parties shall administratively
file in good faith with any insurers all forms and
submissions required by applicable policies for the proceeds
of other benefits of insurance coverage, if any, applicable
to the claim or event from which such indemnification right
arose. In the event that insurance proceeds are paid to the
Party to be Indemnified respecting an event to which an
indemnification right applies hereunder, such
indemnification right shall apply only to the extent that
the amount of damages indemnified against exceeds such
insurance proceeds actually paid to the Party to be
Indemnified; provided however, that: (a) such insurance
proceeds shall not affect or be applied towards the maximum
liability established in Section 10.8 and (b) collection by
judicial or legal process of such insurance proceeds shall
not be a condition precedent to asserting or collecting such
indemnification claims under this Agreement. If the
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Indemnifying Party incurs indemnity costs or pays indemnity
damages under this Agreement, and the Party to be
Indemnified subsequently receives insurance proceeds for the
same claim or event, then the Party to be Indemnified shall
refund such indemnity costs or damage payments to the
Indemnifying Party from such insurance proceeds to the
extent that the Party to be Indemnified has received
benefits from both sources (i.e., payments of indemnify
damages from the Indemnifying Party and such insurance
proceeds) in excess of the amount of indemnity damages
incurred by or asserted against the Party to be Indemnified.
(d) Mitigation. The Party to be Indemnified shall
use its good faith efforts to mitigate any claim or loss by
any third party hereunder and the Indemnifying Party shall
be entitled to participate in and coordinate with the Party
to be Indemnified such mitigation.
10.8 A. Limitations. Notwithstanding anything
herein to the contrary, no claims for indemnification shall
be made by Subsidiary and/or Pomeroy against the CSI
Shareholders until such time as all claims hereunder, net of
income tax benefit realized and/or realizable by
CSI/Subsidiary and/or Pomeroy total more than Twenty
Thousand Dollars ($20,000.00) in the aggregate and then
indemnification shall be made only to the extent that such
claim or claims exceed Twenty Thousand Dollars ($20,000.00)
in the aggregate. In addition, notwithstanding anything
contained herein to the contrary, the maximum aggregate
liability that the CSI Shareholders may be collectively
required to pay Subsidiary or Pomeroy under this Section 10,
or as a result of any other provision of this Agreement as a
result of any and all breaches, if any, of representations
or warranties hereunder, or as a result of any and all
defaults of any covenants hereunder, shall be limited to an
amount equal to the total consideration paid hereunder, One
Million Four Hundred Thousand Dollars ($1,400,000.00), as
may be adjusted upward or downward pursuant to the
provisions of Sections 2.2(c) and 2.3 of this Agreement. In
addition, the maximum liability that any CSI Shareholder may
be individually required to pay Subsidiary or Pomeroy under
this Section 10 shall not exceed an amount equal to such CSI
Shareholder's proportionate share of the total consideration
paid hereunder, as may be adjusted as set forth above.
B. Notwithstanding anything to the contrary in
this Agreement, the maximum aggregate amount that Subsidiary
and Pomeroy may be collectively required to pay to the CSI
Shareholders hereunder, or as a result of any other
provision of this Agreement as a result of any and all
breaches, if any, of representations or warranties
hereunder, or as a result of any and all defaults of any
covenants hereunder, shall be limited to an amount equal to
the total consideration paid hereunder, One Million Four
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Hundred Thousand Dollars ($1,400,000.00), as may be adjusted
upward or downward pursuant to the provisions of Sections
2.2(c) and 2.3 of this Agreement.
10.9 Assignment and Accounting for Benefits. To the
extent that the Indemnifying Party shall have actually paid
indemnity damages to or on behalf of the Party to be
Indemnified, the Party to be Indemnified shall make a non-
exclusive assignment (to the extent permitted under
applicable law) to the Indemnifying Party (as their interest
may appear) of the remedies, rights and claims, if any, of
the Party to be Indemnified against any and all third
parties for the same liability, including, but not limited
to, remedies, rights and claims against (i) liability
insurers and other insurance companies, (ii) any other
person which has indemnified the Party to be Indemnified for
such liability, and (iii) account debtors for any account
receivable for which the CSI Shareholders incur liability,
if any, under Section 5.8.1. The parties shall cooperate
reasonably in the pursuit of any such remedies, rights and
claims.
For purposes of Section 10.8(a) ($20,000 basket
amount) and/or for purposes of indemnification hereunder,
the amount of any indemnification claim shall be reduced by
the effect of any income tax benefit realized and/or
realizable by CSI and/or Subsidiary/Pomeroy. For purposes
hereof, a marginal rate of forty percent (40%) shall be
utilized.
10.10 Exclusive Remedy. Anything contained in
this Agreement or the Related Agreements to the contrary
notwithstanding, the indemnification rights set forth in
this Section 10, all of which are subject to the terms,
limitations, and restrictions of this Section 10, shall be
the exclusive remedy after Closing against the CSI
Shareholders and/or Subsidiary or Pomeroy for monetary
damages sustained as a result of a breach of a
representation, warranty, covenant, or agreement under this
Agreement. Such limitations set forth in this Section 10
shall not impair the rights of any of the parties: (a) to
seek non-monetary equitable relief, including (without
limitation) specific performance or injunctive relief to
redress any default or breach of this Agreement; or (b) to
seek enforcement, collection, damages, or such non-monetary
equitable relief to redress any subsequent default or breach
of any employment agreement, non-competition agreement,
transfer document, assumption, consent, or agreement to be
delivered at Closing hereunder. In connection with the
seeking of any non-monetary equitable relief, each of the
parties acknowledges and agrees that the other parties
hereto would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached.
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Accordingly, each of the parties hereto agrees the other
parties hereto shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any competent court having
jurisdiction over the parties.
10.11 Optional Method of Payment. Any CSI
Shareholder shall be entitled, at his option, to pay or
reimburse the Party to be Indemnified for up to fifty
percent (50%) of his portion of any indemnity claim by
transferring to the Party to be Indemnified shares of
Pomeroy Stock retained by such CSI Shareholder at the time
(if any). For purposes of this option method of payment for
an indemnify claim, the value of the shares of Pomeroy Stock
shall be based on the average of the closing price of the
Pomeroy Stock as reported on the NASDAQ Exchange for the
twenty (20) trading days immediately preceding the third day
before the date of transfer of such shares.
SECTION 11. CLOSING
11.1 Closing Date and Effective Date, Consummation of
the transactions contemplated hereby (the "Closing") shall
take place on October 17, 1997 at 5:00 p.m., at the offices
of Lindhorst & Dreidame Co., L.P.A., 312 Walnut Street,
Suite 2300, Cincinnati, Ohio or on such other Closing Date,
at such other time and/or place as the parties may mutually
agree upon. The parties shall certify, execute and
acknowledge the Plan of Merger to comply with applicable
laws and filing requirements. The date of such
certification, execution and acknowledgment shall be the
Closing Date. On the Closing Date, an executed counterpart
of the Articles of Merger and the Plan of Merger shall be
filed with Secretary of State of South Carolina and the
merger shall become effective upon the completion of such
filing. The date of such filing shall be the Effective
Date.
11.2 Conditions Precedent to Subsidiary's/Pomeroy's
Obligations. The obligations of Subsidiary and/or Pomeroy
to perform in accordance with this Agreement and to
consummate the transactions herein contemplated are subject
to the satisfaction of the following conditions at or before
closing:
(a) The CSI Shareholders and CSI shall have
complied with and performed all the agreements and covenants
hereunder required to be performed by them prior to or at
the Closing;
(b) At the Closing Date, there shall be in effect
no order or decree of any court or governmental body which
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(i) shall prohibit the merger, (ii) shall materially and
adversely affect the right of Subsidiary to own the assets
of CSI and to control the operations of CSI or (iii) prevent
the Subsidiary from operating its acquired business in the
normal course;
(c) CSI Shareholders shall have procured any
required approval and/or consents.
(d) The assets of CSI taken as a whole shall not
have been substantially damaged or destroyed if such damage
or destruction is not adequately covered by insurance; CSI
shall not have suffered any extraordinary losses.
(e) Since August 31, 1997, there has been no
material adverse change in the operations of CSI.
(f) CSI Shareholders shall deliver to Subsidiary,
at or before the Closing, the following documents, all of
which shall be in form and substance reasonably acceptable
to Subsidiary and its counsel:
(i) A certificate or certificates for all of
CSI Shares. Such certificate(s) shall be in form for
transfer, duly endorsed in blank by CSI Shareholders, or
with appropriate duly executed stock transfer powers
attached. Such shares shall be cancelled immediately upon
the Effective Date;
(ii) Opinion letter of Nexsen Pruet Jacobs
and Pollard, LLP, counsel for CSI and the CSI Shareholders,
addressed to Subsidiary and dated the Closing Date,
containing the opinions set forth on Exhibit "H";
(iii) All minute books, stock
certificates and transfer books, contracts, policies of
insurance, tax returns, records of every kind and nature and
all other documents and writings belonging or relating to
CSI and its corporate organization, business and assets;
(iv) Certificates, dated as of the most
recent practicable date, of the Secretary of State and
Department of Revenue and Taxation of South Carolina as to
the good standing of CSI;
(v) The Disclosure Schedule;
(vi) Copies of the Articles of Incorporation
and By Laws of CSI, certified as true and correct by CSI
Shareholders;
(vii) Such resignations of officers and
directors of CSI as Subsidiary may request; and
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(viii) Such other documents which
Subsidiary reasonably deems necessary to effectuate this
Agreement.
(g) Each CSI Shareholder shall have entered into
the Covenant Not to Compete Agreements set forth in Exhibits
"D", "D-1" and "D-2", respectively.
(h) Each CSI Shareholder shall have entered into
an Employment Agreement with Subsidiary as set forth on
Exhibits "E," "E-1" and "E-2," respectively.
(i) Each CSI Shareholder shall have entered into
an Investor's Certificate as set forth in Exhibit "C"
regarding the holding of Pomeroy Shares.
11.3 Conditions Precedent to CSI Shareholders' and
CSI's Obligation. The obligations of CSI Shareholders and
CSI to perform in accordance with this Agreement and to
consummate the transactions herein contemplated are subject
to the satisfaction of the following conditions at or before
the Closing:
(a) The performance by Subsidiary/Pomeroy of all
the agreements and covenants to be performed by
Subsidiary/Pomeroy, respectively, at or before the Closing.
(b) At the Closing Date there shall be in effect
no order or decree of any court or governmental body which
(i) shall prohibit the merger, (ii) shall materially and
adversely affect the right of the CSI Shareholders to
exchange the CSI Common Stock and grant to Subsidiary
pursuant to the merger, the right to acquire all of the
assets of CSI, or (iii) prevents the Subsidiary from
operating its acquired business in the normal course.
(c) Subsidiary/Pomeroy shall have procured any
necessary consents, and in particular, the approval of
Pomeroy's lender shall have been obtained.
(d) Subsidiary shall deliver to CSI Shareholders
at or before the Closing the following documents, all of
which shall be in form and substance acceptable to CSI
Shareholders and its counsel:
(i) A certified or cashier's check for the
aggregate amount to be paid to each CSI Shareholder at the
Closing pursuant to Section 2.2 hereof;
(ii) Stock certificates of Pomeroy Stock
pursuant to Section 2.1 hereof.
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(iii) Certified copies of the corporate
actions taken by Pomeroy and Subsidiary authorizing the
execution, delivery and performance of this Agreement;
(iv) A Certificate of Good Standing for
Subsidiary from the Secretary of State of South Carolina
dated no earlier than forty-five (45) days prior to the
Closing Date;
(v) A Certificate of Good Standing for
Pomeroy from the Secretary of State of Delaware dated no
earlier than forty-five (45) days prior to the Closing Date;
(vi) Opinion letter of Lindhorst & Dreidame
Co., L.P.A., counsel for Pomeroy and Subsidiary, addressed
to CSI Shareholders and dated the Closing Date, containing
the opinions set forth in Exhibit "I."
(vii) The Escrow Agreement together with
delivery to the Escrow Agents of the Pomeroy Stock and cash
required thereby.
(e) Subsidiary shall have entered into the
Employment Agreements with the CSI Shareholders as set
forth on Exhibit "E-1," "E-2" and "E-3," respectively,
guaranteed by Pomeroy as set forth on Exhibits "E-4," "E-5,"
and "E-6."
(f) A copy of the resolution of the newly
constituted Board of Directors of Subsidiary, certified by a
duly authorized officer of Subsidiary, authorizing the
execution, delivery and performance by Subsidiary of the
Employment Agreements.
(g) There shall be no materially adverse event or
condition effecting Pomeroy or the Pomeroy Stock.
SECTION 12. GENERAL PROVISIONS
12.01 Further Documents. The Parties will, upon
request at any time before or after Closing, execute,
deliver and/or furnish all such documents and instruments,
and do or cause to be done all such acts and things, as may
be reasonably necessary to carry out the purpose and intent
of this Agreement.
12.02 Publicity. All public announcements relating
to this Agreement or the transaction contemplated thereby
will be by Subsidiary with the consent of the CSI
Shareholders which consent will not be unreasonably
withheld, except for any disclosure which may be required
because of Pomeroy being a publicly traded corporation on
the NASDAQ.
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12.03 Expenses. Except for expenses related to the
merger which are accrued on the Closing Balance Sheet or to
the extent otherwise specifically provided herein,
Subsidiary will bear and pay all of its expenses incident to
the transactions contemplated by this Agreement which are
incurred by Subsidiary or its representatives and CSI
Shareholders shall bear and pay all of the expenses incident
to the transactions contemplated by this Agreement which
were incurred by CSI Shareholders or its representatives.
12.04 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 Subsidiary, to: c/o Pomeroy
Computer Resources, Inc.
1020 Petersburg Road
Hebron, KY 41048
(b) If to Pomeroy, to: Pomeroy Computer
Resources, Inc.
1020 Petersburg Road
Hebron, KY 41048
With a copy to: James H. Smith III,
Esq.
Lindhorst & Dreidame Co.,
L.P.A.
312 Walnut Street, Suite
2300
Cincinnati, OH 45201-
4091
(c) If to CSI Shareholders, to: Arthur M. Cox
312 Stamford Bridge Road
Columbia, SC 29212
Ronald D. Hildreth
225 Mariners Row
Columbia, SC 29212
Jeffrey F. Hipp
4 Medina Court
Columbia, SC 29223
With a copy to: G. Marcus Knight
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Nexsen Pruet Jacobs &
Pollard, LLP
1441 Main Street, Suite
1500
P.O. Drawer 2426
Columbia, SC 29202
12.05 Binding Effect. Except as may be otherwise
provided herein, this Agreement and all provisions hereof
shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, legal
representatives, successors and assigns. 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 parties.
12.06 Headings. The headings in this Agreement are
intended solely for the convenience of reference and shall
be given no effect in the construction or interpretation of
this Agreement.
12.07 Schedules and Exhibits. Schedules and
exhibits referred to in this Agreement constitute and
integral part of this Agreement as if fully rewritten
herein.
12.08 Counterparts. Counterparts of this Agreement
may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which constitute
together one and the same document.
12.09 Governing Law. This Agreement shall be
construed in accordance with and governed by the laws of the
State of South Carolina.
12.10 Severability. If any provision of this
Agreement shall be held unenforceable, invalid or void to
any extent for any reason, such provision shall remain in
force and effect to the maximum extent allowable, if any,
and the enforceability or validity of the remaining
provisions of this Agreement shall not be affected thereby.
12.11 Waivers, Remedies Accumulated. No waiver of
any right or option hereunder by any Party shall operate as
a waiver of any other right or option, for 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 or 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.
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<PAGE>
12.12 Entire Agreement. This Agreement and the
agreements, instruments and other documents to be delivered
hereunder constitute the entire understanding and agreement
concerning the subject matter hereof. All negotiations
between the Parties hereto are merged into this Agreement,
and there are no representations, warranties, covenants,
understanding or agreements, oral or otherwise, in relation
thereto between the Parties other than those incorporated
herein and to be delivered hereunder. Except as otherwise
expressed or contemplated by this Agreement, nothing
expressed or implied in this Agreement is intended or shall
be construed so as to grant or refer on any person, firm or
corporation other than the Parties hereto any rights or
privileges hereunder. No supplement, modification or
amendment of this Agreement shall be binding unless executed
in writing by the Parties hereto.
12.13 Business Records. CSI Shareholders shall be
permitted to retain copies of such books and records
relating to the business of CSI as related to the accounting
and tax matters of the business, and have access to all
original copies of records so delivered to Subsidiary at
reasonable times, for any reasonable business purpose, for a
period of six years after the Closing Date.
12.14 Construction of Agreement. In the event this
Agreement is interpreted by any court of competent
jurisdiction, no Party shall be deemed the drafter of this
Agreement and such court of law shall not construe this
Agreement or any provision thereof against any Party as the
drafter thereof.
12.15 Release of CSI Shareholders Guarantees. At
the closing or as soon thereafter as reasonably possible,
Subsidiary shall procure the release of the CSI Shareholders
from their guarantees, if any, of CSI's obligation to IBM
Credit Corporation and Deutsche Financial Services
Corporation.
IN WITNESS WHEREOF, the Parties hereto have caused this
Agreement and Plan of Reorganization to be duly executed as
of the day and year first above written.
SUBSIDIARY:
POMEROY COMPUTER RESOURCES OF
SOUTH CAROLINA, INC.
By:____________________________________
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<PAGE>
Title:____________________________________
POMEROY COMPUTER RESOURCES,
INC.
By:____________________________________
Title:____________________________________
THE COMPUTER STORE, INC.
By:____________________________________
ARTHUR M. COX
President
_______________________________________
ARTHUR M. COX
_______________________________________
RONALD D. HILDRETH
_______________________________________
JEFFREY F. HIPP
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<PAGE>
PLAN OF MERGER
OF
THE COMPUTER STORE, INC.
INTO
POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC.
OCTOBER 17, 1997
This instrument constitutes the Plan of Merger (this
"Plan") for the merger (the "Merger") of THE COMPUTER STORE,
INC., a South Carolina corporation ("CSI"), with and into
POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South
Carolina corporation ("PCRSC"). PCRSC and CSI are
sometimes hereinafter collectively referred to as the
"Constituent Corporations" and singularly as a "Constituent
Corporation."
RECITALS
A. CSI is a corporation duly organized and existing
under the laws of the State of South Carolina with
authorized capital of 100,000 shares of common stock ("CSI
Common Stock"), of which 16,000 shares of CSI Common Stock
are issued and outstanding (the "CSI Shares").
B. PCRSC is a corporation duly organized and existing
under the laws of the State of South Carolina with
authorized capital of 1,000 shares of common stock, of which
100 shares are issued and outstanding. PCRSC is a wholly-
owned subsidiary of Pomeroy Computer Resources, Inc.
("Parent"), a corporation duly organized and existing under
the laws of the State of Delaware. The common stock of
Parent is hereafter referred to as "Parent Common Stock."
C. This Plan shall be part of that certain definitive
Agreement and Plan of Reorganization, dated October 17,
1997, by and among PCRSC, CSI and the shareholders of CSI
(the "Merger Agreement"), setting forth the respective
rights and obligations of such parties in connection with
the adoption and implementation of this Plan. This Plan is
made, executed and delivered pursuant to the Merger
Agreement, and is subject to all the terms, provisions and
conditions thereof. To the extent of any conflict between
the terms hereof and thereof, the terms of the Merger
Agreement shall be controlling. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to
them in the Merger Agreement unless the context clearly
requires otherwise.
D. The Merger shall be implemented as provided herein
upon the approval of the Board of Directors of each
Constituent Corporation and Parent, and the owners of record
of at least the number of the outstanding shares of each
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Constituent Corporation required by the state corporation
law applicable to such Constituent Corporation.
E. The parties intend that the transactions
contemplated hereby will qualify as a forward triangular
merger of CSI with and into PCRSC in a reorganization
pursuant to Internal Revenue Code Sections 368(a)(1)(A) and
368(a)(2)(D).
TERMS OF MERGER
1. The Merger. On and subject to the terms and
conditions of the Merger Agreement, on the Effective Date
(as defined in Section 2), CSI shall be merged with and into
PCRSC (the "Merger"), the separate corporate existence of
CSI shall thereupon cease, and PCRSC shall be the surviving
corporation in the Merger (the "Surviving Corporation").
The Surviving Corporation shall, from and after the
Effective Date, possess all the rights, privileges, powers
and franchises of whatsoever nature and description, whether
of a public or private nature, and be subject to all the
restrictions, disabilities and duties of each of the
Constituent Corporations; and all rights, privileges, powers
and franchises of each of the Constituent Corporations, and
all property, tangible and intangible, real, personal and
mixed, and debts due to either of the Constituent
Corporations on whatever account as well as all other things
in action or belonging to each of the Constituent
Corporations shall be vested in the Surviving Corporation;
and all property, rights, privileges, powers and franchises,
and all and every other interests shall be thereafter the
property of the Surviving Corporation, and the title to any
real estate vested by deed or otherwise in any of the
Constituent Corporations shall not revert or be in any way
impaired by reason of the Merger. All rights of creditors
and all liens upon the property of the Constituent
Corporations shall be preserved unimpaired, and all debts,
liabilities and duties of the Constituent Corporations shall
thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts,
liabilities and duties had been incurred or contracted by
it. Any claim existing or action or proceeding, whether
civil, criminal or administrative, pending by or against
either Constituent Corporation may be prosecuted to judgment
or decree as if the Merger had not taken place, or the
Surviving Corporation may be substituted in such action or
proceeding. The foregoing shall not limit the effects of
the Merger as set forth in Section 33-11-106 of the South
Carolina Business Corporations Act of 1988, as amended (the
"Corporations Act").
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<PAGE>
2. Effective Date. At the time of the Closing, PCRSC
shall cause Articles of Merger (the "Articles of Merger") to
be duly executed and filed with the Secretary of State of
the State of South Carolina as provided under the
Corporations Act. The Merger shall become effective as soon
as practicable after the Closing on the time and date
specified in the Articles of Merger, and in no event later
than four (4) days after the Closing and such time is herein
referred to as the "Effective Date".
3. Parent Common Stock. Parent shall make available
to PCRSC a sufficient number of shares of Parent Common
Stock having such characteristics as are necessary to effect
the Merger as required herein.
4. Conversion and Exchange of Shares. The manner of
converting and exchanging shares of the Constituent
Corporations participating in the Merger shall be as
follows: Each share of CSI common stock issued and
outstanding immediately prior to the Effective Date
exclusive of shares held in the treasury of CSI, upon the
Effective Date, shall, without any action on the part of
Parent, PCRSC or any holder of such shares, be converted by
the Merger into (a) 1.55319 shares of Parent Common Stock
and (b) Forty-three and 749814/1,000,000 Dollars (43.749814)
in cash. Each holder of a stock certificate or certificates
representing outstanding shares of CSI's common stock
immediately prior to the Effective Date, upon surrender of
such certificate or certificates to the Surviving
Corporation after the Effective Date, shall be entitled to
receive a stock certificate or certificates representing the
number of shares of the Parent Common Stock to which he is
entitled. Until so surrendered, each such stock certificate
shall, by virtue of the Merger, be deemed, for all purposes,
to evidence ownership of such number of shares of the Parent
Common Stock to which he is entitled.
5. Articles of Incorporation. The Articles of
Incorporation of PCRSC in effect immediately prior to the
Effective Date shall be and remain the Articles of
Incorporation of the Surviving Corporation, until duly
amended in accordance with the terms thereof and applicable
state corporation law.
6. Bylaws. The Bylaws of PCRSC in effect immediately
prior to the Effective Date shall be and remain the Bylaws
of the Surviving Corporation, until duly amended in
accordance with the terms thereof and applicable state
corporation law.
7. Directors. The directors of PCRSC immediately
prior to the Effective Date shall be and remain the
directors of the Surviving Corporation at and as of the
Effective Date until their successors shall have been duly
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<PAGE>
elected and appointed and qualified in accordance with the
Surviving Corporation's Articles of Incorporation and
Bylaws. The directors of CSI shall cease to be directors of
any Constituent Corporation immediately prior to the
Effective Date.
8. Officers. The officers of PCRSC immediately prior
to the Effective Date shall be and remain the officers of
the Surviving Corporation at and as of the Effective Date
(retaining their respective positions and terms of office)
until their successors have been duly elected or appointed
and qualified in accordance with the Surviving Corporation's
Bylaws. The officers of CSI shall cease to be officers of
any Constituent Corporation immediately prior to the
Effective Date.
9. Subsequent Actions. If, at any time after the
Effective Date, the Surviving Corporation shall consider or
be advised that any deeds, affidavits of corporate name
change, bills of sale, assignments, assurances or any other
actions or things may be necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any
of the rights, properties or assets of the Constituent
Corporation acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf
of CSI all such deeds, affidavits of corporate name change,
bills of sale, assignments and assurances and to take and
do, in the name and on behalf of CSI, all such other actions
and things as may be necessary or desirable to vest, perfect
or confirm any and all right, title and interest in, to and
under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Plan.
IN WITNESS WHEREOF, the Constituent Corporations have
executed this Plan of Merger as the parties hereto to be
legally binding and effective as of the ____ day of
__________, 1997.
CONSTITUENT CORPORATIONS
THE COMPUTER STORE, INC. POMEROY
COMPUTER RESOURCES
OF SOUTH CAROLINA,
INC.
By:_____________________________
By:_____________________________
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<PAGE>
Title:____________________________
Title:____________________________
??
92180-3
E-142
<PAGE>
ARTICLES OF MERGER OF DOMESTIC CORPORATIONS
FOR THE MERGER OF
THE COMPUTER STORE, INC.
INTO
POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC.
Pursuant to Sections 33-11-101 of the South Carolina
Business Corporation Act of 1988, as amended, the
undersigned domestic corporations adopt the following
Articles of Merger for the purpose of merging into a single
corporation:
1. Constituent Corporations. The names of the undersigned
constituent corporations and the states under the laws of
which each is organized are:
Name of Corporation State of Incorporation
The Computer Store, Inc.
South Carolina
Pomeroy Computer Resources of South Carolina, Inc.
South Carolina
2. Statutory Merger. The laws of the state under which
each corporation is organized permit such a merger.
3. Surviving Corporation. The name of the surviving
corporation is Pomeroy Computer Resources of South Carolina,
Inc. and it is to be governed by the laws of the State of
South Carolina.
4. Plan of Merger. The filing of these Articles of
Merger shall merge The Computer Store, Inc. into Pomeroy
Computer Resources of South Carolina, Inc., and convert the
outstanding shares of the capital stock of The Computer
Store, Inc. and the outstanding shares of the capital stock
of Pomeroy Computer Resources of South Carolina, Inc., all
in accordance with the Plan of Merger, which was duly
adopted by the respective Board of Directors and
shareholders of The Computer Store, Inc. and Pomeroy
Computer Resources of South Carolina, Inc., a copy of which
is attached hereto as Exhibit "A" and made a part hereof
(the "Plan of Merger").
5. Adoption by Acquired Corporation. The Plan of Merger
was duly approved by the shareholders of The Computer
Store, Inc. on October ___, 1997, in the manner prescribed
by the laws of the State of South Carolina as follows:
Voting Group
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<PAGE>
Number of Outstanding Shares
Number of Votes Entitled to Be Cast
Number of Shares Represented at the Meeting
Number of Undisputed Shares Voted
For Against
Common*
16,000
16,000
16,000
16,000 0
* The corporation has only one class of stock entitled to
vote on the merger.
6. Adoption by Surviving Corporation. The Plan of Merger
was duly approved by the sole shareholder of Pomeroy
Computer Resources of South Carolina, Inc. on October ___,
1997, in the manner prescribed by the laws of the State of
South Carolina as follows:
Voting Group
Number of Outstanding Shares
Number of Votes Entitled to Be Cast
Number of Shares Represented at the Meeting
Number of Undisputed Shares Voted
For Against
Common*
100
100
100
100 0
* The corporation has only one class of stock entitled to
vote on the merger.
7. Authorizing Law. The Plan of Merger and the
transactions contemplated therein were unanimously approved
by the shareholders of both of the constituent corporations
as required by Chapter 11 of the South Carolina Business
Corporations Act of 1988, as amended. Since all issued and
outstanding shares of stock of each constituent corporation
were voted in favor of the merger, no dissenters rights are
applicable.
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<PAGE>
8. Effective Time. These Articles and Certificate
of Merger shall be effective at 5:00 p.m. local time on the
day filed with the Secretary of State of South Carolina.
Date:_________________, 1997 THE COMPUTER STORE,
INC.
By:________________________________
Title:________________________________
POMEROY COMPUTER
RESOURCES OF SOUTH
CAROLINA, INC.
By:________________________________
Title:________________________________
EXHIBIT "A"
PLAN OF MERGER
See attached.
??
LD 92294-2
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POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of this ____ day of _________,
1997, by and between POMEROY COMPUTER RESOURCES OF SOUTH
CAROLINA, INC., a South Carolina corporation ("Company"),
and JEFFREY F. HIPP ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has exchanged 1,000 shares of the
common capital stock of The Computer Store, Inc., a South
Carolina corporation ("CSI") pursuant to an Agreement and
Plan of Reorganization ("Plan") of even date pursuant to
Section 368(a)(2)(D) of the Internal Revenue Code whereby
CSI was acquired by a merger into Company in exchange for
certain stock of Pomeroy Computer Resources, Inc., a
Delaware corporation, ("PCR"), the parent corporation of
Company, and other consideration as set forth in the Plan;
and
WHEREAS, Employee, as inducement for and in
consideration of Company entering into the Plan, has agreed
to enter into and execute this Employment Agreement pursuant
to Section 4 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
17th day of October, 1997, and shall continue for a period
of one (1) year (October 17, 1997 to October 16, 1998)
unless terminated earlier pursuant to the provisions of
Section 10, provided that Sections 8, 9, 10(b), 11 if
applicable and 20 shall survive the termination of such
employment and shall expire in accordance with the terms set
forth therein.
3. Renewal Term. The term of Employee's employment
shall automatically renew for additional consecutive renewal
terms of one (1) year unless either party gives written
notice of his/its intent not to renew the terms of the
Agreement thirty (30) days prior to the expiration of the
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then expiring term. Employee's compensation for each
renewal term shall be determined by the Board of Directors
of the Company, provided, however, that Employee's
commission rate for any renewal term shall not be less than
the commission rate payable to him for the prior year.
4. Duties. Employee shall serve as Senior Marketing
Representative of the Company. Employee shall be
responsible to and report directly to the Vice President of
the 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 authorities as shall be
reasonably required to discharge such duty in a 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 without the
express written consent of Company.
5. Compensation. For all services rendered by the
Employee under this Agreement (in addition to other monetary
or other benefits referred to herein), compensation shall be
paid to Employee as follows:
(a) Commission: During the term of this
Agreement, Employee shall be paid a commission equal to
thirty-five percent (35%) of the gross profit on all Company
sales of computer hardware and software and related services
originated by Employee.
For purposes of this section, the term "gross
profit" shall mean the net sales of computer hardware,
software, and other products and services by Company that
are originated by Employee, less the cost of the goods and
services sold. In making such gross profit determination,
all gains and losses realized on the sale or other
disposition of Company's assets (other than in the ordinary
course of business) shall be excluded; all customers returns
or rebates that are made during such period shall be
subtracted along with all accounts receivable derived from
such sales that are written off as bad debt in accordance
with Company's accounting system. Said gross profit
determination shall be determined in good faith by the
Company's controller in accordance with generally accepted
accounting principles. Any commission earned hereunder
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shall be payable to Employee within fifteen (15) days after
the conclusion of the preceding month. It being the intent
of the parties to implement Employee's commission
compensation consistent with the prior methods of CSI in
compensating Employee in the manner set forth herein.
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 medical health and insurance coverage
maintained by or for the benefit of the Company on its
employees. Company and Employee shall each pay fifty
percent (50%) of the cost of such coverage.
(b) Retirement Plan - Employee shall participate,
after meeting eligibility requirements, in any qualified
retirement plans and/or welfare plans maintained by or for
the benefit of the Company during the term of this
Agreement. For purposes of eligibility in any qualified
retirement plans, Employee shall be given credit for prior
years of service with CSI.
Employee shall be responsible for any and all
taxes, owed, if any, on the fringe benefits provided to him
pursuant to this Section 6.
(c) Unpaid Leave. Employee shall be entitled each
year to unpaid leave of forty (40) days per year during the
term of this Agreement. Provided, however, such days shall
not be taken consecutively without the written consent of
Company.
7. Expenses. During the term of Employee's
employment hereunder, Employee shall be entitled to receive
prompt reimbursement for all other reasonable and customary
expenses incurred by Employee in fulfilling Employee's
duties and responsibilities hereunder, provided that such
expenses are incurred and accounted for in accordance with
the policies and procedures reasonably established by
Company.
8. Non-Competition. Employee expressly acknowledges
the provisions of Section 3 of the Plan relating to
Employee's covenant not to compete with Company.
Accordingly, such provisions of Section 3 are incorporated
herein by reference to the extent as if restated in full
herein. In addition to the consideration received under
this Agreement, Employee acknowledges that as one of three
owners of the common stock of CSI, he has received
substantial consideration pursuant to such Plan and that as
an inducement for, and in consideration of, Company and PCR
entering into the Plan and Company entering into this
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Agreement, Employee has agreed to be bound by such
provisions of Section 3 of the Plan. Accordingly, such
provisions of Section 3 and Exhibit D-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 non-public information" as such
phase 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 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 or by governmental agency), nor shall the
Employee make use of any such information for the benefit of
any person, firm, operation or other entity except the
Company and its subsidiaries or affiliates. The Employee's
obligation to keep all of such information confidential
shall be in effect during and for a period of five (5) years
after the termination of his employment; provided, however,
that the Employee will keep confidential and will not
disclose any trade secret or similar information protected
under law as intangible property (subject to the same
exceptions set forth in the parenthetical clause above) for
so long as such protection under law is extended.
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<PAGE>
(e) For purposes of this provision, the term
"Company's trade secrets" and "confidential information"
shall include such information of Company's parent company,
PCR, and any of their respective subsidiaries.
10. Termination.
(a) The Employee's employment with the Company may be
terminated at any time as follows:
(i) By the Employee at his discretion, upon sixty
(60) days written notice to Company;
(ii) By Employee's death;
(iii) By Employee's physical or mental
disability which renders Employee unable to perform his
duties hereunder;
(iv) By the Company, for cause upon three (3)
day's written notice to Employee. For purposes of this
Agreement, the term "cause" shall mean termination upon:
(i) the failure by Employee to substantially perform his
duties with the Company (other than any such failure
resulting from his incapacity due to physical or mental
illness), after a written demand for substantial performance
is delivered to him by the Company, which demand
specifically identifies the manner in which the Company
believes that he has not substantially performed his duties;
(ii) the engaging by Employee in wrongful 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 in
good faith that he has engaged in the conduct set forth
above in this Section 10(a)(iv) and specifying the
particulars thereof in detail, and Employee shall not have
cured such conduct to the reasonable satisfaction of the
Board within ten (10) days of receipt of such resolution.
(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 any commissions
accrued to the date of his termination.
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<PAGE>
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 the
sum of Seventy-Two Thousand Dollars ($72,000) for a period
of one (1) year following the initial date of such
disability (offset by any payments to the Employee received
pursuant to disability benefit plans, if any, maintained by
the Company.) Such payments shall be payable in twelve
consecutive equal monthly installments and shall commence
thirty (30) days after the determination by the physicians
of such disability as set forth below.
For purposes of this Agreement, Employee shall be
deemed to be temporarily disabled and/or totally and
permanently disabled if attested to by two qualified
physicians, (one to be selected by Company and the other by
Employee) competent to give opinions in the area of the
disabled Employee's physical and/or mental condition. If
the two physicians disagree, they shall select a third
physician, whose opinion shall control. Employee shall be
deemed to be temporarily disabled and/or totally and
permanently disabled if he shall become disabled as a result
of any medically determinable impairment of mind or body
which renders it impossible for such Employee to perform
satisfactorily his duties hereunder, and the qualified
physician(s) referred to above certify that such 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 South Carolina
and shall not be modified or discharged, in whole or in
part, except by an agreement in writing signed by the
parties.
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<PAGE>
14. Notices. All notices, requests, demands and other
communications relating to this Agreement shall be in
writing and shall be deemed to have been duly given if
delivered personally or mailed by certified or registered
mail, return receipt requested, postage prepaid:
If to Company, to: Pomeroy Computer Resources of South
Carolina, Inc.
c/o 1020 Petersburg Road
Hebron, Kentucky 41048
With a copy to: James H. Smith III
Lindhorst & Dreidame Co., L.P.A.
312 Walnut Street, Suite 2300
Cincinnati, Ohio 45202
If to Employee, to the Employee's residential address,
as set forth in the Company's records.
15. Enforcement of Rights. The parties expressly
recognize that any breach of this Agreement by either party
is likely to result in irrevocable injury to the other party
and agree that such other party shall be entitled, if it so
elects, to institute and prosecute proceedings in any court
of competent jurisdiction, either in law or in equity, to
obtain damages for any breach of this Agreement, or to
enforce the specific performance of this Agreement by each
party or to enjoin any party from activities in violation of
this 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 exhibits
hereto 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 16 shall preclude (i)
Employee from designating a beneficiary to receive any
benefit payable hereunder upon his death or disability, or
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<PAGE>
(ii) executors, administrators, or legal representatives of
Employee or his estate from assigning any rights hereunder
to person or persons entitled thereto. Notwithstanding the
foregoing, this Agreement shall be binding upon and inure to
the benefit of any successor corporation of the Company.
(b) The Company will require any successor
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of
the assets of the Company or the business with respect to
which the duties and responsibilities of Employee are
principally related, to expressly assume and agree to
perform this Agreement in the same manner and to the same
extent that Company would have been required to perform it
if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as
aforesaid which executes and delivers the assumption
agreement provided for in this Section 16 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. Attorney's 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 attorney's fees and costs.
IN WITNESS WHEREOF, this Agreement has been executed
effective as of the day and year first above written.
COMPANY:
WITNESSES: POMEROY COMPUTER RESOURCES OF
SOUTH CAROLINA, INC.
_________________________
By:______________________________
_________________________
EMPLOYEE:
_________________________
_________________________________
JEFFREY F. HIPP
_________________________
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<PAGE>
POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of this ____ day of _________,
1997, by and between POMEROY COMPUTER RESOURCES OF SOUTH
CAROLINA, INC., a South Carolina corporation ("Company"),
and RONALD D. HILDRETH ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has exchanged 7,500 shares of the
common capital stock of The Computer Store, Inc., a South
Carolina corporation ("CSI") pursuant to an Agreement and
Plan of Reorganization ("Plan") of even date pursuant to
Section 368(a)(2)(D) of the Internal Revenue Code whereby
CSI was acquired by a merger into Company in exchange for
certain stock of Pomeroy Computer Resources, Inc., a
Delaware corporation, ("PCR"), the parent corporation of
Company, and other consideration as set forth in the Plan;
and
WHEREAS, Employee, as inducement for and in
consideration of Company entering into the Plan, has agreed
to enter into and execute this Employment Agreement pursuant
to Section 4 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
17th day of October, 1997, and shall continue for a period
of three (3) years (October 17, 1997 to October 16, 2000)
unless terminated earlier pursuant to the provisions of
Section 10, provided that Sections 8, 9, 10(b), 10(c) if
applicable, 11 if applicable, and 20 shall survive the
termination of such employment and shall expire in
accordance with the terms set forth therein.
3. Renewal Term. The term of Employee's employment
shall automatically renew for additional consecutive renewal
terms of one (1) year unless either party gives written
notice of his/its intent not to renew the terms of the
Agreement thirty (30) days prior to the expiration of the
then expiring term. Employee's base salary for each renewal
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<PAGE>
term shall be determined by the Board of Directors of
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 Business
Services Manager of the Company. Employee shall be
responsible to and report directly to the Vice President of
the 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 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 without the
express written consent of Company.
5. Compensation. For all services rendered by the
Employee under this Agreement (in addition to other monetary
or other benefits referred to herein), compensation shall be
paid to Employee as follows:
(a) Base Salary: During the term of this
Agreement, Employee shall be paid an annual base salary of
Seventy Two Thousand Dollars ($72,000.00) per year. Said
annual base salary shall be payable semi-monthly.
(b) Bonus: In addition to Employee's base salary
commencing on January 6, 1998 for the first full year of the
initial term of this Agreement (January 6, 1998 through
January 5, 1999), Employee shall be entitled to a cash bonus
and an incentive stock option award in the event Employee
satisfies certain economic criteria pertaining to Company's
performance as set forth as follows:
(i) Gross sales of Company greater than
$10,000,000 but less than or equal to $12,000,000 with NPBT
greater than three percent (3%) equals $5,000 cash bonus
plus 300 incentive stock options of PCR Stock; or
(ii) Gross sales of Company greater than
$12,000,000 but less than or equal to $13,000,000 with NPBT
greater than three percent (3%) equals $7,500 cash bonus
plus 600 incentive stock options of PCR Stock; or
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<PAGE>
(iii) Gross sales of Company greater than
$13,000,000 with NPBT greater than three percent (3%) equals
$10,000 cash bonus plus 1,000 incentive stock options of PCR
Stock.
For purposes of this section, the term
"gross sales" shall mean gross sales of equipment, software
and services by Company. For purposes of this section, the
term "net profits before taxes" shall mean the net pre-tax
profits of Company during the applicable period set forth
above. In making said gross sales determination and net
pre-tax profits determinations, all gains and losses
realized on the sale or other disposition of Company assets
not in the ordinary course of business shall be excluded.
All refunds or returns which are made during such period
shall be subtracted along with all accounts receivable
derived from sales which are written off as bad debt during
such period in accordance with Company's accounting system.
Such gross sales and net pre-tax margin of Company shall be
determined by the independent accountant regularly retained
by Company within ninety (90) days after the end of each
year in accordance with generally accepted accounting
principles and the determination by the accountant shall be
final, binding and conclusive upon all parties hereto.
Commencing January 6, 1998, in making said determination of
the applicable pre-tax margin for Company, a 1.5 MAS royalty
fee on gross sales shall be paid to PCR incident to said
determination. For each subsequent year, during the initial
term of this Agreement the parties shall, in good faith,
agree upon an MAS royalty fee to be charged hereunder based
on the level of services and support being provided to the
Company by PCR; provided, however, such royalty fee shall be
1.5% if the parties are unable to come to an amount for each
subsequent year. Any cash bonus earned hereunder shall be
payable to Employee within thirty (30) days of the
determination by the accountant. Incident to the
determination of Company's net profit before taxes, no
compensation of any executive or other employee of PCR or
its affiliates shall be allocated to Company. Except as set
forth above, no other administrative, overhead or any other
expense of PCR shall be allocated to Company. It being the
intent of the parties that Company shall exercise the utmost
good faith with respect to the implementation of this
provision.
(iv) Any award of an incentive stock option
to acquire stock of the Company shall be the fair market
value of such stock as of January 5, 1999 and shall be
subject to all conditions contained in the PCR's Non-
Qualified Incentive Stock Option Plan. For purposes of this
Agreement, the fair market value as of the applicable date
shall mean with respect to the common shares, the average
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<PAGE>
between the high and low bid and asked prices for such
shares on the NASDAQ Exchange on the last business day prior
to the date on which the value is to be determined (or the
next preceding date on which sales occurred if there were no
sales on such date).
(v) The parties agree that in January of
1999 and 2000 (for the remaining portion of the initial term
of this Agreement) they will negotiate, in good faith, the
implementation of an annual bonus and an incentive stock
option award for the remaining fiscal years of this
Agreement which will be predicated upon the attainment by
Company of certain economic criteria established at the
outset of such calendar year. Such bonus plan for the
remaining term of this Agreement shall be consistent with
other of PCR management personnel holding a position similar
to that of Employee.
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 medical health and insurance coverage
maintained by or for the benefit of the Company on its
employees. Company and Employee shall each pay fifty
percent (50%) of the cost of such coverage.
(b) Vacation - Employee shall be entitled each
year to a vacation of two (2) weeks during which time his
compensation will be paid in full. Provided, however, such
weeks may not be taken consecutively without the written
consent of Company.
(c) Automobile Use - Company shall provide
Employee with an automobile allowance of Two Hundred Fifty
Dollars ($250.00) per month during the term of this
Agreement. Employee shall be responsible for all
maintenance and repair to such vehicle and for the insurance
coverage thereof.
(d) Retirement Plan - Employee shall participate,
after meeting eligibility requirements, in any qualified
retirement plans and/or welfare plans maintained by or for
the benefit of the Company during the term of this
Agreement. For purposes of eligibility in any qualified
retirement plans, Employee shall be given credit for prior
years of service with CSI.
Employee shall be responsible for any and all
taxes, owed, if any, on the fringe benefits provided to him
pursuant to this Section 6.
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<PAGE>
7. Expenses. During the term of Employee's
employment hereunder, Employee shall be entitled to receive
prompt reimbursement for all other reasonable and customary
expenses incurred by Employee in fulfilling Employee's
duties and responsibilities hereunder, provided that such
expenses are incurred and accounted for in accordance with
the policies and procedures reasonably established by
Company.
8. Non-Competition. Employee expressly acknowledges
the provisions of Section 3 of the Plan relating to
Employee's covenant not to compete with Company.
Accordingly, such provisions of Section 3 are incorporated
herein by reference to the extent as if restated in full
herein. In addition to the consideration received under
this Agreement, Employee acknowledges that as one of three
owners of the common stock of CSI, he has received
substantial consideration pursuant to such Plan and that as
an inducement for, and in consideration of, Company and PCR
entering into the Plan and Company entering into this
Agreement, Employee has agreed to be bound by such
provisions of Section 3 of the Plan. Accordingly, such
provisions of Section 3 and Exhibit D-1 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 non-public information" as such
phase 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
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<PAGE>
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 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 or by governmental agency), nor shall the
Employee make use of any such information for the benefit of
any person, firm, operation or other entity except the
Company and its subsidiaries or affiliates. The Employee's
obligation to keep all of such information confidential
shall be in effect during and for a period of five (5) years
after the termination of his employment; provided, however,
that the Employee will keep confidential and will not
disclose any trade secret or similar information protected
under law as intangible property (subject to the same
exceptions set forth in the parenthetical clause above) for
so long as such protection under law is extended.
(e) For purposes of this provision, the term
"Company's trade secrets" and "confidential information"
shall include such information of Company's parent company,
PCR, and any of their respective subsidiaries.
10. Termination.
(a) The Employee's employment with the Company may be
terminated at any time as follows:
(i) By the Employee at his discretion, upon
sixty (60) days written notice to Company;
(ii) By Employee's death;
(iii) By Employee's physical or mental
disability which renders Employee unable to perform his
duties hereunder;
(iv) By the Company, for cause upon three (3)
day's written notice to Employee. For purposes of this
Agreement, the term "cause" shall mean termination upon:
(i) the failure by Employee to substantially perform his
duties with the Company (other than any such failure
resulting from his incapacity due to physical or mental
illness), after a written demand for substantial performance
is delivered to him by the Company, which demand
specifically identifies the manner in which the Company
believes that he has not substantially performed his duties;
(ii) the engaging by Employee in wrongful 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
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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 in
good faith that he has engaged in the conduct set forth
above in this Section 10(a)(iv) and specifying the
particulars thereof in detail, and Employee shall not have
cured such conduct to the reasonable satisfaction of the
Board within ten (10) 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. In addition, Employee shall be entitled to
receive any bonus accrued to the date of his termination of
employment as provided in Section 5(b).
(c) Severance. 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 (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 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
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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 South Carolina
and shall not be modified or discharged, in whole or in
part, except by an agreement in writing signed by the
parties.
14. Notices. All notices, requests, demands and other
communications relating to this Agreement shall be in
writing and shall be deemed to have been duly given if
delivered personally or mailed by certified or registered
mail, return receipt requested, postage prepaid:
If to Company, to: Pomeroy Computer Resources of South
Carolina, Inc.
c/o 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
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If to Employee, to the Employee's residential address,
as set forth in the Company's records.
15. Enforcement of Rights. The parties expressly
recognize that any breach of this Agreement by either party
is likely to result in irrevocable injury to the other party
and agree that such other party shall be entitled, if it so
elects, to institute and prosecute proceedings in any court
of competent jurisdiction, either in law or in equity, to
obtain damages for any breach of this Agreement, or to
enforce the specific performance of this Agreement by each
party or to enjoin any party from activities in violation of
this Agreement. 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 exhibits
hereto 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 disability, or
(ii) executors, administrators, or legal representatives of
Employee or his estate from assigning any rights hereunder
to person or persons entitled thereto. Notwithstanding the
foregoing, this Agreement shall be binding upon and inure to
the benefit of any successor corporation of the Company.
(b) The Company will require any successor
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of
the assets of the Company or the business with respect to
which the duties and responsibilities of Employee are
principally related, to expressly assume and agree to
perform this Agreement in the same manner and to the same
extent that Company would have been required to perform it
if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore
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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 attorney's fees and costs.
IN WITNESS WHEREOF, this Agreement has been executed
effective as of the day and year first above written.
WITNESSES: COMPANY:
POMEROY COMPUTER RESOURCES OF
SOUTH CAROLINA, INC.
_________________________
By:______________________________
_________________________
EMPLOYEE:
_________________________
_________________________________
RONALD D. HILDRETH
_________________________
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POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of this ____ day of _________,
1997, by and between POMEROY COMPUTER RESOURCES OF SOUTH
CAROLINA, INC., a South Carolina corporation ("Company"),
and ARTHUR M. COX ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has exchanged 7,500 shares of the
common capital stock of The Computer Store, Inc., a South
Carolina corporation ("CSI") pursuant to an Agreement and
Plan of Reorganization ("Plan") of even date pursuant to
Section 368(a)(2)(D) of the Internal Revenue Code whereby
CSI was acquired by a merger into Company in exchange for
certain stock of Pomeroy Computer Resources, Inc., a
Delaware corporation, ("PCR"), the parent corporation of
Company, and other consideration as set forth in the Plan;
and
WHEREAS, Employee, as inducement for and in
consideration of Company entering into the Plan, has agreed
to enter into and execute this Employment Agreement pursuant
to Section 4 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
17th day of October, 1997, and shall continue for a period
of three (3) years (October 17, 1997 to October 16, 2000)
unless terminated earlier pursuant to the provisions of
Section 10, provided that Sections 8, 9, 10(b), 10(c) if
applicable, 11 if applicable, and 20 shall survive the
termination of such employment and shall expire in
accordance with the terms set forth therein.
3. Renewal Term. The term of Employee's employment
shall automatically renew for additional consecutive renewal
terms of one (1) year unless either party gives written
notice of his/its intent not to renew the terms of the
Agreement thirty (30) days prior to the expiration of the
then expiring term. Employee's base salary for each renewal
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term shall be determined by the Board of Directors of
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 General Manager
of the Company. Employee shall be responsible to and report
directly to the Vice President of the 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 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 without the express written consent of Company.
5. Compensation. For all services rendered by the
Employee under this Agreement (in addition to other monetary
or other benefits referred to herein), compensation shall be
paid to Employee as follows:
(a) Base Salary: During the term of this
Agreement, Employee shall be paid an annual base salary of
Seventy Two Thousand Dollars ($72,000.00) per year. Said
annual base salary shall be payable semi-monthly.
(b) Bonus: In addition to Employee's base salary
commencing on January 6, 1998 for the first full year of the
initial term of this Agreement (January 6, 1998 through
January 5, 1999), Employee shall be entitled to a cash bonus
and an incentive stock option award in the event Employee
satisfies certain economic criteria pertaining to Company's
performance as set forth as follows:
(i) Gross sales of Company greater than
$10,000,000 but less than or equal to $12,000,000 with NPBT
greater than three percent (3%) equals $5,000 cash bonus
plus 300 incentive stock options of PCR Stock; or
(ii) Gross sales of Company greater than
$12,000,000 but less than or equal to $13,000,000 with NPBT
greater than three percent (3%) equals $7,500 cash bonus
plus 600 incentive stock options of PCR Stock; or
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(iii) Gross sales of Company greater than
$13,000,000 with NPBT greater than three percent (3%) equals
$10,000 cash bonus plus 1,000 incentive stock options of PCR
Stock.
For purposes of this section, the term
"gross sales" shall mean gross sales of equipment, software
and services by Company. For purposes of this section, the
term "net profits before taxes" shall mean the net pre-tax
profits of Company during the applicable period set forth
above. In making said gross sales determination and net
pre-tax profits determinations, all gains and losses
realized on the sale or other disposition of Company assets
not in the ordinary course of business shall be excluded.
All refunds or returns which are made during such period
shall be subtracted along with all accounts receivable
derived from sales which are written off as bad debt during
such period in accordance with Company's accounting system.
Such gross sales and net pre-tax margin of Company shall be
determined by the independent accountant regularly retained
by Company within ninety (90) days after the end of each
year in accordance with generally accepted accounting
principles and the determination by the accountant shall be
final, binding and conclusive upon all parties hereto.
Commencing January 6, 1998, in making said determination of
the applicable pre-tax margin for Company, a 1.5 MAS royalty
fee on gross sales shall be paid to PCR incident to said
determination. For each subsequent year, during the initial
term of this Agreement the parties shall, in good faith,
agree upon an MAS royalty fee to be charged hereunder based
on the level of services and support being provided to the
Company by PCR; provided, however, such royalty fee shall be
1.5% if the parties are unable to come to an amount for each
subsequent year. Any cash bonus earned hereunder shall be
payable to Employee within thirty (30) days of the
determination by the accountant. Incident to the
determination of Company's net profit before taxes, no
compensation of any executive or other employee of PCR or
its affiliates shall be allocated to Company. Except as set
forth above, no other administrative, overhead or any other
expense of PCR shall be allocated to Company. It being the
intent of the parties that Company shall exercise the utmost
good faith with respect to the implementation of this
provision.
(iv) Any award of an incentive stock option
to acquire stock of the Company shall be the fair market
value of such stock as of January 5, 1999 and shall be
subject to all conditions contained in the PCR's Non-
Qualified Incentive Stock Option Plan. For purposes of this
Agreement, the fair market value as of the applicable date
shall mean with respect to the common shares, the average
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between the high and low bid and asked prices for such
shares on the NASDAQ Exchange on the last business day prior
to the date on which the value is to be determined (or the
next preceding date on which sales occurred if there were no
sales on such date).
(v) The parties agree that in January of
1999 and 2000 (for the remaining portion of the initial term
of this Agreement) they will negotiate, in good faith, the
implementation of an annual bonus and an incentive stock
option award for the remaining fiscal years of this
Agreement which will be predicated upon the attainment by
Company of certain economic criteria established at the
outset of such calendar year. Such bonus plan for the
remaining term of this Agreement shall be consistent with
other of PCR management personnel holding a position similar
to that of Employee.
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 medical health and insurance coverage
maintained by or for the benefit of the Company on its
employees. Company and Employee shall each pay fifty
percent (50%) of the cost of such coverage.
(b) Vacation - Employee shall be entitled each
year to a vacation of two (2) weeks during which time his
compensation will be paid in full. Provided, however, such
weeks may not be taken consecutively without the written
consent of Company.
(c) Automobile Use - Company shall provide
Employee with an automobile allowance of Two Hundred Fifty
Dollars ($250.00) per month during the term of this
Agreement. Employee shall be responsible for all
maintenance and repair to such vehicle and for the insurance
coverage thereof.
(d) Retirement Plan - Employee shall participate,
after meeting eligibility requirements, in any qualified
retirement plans and/or welfare plans maintained by or for
the benefit of the Company during the term of this
Agreement. For purposes of eligibility in any qualified
retirement plans, Employee shall be given credit for prior
years of service with CSI.
Employee shall be responsible for any and all
taxes, owed, if any, on the fringe benefits provided to him
pursuant to this Section 6.
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7. Expenses. During the term of Employee's
employment hereunder, Employee shall be entitled to receive
prompt reimbursement for all other reasonable and customary
expenses incurred by Employee in fulfilling Employee's
duties and responsibilities hereunder, provided that such
expenses are incurred and accounted for in accordance with
the policies and procedures reasonably established by
Company.
8. Non-Competition. Employee expressly acknowledges
the provisions of Section 3 of the Plan relating to
Employee's covenant not to compete with Company.
Accordingly, such provisions of Section 3 are incorporated
herein by reference to the extent as if restated in full
herein. In addition to the consideration received under
this Agreement, Employee acknowledges that as one of three
owners of the common stock of CSI, he has received
substantial consideration pursuant to such Plan and that as
an inducement for, and in consideration of, Company and PCR
entering into the Plan and Company entering into this
Agreement, Employee has agreed to be bound by such
provisions of Section 3 of the Plan. Accordingly, such
provisions of Section 3 and Exhibit D 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 non-public information" as such
phase 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
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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 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 or by governmental agency), nor shall the
Employee make use of any such information for the benefit of
any person, firm, operation or other entity except the
Company and its subsidiaries or affiliates. The Employee's
obligation to keep all of such information confidential
shall be in effect during and for a period of five (5) years
after the termination of his employment; provided, however,
that the Employee will keep confidential and will not
disclose any trade secret or similar information protected
under law as intangible property (subject to the same
exceptions set forth in the parenthetical clause above) for
so long as such protection under law is extended.
(e) For purposes of this provision, the term
"Company's trade secrets" and "confidential information"
shall include such information of Company's parent company,
PCR, and any of their respective subsidiaries.
10. Termination.
(a) The Employee's employment with the Company may be
terminated at any time as follows:
(i) By the Employee at his discretion, upon
sixty (60) days written notice to Company;
(ii) By Employee's death;
(iii) By Employee's physical or mental
disability which renders Employee unable to perform his
duties hereunder;
(iv) By the Company, for cause upon three (3)
day's written notice to Employee. For purposes of this
Agreement, the term "cause" shall mean termination upon:
(i) the failure by Employee to substantially perform his
duties with the Company (other than any such failure
resulting from his incapacity due to physical or mental
illness), after a written demand for substantial performance
is delivered to him by the Company, which demand
specifically identifies the manner in which the Company
believes that he has not substantially performed his duties;
(ii) the engaging by Employee in wrongful 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
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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 in
good faith that he has engaged in the conduct set forth
above in this Section 10(a)(iv) and specifying the
particulars thereof in detail, and Employee shall not have
cured such conduct to the reasonable satisfaction of the
Board within ten (10) 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. In addition, Employee shall be entitled to
receive any bonus accrued to the date of his termination of
employment as provided in Section 5(b).
(c) Severance. 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 (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 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
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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 South Carolina
and shall not be modified or discharged, in whole or in
part, except by an agreement in writing signed by the
parties.
14. Notices. All notices, requests, demands and other
communications relating to this Agreement shall be in
writing and shall be deemed to have been duly given if
delivered personally or mailed by certified or registered
mail, return receipt requested, postage prepaid:
If to Company, to: Pomeroy Computer Resources of South
Carolina, Inc.
c/o 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
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<PAGE>
If to Employee, to the Employee's residential address,
as set forth in the Company's records.
15. Enforcement of Rights. The parties expressly
recognize that any breach of this Agreement by either party
is likely to result in irrevocable injury to the other party
and agree that such other party shall be entitled, if it so
elects, to institute and prosecute proceedings in any court
of competent jurisdiction, either in law or in equity, to
obtain damages for any breach of this Agreement, or to
enforce the specific performance of this Agreement by each
party or to enjoin any party from activities in violation of
this Agreement. 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 exhibits
hereto 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 disability, or
(ii) executors, administrators, or legal representatives of
Employee or his estate from assigning any rights hereunder
to person or persons entitled thereto. Notwithstanding the
foregoing, this Agreement shall be binding upon and inure to
the benefit of any successor corporation of the Company.
(b) The Company will require any successor
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of
the assets of the Company or the business with respect to
which the duties and responsibilities of Employee are
principally related, to expressly assume and agree to
perform this Agreement in the same manner and to the same
extent that Company would have been required to perform it
if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore
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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. Attorney's 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 attorney's fees and costs.
IN WITNESS WHEREOF, this Agreement has been executed
effective as of the day and year first above written.
COMPANY:
WITNESSES: POMEROY COMPUTER RESOURCES OF
SOUTH CAROLINA, INC.
_________________________
By:______________________________
_________________________
EMPLOYEE:
_________________________
_________________________________
ARTHUR M. COX
_________________________
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GUARANTY OF EMPLOYMENT AGREEMENT
As an inducement for, and in consideration of, ARTHUR
M. COX (the "Employee") entering into and executing an
Employment Agreement (the "Employment Agreement") of even
date with POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA,
INC., a South Carolina corporation, (the "Employer"),
POMEROY COMPUTER RESOURCES, INC., a Delaware corporation
(the "Guarantor") agrees and does hereby unconditionally
guaranty to Employee, the faithful and full performance, and
satisfaction, of each and every obligation (including, but
not limited to, the agreements, covenants, representations
and warranties) (the "Obligations") of Employer under the
Employment Agreement; and Guarantor agrees that if Employer
shall fail to pay or perform, or otherwise fail to satisfy
any Obligation, the Guarantor shall forthwith pay, perform
or otherwise satisfy and/or cause Employer to pay, perform
or otherwise satisfy such Obligation, including all
reasonable expenses that may be incurred by Employee in the
enforcement of such Obligation and/or Guarantor's agreement
of Guaranty herein.
The Guarantor hereby agrees that its guaranty shall not
be discharged except by the full and complete payment,
performance and satisfaction of each and every Obligation of
Employer. Without limiting the generality of the foregoing,
the Obligations and the rights of the Employee to enforce
the same by proceedings, whether by action at law, suit in
equity or otherwise, shall not be in anyway affected by:
(a) any insolvency, bankruptcy, liquidation, reorganization,
readjustment, composition, dissolution or other similar
proceeding involving or affecting Employer; and (b) any
change in the stock ownership of Employer.
The Employee may deal with Employer in the same manner
and as freely as if this Guaranty did not exist and shall be
entitled, among other things, to amend the Employment
Agreement or grant Employer such extension or extensions of
time to perform any act or acts as may be deemed advisable
to the Employee at any time and from time to time, without
terminating, affecting or impairing the validity of this
Guaranty or the obligations of the Guarantor hereunder.
The Employee may proceed to protect and enforce any and
all of his rights under this Guarantee by suit in equity,
action at law, or by other appropriate proceedings, whether
for the specific performance of any covenants or agreements
contained in the Employment Agreement, this Guaranty or
otherwise, or to take any action authorized or permitted
under applicable law, and shall be entitled to require and
enforce the performance of all acts and things required to
be performed hereunder by the Guarantor. Each and every
remedy of the Employee shall, to the extent permitted by
law, be cumulative and shall be in addition to any other
remedy given hereunder or under the Employment Agreement as
now or hereafter existing at law or in equity.
E-173
<PAGE>
No waiver or release shall be deemed to have been made
by the Employee of any of his rights hereunder unless the
same shall be in writing and signed by the Employee; any
such waiver shall be a waiver or release only with respect
to the specific matter involved and shall in no way impair
the rights of Employee or affect the Obligations of
Guarantor to Employee in any other respect at any other
time.
Employee shall provide Guarantor with written notice of
any and all nonperformance (whether by omission and/or
commission) of Employer of its Obligations prior to any
enforcement of this Guaranty.
This Guaranty, or any provisions hereof, shall not be
waived, altered, modified, amended, supplemented or
terminated in any manner whatsoever except by a written
instrument signed by the Employee and the Guarantor.
This Guaranty shall be binding upon the Guarantor, its
successors and assigns and shall inure to the benefit of
Employee, his heirs and assigns.
This Guaranty shall be governed by, and construed in
accordance with, the laws of the State of South Carolina.
If any term or provision of this Guaranty or the application
thereof to any circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Guaranty, or
the application of such term or provision to circumstances
other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term
and provision of this Guaranty shall be valid and
enforceable to the fullest extent permitted by law.
All notices and other communications to be made or
given pursuant to this Guaranty shall be made or given in
the manner provided in the Employment Agreement.
IN WITNESS WHEREOF, the Guarantor has executed this
Guaranty this ____ day of ________________, 1997.
WITNESSES: POMEROY COMPUTER
RESOURCES, INC.
_________________________ By:
_________________________________
_________________________ Its:
________________________________
STATE OF ________________ )
) SS:
COUNTY OF ______________ )
BE IT REMEMBERED, that on this ____ day of _______,
1997, before me, the undersigned, a Notary Public in and for
said County, personally appeared ______________, the
E-174
<PAGE>
____________ of Pomeroy Computer Resources, Inc., who
acknowledged that he executed the foregoing instrument for
the purposes therein contained.
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-175
<PAGE>
GUARANTY OF EMPLOYMENT AGREEMENT
As an inducement for, and in consideration of, RONALD
D. HILDRETH (the "Employee") entering into and executing an
Employment Agreement (the "Employment Agreement") of even
date with POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA,
INC., a South Carolina corporation, (the "Employer"),
POMEROY COMPUTER RESOURCES, INC., a Delaware corporation
(the "Guarantor") agrees and does hereby unconditionally
guaranty to Employee, the faithful and full performance, and
satisfaction, of each and every obligation (including, but
not limited to, the agreements, covenants, representations
and warranties) (the "Obligations") of Employer under the
Employment Agreement; and Guarantor agrees that if Employer
shall fail to pay or perform, or otherwise fail to satisfy
any Obligation, the Guarantor shall forthwith pay, perform
or otherwise satisfy and/or cause Employer to pay, perform
or otherwise satisfy such Obligation, including all
reasonable expenses that may be incurred by Employee in the
enforcement of such Obligation and/or Guarantor's agreement
of Guaranty herein.
The Guarantor hereby agrees that its guaranty shall not
be discharged except by the full and complete payment,
performance and satisfaction of each and every Obligation of
Employer. Without limiting the generality of the foregoing,
the Obligations and the rights of the Employee to enforce
the same by proceedings, whether by action at law, suit in
equity or otherwise, shall not be in anyway affected by:
(a) any insolvency, bankruptcy, liquidation, reorganization,
readjustment, composition, dissolution or other similar
proceeding involving or affecting Employer; and (b) any
change in the stock ownership of Employer.
The Employee may deal with Employer in the same manner
and as freely as if this Guaranty did not exist and shall be
entitled, among other things, to amend the Employment
Agreement or grant Employer such extension or extensions of
time to perform any act or acts as may be deemed advisable
to the Employee at any time and from time to time, without
terminating, affecting or impairing the validity of this
Guaranty or the obligations of the Guarantor hereunder.
The Employee may proceed to protect and enforce any and
all of his rights under this Guarantee by suit in equity,
action at law, or by other appropriate proceedings, whether
for the specific performance of any covenants or agreements
contained in the Employment Agreement, this Guaranty or
otherwise, or to take any action authorized or permitted
under applicable law, and shall be entitled to require and
enforce the performance of all acts and things required to
be performed hereunder by the Guarantor. Each and every
remedy of the Employee shall, to the extent permitted by
law, be cumulative and shall be in addition to any other
remedy given hereunder or under the Employment Agreement as
now or hereafter existing at law or in equity.
E-176
<PAGE>
No waiver or release shall be deemed to have been made
by the Employee of any of his rights hereunder unless the
same shall be in writing and signed by the Employee; any
such waiver shall be a waiver or release only with respect
to the specific matter involved and shall in no way impair
the rights of Employee or affect the Obligations of
Guarantor to Employee in any other respect at any other
time.
Employee shall provide Guarantor with written notice of
any and all nonperformance (whether by omission and/or
commission) of Employer of its Obligations prior to any
enforcement of this Guaranty.
This Guaranty, or any provisions hereof, shall not be
waived, altered, modified, amended, supplemented or
terminated in any manner whatsoever except by a written
instrument signed by the Employee and the Guarantor.
This Guaranty shall be binding upon the Guarantor, its
successors and assigns and shall inure to the benefit of
Employee, his heirs and assigns.
This Guaranty shall be governed by, and construed in
accordance with, the laws of the State of South Carolina.
If any term or provision of this Guaranty or the application
thereof to any circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Guaranty, or
the application of such term or provision to circumstances
other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term
and provision of this Guaranty shall be valid and
enforceable to the fullest extent permitted by law.
All notices and other communications to be made or
given pursuant to this Guaranty shall be made or given in
the manner provided in the Employment Agreement.
IN WITNESS WHEREOF, the Guarantor has executed this
Guaranty this ____ day of ________________, 1997.
WITNESSES: POMEROY COMPUTER
RESOURCES, INC.
_________________________ By:
_________________________________
_________________________ Its:
________________________________
STATE OF ________________ )
) SS:
COUNTY OF ______________ )
BE IT REMEMBERED, that on this ____ day of _______,
1997, before me, the undersigned, a Notary Public in and for
said County, personally appeared ______________, the
E-177
<PAGE>
____________ of Pomeroy Computer Resources, Inc., who
acknowledged that he executed the foregoing instrument for
the purposes therein contained.
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-178
<PAGE>
GUARANTY OF EMPLOYMENT AGREEMENT
As an inducement for, and in consideration of, JEFFREY
F. HIPP (the "Employee") entering into and executing an
Employment Agreement (the "Employment Agreement") of even
date with POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA,
INC., a South Carolina corporation, (the "Employer"),
POMEROY COMPUTER RESOURCES, INC., a Delaware corporation
(the "Guarantor") agrees and does hereby unconditionally
guaranty to Employee, the faithful and full performance, and
satisfaction, of each and every obligation (including, but
not limited to, the agreements, covenants, representations
and warranties) (the "Obligations") of Employer under the
Employment Agreement; and Guarantor agrees that if Employer
shall fail to pay or perform, or otherwise fail to satisfy
any Obligation, the Guarantor shall forthwith pay, perform
or otherwise satisfy and/or cause Employer to pay, perform
or otherwise satisfy such Obligation, including all
reasonable expenses that may be incurred by Employee in the
enforcement of such Obligation and/or Guarantor's agreement
of Guaranty herein.
The Guarantor hereby agrees that its guaranty shall not
be discharged except by the full and complete payment,
performance and satisfaction of each and every Obligation of
Employer. Without limiting the generality of the foregoing,
the Obligations and the rights of the Employee to enforce
the same by proceedings, whether by action at law, suit in
equity or otherwise, shall not be in anyway affected by:
(a) any insolvency, bankruptcy, liquidation, reorganization,
readjustment, composition, dissolution or other similar
proceeding involving or affecting Employer; and (b) any
change in the stock ownership of Employer.
The Employee may deal with Employer in the same manner
and as freely as if this Guaranty did not exist and shall be
entitled, among other things, to amend the Employment
Agreement or grant Employer such extension or extensions of
time to perform any act or acts as may be deemed advisable
to the Employee at any time and from time to time, without
terminating, affecting or impairing the validity of this
Guaranty or the obligations of the Guarantor hereunder.
The Employee may proceed to protect and enforce any and
all of his rights under this Guarantee by suit in equity,
action at law, or by other appropriate proceedings, whether
for the specific performance of any covenants or agreements
contained in the Employment Agreement, this Guaranty or
otherwise, or to take any action authorized or permitted
under applicable law, and shall be entitled to require and
enforce the performance of all acts and things required to
be performed hereunder by the Guarantor. Each and every
remedy of the Employee shall, to the extent permitted by
law, be cumulative and shall be in addition to any other
remedy given hereunder or under the Employment Agreement as
now or hereafter existing at law or in equity.
E-179
<PAGE>
No waiver or release shall be deemed to have been made
by the Employee of any of his rights hereunder unless the
same shall be in writing and signed by the Employee; any
such waiver shall be a waiver or release only with respect
to the specific matter involved and shall in no way impair
the rights of Employee or affect the Obligations of
Guarantor to Employee in any other respect at any other
time.
Employee shall provide Guarantor with written notice of
any and all nonperformance (whether by omission and/or
commission) of Employer of its Obligations prior to any
enforcement of this Guaranty.
This Guaranty, or any provisions hereof, shall not be
waived, altered, modified, amended, supplemented or
terminated in any manner whatsoever except by a written
instrument signed by the Employee and the Guarantor.
This Guaranty shall be binding upon the Guarantor, its
successors and assigns and shall inure to the benefit of
Employee, his heirs and assigns.
This Guaranty shall be governed by, and construed in
accordance with, the laws of the State of South Carolina.
If any term or provision of this Guaranty or the application
thereof to any circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Guaranty, or
the application of such term or provision to circumstances
other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term
and provision of this Guaranty shall be valid and
enforceable to the fullest extent permitted by law.
All notices and other communications to be made or
given pursuant to this Guaranty shall be made or given in
the manner provided in the Employment Agreement.
IN WITNESS WHEREOF, the Guarantor has executed this
Guaranty this ____ day of ________________, 1997.
WITNESSES: POMEROY COMPUTER
RESOURCES, INC.
_________________________ By:
_________________________________
_________________________ Its:
________________________________
STATE OF ________________ )
) SS:
COUNTY OF ______________ )
BE IT REMEMBERED, that on this ____ day of _______,
1997, before me, the undersigned, a Notary Public in and for
said County, personally appeared ______________, the
E-180
<PAGE>
____________ of Pomeroy Computer Resources, Inc., who
acknowledged that he executed the foregoing instrument for
the purposes therein contained.
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-181
<PAGE>
AGREEMENT
This Agreement made and entered into this ____ day of
____________, 1997, by and between ARTHUR M. COX
(hereinafter referred to as "Owner") and POMEROY COMPUTER
RESOURCES OF SOUTH CAROLINA, INC., a South Carolina
corporation (hereinafter referred to as "Pomeroy").
W I T N E S S E T H :
WHEREAS, simultaneously with the execution of this
Agreement, Pomeroy entered into an Agreement and Plan of
Reorganization ("Merger Agreement") with THE COMPUTER STORE,
INC., a South Carolina corporation ("CSI"), Owner, RONALD
D. HILDRETH and JEFFREY F. HIPP for the merger of CSI with
and into Pomeroy; and
WHEREAS, immediately prior to the Effective Date (as defined
in the Merger Agreement) Owner owned forty-six and 88/100
percent (46.88%) of the outstanding stock of CSI; and
WHEREAS, Pomeroy would not have entered into the Merger
Agreement with CSI without the consent of Owner to enter
into this covenant not to compete agreement; and
WHEREAS, pursuant to Sections 3 and 11.2(g) of said Merger
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 Merger Agreement, the parties
hereto agree as follows:
1. As an inducement for Pomeroy to enter into the Merger
Agreement with CSI (46.88% of the stock of which is owned by
Owner), Owner covenants and agrees that for a period equal
to the later of (i) five (5) years from the Effective Date
as defined in the Merger Agreement or (ii) one (1) year
after the termination of Owner's employment with Pomeroy
under an Employment Agreement executed by and between the
Owner and Pomeroy of even date herewith, Owner neither by
himself nor 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 Pomeroy, its Parent Corporation
(as defined in Paragraph 4 of this Agreement) or any
subsidiary thereof relating to the Business of Pomeroy, as
defined below; or
E-182
<PAGE>
(b) Attempt to seek or cause any clients or customers
of Pomeroy, its Parent Corporation or any of their
subsidiaries to refrain from continuing their patronage of
the Business of Pomeroy; or
(c) Engage in the Business of Pomeroy in any state in
which Pomeroy, its Parent Corporation or any their
subsidiaries have an office during the term of Owner's
employment by Pomeroy. A list of the states in which
Pomeroy, its Parent Corporation, and any of their
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
Pomeroy, or its Parent Corporation or any of their
subsidiaries.
(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 or
from taking any action described in items 1(b) - (d) above
for the benefit of or on behalf of Pomeroy, its Parent
Corporation, or any of their subsidiaries.
For purposes of this Section, the "Business of
Pomeroy" 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 personal computer hardware, software, peripheral
devices or related products;
(ii) Sale or servicing, whether at the wholesale or
retail level, or leasing or renting, of personal 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.
E-183
<PAGE>
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 CSI acquired by
Pomeroy and have been separately bargained for and agrees
that Pomeroy has been induced to enter into the Merger
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 Pomeroy will suffer irreparable injury in
the event of a breach by Owner, and Owner agrees that
Pomeroy 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 Merger
Agreement, is being entered into to protect a legitimate
business interest of Pomeroy 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, or service mark, 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 Paragraph 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.
E-184
<PAGE>
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 Pomeroy
to Owner pursuant to the Merger Agreement.
3. The terms and conditions of this Agreement shall be
binding upon the Owner and Pomeroy, and their respective
successors, heirs and assigns, including, but not limited to
the Parent Corporation, in the event Pomeroy is merged or
liquidated into the Parent Corporation during the term of
this Agreement.
4. The term "Parent Corporation," as such term is used
herein, means Pomeroy Computer Resources, Inc., a Delaware
corporation.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
OWNER:
__________________________________
ARTHUR M. COX
POMEROY:
POMEROY COMPUTER
RESOURCES OF SOUTH CAROLINA,
INC.
By:________________________________
E-185
<PAGE>
EXHIBIT A
STATES IN WHICH POMEROY
AND/OR ITS PARENT CORPORATION
AND/OR SUBSIDIARIES TRANSACT BUSINESS
1. Alabama
2. Florida
3. Indiana
4. Iowa
5. Kentucky
6. North Carolina
7. Ohio
8. South Carolina
9. Tennessee
10. West Virginia
??
E-186
<PAGE>
AGREEMENT
This Agreement made and entered into this ____ day of
____________, 1997, by and between RONALD D. HILDRETH
(hereinafter referred to as "Owner") and POMEROY COMPUTER
RESOURCES OF SOUTH CAROLINA, INC., a South Carolina
corporation (hereinafter referred to as "Pomeroy").
W I T N E S S E T H :
WHEREAS, simultaneously with the execution of this
Agreement, Pomeroy entered into an Agreement and Plan of
Reorganization ("Merger Agreement") with THE COMPUTER STORE,
INC., a South Carolina corporation ("CSI"), Owner, ARTHUR M.
COX and JEFFREY F. HIPP for the merger of CSI with and into
Pomeroy; and
WHEREAS, immediately prior to the Effective Date (as defined
in the Merger Agreement) Owner owned forty-six and 88/100
percent (46.88%) of the outstanding stock of CSI; and
WHEREAS, Pomeroy would not have entered into the Merger
Agreement with CSI without the consent of Owner to enter
into this covenant not to compete agreement; and
WHEREAS, pursuant to Sections 3 and 11.2(g) of said Merger
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 Merger Agreement, the parties
hereto agree as follows:
1. As an inducement for Pomeroy to enter into the Merger
Agreement with CSI (46.88% of the stock of which is owned by
Owner), Owner covenants and agrees that for a period equal
to the later of (i) five (5) years from the Effective Date
as defined in the Merger Agreement or (ii) one (1) year
after the termination of Owner's employment with Pomeroy
under an Employment Agreement executed by and between the
Owner and Pomeroy of even date herewith, Owner neither by
himself nor 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 Pomeroy, its Parent Corporation
(as defined in Paragraph 4 of this Agreement) or any
subsidiary thereof relating to the Business of Pomeroy, as
defined below; or
E-187
<PAGE>
(b) Attempt to seek or cause any clients or customers
of Pomeroy, its Parent Corporation or any of their
subsidiaries to refrain from continuing their patronage of
the Business of Pomeroy; or
(c) Engage in the Business of Pomeroy in any state in
which Pomeroy, its Parent Corporation or any of their
subsidiaries have an office during the term of Owner's
employment by Pomeroy. A list of the states in which
Pomeroy, its Parent Corporation, and any of their
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
Pomeroy, or its Parent Corporation or any of their
subsidiaries.
(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 or
from taking any action described in items 1(b) - (d) above
for the benefit of or on behalf of Pomeroy, its Parent
Corporation, or any of their subsidiaries.
For purposes of this Section, the "Business of Pomeroy"
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 personal computer hardware, software, peripheral
devices or related products;
(ii) Sale or servicing, whether at the wholesale or
retail level, or leasing or renting, of personal 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.
E-188
<PAGE>
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 CSI acquired by
Pomeroy and have been separately bargained for and agrees
that Pomeroy has been induced to enter into the Merger
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 Pomeroy will suffer irreparable injury in
the event of a breach by Owner, and Owner agrees that
Pomeroy 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 Merger
Agreement, is being entered into to protect a legitimate
business interest of Pomeroy 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, or service mark, 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 Paragraph 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
E-189
<PAGE>
consideration, including consideration paid by the Pomeroy
to Owner pursuant to the Merger Agreement.
3. The terms and conditions of this Agreement shall be
binding upon the Owner and Pomeroy, and their respective
successors, heirs and assigns, including but not limited to
the Parent Corporation, in the event Pomeroy is merged or
liquidated into the Parent Corporation during the term of
this Agreement.
4. The term "Parent Corporation," as such term is used
herein, means Pomeroy Computer Resources, Inc., a Delaware
corporation.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
OWNER:
__________________________________
RONALD D. HILDRETH
POMEROY:
POMEROY COMPUTER
RESOURCES OF SOUTH CAROLINA,
INC.
By:________________________________
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<PAGE>
EXHIBIT A
STATES IN WHICH POMEROY
AND/OR ITS PARENT CORPORATION
AND/OR SUBSIDIARIES TRANSACT BUSINESS
1. Alabama
2. Florida
3. Indiana
4. Iowa
5. Kentucky
6. North Carolina
7. Ohio
8. South Carolina
9. Tennessee
10. West Virginia
??
E-191
<PAGE>
AGREEMENT
This Agreement made and entered into this ____ day of
____________, 1997, by and between JEFFREY F. HIPP
(hereinafter referred to as "Owner") and POMEROY COMPUTER
RESOURCES OF SOUTH CAROLINA, INC., a South Carolina
corporation (hereinafter referred to as "Pomeroy").
W I T N E S S E T H :
WHEREAS, simultaneously with the execution of this
Agreement, Pomeroy entered into an Agreement and Plan of
Reorganization ("Merger Agreement") with THE COMPUTER STORE,
INC., a South Carolina corporation ("CSI"), Owner, ARTHUR M.
COX and RONALD D. HILDRETH for the merger of CSI with and
into Pomeroy; and
WHEREAS, immediately prior to the Effective Date (as defined
in the Merger Agreement) Owner owned six and 25/100 percent
(6.25%) of the outstanding stock of CSI; and
WHEREAS, Pomeroy would not have entered into the Merger
Agreement with CSI without the consent of Owner to enter
into this covenant not to compete agreement; and
WHEREAS, pursuant to Sections 3 and 11.2(g) of said Merger
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 Merger Agreement, the parties
hereto agree as follows:
1. As an inducement for Pomeroy to enter into the Merger
Agreement with CSI (6.25% of the stock of which is owned by
Owner), Owner covenants and agrees that for a period equal
to the later of (i) five (5) years from the Effective Date
as defined in the Merger Agreement or (ii) one (1) year
after the termination of Owner's employment with Pomeroy
under an Employment Agreement executed by and between the
Owner and Pomeroy of even date herewith, Owner neither by
himself nor 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 Pomeroy, its Parent Corporation
(as defined in Paragraph 4 of this Agreement) or any
subsidiary thereof relating to the Business of Pomeroy, as
defined below; or
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<PAGE>
(b) Attempt to seek or cause any clients or customers
of Pomeroy, its Parent Corporation or any any of their
subsidiaries to refrain from continuing their patronage of
the Business of Pomeroy; or
(c) Engage in the Business of Pomeroy in any state in
which Pomeroy, its Parent Corporation or any of their
subsidiaries have an office during the term of Owner's
employment by Pomeroy. A list of the states in which
Pomeroy, its Parent Corporation, and any of their
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
Pomeroy, or its Parent Corporation or any of their
subsidiaries.
(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 or
from taking any action described in items 1(b) - (d) above
for the benefit of or on behalf of Pomeroy, its Parent
Corporation, or any of their subsidiaries.
For purposes of this Section, the "Business of Pomeroy"
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 personal computer hardware, software, peripheral
devices or related products;
(ii) Sale or servicing, whether at the wholesale or
retail level, or leasing or renting, of personal 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.
E-193
<PAGE>
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 CSI acquired by
Pomeroy and have been separately bargained for and agrees
that Pomeroy has been induced to enter into the Merger
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 Pomeroy will suffer irreparable injury in
the event of a breach by Owner, and Owner agrees that
Pomeroy 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 Merger
Agreement, is being entered into to protect a legitimate
business interest of Pomeroy 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, or service mark, 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 Paragraph 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.
E-194
<PAGE>
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 Pomeroy
to Owner pursuant to the Merger Agreement.
3. The terms and conditions of this Agreement shall be
binding upon the Owner and Pomeroy, and their respective
successors, heirs and assigns, including, but not limited to
the Parent Corporation, in the event Pomeroy is merged or
liquidated into the Parent Corporation during the term of
this Agreement.
4. The term "Parent Corporation," as such term is used
herein, means Pomeroy Computer Resources, Inc., a Delaware
corporation.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
OWNER:
__________________________________
JEFFREY F. HIPP
POMEROY:
POMEROY COMPUTER
RESOURCES OF SOUTH CAROLINA,
INC.
By:________________________________
E-195
<PAGE>
EXHIBIT A
STATES IN WHICH POMEROY
AND/OR ITS PARENT CORPORATION
AND/OR SUBSIDIARIES TRANSACT BUSINESS
1. Alabama
2. Florida
3. Indiana
4. Iowa
5. Kentucky
6. North Carolina
7. Ohio
8. South Carolina
9. Tennessee
10. West Virginia
??
E-196
<PAGE>
INVESTOR'S CERTIFICATE
The undersigned, JEFFREY F. HIPP ("Investor"), 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 Agreement and
Plan of Reorganization entered into between the Company's
subsidiary, POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA,
INC., a South Carolina corporation (the "Subsidiary"), and
Investor dated the ____ day of ________________, 1997. The
Securities will be acquired by Investor from the Subsidiary
upon the closing of the transactions contemplated by the
Agreement and Plan of Reorganization.
In order to induce the Company and Subsidiary to close the
transactions contemplated by the Agreement and Plan of
Reorganization and to induce the Subsidiary to issue the
Securities, Investor hereby certifies to the Company and
Subsidiary as follows:
1. Investor's full name and business address are as
follows:
Name: Business Address:
JEFFREY F. HIPP 810 Dutch Square
Boulevard
Columbia, South Carolina
29210
2. Investor is purchasing the Securities in his own name
and for his own account and no other person (other than the
Escrow Agents under the Escrow Agreement) has any interest
in or right with respect to the Securities (other than the
unperfected security interest to secure certain contribution
obligations among Investor and certain other individual
parties to the Agreement and Plan of Reorganization), nor
has he 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. He 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 South Carolina 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 he cannot transfer or dispose of the Securities absent
E-197
<PAGE>
registration and qualification or an available exemption
from registration and qualification. Investor represents
that he is familiar with the provisions of Rule 144 of the
Rules and Regulations of the Securities and Exchange
Commission and that he understands that the Securities are
"Restricted Securities" as such term is defined in said Rule
144. The Investor understands that the South Carolina
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. Investor represents that by reason of his business
and/or financial experience, he is capable of evaluating the
merits and risks of this investment in the shares of the
Company and protecting his own interest in connection with
the investment. Investor represents that he has elected not
to use a Purchaser Representative (as such term is defined
in S.E.C. Regulation 230.501) in connection with evaluating
the merits and risks of this investment.
6. Investor acknowledges that during the course of the
negotiation of the Agreement and Plan of Reorganization, and
before completing the acquisition of the Securities, he has
been provided with financial and other written information
about the Company. Investor has read the Agreement and Plan
of Reorganization, reviewed it with counsel and been given
the opportunity by the Company to obtain any information and
ask any questions concerning the Company, the Subsidiary,
the Securities and his investment that he has felt
necessary, and to the extent that he has availed himself of
that opportunity, has 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 him by the Company, that
additional information was provided to him and was
satisfactory. In reaching the decision to vote his stock in
the Computer Store, Inc. to merge the Computer Store, Inc.
into the Subsidiary, and to receive as partial consideration
therefor the Securities, Investor has carefully evaluated
Investor's financial resources and investment position and
the risks associated with this investment, and Investor
acknowledges that he is able to bear the economic risks of
this investment. By electing to make this investment,
Investor realizes that he may lose his entire investment.
Investor fully acknowledges that his financial condition is
E-198
<PAGE>
such that he is not under any present necessity or
constraint to dispose of the Securities to satisfy any
existing or contemplated debt or undertaking.
7. 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 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."
IN WITNESS WHEREOF, the undersigned has executed this
Investor's Certificate this ____ day of
____________________, 1997.
________________________________
JEFFREY F. HIPP
Taxpayer Social Security No.:
________________________________
??
E-199
<PAGE>
INVESTOR'S CERTIFICATE
The undersigned, RONALD D. HILDRETH ("Investor"), 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 Agreement and
Plan of Reorganization entered into between the Company's
subsidiary, POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA,
INC., a South Carolina corporation (the "Subsidiary"), and
Investor dated the ____ day of ________________, 1997. The
Securities will be acquired by Investor from the Subsidiary
upon the closing of the transactions contemplated by the
Agreement and Plan of Reorganization.
In order to induce the Company and Subsidiary to close the
transactions contemplated by the Agreement and Plan of
Reorganization and to induce the Subsidiary to issue the
Securities, Investor hereby certifies to the Company and
Subsidiary as follows:
1. Investor's full name and business address are as
follows:
Name: Business Address:
RONALD D. HILDRETH 810 Dutch Square
Boulevard
Columbia, South Carolina
29210
2. Investor is purchasing the Securities in his own name
and for his own account and no other person (other than the
Escrow Agents under the Escrow Agreement) has any interest
in or right with respect to the Securities (other than the
unperfected security interest to secure certain contribution
obligations among Investor and certain other individual
parties to the Agreement and Plan of Reorganization), nor
has he 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. He 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 South Carolina 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 he cannot transfer or dispose of the Securities absent
E-200
<PAGE>
registration and qualification or an available exemption
from registration and qualification. Investor represents
that he is familiar with the provisions of Rule 144 of the
Rules and Regulations of the Securities and Exchange
Commission and that he understands that the Securities are
"Restricted Securities" as such term is defined in said Rule
144. The Investor understands that the South Carolina
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. Investor represents that by reason of his business
and/or financial experience, he is capable of evaluating the
merits and risks of this investment in the shares of the
Company and protecting his own interest in connection with
the investment. Investor represents that he has elected not
to use a Purchaser Representative (as such term is defined
in S.E.C. Regulation 230.501) in connection with evaluating
the merits and risks of this investment.
6. Investor acknowledges that during the course of the
negotiation of the Agreement and Plan of Reorganization, and
before completing the acquisition of the Securities, he has
been provided with financial and other written information
about the Company. Investor has read the Agreement and Plan
of Reorganization, reviewed it with counsel and been given
the opportunity by the Company to obtain any information and
ask any questions concerning the Company, the Subsidiary,
the Securities and his investment that he has felt
necessary, and to the extent that he has availed himself of
that opportunity, has 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 him by the Company, that
additional information was provided to him and was
satisfactory. In reaching the decision to vote his stock in
the Computer Store, Inc. to merge the Computer Store, Inc.
into the Subsidiary, and to receive as partial consideration
therefor the Securities, Investor has carefully evaluated
Investor's financial resources and investment position and
the risks associated with this investment, and Investor
acknowledges that he is able to bear the economic risks of
this investment. By electing to make this investment,
Investor realizes that he may lose his entire investment.
Investor fully acknowledges that his financial condition is
E-201
<PAGE>
such that he is not under any present necessity or
constraint to dispose of the Securities to satisfy any
existing or contemplated debt or undertaking.
7. 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 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."
IN WITNESS WHEREOF, the undersigned has executed this
Investor's Certificate this ____ day of
____________________, 1997.
________________________________
RONALD D. HILDRETH
Taxpayer Social Security No.:
________________________________
??
E-202
<PAGE>
INVESTOR'S CERTIFICATE
The undersigned, ARTHUR M. COX ("Investor"), 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 Agreement and
Plan of Reorganization entered into between the Company's
subsidiary, POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA,
INC., a South Carolina corporation (the "Subsidiary"), and
Investor dated the ______ day of ________________, 1997.
The Securities will be acquired by Investor from the
Subsidiary upon the closing of the transactions contemplated
by the Agreement and Plan of Reorganization.
In order to induce the Company and Subsidiary to close the
transactions contemplated by the Agreement and Plan of
Reorganization and to induce the Subsidiary to issue the
Securities, Investor hereby certifies to the Company and
Subsidiary as follows:
1. Investor's full name and business address are as
follows:
Name: Business Address:
ARTHUR M. COX 810 Dutch Square
Boulevard
Columbia, South Carolina
29210
2. Investor is purchasing the Securities in his own name
and for his own account and no other person (other than the
Escrow Agents under the Escrow Agreement) has any interest
in or right with respect to the Securities (other than the
unperfected security interest to secure certain contribution
obligations among Investor and certain other individual
parties to the Agreement and Plan of Reorganization), nor
has he 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. He 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 South Carolina 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 he cannot transfer or dispose of the Securities absent
E-203
<PAGE>
registration and qualification or an available exemption
from registration and qualification. Investor represents
that he is familiar with the provisions of Rule 144 of the
Rules and Regulations of the Securities and Exchange
Commission and that he understands that the Securities are
"Restricted Securities" as such term is defined in said Rule
144. The Investor understands that the South Carolina
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. Investor represents that by reason of his business
and/or financial experience, he is capable of evaluating the
merits and risks of this investment in the shares of the
Company and protecting his own interest in connection with
the investment. Investor represents that he has elected not
to use a Purchaser Representative (as such term is defined
in S.E.C. Regulation 230.501) in connection with evaluating
the merits and risks of this investment.
6. Investor acknowledges that during the course of the
negotiation of the Agreement and Plan of Reorganization, and
before completing the acquisition of the Securities, he has
been provided with financial and other written information
about the Company. Investor has read the Agreement and Plan
of Reorganization, reviewed it with counsel and been given
the opportunity by the Company to obtain any information and
ask any questions concerning the Company, the Subsidiary,
the Securities and his investment that he has felt
necessary, and to the extent that he has availed himself of
that opportunity, has 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 him by the Company, that
additional information was provided to him and was
satisfactory. In reaching the decision to vote his stock in
the Computer Store, Inc. to merge the Computer Store, Inc.
into the Subsidiary, and to receive as partial consideration
therefor the Securities, Investor has carefully evaluated
Investor's financial resources and investment position and
the risks associated with this investment, and Investor
acknowledges that he is able to bear the economic risks of
this investment. By electing to make this investment,
Investor realizes that he may lose his entire investment.
Investor fully acknowledges that his financial condition is
E-204
<PAGE>
such that he is not under any present necessity or
constraint to dispose of the Securities to satisfy any
existing or contemplated debt or undertaking.
7. 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 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."
IN WITNESS WHEREOF, the undersigned has executed this
Investor's Certificate this ____ day of
____________________, 1997.
________________________________
ARTHUR M. COX
Taxpayer Social Security No.:
________________________________
??
E-205
<PAGE>
ESCROW AGREEMENT
POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South
Carolina corporation (the "Pomeroy"), and ARTHUR M. COX,
RONALD D. HILDRETH, and JEFFREY F. HIPP (the "CSI
Shareholders") and NEXSEN PRUET JACOBS & POLLARD, LLP and
LINDHORST & DREIDAME CO., L.P.A. (the "Escrow Agents"),
hereby agree as follows, this _____ day of October, 1997.
SECTION 1 - RECITALS
1.1 Pomeroy and CSI Shareholders have entered into an
Agreement and Plan of Reorganization dated the 17th day of
October, 1997, (the "Merger Agreement") providing for the
merger of The Computer Store, Inc., a South Carolina
corporation, ("CSI") with and into Pomeroy.
1.2 Section 2.1(a) of the Merger Agreement provides that
the CSI Shareholders shall deposit with the Escrow Agents
the number of shares of stock of Pomeroy Computer Resources,
Inc., a Delaware corporation and the parent corporation of
Pomeroy, having an aggregate value of Seventy-Four Thousand
Nine Hundred Eighty-Three Dollars and 22/100 ($74,983.22)
(such stock hereinafter referred to as PCR Stock), and
Section 2.2(b) of the Merger Agreement provides that the CSI
Shareholders shall deposit with the Escrow Agents the sum of
Seventy-Five Thousand Sixteen Dollars and 78/100
($75,016.78) in the aggregate, which PCR Stock and cash
shall be deposited by the CSI Shareholders proportionately.
1.3 The Merger Agreement provides that there may be certain
adjustments made to the consideration incident to the
merger, as such adjustments are set forth and described in
the Merger Agreement. Any net reduction in the
consideration for the merger, as a result of such
adjustment(s), shall be implemented by decreasing
proportionately the amount of cash and PCR Stock paid to the
CSI Shareholders, which amount will be repaid to Pomeroy
first from the Escrow Fund, as defined in Paragraph 2.1, in
the manner set forth in this Escrow Agreement. In addition,
the CSI Shareholders have provided Pomeroy and Pomeroy
Computer Resources, Inc. ("PCR") with certain
indemnification rights under the Merger Agreement. Incident
thereto, the Merger Agreement provides that the Escrow
Agents shall distribute cash and PCR Stock from the Escrow
Fund to Pomeroy or PCR in an amount equal to any costs or
expenses incurred by Pomeroy or PCR resulting from any
inaccuracy in or breach of any representation, warranty,
covenant or obligation made or incurred by CSI or the CSI
Shareholders, subject to the terms of the Merger Agreement
relating to the indemnification rights and obligations of
the parties to the Merger Agreement.
E-206
<PAGE>
CERTAIN PORTIONS OF THIS AGREEMENT
ARE SUBJECT TO BINDING ARBITRATION
SECTION 2 - ESCROW FUND
2.1 The Escrow Agents shall hold the PCR Stock and the cash
which is delivered to the Escrow Agents by the CSI
Shareholders. The PCR Stock and cash received by the Escrow
Agents are sometimes referred to herein collectively as the
"Escrow Fund." The Escrow Agents shall invest the cash in
an interest-bearing account with Star Bank, National
Association.
SECTION 3 - TERM OF ESCROW, RELEASE OF ESCROW FUNDS,
INTEREST AND PROCEEDS THEREON
3.1 The Escrow Agents will hold the Escrow Funds in their
possession until the later of April 1, 1998 or the EBIT
determination, as such adjustment is set forth and described
in the Merger Agreement, is finalized by the CSI
Shareholders and Pomeroy.
If, as a result of any adjustments or indemnification
claims resulting from any inaccuracy in or breach of any
representation, warranty, covenant or obligation made or
incurred by CSI or the CSI Shareholders, subject to the
terms and limitations of the Merger Agreement relating to
the indemnification rights and obligations of the parties to
the Merger Agreement, there is a net reduction in the
consideration for the merger, which has been agreed upon in
writing by the parties or for which there is a report of an
arbitrator or an order of a court, then the Escrow Agents
shall deliver to Pomeroy a payment equal to the amount owed
Pomeroy as a result of such adjustment or indemnification
payable 50% from the cash and 50% from the PCR Stock held in
the Escrow Fund. For purposes of determining the amount of
PCR Stock to be delivered to Pomeroy, the value of the PCR
Stock shall be based on the average of the closing price of
the PCR Stock on the NASDAQ exchange for the twenty (20)
trading days immediately preceding the third day before an
agreement is made by the parties to the Merger Agreement in
the manner set forth and described in such Merger Agreement.
3.2 In the event there is no such net reduction in the
consideration paid for the merger or in the event that there
is cash and PCR Stock remaining after the payment from the
Escrow Fund for any such net reduction or pursuant to any
indemnification rights, then the Escrow Agents shall deliver
the remaining cash (with any interest thereon) and remaining
PCR Stock held in the Escrow Fund to the CSI Shareholders in
proportion to their percentage of ownership in CSI that they
held as set forth in the Merger Agreement, immediately prior
to the effective date of the Merger Agreement.
3.3 Until released from the escrow pursuant to this
Agreement, the PCR Stock held as part of the Escrow
E-207
<PAGE>
Fund shall remain registered in the name of the individual
CSI Shareholders, and each CSI Shareholder shall be entitled
to all incidents of ownership in the number of shares of PCR
Stock transferred by each CSI Shareholder, respectively,
including but not limited to the right to vote the PCR Stock
and to receive all dividends and other distributions
thereon, subject however, to the provisions of this
Agreement and the Merger Agreement.
3.4 All disbursements from the Escrow Fund to Pomeroy for
any adjustments to the consideration of the merger or for
any claims under any indemnification rights must be payable
to the extent possible approximately 50% from the cash held
in the Escrow Fund and approximately 50% from the PCR Stock
held in the Escrow Fund. Any disbursement made to Pomeroy
of the PCR Stock shall be rounded down to the nearest whole
share and any cash distributed shall be rounded up
accordingly.
3.5 Notwithstanding the above provisions, the Escrow Agents
shall not release any cash or PCR Stock from the Escrow Fund
without first giving written notice to Pomeroy and the CSI
Shareholders. If no objection is made by Pomeroy and the
CSI Shareholders within 10 days from the date that the
written notice is delivered to the CSI Shareholders and to
Pomeroy, then the Escrow Agents may release the cash and PCR
Stock pursuant to the terms of this Escrow Agreement. If a
timely objection is made in writing by the CSI Shareholders
or by Pomeroy, the Escrow Agents shall not release any cash
or PCR Stock until such time that the Escrow Agents are
informed in writing signed by the CSI Shareholders and
Pomeroy that the Escrow Agents are to release the Escrow
Fund or a portion thereof. In the event the parties are
unable to reach an agreement within 10 days after the
objection, the matter shall be arbitrated in the manner set
forth in Section 4.7.
SECTION 4 - ESCROW AGENTS
4.1 The Escrow Agents shall be reimbursed for all expenses,
disbursements and advances incurred or made by them in the
performance of their duties hereunder. The CSI Shareholders
shall be responsible for the expenses, disbursements and
advances incurred by Nexsen Pruet Jacobs & Pollard, LLP and
Subsidiary shall be responsible for the expenses,
disbursements and advances incurred by Lindhorst & Dreidame
Co., LPA.
4.2 The Escrow Agents may resign and be discharged from
their duties hereunder at any time by giving 10 days prior
written notice of such resignation to CSI Shareholders and
Pomeroy specifying the date which such resignation shall
take effect. Upon such notice, successor Escrow Agents
shall be appointed by the mutual consent of the CSI
E-208
<PAGE>
Shareholders and Pomeroy. CSI Shareholders and Pomeroy,
jointly, shall have the right at any time upon their mutual
consent to substitute new Escrow Agents by giving notice
thereof to the Escrow Agents then acting.
4.3 The Escrow Agents undertake to perform such duties only
as are specifically set forth herein and may conclusively
rely, and shall be protected in acting or refraining from
acting, on any written notice, instrument or signature
believed by them to be genuine and to have been signed or
presented by the proper party or parties duly authorized to
do so. The Escrow Agents shall have no responsibility for
the contents of any writing contemplated herein and may rely
without any liability upon the contents thereof.
4.4 The Escrow Agents shall not be liable for any action
taken or omitted by them in good faith and believed by them
to be authorized hereby or within the rights and powers
conferred upon them hereunder, nor for any action taken or
mistake of fact or error of judgment or for any acts or
omissions of any kind unless caused by their willful
misconduct or gross negligence. The Escrow Agents may
consult with legal counsel selected by them and shall not be
liable for any action taken or omitted by them in good faith
in accordance with the advice of such counsel.
4.5 Each party hereto agrees to indemnify the Escrow Agents
and hold them harmless against any all liabilities incurred
by them hereunder as a consequence of such party's action,
and the parties agree jointly to indemnify the Escrow Agents
and hold them harmless against any and all liabilities
incurred by them hereunder that are not a consequence of any
party's action, except for liabilities incurred by the
Escrow Agents resulting from their own willful misconduct or
gross negligence.
4.6 Escrow Agents shall not be responsible for the
identity, authority or rights of any person executing or
delivering, or purporting to execute or deliver, this Escrow
Agreement, or any document or security deposited hereunder,
or any endorsement thereon or assignment thereof, or for the
sufficiency, genuineness or validity of or title to any
document or security deposited with it hereunder, or any
assignment thereof.
4.7 In the event of any disagreement between Pomeroy and
the CSI Shareholders regarding the Escrow Agents'
actions or obligations hereunder or in the event of a
disagreement between the Escrow Agents, the Escrow Agents
shall, subject to the provisions of the Merger Agreement,
submit the question to an arbitrator to be appointed by the
American Arbitration Association for arbitration in
accordance with its rules, whose determination shall be
conclusive and binding to all parties to this Agreement.
E-209
<PAGE>
4.8 The parties to this Agreement acknowledge that CSI has
been and that the CSI Shareholders may hereafter be
represented by Nexsen Pruet Jacobs & Pollard, LLP and
Pomeroy has been and continues to be represented by
Lindhorst & Dreidame Co., L.P.A. and that such legal
entities and their respective individual attorneys may
continue to serve as legal counsel for the respective
parties to this Agreement.
4.9 Any action to be taken by the Escrow Agents hereunder
shall be done jointly.
SECTION 5 - MISCELLANEOUS
5.1 Nothing in this Escrow Agreement shall be deemed to
enlarge or diminish the rights and obligations of CSI
Shareholders and Pomeroy as set forth in the Merger
Agreement.
5.2 This Escrow Agreement shall be construed by and
governed in accordance with the laws of the State of South
Carolina.
5.3 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 to hereto):
(a) If to Pomeroy, to: Pomeroy Computer
Resources of South Carolina,
Inc.
c/o Pomeroy Computer
Resources, Inc.
1020 Petersburg Road
Hebron, KY 41048
(b) If to CSI Shareholders, to: Arthur M. Cox
312 Stamford Bridge Road
Columbia, SC 29212
Ronald D. Hildreth
225 Mariners Row
Columbia, SC 29212
Jeffrey F. Hipp
4 Medina Court
Columbia, SC 29223
E-210
<PAGE>
(c) If to Escrow Agents, to: Lindhorst & Dreidame
Co., L.P.A.
312 Walnut Street, Suite
2300
Cincinnati, Ohio 45202
Attention: James H. Smith
III
Nexsen Pruet Jacobs &
Pollard, LLP
1441 Main Street, Suite
1500
P.O. Drawer 2426
Columbia, SC 29202
Attention: G. Marcus
Knight
WITNESSES: POMEROY:
POMEROY COMPUTER
RESOURCES OF SOUTH
CAROLINA, INC.
_________________________
By:
_________________________________
_________________________
CSI SHAREHOLDERS:
_________________________
________________________________
ARTHUR M. COX
_________________________
_________________________
________________________________
RONALD D. HILDRETH
_________________________
_________________________
_________________________________
JEFFREY F. HIPP
_________________________
E-211
<PAGE>
ESCROW AGENTS:
NEXSEN PRUET JACOBS &
POLLARD, LLP
_________________________
By:
_________________________________
G. MARCUS KNIGHT,
Partner
_________________________
LINDHORST & DREIDAME CO.,
L.P.A.
_________________________ By:
__________________________________
JAMES H. SMITH III,
Treasurer
_________________________
??
LD 92320-2
E-212
<PAGE>
(513) 345-5767
October 17, 1997
The Computer Store, Inc.
Mr. Arthur M. Cox
Mr. Ronald D. Hildreth
Mr. Jeffrey F. Hipp
G. Marcus Knight, Esq.
Nexsen Pruet Jacobs & Pollard, LLP
1441 Main Street, Suite 1500
Columbia, South Carolina 29202
RE: Agreement and Plan of Reorganization Between
Pomeroy Computer Resources of South Carolina, Inc. and The
Computer Store, Inc.
Dear Mr. Cox, Mr. Hildreth and Mr. Hipp:
We have acted as counsel to Pomeroy Computer Resources,
Inc. and Pomeroy Computer Resources of South Carolina, Inc.
in connection with the execution and delivery of the
Agreement and Plan of Reorganization (the "Merger
Agreement") dated as of October 17, 1997 by, between and
among Pomeroy Computer Resources of South Carolina, Inc.,
Pomeroy Computer Resources, Inc., The Computer Store, Inc.,
Arthur M. Cox, Ronald D. Hildreth and Jeffrey F. Hipp.
This opinion is given to you pursuant to Section
11.3(d)(vi) of the Merger Agreement. The terms defined in
the Merger Agreement and not otherwise defined herein shall
have the meaning given those terms in the Merger Agreement.
We have examined such certificates of public officials,
corporate documents and records and other certificates,
opinions and instruments and have made such other
investigations as we have deemed necessary in connection
with the opinions set forth herein.
Except for the signing by Pomeroy Computer Resources,
Inc. of the Guarantees of Employment Agreements and the
Merger Agreement and except for the signing by Pomeroy
Computer Resources of South Carolina, Inc. of the Merger
Agreement and other documents referred to therein, we have
assumed the genuineness of all signatures on, the legal
capacity of all signing parties to and the authenticity of,
all documents submitted to us as originals and the
conformity to original documents of all documents submitted
to us as certified or photostatic copies.
E-213
<PAGE>
We have not made an independent review of the laws of
any state or jurisdiction other than Delaware, Ohio, South
Carolina and the United States. Accordingly, we express no
opinion as to the laws of any state or jurisdiction other
than the United States and the States of Delaware, Ohio and
South Carolina.
The opinions hereinafter expressed are qualified to the
extent that (i) the enforceability of any provisions in the
documents, or any rights granted to you pursuant to the
documents, are subject to and may be affected by applicable
state and/or federal bankruptcy, insolvency, fraudulent
conveyance, reorganization or moratorium laws, or similar
laws affecting the rights of creditors or debtors generally,
(ii) the enforceability thereof may be limited by the
application of general principles of equity and matters of
public policy, (iii) any provisions requiring payment of
attorneys' fees may not be enforceable, and (iv) no opinion
is expressed as to enforceability of (a) self-help
provisions, (b) waiver of Constitutional rights, (c)
provisions related to warrants of attorney to confess
judgment, and (d) provisions related to waiver of remedies
(or to the delay or omission of enforcement thereof),
disclaimers, liability limitation with respect to third
parties, liquidated damages or the creation of remedies not
available under state law. Further, we are not opining on
the legality of any interest or charges under any applicable
usury laws.
Based upon and subject to the foregoing, we are of the
opinion that:
(i) Pomeroy Computer Resources, Inc. is a corporation
duly organized and validly existing under the laws of the
State of Delaware;
(ii) Pomeroy Computer Resources of South Carolina, Inc.
is a corporation duly organized and validly existing under
the laws of the State of South Carolina;
(iii) The Merger Agreement and other documents
relating thereto, or arising by reason of such Merger
Agreement, to which Pomeroy Computer Resources of South
Carolina, Inc. is a party, and/or to which Pomeroy Computer
Resources, is a party, have been approved, executed and
delivered pursuant to proper corporate authority and are the
legal, valid and binding obligation of Pomeroy Computer
Resources of South Carolina, Inc. and/or Pomeroy Computer
Resources, Inc., as applicable, enforceable in accordance
with their terms.
E-214
<PAGE>
(iv) All other documentation to be executed by Pomeroy
Computer Resources of South Carolina, Inc. required to
effectuate the merger of CSI into Pomeroy Computer Resources
of South Carolina, Inc. contemplated by the Merger Agreement
and delivered pursuant thereto have been properly executed
and are valid and enforceable in accordance with their
terms.
(v) The Employment Agreements executed by Pomeroy
Computer Resources of South Carolina, Inc. with Mr. Arthur
M. Cox, Mr. Ronald D. Hildreth and Mr. Jeffrey F. Hipp,
respectively, and the Guarantees of such Employment
Agreements executed by Pomeroy Computer Resources, Inc. have
been approved, executed and delivered pursuant to proper
corporate authority and are the legal, valid and binding
obligation of such respective party enforceable in
accordance with their terms.
This opinion is rendered solely for your reliance in
connection with the execution, delivery, and performance of
the Merger Agreement and other documents relating thereto.
It may not be relied upon by any other person or for any
other purpose without the prior written consent of this
firm.
Very truly yours,
LINDHORST & DREIDAME
James H. Smith III
JHS/cae
??
The Computer Store, Inc.
Mr. Arthur M. Cox
Mr. Ronald D. Hildreth
Mr. Jeffrey F. Hipp
Mark Knight, Esq.
October 17, 1997
E-215
<PAGE>
Pomeroy Computer Resources, Inc.
Exhibit 11 - Computation of Earnings Per
(in thousands, except per share amounts
Fiscal Years
1995 1996 1997
BASIC
Weighted average common
shares outstanding 5,660 7,834 11,052
======== ======== ========
Net income $ 4,367 $ 6,232 $16,313
======== ======== ========
Net income per common share $ 0.77 $ 0.80 $ 1.48
======== ======== ========
DILUTED
Weighted average common
shares outstanding 5,660 7,834 11,052
Dilutive effect of stock
options outstanding during
the period 332 272 315
Contingent shares 25 - -
________ ________ ________
Total common and common
equivalent shares 6,007 8,106 11,367
======== ======== ========
Net income $ 4,367 $ 6,232 $16,313
======== ======== ========
Net income per common share $ 0.73 $ 0.77 $ 1.44
======== ======== ========
E-216
EXHIBIT 21
Subsidiaries of Pomeroy Computer Resources, Inc.
Subsidiary State of Incorporation
__________ ______________________
Xenas Communications Corp. Ohio
The subsidiary does business under the name Envision.
Technology Integration Kentucky
Financial Services, Inc.
f/k/a Pomeroy Computer Leasing Company, Inc.
The subsidiary does business under the name Technology
Integration Financial Services, Inc.
Pomeroy Computer Resources of South Carolina
South Carolina, Inc,
E-217
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-05-1998
<PERIOD-END> JAN-05-1998
<CASH> 380
<SECURITIES> 0
<RECEIVABLES> 99,707
<ALLOWANCES> 578
<INVENTORY> 39,160
<CURRENT-ASSETS> 140,063
<PP&E> 17,316
<DEPRECIATION> 6,770
<TOTAL-ASSETS> 167,264
<CURRENT-LIABILITIES> 77,035
<BONDS> 0
0
0
<COMMON> 114
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 167,264
<SALES> 491,448
<TOTAL-REVENUES> 491,448
<CGS> 410,063
<TOTAL-COSTS> 410,063
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 974
<INCOME-PRETAX> 25,820
<INCOME-TAX> 9,507
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,313
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.44
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
These Schedules contain restated financial information extracted from the
Consolidated Balance Sheets as of January 5, 1996 and 1997, and the Consolidated
statements of Income for the twelve months ended January 5, 1996 and 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JAN-05-1996 JAN-05-1997
<PERIOD-END> JAN-05-1996 JAN-05-1997
<CASH> 596 6,809
<SECURITIES> 0 0
<RECEIVABLES> 34,320 68,094
<ALLOWANCES> 411 509
<INVENTORY> 18,987 23,426
<CURRENT-ASSETS> 54,390 99,068
<PP&E> 6,559 13,076
<DEPRECIATION> 1,968 3,864
<TOTAL-ASSETS> 63,985 121,380
<CURRENT-LIABILITIES> 44,051 71,865
<BONDS> 0 0
0 0
0 0
<COMMON> 26 65
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 63,985 121,380
<SALES> 230,710 336,358
<TOTAL-REVENUES> 230,710 336,358
<CGS> 197,174 281,753
<TOTAL-COSTS> 197,174 281,753
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,999 2,170
<INCOME-PRETAX> 7,350 10,528
<INCOME-TAX> 2,983 4,296
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,367 6,232
<EPS-PRIMARY> 0.77 0.80
<EPS-DILUTED> 0.73 0.77
</TABLE>
