UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 5, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20022
POMEROY COMPUTER RESOURCES, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-1227808
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(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1020 Petersburg Road, Hebron, KY 41048
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(Address of principal executive offices)
(606) 586-0600
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days.
YES X NO
--- ---
The number of shares of common stock outstanding as of November 5, 1999 was
11,806,711.
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POMEROY COMPUTER RESOURCES, INC.
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements: Page
----
<S> <C>
Consolidated Balance Sheets as of
January 5, 1999 and October 5, 1999 3
Consolidated Statements of Income for
the Quarters Ended October 5, 1998 and
1999 4
Consolidated Statements of Income for
the Nine Months Ended October 5, 1998
and 1999 5
Consolidated Statements of Cash Flows
for the Nine Months Ended October 5,
1998 and 1999 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Part II. Other Information 15
SIGNATURE 16
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2
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POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands) January 5, October 5,
1999 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,962 $ 5,386
Accounts and note receivable, less allowance of $598 and $2,350
at January 5, 1999 and October 5, 1999, respectively. . . . . 164,991 209,106
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . 33,333 23,837
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,084 3,526
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . 204,370 241,855
----------- -----------
Equipment and leasehold improvements. . . . . . . . . . . . . . . . 23,796 25,223
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . 10,323 12,229
----------- -----------
Net equipment and leasehold improvements . . . . . . . . . 13,473 12,994
----------- -----------
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,383 44,920
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 254,226 $ 299,769
=========== ===========
LIABILITIES & EQUITY
Current liabilities:
Current portion of notes payable . . . . . . . . . . . . . . . . $ 5,028 $ 11,816
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 78,817 64,040
Bank notes payable . . . . . . . . . . . . . . . . . . . . . . . 39,629 72,371
Other current liabilities. . . . . . . . . . . . . . . . . . . . 9,532 13,860
----------- -----------
Total current liabilities. . . . . . . . . . . . . . . . . 133,006 162,087
----------- -----------
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,231 5,455
Equity:
Preferred stock (no shares issued or outstanding). . . . . . . . - -
Common stock (11,707 and 11,807 shares issued and outstanding
at January 5, 1999 and October 5, 1999, respectively) . . . . 117 118
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . 64,394 65,524
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . 48,800 66,907
----------- -----------
113,311 132,549
Less treasury stock, at cost (31 shares at January 5, 1999 and
October 5, 1999). . . . . . . . . . . . . . . . . . . . . . . 322 322
----------- -----------
Total equity. . . . . . . . . . . . . . . . . . . . . . . . . 112,989 132,227
----------- -----------
Total liabilities and equity. . . . . . . . . . . . . . . . . $ 254,226 $ 299,769
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
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POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data) Quarter Ended
-------------------------
October 5, October 5,
1998 1999
------------ -----------
<S> <C> <C>
Net sales and revenues . . . . . . . . $ 163,790 $ 197,090
Cost of sales and service. . . . . . . 141,493 170,035
------------ -----------
Gross profit. . . . . . . . . 22,297 27,055
------------ -----------
Operating expenses:
Selling, general and administrative 11,074 12,385
Rent expense. . . . . . . . . . . . 622 767
Depreciation. . . . . . . . . . . . 973 869
Amortization. . . . . . . . . . . . 433 771
Provision for doubtful accounts . . - -
------------ -----------
Total operating expenses. . . 13,102 14,792
------------ -----------
Income from operations . . . . . . . . 9,195 12,263
------------ -----------
Other expense (income):
Interest expense. . . . . . . . . . 711 1,182
Miscellaneous . . . . . . . . . . . (77) 1
------------ -----------
Total other expense . . . . . 634 1,183
------------ -----------
Income before income tax. . . . . . 8,561 11,080
Income tax expense. . . . . . . . . 3,168 4,548
------------ -----------
Net income. . . . . . . . . . . . . $ 5,393 $ 6,532
============ ===========
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . 11,505 11,744
============ ===========
Diluted . . . . . . . . . . . . . . 11,745 11,831
============ ===========
Earnings per common share:
Basic . . . . . . . . . . . . . . . $ 0.47 $ 0.56
============ ===========
Diluted . . . . . . . . . . . . . . $ 0.46 $ 0.55
============ ===========
</TABLE>
See notes to consolidated financial statements.
4
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POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data) Nine Months Ended
--------------------------
October 5, October 5,
1998 1999
------------ ------------
<S> <C> <C>
Net sales and revenues. . . . . . . . $ 457,831 $ 547,862
Cost of sales and service . . . . . . 396,993 474,240
------------ ------------
Gross profit . . . . . . . . 60,838 73,622
------------ ------------
Operating expenses:
Selling, general and administrative 29,878 35,006
Rent expense. . . . . . . . . . . . 1,810 2,169
Depreciation. . . . . . . . . . . . 2,779 2,666
Amortization. . . . . . . . . . . . 1,195 2,086
Provision for doubtful accounts . . - 46
------------ ------------
Total operating expenses . . 35,662 41,973
------------ ------------
Income from operations. . . . . . . 25,176 31,649
------------ ------------
Other expense(income):
Interest expense. . . . . . . . . . 2,011 2,832
Miscellaneous . . . . . . . . . . . (133) (44)
------------ ------------
Total other expense. . . . . 1,878 2,788
------------ ------------
Income before income tax. . . . . . 23,298 28,861
Income tax expense. . . . . . . . . 8,620 11,581
------------ ------------
Net income. . . . . . . . . . . . . $ 14,678 $ 17,280
============ ============
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . 11,450 11,709
============ ============
Diluted.. . . . . . . . . . . . . . 11,754 11,824
============ ============
Earnings per common share:
Basic . . . . . . . . . . . . . . . $ 1.28 $ 1.48
============ ============
Diluted.. . . . . . . . . . . . . . $ 1.25 $ 1.46
============ ============
</TABLE>
See notes to consolidated financial statements.
5
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POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Nine Months Ended
--------------------------
October 5, October 5,
1998 1999
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net cash flows used in operating activities. $ (2,312) $ (27,332)
Cash Flows from Investing Activities:
Capital expenditures . . . . . . . . . . . . (2,684) (2,172)
Acquisition of reseller assets, net of cash
acquired. . . . . . . . . . . . . . . . . . . . (11,229) (4,298)
------------ ------------
Net investing activities. . . . . . . . . . . . (13,913) (6,470)
------------ ------------
Cash Flows from Financing Activities:
Net borrowings on bank note . . . . . . . . . . 16,797 32,592
Net borrowings (payments) on notes payable. . . (1,030) 1,232
Purchase of treasury stock. . . . . . . . . . . (118) -
Proceeds from stock options related tax benefit - 827
Proceeds from exercise of stock options.. . . . 1,715 575
------------ ------------
Net financing activities . . . . . . . . . . 17,364 35,226
------------ ------------
Increase in cash. . . . . . . . . . . . . . . . 1,139 1,424
Cash:
Beginning of period. . . . . . . . . . . . . 380 3,962
------------ ------------
End of period. . . . . . . . . . . . . . . . $ 1,519 $ 5,386
============ ============
</TABLE>
See notes to consolidated financial statements.
6
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POMEROY COMPUTER RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Except as
disclosed herein, there has been no material change in the information disclosed
in the notes to consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended January 5, 1999. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the interim period have been made. The results of
operations for the nine-month period ended October 5, 1999 are not necessarily
indicative of the results that may be expected for future interim periods or for
the year ending January 5, 2000.
2. Cost of sales and service
In the first quarter of 1999, the Company changed the manner in which services'
labor costs are reported. The Company now classifies direct costs of service
personnel in cost of sales and service; previously, such costs were included in
selling, general and administrative expenses. Prior periods have been
reclassified to conform with the current year's presentation.
3. Borrowing Arrangements
At January 5 and October 5, 1999, bank notes payable include $12.6 million and
$4.9 million, respectively, of overdrafts in accounts with a participant bank to
the Company's credit facility. These amounts were subsequently funded through
the normal course of business.
4. Earnings per Common Share
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)
<TABLE>
<CAPTION>
Quarter Ended October 5,
----------------------------------------
1998 1999
------------------- -------------------
Per Share Per Share
Shares Amount Shares Amount
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Basic EPS. . . . . 11,505 $ 0.47 11,744 $ 0.56
Effect of dilutive
Stock options. . 240 (0.01) 87 (0.01)
------ ----------- ------ -----------
Diluted EPS. . . . 11,745 $ 0.46 11,831 $ 0.55
====== =========== ====== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended October 5,
----------------------------------------
1998 1999
------------------- -------------------
Per Share Per Share
Shares Amount Shares Amount
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Basic EPS. . . . . 11,450 $ 1.28 11,709 $ 1.48
Effect of dilutive
Stock options. . 304 (0.03) 115 (0.02)
------ ----------- ------ -----------
Diluted EPS. . . . 11,754 $ 1.25 11,824 $ 1.46
====== =========== ====== ===========
</TABLE>
7
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5. Supplemental Cash Flow Disclosures
Supplemental disclosures with respect to cash flow information and non-cash
investing and financing activities are as follows: (in thousands)
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Nine Months Ended October 5,
----------------------------
1998 1999
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<S> <C> <C>
Interest paid . . . . . . . . . . . $ 1,834 $ 2,650
======= =======
Income taxes paid . . . . . . . . . $12,056 $12,496
======= =======
Adjustments to purchase
price of acquisition assets . . . $ - $ 1,740
======= =======
Business combinations accounted for
as purchases:
Assets acquired. . . . . . . . $31,734 $10,573
Liabilities assumed. . . . . . 18,505 5,022
Notes payable. . . . . . . . . 2,000 697
Stock issued . . . . . . . . . - 556
------- -------
Net cash paid. . . . . . . . . $11,229 $ 4,298
======= =======
</TABLE>
6. Litigation
There are various legal actions arising in the normal course of business that
have been brought against the Company. Management believes these matters will
not have a material adverse effect on the Company's financial position or
results of operations.
7. Segment Information
For the first and second quarters of 1999, Pomeroy Select Integration Solutions,
Inc.'s, a wholly-owned subsidiary, pro rata share of the selling, general and
administrative expenses were not allocated in accordance with the administrative
services agreement between the Company and the subsidiary. Therefore,
reclassifications have been made in the third quarter of 1999 to reflect the
proper allocation of such expenses for the products and services segments for
the nine months ended October 5, 1999. For the three months ended April 5,
1999, this reclassification decreased product's and increased service's income
from operations by $459 thousand. For the three months ended July 5, 1999, this
reclassification increased product's and decreased service's income from
operations by $1.471 million. The Company's consolidated net income and
earnings per share were unchanged as a result of these reclassifications.
Summarized financial information concerning the Company's reportable segments is
shown in the following table. (in thousands)
8
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<CAPTION>
Quarter Ended October 5, 1998
-----------------------------------
Products Services Consolidated
--------- --------- -------------
<S> <C> <C> <C>
Revenues. . . . . . . . . . . $ 143,957 $ 19,833 $ 163,790
Income from operations. . . . 5,686 3,509 9,195
Total assets. . . . . . . . . 184,065 37,185 221,250
Capital expenditures. . . . . 700 52 752
Depreciation and amortization 1,088 318 1,406
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended October 5, 1999
-----------------------------------
Products Services Consolidated
--------- --------- -------------
<S> <C> <C> <C>
Revenues. . . . . . . . . . . $ 170,031 $ 27,059 $ 197,090
Income from operations. . . . 7,093 5,170 12,263
Total assets. . . . . . . . . 238,872 60,897 299,769
Capital expenditures. . . . . 539 144 683
Depreciation and amortization 1,273 367 1,640
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended October 5, 1998
-----------------------------------
Products Services Consolidated
--------- --------- -------------
<S> <C> <C> <C>
Revenues. . . . . . . . . . . $ 406,430 $ 51,401 $ 457,831
Income from operations. . . . 17,584 7,592 25,176
Total assets. . . . . . . . . 184,065 37,185 221,250
Capital expenditures. . . . . 2,423 261 2,684
Depreciation and amortization 3,237 737 3,974
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended October 5, 1999
-----------------------------------
Products Services Consolidated
--------- --------- -------------
<S> <C> <C> <C>
Revenues. . . . . . . . . . . $ 473,403 $ 74,459 $ 547,862
Income from operations. . . . 17,022 14,627 31,649
Total assets. . . . . . . . . 238,872 60,897 299,769
Capital expenditures. . . . . 1,566 606 2,172
Depreciation and amortization 3,748 1,004 4,752
</TABLE>
9
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Special Cautionary Notice Regarding Forward-Looking Statements
--------------------------------------------------------------
Certain of the matters discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contain certain
forward looking statements regarding future financial results of the Company.
The words "expect," "estimate," "anticipate," "predict," and similar expressions
are intended to identify forward-looking statements. Such statements are
forward-looking statements for purposes of the Securities Act of 1933 and the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Important factors that could cause the actual
results, performance or achievements of the Company to differ materially from
the Company's expectations are disclosed in this document including, without
limitation, those statements made in conjunction with the forward-looking
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations". All written or oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by such
factors.
POMEROY COMPUTER RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW. The Company's business is comprised of (1) the sale and leasing of a
broad range of computer equipment including hardware, software, and related
products, and (2) the provision of information technology (IT) services which
support such computer products. On January 6, 1999, the Company transferred the
assets, liabilities, business, operations and personnel comprising its IT
services business (excluding procurement and configuration services) in exchange
for 10 million shares of Class B common stock of Pomeroy Select Integration
Solutions, Inc., a wholly-owned subsidiary. The separation of the IT services
business is a part of the Company's ongoing strategy to expand its services
revenue. The Company now classifies the direct costs of service personnel in
cost of sales and service. See Notes 2 and 7 of the Notes to Consolidated
Financial Statements.
TOTAL NET SALES AND REVENUES. Total net sales and revenues increased $33.3
million, or 20.3%, to $197.1 million in the third quarter of fiscal 1999 from
$163.8 million in the third quarter of fiscal 1998. This increase was
attributable to an increase in sales to existing and new customers and to
acquisitions completed in fiscal years 1999 and 1998. This increase also
reflects an increase in sales volume; however, unit prices have declined in the
third quarter of fiscal 1999 as compared to the third quarter of fiscal 1998.
Excluding acquisitions completed in fiscal years 1999 and 1998, total net sales
and revenues increased 12.3%. Product sales increased $26.0 million, or 18.1%,
to $170.0 million in the third quarter of fiscal 1999 from $144.0 million in the
third quarter of fiscal 1998. Excluding acquisitions completed in fiscal years
1999 and 1998, product sales increased 11.2%. Service revenues increased $7.2
million, or 36.4%, to $27.0 million in the third quarter of fiscal 1999 from
$19.8 million in the third quarter of fiscal years 1999 and 1998. Excluding
acquisitions completed in fiscal years 1999 and 1998, service revenues increased
20.1%.
Total net sales and revenues increased $90.1 million or 19.7%, to $547.9 million
in the first nine months of 1999 from $457.8 million in the first nine
months of 1998. Excluding acquisitions completed in fiscal years 1999 and 1998,
total net sales and revenues increased 10.9%. Product sales increased $67.0
million, or 16.5%, to $473.4 million in the first nine months of 1999 from
$406.4 million in the first nine months of 1998. Excluding acquisitions
completed in fiscal years 1999 and 1998, product sales increased 8.8%. Service
revenues increased $23.1 million, or 44.9%, to $74.5 million in the first nine
months of 1999 from $51.4 million in the first nine months of 1998. Excluding
acquisitions completed in fiscal years 1999 and 1998, service revenues increased
27.8%.
GROSS MARGINS. Gross margin increased to 13.7% in the third quarter of fiscal
1999 as compared to 13.6% in the third quarter of fiscal 1998. This increase in
gross margin resulted primarily from the increase of higher margin hardware
sales. Service revenues increased to 13.7% of total net sales and revenues in
the third quarter of fiscal 1999 compared to 12.1% of total net sales and
revenues in the third quarter of fiscal 1998. Service gross margin decreased to
39.1% of total gross margin in the third quarter of fiscal 1999 from 39.3% in
the third quarter of fiscal 1998. This decrease in service gross margin was
primarily due to the Company's decision to obtain new business and increase
sales by aggressively pricing certain services. In addition, the Company
increased its technical staff for contracts which will generate revenue in
future periods. Factors that may have an impact on gross margin in the future
include the further decline of unit prices, the percentage of equipment or
service sales with lower-margin customers, the ratio of service revenues to
total net sales and revenues, and personnel utilization rates.
Gross margin increased to 13.4% in the first nine months of fiscal 1999 as
compared to 13.3% in the first nine months of fiscal 1998. This increase in
gross margin in the first nine months of fiscal 1999 is due to an increase in
the volume of higher-margin service revenues and improved gross margin of
service revenues which were offset somewhat by the decline in product gross
margin and the growth in such lower-margin product sales. Service revenues
increased to 13.6% of total net sales and revenues in the first nine months of
10
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fiscal 1999 compared to 11.2% of total net sales and revenues in the first nine
months of fiscal 1998. Service gross margin increased to 41.4% of total gross
margin in the first nine months of fiscal 1999 from 34.1% in the first nine
months of fiscal 1998. This increase in service's gross margin was primarily due
to improved productivity of technical personnel. Factors that may have an impact
on gross margin in the future include the further decline of unit prices, the
percentage of equipment or service sales with lower-margin customers, the ratio
of service revenues to total net sales and revenues, and personnel utilization
rates.
OPERATING EXPENSES. Selling, general and administrative expenses (including
rent expense) expressed as a percentage of total net sales and revenues
decreased to 6.7% in the third quarter of fiscal 1999 from 7.1% in the third
quarter of fiscal 1998. This decrease is primarily due to the growth in net
sales and revenues exceeding the growth in selling, general and administrative
expenses. Excluding acquisitions completed in fiscal years 1999 and 1998,
selling, general and administrative expenses expressed as a percentage of total
net sales and revenues would have been 6.4% in the third quarter of fiscal 1999.
Total operating expenses expressed as a percentage of total net sales and
revenues decreased to 7.5% in the third quarter of fiscal 1999 from 8.0% in the
third quarter of fiscal 1998 for the reason noted above and offset by the
increase in amortization expense as a result of acquisitions. Excluding
acquisitions completed in fiscal years 1999 and 1998, total operating expenses
expressed as a percentage of total net sales and revenues would have been 7.3%
in the third quarter of fiscal 1999.
Selling, general and administrative expenses (including rent expense) expressed
as a percentage of total net sales and revenues decreased to 6.8% in the first
nine months of fiscal 1999 from 6.9% in the first nine months of fiscal 1998.
This decrease is primarily due to the growth in net sales and revenues exceeding
the growth in selling, general and administrative expenses. Excluding
acquisitions completed in fiscal years 1999 and 1998, selling, general and
administrative expenses expressed as a percentage of total net sales and
revenues would have been 6.4% in the first nine months of fiscal 1999. Total
operating expenses expressed as a percentage of total net sales and revenues
decreased to 7.7% in the first nine months of fiscal 1999 from 7.8% in the first
nine months of fiscal 1998 for the reason noted above and offset by the increase
in amortization expense as a result of acquisitions. Excluding acquisitions
completed in fiscal years 1999 and 1998, total operating expenses expressed as a
percentage of total net sales and revenues would have been 7.3% in the first
nine months of fiscal 1999.
INCOME FROM OPERATIONS. Income from operations increased $3.1 million, or
33.4%, to $12.3 million in the third quarter of fiscal 1999 from $9.2 million in
the third quarter of fiscal 1998. The Company's operating margin increased to
6.2% in the third quarter of fiscal 1999 as compared to 5.6% in the third
quarter of fiscal 1998. This increase is primarily due to the increase in the
Company's gross margin.
Income from operations increased $6.4 million, or 25.7%, to $31.6 million in the
first nine months of fiscal 1999 from $25.2 million in the first nine months of
fiscal 1998. The Company's operating margin increased to 5.8% in the first nine
months of fiscal 1999 as compared to 5.5% in the first nine months of fiscal
1998. This increase is primarily due to the increase in the Company's gross
margin.
INTEREST EXPENSE. Interest expense increased 66.2%, to $1.2 million in the
third quarter of fiscal 1999 from $0.7 million in the third quarter of fiscal
1998. This increase is primarily due to the Company's overall increase in debt
borrowings in the third quarter of fiscal 1999. Interest expense was $2.8
million in the first nine months of fiscal 1999 as compared to $2.0 million in
the first nine months of fiscal 1998. This increase in interest expense is
primarily due to the Company's increase in overall debt borrowings in the first
nine months of fiscal 1999.
11
<PAGE>
INCOME TAXES. The Company's effective tax rate was 41.0% in the third quarter
of fiscal 1999 compared to 37.0% in the third quarter of fiscal 1998. The
adjustment to the effective tax rate in the third quarter of fiscal 1999
resulted in an overall effective tax rate of 40.1% for the first nine months of
fiscal 1999. For the first nine months of fiscal 1999, the Company's effective
tax rate was 40.1% as compared to 37.0% for the nine months of fiscal 1998.
During fiscal 1998, the Company's effective tax rate was reduced due to the
availability of the Kentucky Jobs Development Act ("KJDA") credit pertaining to
the initial eligible start-up costs component of the credit. For fiscal 1999,
the Company's KJDA benefit will be reduced to the annual eligible lease payments
component of the credit plus any carryforward from prior years.
NET INCOME. Net income increased $1.1 million, or 21.1%, to $6.5 million in the
third quarter of fiscal 1999 from $5.4 million in the third quarter of fiscal
1998 due to the factors described above. Net income increased $2.6 million, or
17.7%, to $17.3 million in the first nine months of fiscal 1999 from $14.7
million in the first nine months of fiscal 1998 due to the factors described
above.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $27.3 million in the first nine months of
fiscal 1999. Cash used in investing activities included $2.2 million for capital
expenditures and $4.3 million for acquisitions. Cash provided by financing
activities included $32.6 million of net borrowings on bank notes payable, $1.4
million from the exercise of stock options and related tax benefit and $1.2
million of net borrowings on notes payable.
In September 1999, the Company amended its existing credit facilities with
Deutsche Financial Services Corp. ("DFS") to increase its consolidated borrowing
ability from $120 million to $140 million. This credit facility, which expires
July 14, 2000, provides a credit line for inventory financing and for accounts
receivable financing. $20 million of the DFS credit facility is used by Pomeroy
Select Integration Solutions, Inc., a wholly-owned subsidiary of the Company.
Under the terms of the credit facility, the Company is prohibited from paying
any cash dividends and is subject to various restrictive covenants. In addition,
the Company has available a $12 million inventory financing facility with IBM
Credit Corporation ("ICC").
Borrowings under the DFS and ICC floor plan arrangements 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 these arrangements is less than 1.0%. The
Company classifies amounts outstanding under the floor plan arrangements as
accounts payable.
Borrowings under the DFS accounts receivable portion of the credit facility
carry a variable interest rate based on the prime rate less 125 basis points.
At October 5, 1999, the amount outstanding, which included $4.9 million of
overdrafts in accounts with a participant bank to the Company's credit facility,
was $72.4 million at an interest rate of $7.0%.
The Company believes that the anticipated cash flow from operations and current
financing arrangements will be sufficient to satisfy the Company's capital
requirements for the next 12 months.
OTHER
Year 2000 Issues
Background. The following is a discussion of the Year 2000 date issue
("Year 2000 issue") as it affects the Company. Many computer programs and
embedded chips in other forms of technology use only the last two digits to
identify a year in a date field. As a result of this design decision, some of
these systems could fail to operate or fail to produce correct results if "00"
is interpreted to mean 1900, rather than 2000. These problems are widely
expected to increase in frequency and severity as the year 2000 approaches.
12
<PAGE>
Assessment. The Company currently believes its potential exposure to
problems arising from the Year 2000 issue lies primarily in three areas:
(1) The Company's internal operating systems which may not be Year
2000 compliant;
(2) Potential Year 2000 non-compliance of systems of third parties with
whom the Company has a business relationship; and,
(3) Non-compliance of information technology products developed by
third parties on which the Company performs services.
The Company has completed an assessment of its principal internal systems.
However, it continues to assess its Year 2000 exposure with respect to third
parties. While the cost of these assessment efforts is not expected to be
material to the Company's financial position or results of operations, there is
no assurance that this will be the case.
Internal Operating Systems. The Company is dependent upon management
information systems for all phases of its operations and financial reporting.
The Company began addressing the affect of the Year 2000 issue in 1996. The
Company has acquired Year 2000 compliant versions for all of its principal
systems and modules. The Company is in the process of testing the Year 2000
compliant versions of all hardware and software components and applications
pertaining to its internal operating systems upon which the Company relies.
There may be some non-critical applications that are not Year 2000 compliant.
Third-Party Relationships. The failure of a supplier to deliver timely
Year 2000 compliant products to our customers could jeopardize the Company's
ability to meet obligations to customers. In addition, we may be liable for Year
2000 non-compliance of information technology products on which the Company
performs services. The Company has completed a program to identify and resolve
Year 2000 exposures from third parties. The Company is not aware of any
significant Year 2000 exposure from a third party. Any failure of third
parties with whom the Company has a business relationship to resolve Year 2000
problems with their products in a timely manner could materially adversely
affect our business, financial condition or results of operations. The Company
is also dependent on third party service providers, such as telephone companies,
banks and insurance carriers.
State of Readiness. The Company has completed testing of its principal
information technology systems. The following is a list of all systems that
the Company believes are Year 2000 compliant: primary file servers and
applications; internal email servers and applications; internet email servers
and applications; internet and intranet servers and applications; wide area data
network components; sufficient workstation systems and applications at all
locations; and phone systems and voice mail systems. Year 2000 compliant
principal information technology systems were successfully installed in the
third quarter of fiscal 1999, and final testing and migrations are being
completed.
Costs to Address Year 2000 Issues. Other than time spent by the
Company's own personnel, the Company has not incurred any significant costs in
identifying Year 2000 issues. The Company does not anticipate any significant
costs to make its internal systems Year 2000 compliant because no remediation is
expected to be required. Accordingly, the Company has not deferred other
information technology projects due to Year 2000 efforts.
Risks of Year 2000 Issues. The Company believes the most
reasonably likely worst case Year 2000 scenario would include a combination of
some or all of the following:
(1) Internal IT modules or systems may fail to operate or may give
erroneous information. Such failure could result in shipping delays, reduced
utilization of technical personnel, inability to timely generate financial
reports and statements, inability of the Company to communicate with its branch
offices, and computer network downtime resulting in numerous inefficiencies and
higher payroll expenses.
(2) Non-IT components in HVAC, lighting, telephone, security and similar
systems might fail and cause the entire system to fail.
(3) Communications with customers that depend upon IT or non-IT
technology, such as EDI (including automatic ordering by and for customers), and
obtaining current pricing from vendors, may fail or give erroneous information.
13
<PAGE>
These types of problems could result in such difficulties as the inability to
receive or process customer orders, shipping delays, or sale of products at
erroneous prices.
(4) The unavailability of product as a result of Year 2000 problems
experienced by one or more key vendors of the Company, or as a result of changes
in inventory levels of aggregators, VARs and similar providers in response to an
anticipated Year 2000 problem or the inability of the Company to develop
alternative sources for products.
(5) Products sold to some of the Company's customers could fail to
perform some or all of their intended functions. In such a situation, the
Company's maximum obligation would be to repair or replace the defective
products to the extent the Company is required to do so under manufacturer
warranty.
Contingency Plans. The Company believes its plans for addressing the
Year 2000 issue are adequate. The Company does not believe it will incur a
material financial impact from system failures, or from the costs associated
with assessing the risks of failure, arising from Year 2000 problems.
Consequently, the Company does not intend to create a detailed contingency plan.
In the event the Company does not adequately identify and resolve Year 2000
issues, the absence of a detailed contingency plan may adversely affect its
business, financial condition and results of operations.
14
<PAGE>
POMEROY COMPUTER RESOURCES, INC.
PART II - OTHER INFORMATION
Items 1 to 3 None
Item 4 None
Item 5 None
Item 6 Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
- -------------
<C> <C> <S>
10(i) Material Agreements
(ii)(1) Stock purchase agreement by,
between and among Thomas F.
Schneider and Rodney Leas and
Pomeroy Computer Resources, Inc.,
dated August 20, 1999.
(ii)(2) Subordinated Promissory Note issued
by Pomeroy Computer Resources,
Inc. to Thomas F. Schneider, dated
August 20, 1999.
(ii)(3) Subordinated Promissory Note issued
by Pomeroy Computer Resources,
Inc. to Rodney Leas, dated August 20,
1999.
(ii)(4) Agreement by and between Thomas
F. Schneider and Pomeroy Computer
Resources, Inc., dated August 20,
1999.
(ii)(5) Agreement by and between Rodney
Leas and Pomeroy Computer
Resources, Inc., dated August 20,
1999.
(ii)(6) Incentive Deferred Compensation Agreement by and between Pomeroy
Computer Resources, Inc. and
Thomas F. Schneider, dated August
20, 1999.
(ii)(7) Employment Agreement by and
between Pomeroy Computer
Resources, Inc. and Thomas F.
Schneider, dated August 20, 1999.
(ii)(8) Amendment to Business Credit and
Security Agreement by and among Deutsche Financial Services
Corporation, Pomeroy Computer
Resources, Inc. and Global
Technologies, Inc., dated September 1999.
15
<PAGE>
(ii)(9) Business Credit and Security
Agreement between Pomeroy Select
Integration Solutions, Inc. and
Deutsche Financial Services
Corporation, dated January 6, 1999.
11 Computation of Earnings per Share
27 Financial Data Schedules
</TABLE>
(b) Reports on Form 8-K On September 7, 1999, the Company filed a
current report on Form 8-K announcing
the execution of a definitive agreement
whereby the Company acquired all the
outstanding stock of Acme Data Systems, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POMEROY COMPUTER RESOURCES, INC.
-----------------------------------
(Registrant)
Date: November 12, 1999 By: /s/ Stephen E. Pomeroy
------------------------------
Stephen E. Pomeroy
Chief Financial Officer and
Chief Accounting Officer
16
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT is made as of this 20th day of August, 1999, by,
between and among THOMAS F. SCHNEIDER ("T. Schneider") and RODNEY LEAS ("R.
Leas") (T. Schneider and R. Leas hereinafter referred to collectively as the
"Sellers" and individually as "Seller") and POMEROY COMPUTER RESOURCES, INC., a
Delaware corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, Sellers own all of the issued and outstanding shares of Acme Data
Systems, Inc., an Ohio corporation, which is a full-service provider of a
variety of computer service and support solutions to large and medium-sized
commercial, governmental and other professional customers throughout the
Columbus, Ohio Metropolitan area, as follows:
T. Schneider - 25 shares
R, Leas - 25 shares
Total - 50 shares
WHEREAS, Sellers desire to sell and Purchaser desires to purchase all the
Company Shares owned by Sellers, and Sellers and Purchaser desire to engage in
the other transactions provided for herein.
NOW, THEREFORE, in and for the consideration of the mutual promises and
undertakings herein contained, and subject to the terms and conditions
hereinafter set forth, the Parties agree as follows:
ARTICLE I
1. Definitions. As used herein the following terms shall have the following
-----------
meanings, respectively:
1.01 Accounts Receivable: All notes and accounts receivable held by Company
-------------------
or of which Company is the beneficial holder and all notes, bonds and other
evidences of indebtedness of and rights to receive payments from any Person held
by Company.
1.02 Acquisition: The purchase and sale of all the Company Shares upon the
-----------
terms and provisions, and subject to the conditions, set forth in this
Agreement.
1.03 Affiliate: Shall have the meaning ascribed to such term in Rule 405
---------
promulgated under the Securities Act of 1933, as amended.
<PAGE>
1.04 Affiliate Receivables: Any account or note receivable or other payment
---------------------
obligation owing to Company by any officer, director, employee or Affiliate of
Company.
1.05 Agreement: This Stock Purchase Agreement.
---------
1.06 Applicable Law. All applicable provisions of all (i) constitutions,
---------------
treaties, statues, laws (including common law), rules, regulations, ordinances,
codes or order of any Governmental Authority and (ii) orders, decisions,
injunctions, judgments, awards and decrees of or agreements with any
Governmental Authority.
1.07 Book Value: The shareholders' equity of Company as of the Closing Date
----------
as reported in Company's Closing Balance Sheet, determined in accordance with
Section 3.01.
1.08 Book Value Report: Shall have the meaning defined in Section 3.01.
-------------------
1.09 Business. The operations of Company involving generally the sale of
--------
goods, or the provision of services (including repair and maintenance services),
relating to personal computers, client services, computer networks,
communication equipment, other equipment related thereto, such as computer
monitors, peripherals and all other individual components, operating systems and
application software and other software (including software created for use on
the Internet) created for use in tie-in arrangements, customer service and
internal management systems for sales, delivery and support and any other
business operations of Company.
1.10 Business Day. "Business Day" shall mean a day other than a Saturday,
-------------
Sunday or other day on which commercial banks in Cincinnati, Ohio are authorized
or required to close.
1.11 Closing: The consummation of the Acquisition on the Closing Date at
-------
the place of Closing hereinafter specified in accordance with the terms and
conditions hereof.
1.12 Closing Balance Sheet: The balance sheet of Company at the date of
-----------------------
the Closing.
1.13 Closing Date: The date on which the Closing shall take place,
-------------
determined in accordance with Article XIV.
1.14 Code: The Internal Revenue Code of 1986, as amended.
----
1.15 Company: Acme Data Systems, Inc., an Ohio corporation.
-------
1.16 Company's Accountant: Company's accountant shall mean Kirch Group, LLC.
--------------------
1.17 Company Personnel: Shall mean current or former employees, officers,
------------------
directors or consultants of Company.
1.18 Company Shares: All the issued and outstanding common shares, without
---------------
par value, of Company.
1.19 Contracts. Shall have the meaning defined in Section 4.09(a).
---------
1.20 Consent. Any consent, approval, authorization, waiver, permit, grant,
-------
franchise, concession, agreement, license, exemption or order of, registration,
certificate, declaration or filing with, or report or notice to, any Person.
1.21 Court: A Court is any federal, state, municipal, domestic, foreign or
-----
any other governmental tribunal or an arbitrator or person with similar power or
authority.
1.22 Disclosure Schedule: The schedule dated as of the date hereof,
--------------------
prepared pursuant to Article IV, copies of which have been signed by Sellers and
delivered to Purchaser.
1.23 EBIT. The earnings of Company 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. Company's EBIT for all applicable
periods will be determined in accordance with GAAP.
1.24 EBIT of Purchaser's Columbus Division. The earnings of Purchaser's
-----------------------------------------
Columbus Division (that existed prior to the closing of this Agreement and any
part of the business that is operated by Purchaser's wholly-owned subsidiary,
Pomeroy Select Integration Solutions, Inc.) 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. The EBIT of Purchaser's Columbus
Division for all applicable periods will be determined in accordance with GAAP.
Provided, however, for the period commencing the day after the Closing Date
until January 5, 2000, the EBIT of Purchaser's Columbus Division shall be
determined without any moving or other integration expenses incurred by
Purchaser incident to its Columbus Division moving into the facility currently
leased by Company from Advanced Marketing Group and which facility shall be
leased to Purchaser pursuant to a Lease Agreement of even date. The parties
shall determine in good faith the amount of any moving or other integration
expenses incurred by Purchaser that shall not be included in the EBIT
determination hereunder.
1.25 EBIT Threshold. Shall have the meaning set forth in Section 2.03.
---------------
1.26 Employee Benefit Plans: Shall mean all pension, annuity, retirement,
------------------------
stock option, stock purchase, savings, profit sharing or deferred compensation
plans or agreements, any retainer, consultant, bonus, group insurance, welfare,
health and disability plan, fringe benefit or other incentive or benefit
contract, plan, or commitment or arrangement applicable to Company Personnel.
1.27 Employees: With respect to Company, shall mean all full-time and
---------
part-time employees of Company.
1.28 Employee Contracts: All employment contracts, consulting agreements,
-------------------
and collective bargaining agreements or related agreements with respect to
Employees of Company.
1.29 Environmental Laws: Shall mean all federal, state or local judgments,
-------------------
decrees, orders, laws, licenses, ordinances, rules or regulations pertaining to
environmental matters, including, without limitation, those arising under the
Resource Conservation and Recovery Act (42 U.S.C. -1801, et seq.) ("RCRA"), the
-- ---
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, (42 U.S.C. -9601, et seq.) ("CERCLA"), the Superfund Amendment and
-- ---
Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act (33 U.S.C.
- -1251, et seq.), the Federal Clean Air Act (33 U.S.C. -7401, et seq.), the Toxic
-- --- -- ---
Substances Control Act (15 U.S.C. -7401, et seq.) the Federal Insecticide,
-- ---
Fungicide and Rodenticide Act (7 U.S.C. -136, et seq.) and the Occupational
-- ---
Safety and Health Act (29 U.S.C. -651, et seq.).
-- ---
1.30 Environmental Liabilities and Costs: All Losses, whether direct or
--------------------------------------
indirect, known or unknown, current or potential, past, present or future,
imposed by, under or pursuant to Environmental Laws, including, without
limitation, all Losses related to Remedial Actions, and all fees, disbursements
and expenses of counsel, experts, personnel and consultants based on, arising
out of or otherwise in respect of: (i) the ownership or operation of the
Business, the Leased Real Property or any other real properties, assets,
equipment or facilities, by Company, or any of its predecessors or Affiliates;
(ii) the environmental conditions existing on the Closing Date on, under, above,
or about any Leased Real Property or any other real properties, assets,
equipment or facilities currently or previously owned, leased or operated by
Company, or any of its predecessors or Affiliates; and (iii) expenditures
necessary to cause any Leased Real Property or any aspect of the Business to be
in compliance with any and all requirements of Environmental Laws as of the
Closing Date, including, without limitation, all Environmental Permits issued
under or pursuant to such Environmental Laws, and reasonably necessary to make
full economic use of any Leased Real Property.
1.31 Environmental Permits: Any federal, state and local permit, license,
----------------------
registration, consent, order, administrative consent order, certificate,
approval or other authorization with respect to Company necessary for the
conduct of the Business as currently conducted or previously conducted under any
Environmental Law.
1.32 ERISA: The Employee Retirement Income Security Act of 1974, as
-----
amended.
1.33 GAAP: Generally accepted accounting principles in effect in the United
----
States consistently applied throughout the periods involved.
1.34 Governmental Approval: Any Consent of, with or from any Governmental
----------------------
Authority.
1.35 Governmental Authority: Any nation or government, any state or other
-----------------------
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
including, without limitation, any government authority, agency, department,
board, commission or instrumentality of the United States, any State of the
United States or any political subdivision thereof, and any tribunal or
arbitrator(s) of competent jurisdiction, and any self-regulatory organization.
1.36 Hazardous Materials: Shall mean any hazardous waste, as defined by 42
--------------------
U.S.C. -6903(5), any hazardous substances or wastes as defined by 42 U.S.C.
- -9601(14), any pollutant or contaminant as defined by 42 U.S.C. -9601(33) or any
toxic substances or wastes, oil or hazardous material or other chemicals or
substances regulated by any public or Governmental Authority.
1.37 Indemnifying Party: Shall have the meaning defined in Section
-------------------
11.06(a).
1.38 Intellectual Property: Any and all United States and foreign: (a)
----------------------
patents (including reexaminations, design patents, industrial designs and
utility models) and patent applications (including docketed patent disclosures
awaiting filing, provisional applications, reissues, divisions, continuations,
continuations-in-part and extensions), patent disclosures awaiting filing
determination, inventions and improvements thereto; (b) trademarks, service
marks, trade names, trade dress, logos, business and product names, slogans, and
registrations and applications for registration thereof; (c) copyrights
(including software) and registrations thereof including Company's name; (d)
inventions, processes, designs, formulae, trade secrets, know-how, industrial
models, confidential and technical information, manufacturing, engineering and
technical drawings, product specifications and confidential business
information; (e) mask work and other semiconductor chip rights and registrations
thereof; (f) intellectual property rights similar to any of the foregoing; (g)
copies and tangible embodiments thereof (in whatever form or medium, including
electronic media); and (h) the Internet address and website of Company.
1.39 Inventories: All inventories of raw materials, work in process,
-----------
finished products, goods, spare parts, office and other supplies, including any
of such inventories held at any location controlled by Company or at any other
location (pursuant to conditional sales agreements, consignment arrangements or
in any bailment or otherwise) and any such items previously purchased and in
transit to Company at any such locations.
1.40 Leased Real Property: Shall mean all interests leased pursuant to the
---------------------
Leases.
1.41 Leases: Shall mean all real property leases, subleases, licenses and
------
occupancy agreements pursuant to which Company is the lessee, sublessee,
licensee or occupant which relate to or are being used in the Business and which
are described on Disclosure Schedule 4.09.
1.42 Lien: With the exception of Permitted Liens, a mortgage, pledge,
----
hypothecation, right of others, claim, security interest, encumbrance, lease,
sublease, license, occupancy agreement, adverse claim or interest, easement,
covenant, encroachment, burden, title defect, title retention agreement, voting
trust agreement, interest, equity, option, lien, right of first refusal, charge
or other restrictions or limitations of any nature whatsoever, including,
without limitation, such that may arise under any Contracts.
1.43 Line of Credit Indebtedness: Includes any indebtedness incurred,
------------------------------
incurable, or accrued pursuant to any of Company's financing arrangements,
agreements, letters of credit and a line of credit with Deutsche Financial
Services Corp. and any of its successors and assigns, all as set forth on
Disclosure Schedule 1.42. Disclosure Schedule 1.42 shall set forth the
principal balance and all accrued interest of such items on the date hereof.
1.44 Losses. Any and all losses, liabilities, damages, obligations and
------
expenses arising as a result of the designated action or inaction, and all
actions, suits, proceedings, demands, assessments, judgments, costs and expenses
(including, without limitation, attorney's fees and other expenses incurred in
investigating or defending any claim, action, suit or proceeding and any and all
amounts paid in settlement thereof) with respect to the designated action or
inaction.
1.45 Notes: The two-year subordinated promissory notes payable to Sellers
-----
as more fully described in Section 2.04(b).
1.46 Other Sellers Documents: The agreements and other documents and
-------------------------
instruments described in Sections 2.04, 6.01, 7.01 and 8.01.
1.47 Party or Parties: Purchaser or Sellers or any of them.
------------------
1.48 Party to Be Indemnified: as defined in Section 11.06(a).
--------------------------
1.49 Permitted Liens. Shall mean and include any (i) matters described in
----------------
detail and by item in Disclosure Schedule 1.48(i) to this Agreement and (ii)
liens arising by operation of Applicable Law for taxes, assessments, labor,
materials, and obligations not yet due or which are being contested in good
faith, which contested items are set forth in detail in Disclosure Schedule
1.48(ii). The phrase "Permitted Liens" shall also include (a) liens imposed by
mandatory provisions of Applicable Law such as carriers, materialmens,
mechanics, warehousemens, landlords and other like liens arising in the ordinary
course of business, securing obligations not yet due or which are being
contested in good faith, which contested items are set forth in Disclosure
Schedule 1.48, (b) liens arising in the ordinary course of business from pledges
or deposits to secure public or statutory obligations, deposits to secure (or in
lieu of) surety, stay, appeal or customs bonds and deposits to secure the
payment of Taxes, and (c) good faith deposits in connection with bids, tenders,
contracts or leases.
1.50 Person: Any natural person, firm, partnership, association,
------
corporation, company, limited liability company, limited partnership, trust,
business trust, Governmental Authority or other entity.
1.51 Post Closing Date: Shall have the meaning defined in Section 3.01.
-------------------
1.52 Purchase Price: The total consideration paid by Purchaser to Sellers
---------------
for the Company Shares as provided in Section 2.02.
1.53 Pro Forma EBIT: The aggregate of the EBIT of Company for the period
-----------------
commencing January 1, 1999 and ending January 5, 2000 and the EBIT of
Purchaser's Columbus Division for the period commencing with the day following
the Closing Date and ending January 5, 2000. The determination of Pro Forma
EBIT shall be determined in accordance with the procedures set forth in Section
3.02.
1.54 Remedial Action: All actions required to (i) clean up, remove, treat
----------------
or in any way remediate any Hazardous Materials; (ii) prevent the release of
Hazardous Materials so that they do not migrate or endanger or threaten to
endanger public health or welfare or the environment; or (iii) perform studies,
investigations and care related to (i) and (ii) above.
1.55 Spare Parts: All replacements, components, devices, equipment and
------------
other similar items owned or held by Company for use in connection with the
repair, replacement, modification, customization or installation of goods and
products applicable to the Business.
1.56 Subsidiary: Each corporation or other Person in which a Person owns or
----------
controls, directly or indirectly, capital stock or other equity interests
representing at least 50% of the outstanding voting stock or other equity
interest or conferring the power to name the majority of the members to the
board of directors or other governing body of the corporation or other Person or
otherwise direct the management or policies thereof.
1.57 Tax or Taxes: Any federal, state, provincial, local, foreign or other
-------------
income, alternative, minimum, any taxes under Section 1374 of the Code, any
taxes under Section 1375 of the Code, accumulated earnings, personal holding
company, franchise, capital stock, net worth, capital, profits, windfall
profits, gross receipts, value added, sales, use, goods and services, excise,
customs duties, transfer, conveyance, mortgage, registration, stamp,
documentary, recording, premium, severance, environmental, including taxes under
Section 59A of the Code), real property, personal property, ad valorem,
intangibles, rent, occupancy, license, occupational, employment, unemployment
insurance, social security, disability, workers' compensation, payroll, health
care, withholding, estimated or other similar tax, duty or other governmental
charge or assessment or deficiencies thereof (including all interest and
penalties thereon and additions thereto whether disputed or not).
1.58 Tax Return: Any return, report, declaration, form, claim for refund or
----------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
1.59 Vendor Receivables: Any amounts owing to Company from vendors of goods
------------------
and products used in the Business resulting from discounts for prompt payment,
volume discounts, promotional programs or similar vendor special pricing and
term arrangements.
1.60 Year-End Financials: The unaudited financial statements of Company for
-------------------
the twelve-month periods ending December 31, 1998 and December 31, 1997.
ARTICLE II
2. Purchase of Company Shares and Purchase Price.
---------------------------------------------------
2.01 Purchase of Company Shares. Sellers agree to sell and transfer the
-----------------------------
Company Shares to Purchaser, and Purchaser agrees to purchase the Company Shares
from Sellers, on the Closing Date.
2.02 Purchase Price. The Purchase Price for the Company Shares shall be
---------------
Five Million Five Hundred Sixty-Two Thousand Two Hundred Dollars ($5,562,200.00)
plus any amount that may be paid pursuant to Section 2.03, adjusted as follows:
(a) To the extent that the Book Value as reported on the Closing
Balance Sheet is less than $1,018,407.00 plus the net profit of Company from
June 30, 1999 to the Closing Date, the Purchase Price shall be decreased on a
dollar-for-dollar basis to the extent of such deficit. The determination of the
Book Value shall be made in the manner provided in Section 3.01.
(b) In the event that the Company's Pro Forma EBIT for the period
commencing January 1, 1999 and ending January 5, 2000 and the EBIT of
Purchaser's Columbus Division for the period commencing the day following the
Closing Date and ending January 5, 2000 is less than One Million Five Hundred
Thirty-Nine Thousand Dollars ($1,539,000.00) in the aggregate, the Purchase
Price shall be decreased on a dollar-for-dollar basis equal to the difference
between One Million Five Hundred Thirty-Nine Thousand Dollars ($1,539,000.00)
and the total of such Pro Forma EBIT. The determination of Pro Forma EBIT shall
be made in the manner provided for in Section 3.02 hereof. Any adjustment to
the Purchase Price under this Section shall be made to the Notes issued under
Section 2.04(b).
2.03 Potential Adjustment to Purchase Price.
------------------------------------------
If the EBIT of Company (as hereinafter defined as Purchaser's Columbus
Division) during the fiscal years 2000, 2001, 2002 and 2003 exceed the
applicable EBIT Threshold for such year set forth below:
Fiscal 2000 - $1,589,000.00
Fiscal 2001 - $1,689,000.00
Fiscal 2002 - $1,789,000.00
Fiscal 2003 - $1,889,000.00
Purchaser shall pay to Sellers according to the percentages set forth in
Section 2.04(a) below, by bank check or wiring within ninety (90) days following
the end of the fiscal year, an amount equal to fifty percent (50%) of the EBIT
of Company in excess of the EBIT Threshold for the applicable year or portion
thereof, subject to a cumulative limitation of Five Million Dollars
($5,000,000.00) during such aggregate period. Any EBIT shortfall in any year
shall not be offset against any excess EBIT in any subsequent year(s) hereunder,
it being the intent of the parties that the EBIT Threshold set forth herein
shall apply to each applicable year separately, subject, however, to the
cumulative limitation of Five Million Dollars ($5,000,000.00) during such
aggregate period. Such cash payment by Purchaser shall be additional Purchase
Price for the Company Shares. Commencing on the later of the closing date or
the installation of the ASTEA Accounting System at Company, 1.5% MAS royalty fee
and a .3% Adfund fee on gross sales by Company shall be made incident to said
determination. For each subsequent year described above in this paragraph for
which Purchaser may be required to pay additional Purchase Price, the parties
shall, in good faith, agree upon the MAS and Adfund royalty fee to be charged
hereunder based on the level of services and support being provided by Purchaser
to Company. Provided, however, such MAS royalty fee shall be 1.5% and the
Adfund royalty fee shall be .3% if the parties are unable to come to an
agreement for each subsequent year.
For purposes of this Section 2.03, the term "Purchaser's Columbus Division"
shall be the business acquired by Purchaser from Sellers under this Agreement
including any part of the business that is operated by Purchaser's wholly-owned
subsidiary, Pomeroy Select Integration Solutions, Inc., and shall include
Purchaser's operations in Columbus, Ohio that existed prior to the closing of
this Agreement. In the event that during the term of this Section 2.03,
Purchaser would cause Company to merge into Purchaser or any Affiliate of
Purchaser, the term "Purchaser's Columbus Division" shall also include such
entity into which Company is merged to the extent of such entity's Columbus
Division. It being the intent of the parties to exercise good faith in the
implementation of this provision in the event of the merger of Company into
Purchaser or any of its Affiliates during the term of this Agreement.
The EBIT of Company shall be determined by the internally-generated
financial statements of Company determined in the manner set forth above in
accordance with generally accepted accounting principles, consistently applied.
Said determination of EBIT shall be subject to verification as described below.
In addition, for purposes of determining EBIT for any particular year, except as
noted above, no item of income or expense will be allocated by Purchaser to
Company unless such items are reasonably calculated to contribute to the
increase in profits of Company, it being the intent of the parties that
Purchaser shall exercise the utmost good faith with respect to allocations of
income and expense to Company. Incident to the determination of EBIT of
Company, no compensation of any executive or other employee of Purchaser or its
respective affiliates who do not work directly for Company shall be allocated to
such division.
Within ninety (90) days after the end of each fiscal year or period
described herein, Purchaser will deliver to Sellers a copy of the report of EBIT
prepared by Purchaser for the subject period along with any supporting
documentation reasonably requested by Sellers. Within ninety (90) days
following delivery to Sellers of such report, Sellers shall have the right to
object in writing to the results contained in such determination. If timely
objection is not made by the Sellers to such determination, such determination
shall become final and binding for purposes of this Agreement. If timely
objection is made by Sellers to Purchaser and Sellers and Purchaser are able to
resolve their differences in writing within thirty (30) days following the
expiration of the ninety-day (90-day) period, then such determination shall
become final and binding as it regards to this Agreement. If timely objection
is made by Sellers to Purchaser and Sellers and Purchaser are unable to resolve
their differences in writing within thirty (30) days following the expiration
of the ninety-day (90-day) period, then all disputed matters pertaining to the
report shall be submitted to and reviewed by an arbitrator (the "Arbitrator")
which shall be an independent accounting firm selected by Purchaser and
Sellers. If Purchaser and Sellers are unable to agree promptly on an accounting
firm to serve as the Arbitrator, each shall select by no later than the 30th day
following the expiration of the one hundred twenty-day (120-day) period, an
accounting firm, and the two selected accounting firms shall be instructed to
select promptly another independent accounting firm, such newly selected firm to
serve as the Arbitrator. The Arbitrator shall consider only the disputed
matters pertaining to the determination and shall act promptly to resolve all
disputed matters, and its decision with respect to all disputed matters shall be
final and binding upon Sellers and Purchaser. Expenses of the Arbitration shall
be borne one-half (1/2) by Purchaser and one-half (1/2) by Sellers. Each party
shall be responsible for its own attorney and accounting fees.
2.04 Payment of Purchase Price.
----------------------------
(a) Three Million Dollars ($3,000,000.00) shall be payable at Closing
in cash or by bank or certified checks or wire transfer of Purchaser which
amount shall be prorated among the Sellers according to the following
percentages:
T. Schneider - 50%
R. Leas - 50%
(b) Two Million Six Thousand Two Hundred Dollars ($2,006,200.00) in the
aggregate, as may be adjusted upward or downward as set forth in Sections 3.01
and 3.02 shall be payable in the form of the Notes of Purchaser, attached hereto
as Exhibit A (the "Notes") which Notes shall be prorated among the Sellers
according to the percentages set forth in Section 2.04(a) above. Such Notes
shall bear interest at the prime rate of Chase Manhattan Bank, as of the Closing
Date. Interest under said Notes shall be payable quarterly in arrears with the
first interest payment being due and payable ninety (90) days from the Closing.
One-half (1/2) of the outstanding principal balance of said Notes shall be
payable in full on the first annual anniversary date of the Closing of the
transaction and the remaining principal balance of such Notes shall be payable
in full on the second annual anniversary of the Closing of the transaction. All
obligations of Purchaser thereunder will be subordinated and made junior in
right of payment to the extent and the manner provided in a Subordination
Agreement to be executed by Deutsche Financial Services Company, Purchaser and
each Seller. A copy of the Subordination Agreement to be executed by the
Sellers is attached hereto as Exhibit B.
(c) The sum of Five Hundred Fifty-Six Thousand Dollars ($556,000.00)
shall be payable in the form of the common stock of Purchaser. The number of
shares of Purchaser's stock to be issued to the Sellers in accordance with the
percentages set forth in Section 2.04(a) above shall be determined by dividing
556,000 by the average of the closing price for Purchaser's stock on the
over-the-counter market for the twenty (20) previous business days preceding the
Closing Date. Incident to the issuance of such shares, Sellers shall execute
such documentation containing such representations concerning the holding of
Purchaser's shares, including that Sellers are able to bear the economic risk of
holding the shares to be delivered hereunder for the period required by
applicable Federal Securities Laws because such shares will not have been
registered under the Securities Act of 1933 and therefore cannot be sold unless
they are subsequently registered under the Act or an exemption from registration
is available. The form of the documentation to be executed by each Seller
incident to the issuance of these shares is attached hereto as Exhibit C. In
the event the base price of Purchaser's common stock is greater than $22.00 per
share or is less than $11.00 per share, the parties agree to engage in good
faith negotiations to renegotiate the economics of this aspect of the
transaction on the Closing Date.
ARTICLE III
3. Post-Closing Adjustments.
-------------------------
3.01 Within ninety (90) days after the Closing (the "Post Closing Date"),
the Sellers will deliver to Purchaser a copy of the audited Closing Balance
Sheet prepared by Seller's accountant along with any supporting documentation
reasonably requested by Purchaser reflecting Company's calculation of Book Value
and the determination of any deficit in Book Value in accordance with Section
2.02(a) (the "Book Value Report"). The cost of the preparation of such audited
Closing Balance Sheet shall be borne one-half (1/2) by Sellers and one-half
(1/2) by Purchaser. Provided, however, Purchaser's obligation hereunder shall
not exceed the sum of Ten Thousand Dollars ($10,000.00). Within fifteen (15)
days following delivery to Purchaser of the Book Value Report, Purchaser shall
have the right to object in writing to the results contained therein. If
timely objection is not made by Purchaser to the Book Value Report, the Book
Value Report shall become final and binding for purposes of this Agreement. If
timely objection is made by Purchaser to the Book Value Report, and Sellers and
Purchaser are able to resolve their differences in writing within five (5) days
following the expiration of such fifteen (15) day period, then the Book Value
Report as resolved shall become final and binding as it relates to this
Agreement. If timely objection is made by Purchaser to the Book Value Report,
and Sellers and Purchasers are unable to resolve their differences in writing
within such period, then all disputed matters pertaining to the Book Value
Report shall be submitted to and reviewed by an Arbitrator according to the
process and procedure set forth in Section 2.03 above. Expenses of the
Arbitration shall be borne one-half (1/2) by Purchaser and one-half (1/2) by
Sellers. Each party shall be responsible for its own attorneys and accounting
fees. Any net reduction in the Purchase Price as a result of said adjustment
shall be made in the manner set forth in Section 2.02(b) and shall be reflected
by decreasing the face amount of the Notes set forth in Section 2.04(c) in
proportion to Sellers' ownership of the Company Shares. The parties agree to
implement any adjustments to any interest payment that may have been made prior
to the date of such determination to reflect the adjustments set forth above.
3.02 Within ninety (90) days after January 5, 2000, Sellers will deliver to
Purchaser a determination of Company's EBIT prepared by Company's Accountant for
the period commencing January 1, 1999 and ending on the Closing Date along with
any supporting documentation reasonably requested by Purchaser. Company's EBIT
shall be prepared using the same accounting methods, policies, practices and
procedures with consistent classifications, judgments, estimations and
methodologies as used in the preparation of the December 31, 1998 unaudited
Balance Sheet. Within ninety (90) days after January 5, 2000, Purchaser will
deliver to Sellers a determination of the Company's EBIT for the period
commencing on the Closing Date and ending January 5, 2000 and a determination of
the EBIT of Purchaser's Columbus Division along with any supporting
documentation reasonably requested by Sellers. Incident to said EBIT
determination, a 1.8% royalty fee (MAS 1.5% and Adfund .3%) on gross sales by
Company during said period shall be made incident to said determination
commencing with the time that the ASTEA conversion has been implemented at
Company and a 1.8% royalty fee (MAS 1.5% and Adfund .3%) on gross sales by
Purchaser's Columbus Division shall be made incident to said determination for
the period commencing the day after the Closing Date and ending January 5, 2000.
Within thirty (30) days following delivery of such reports, the parties shall
have the right to object in writing to the results contained in such
determination. If timely objection is not made by any party of such
determination, such determination shall become final and binding. If timely
objection is made by any party, and Purchaser and Sellers are able to resolve
their differences in writing within ten (10) 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 either party, and Sellers and Purchaser are unable to resolve their
differences in writing within ten (10) days following the expiration of the EBIT
objection period, then all disputed matters relating to the report shall be
submitted to and reviewed by an Arbitrator according to the process and
procedure set forth in Section 3.01above. The expenses of the arbitration shall
be borne one-half (1/2) by Purchaser and one-half by Sellers Each party shall
be responsible for its own attorney and accounting fees. Any net reduction in
the Purchase Price as a result of said adjustment shall be made in the manner
set forth in Section 2.02(b) and shall be reflected by decreasing the face
amount of the Notes set forth in Section 2.04(c) in proportion to Sellers'
ownership of the Company Shares. The parties agree to implement any adjustments
to any interest payments that may have been made prior to the date of such
determination to reflect the adjustment set forth above.
ARTICLE IV
4. Representations of Sellers. Except as set forth in the Disclosure
----------------------------
Schedule attached hereto, which identifies the specific sections to which each
such disclosure relates, Sellers, jointly and severally (except for
representations and warranties made by an individual Seller which only relate to
that specific Seller (i.e. such as ownership of the Company Shares), which are
made severally only), represent, warrant and covenant to Purchaser that the
following statements are true as of the date hereof and shall be true and
correct as of the Closing Date as if made again at and as of that time:
4.01 Organization and Good Standing. Except as disclosed in Disclosure
---------------------------------
Schedule 4.01, Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Ohio and has all 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 is duly licensed,
authorized and qualified to do business and in good standing in all
jurisdictions in which the conduct of its business or the ownership or leasing
of its properties require it to be so licensed, author-ized or qualified.
Copies of Company's Articles of Incorporation and By-Laws and any amendments
thereto (certified to be correct by the Secretary of Company) have been
delivered to Purchaser and are complete and correct as of the date hereof.
Disclosure Schedule 4.01 correctly lists, with respect to Company, each
jurisdiction, if any, in which it is qualified to do business as a foreign
corporation.
4.02 Capitalization. The authorized capital stock of Company consists
--------------
solely of 500 common shares, without par value, of which 50 shares are issued
and outstanding. Company has 77 treasury shares. The issued and out-standing
common shares of Company are held by the following persons in the following
numbers:
Name of Shareholder Number of Shares Held
--------------------- ------------------------
T. Schneider - 25 shares
R. Leas - 25 shares
Company has no authorized or outstanding preferred stock or any other class
of stock. The Company Shares have been duly authorized and validly issued and
are fully paid and nonassessable. The Company Shares have been issued in
compliance with all applicable federal and state securities laws and no past or
present holder thereof is entitled to any right of rescission in respect thereof
and no documentary taxes or other taxes were required with respect to the
issuance or transfer of such Company Shares. There are no existing
subscriptions, options warrants, calls, rights, contracts, commitments,
understandings, restrictions or arrangements relating to the issuance, sale or
transfer of any capital stock of Company or any securities convertible into or
exchangeable for any such capital stock.
4.03 Title to Shares. Sellers own, respectively, the number of Company
-----------------
Shares set forth opposite each of their names in Section 4.02 hereof, free and
clear of all Liens. The transfer of the Company Shares to Purchaser will convey
good and marketable title to the Company Shares, free and clear of all Liens.
4.04 Subsidiaries. Company has no subsidiaries.
------------
4.05 Authority. This Agreement is a valid and binding obligation of each
---------
Seller, enforceable in accordance with its terms except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditors' rights generally, or by the availability
of equitable remedies or the application of general equitable principles.
Except as set forth in Disclosure Schedule 4.05, neither the execution and
delivery of this Agreement 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 upon any of the properties or assets of
Company under any of the terms, conditions or provisions of the Articles of
Incorporation or Bylaws of Company or of any note, bond, mortgage, indenture,
deed of trust, license, agreement or other instrument or obligation to which
Company, or any Seller is a party, or by which Company or any Seller or any of
their properties or assets may be bound or affected; or
(ii) violate any order, writ, injunction or decree applicable to
Sellers or Company or any of their properties or assets or, to the knowledge of
Sellers, violate any statute, rule or regulation applicable to Sellers or
Company or any of their properties or assets; or
(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 Company is
a party or by which it is bound; or
(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 Company; or
(v) no Consent by, notice to or registration with any Governmental
Authority is required on the part of Sellers or Company prior or subsequent to
the Closing Date in connection with the execution, delivery and performance by
Sellers of this Agreement or the consummation of any of the transactions
contemplated hereby.
4.06 Closing Balance Sheet. The Closing Balance Sheet, which shall be
-----------------------
attached hereto as Exhibit "D" on the Post-Closing Date, will reflect only the
assets and liabilities of Company as of the Closing Date and will not include
any assets or liabilities of any corporation or entity except Company. As of
the Closing Date, Company will not have any liabilities (whether absolute,
accrued, contingent or otherwise and whether due or to become due), including
without limitation, any tax liabilities of the nature required by GAAP to be
reflected or reserved against in the Closing Balance Sheet, 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 the nature set forth on Disclosure Schedule
4.06, attached hereto, which are not material in the aggregate.
4.07 Year End Financials.
---------------------
(a) The Year End Financials have been provided to Purchaser, are in
accordance with the books and records of Company, and have been prepared in
accordance with GAAP as applied by Company on a consistent basis throughout the
periods covered by such statements and fairly represent the financial condition
of Company as of the respective dates and the results of operations of Company
for the period then ended. Except as stated in the Year End Financials or as
otherwise set forth in Disclosure Schedule 4.07(a), there have been no unusual
accounting practices engaged in which have affected the amount or trend of net
income of Company, or any unusual or nonrecurring transactions, during the
periods reflected in the Year End Financials.
(b) Absence of Undisclosed Liability. Except as to the extent
-----------------------------------
specifically reflected in the Year End Financials or otherwise set forth in
Disclosure Schedule 4.07(b), and except for trade payables, liabilities and
contractual obligations arising in the ordinary course of business since the
date of Company's 1998 unaudited financial statements, Company 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 GAAP to
have been reflected or reserved against in financial statements.
(c) No Liabilities as Guarantor. Except as set forth in Disclosure
------------------------------
Schedule 4.07(c), Company 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 Disclosure
-----------------------------
Schedule 4.07(d) or as otherwise set forth in this Agreement or the Exhibits
hereto, since December 31, 1998, there has not been:
(i) any change in the condition (financial or otherwise),
properties, business, operations or prospects of Company 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 Company;
(iii) an actual or any threatened strike or other material labor
trouble or material 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 Company which loss has had or upon
occurrence would have a material effect, singly or in the aggregate, on the
condition (financial or otherwise), properties, business, operations or
prospects of Company;
(v) to the knowledge of the Sellers, any statute, regulation,
order, ordinance or other law the adoption, amendment or rescission of which
have a material effect, singly or in the aggregate, on the condition (financial
or otherwise), properties, business, operations or prospects of Company;
(vi) any indebtedness, liability or obligation (whether absolute,
accrued, contingent or otherwise) incurred by Company, or other transaction
entered into by Company, other than in the ordinary course of business and
consistent with past practice, or any guarantee of any indebtedness, liability
or obligation made by Company;
(vii) any declaration, setting aside or payment of any dividend or
other distributions in respect of any capital stock of Company;
(viii) any issuance, sale, combination or reclassification of any
capital stock or other securities of Company;
(ix) any issuance or grant of any option, warrant or other right
in respect of any capital stock or other securities of Company;
(x) any direct or indirect redemption, purchase or other
acquisition of any capital stock or other securities of Company;
(xi) any obligation, liability, Lien or encumbrance paid,
discharged or satisfied by Company other than 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 Company other than in the ordinary course of business;
(xiii) except in the ordinary course of business, any sale,
transfer or other disposition of any tangible asset of Company, any cancellation
of any debt or claim of Company or any disposition of any intangible properties,
assets or rights of Company;
(xiv) any salary or wage increase granted or committed to be made,
other than normal merit or cost-of-living increases pursuant to Company's
general prevailing practices, with respect to any officer, director, employee or
agent of Company, or any bonus, 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 Company 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 Company or to any member of any of their
families;
(xvii) any capital expenditure, addition or improvement made or
committed to be made by Company in excess of $10,000.00 with respect to any
single expenditure, addition or improvement or in excess of $20,000.00 with
respect to all such expenditures, additions and improvements;
(xviii) any failure on the part of Company 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 Company and any customer
or supplier;
(xx) any loss, amendment, termination or waiver of any material
right of Company 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 $10,000.00 with
respect to any single note or account or in excess of $20,000.00 with respect to
all such write-offs;
Purchaser acknowledges that on or before Closing, Company shall have paid
off all outstanding liabilities due to its current or past shareholders, in the
respective amounts as set forth on Disclosure Schedule 4.07(d).
4.08 Assets. Except as provided in Disclosure Schedule 4.08, Company 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 reflected
in Company's December 31, 1998 financial statements, except only for assets
subsequently disposed of in the ordinary course of business, free and clear of
all Liens, except (a) as specifically reflected thereon, (b) the Line of Credit
Indebtedness, or (c) for Permitted Liens. To the best knowledge of Sellers, all
Company's tangible and other operating assets, property and equipment are in
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 4.08.
4.08.1 Accounts Receivable. All Accounts Receivable of Company which have
--------------------
arisen in connection with the Business or otherwise and which are reflected on
Company's December 31, 1998 financial statements, and all such receivables which
will have arisen since December 31, 1998 have arisen only from bona fide
transactions in the ordinary course of business and represent valid, collectible
and existing claims. Except as set forth on Disclosure Schedule 4.08.1, and
subject to customer credits, the payment of each Account Receivable will not, as
of the Closing Date, be subject to any known defense, counterclaim or condition
(other than Company's performance in the ordinary course of business)
whatsoever. Disclosure Schedule 4.08.1 hereto accurately lists, as of a date
within five (5) days of execution of this Agreement, and will list, as of a date
within five (5) days of the Closing Date, all receivables arising out of or
relating to the Business, the amount owing and the aging of such Accounts
Receivable. Sellers have provided Purchaser the opportunity to review complete
and correct copies of all instruments, documents and agreements evidencing such
Accounts Receivable and of all instruments, documents or agreements, if any,
creating security therefor.
4.08.2 Vendor Receivables. All Vendor Receivables of Company which have
-------------------
arisen in connection with the Business or otherwise and which are reflected on
Company's December 31, 1998 financial statements and all such Vendor Receivables
which have arisen since December 31, 1998 have arisen only from bona fide
transactions in the ordinary course of business and represent valid, collectible
and existing claims. Except as set forth in Disclosure Schedule 4.08.2, the
payment of each Vendor Receivable will not, as of the Closing Date, be subject
to any known defense, counterclaim or condition whatsoever. Disclosure Schedule
4.08.2 hereto accurately lists, as of a date within five (5) days of the
execution of this Agreement, and will list, as of a date within five (5) days of
the Closing Date, all Vendor Receivables arising out of or relating to the
Business, the amount owing and the aging of such Vendor Receivables. Sellers
have provided Purchaser the opportunity to review complete and correct copies of
all instruments, documents and agreements evidencing such Vendor Receivables and
of all instruments, documents and agreements, if any, creating security
therefor.
4.08.3 Inventory. Except as specifically described on Disclosure Schedule
---------
4.08.3, all inventory reflected on the December 31, 1998 financial statements
consists of items of quality and quantity which are usable or saleable in the
ordinary course of Business of Company in the conduct of its Business, and items
of below standard quality and items not usable or saleable in the ordinary
course of Company's business have been written-down in value in accordance with
good business practices to estimated net realizable market value or adequate
reserves have been provided therefor. The values at which the Inventories are
carried on the December 31, 1998 financial statement reflect the normal
valuation policy of Company in setting inventory at the lower of cost or market,
all in accordance with GAAP. Except as set forth on Disclosure Schedule 4.08.3,
since December 31, 1998, Inventories have been maintained at normal and adequate
levels for the continuation of the Business in its normal course. Since
December 31, 1998, no change has occurred in such Inventories which affect or
will affect the usability or salability thereof, no write-downs or write-ups of
the value of such Inventories has occurred and no additional amounts have been
reserved with respect to such Inventories. Disclosure Schedule 4.08.3 lists the
location of all Inventories together with a brief description of the type and
amount at each location.
4.08.4 Real Property. Company owns no real property.
--------------
4.08.5 Dealer Agreements. A list of Company's dealer agreements is set
------------------
forth in Disclosure Schedule 4,08.
4.08.6 Intellectual Property.
----------------------
(a) Title. Disclosure Schedule 4.08.6(a) contains a complete and
-----
correct list and a brief description of all Intellectual Property described in
Section 1.37(a), 1.37(b) and 1.37(c) that is owned by Company and primarily
related to, used in, held for use in connection with, or necessary for the
conduct of, or otherwise material to the Business (the "Owned Intellectual
Property"). Company owns or has the exclusive right to use pursuant to license,
sublicense, agreement or permission all of its Intellectual Property, free from
any Liens (other than Permitted Lines). No Affiliate of Seller owns or has any
interest in or with respect to any Company Intellectual Property and Company
Intellectual Property comprises all of the Intellectual Property necessary for
Company to conduct and operate the Business following the Closing as now being
conducted by Company.
(b) No Infringement. To the knowledge of Sellers, the conduct of the
----------------
Business does not infringe or otherwise conflict with any rights of any Person
in respect of any Intellectual Property. To the knowledge of Sellers, none of
Company Intellectual Property is being infringed or otherwise used or available
for use, by any other Person.
(c) Licensing Arrangements. Disclosure Schedule 4.08.6(c) sets forth
-----------------------
all agreements, arrangements or laws (i) pursuant to which Company has leased or
licensed Intellectual Property, or the use of Intellectual Property as otherwise
permitted (through non-assertion, settlement or similar agreements or otherwise)
to, any other Person and (ii) pursuant to which Company has had Intellectual
Property licensed to it, or has otherwise been permitted to use Intellectual
Property (through non-assertion, settlement or similar agreements or otherwise),
excluding software licensed by Company for internal purposes, together with a
brief description of the Intellectual Property covered thereby. All of the
agreements or arrangements set forth in Disclosure Schedule 4.08.6(c), (x) are
in full force and effect in accordance with their terms and no default exists
thereunder by Company, or to the knowledge of Sellers, or other parties thereto
(y) are free and clear of all Liens other than Permitted Liens, and (z) except
as set forth on Disclosure Schedule 4.08.6(c), do not contain any change in
control or other terms or conditions that will become applicable or inapplicable
as a result of the consummation of the transactions contemplated by this
Agreement. Sellers have delivered to Purchaser true and complete copies of all
licenses and arrangements (including amendments) set forth on Disclosure
Schedule 4.08.6(c).
(d) No Intellectual Property Litigation. To Sellers' knowledge, no
--------------------------------------
claim or demand of any Person has been made nor is there any proceeding that is
pending, or to the knowledge of Sellers, threatened, nor is there to Sellers'
knowledge, a reasonable basis therefor, which (i) challenges the rights of
Company in respect of any of the Intellectual Property, (ii) asserts that
Company is infringing or otherwise in conflict with, or is, except as set forth
in Disclosure Schedule 4.08.6(d), required to pay any royalty, license fee,
charge or other amount with regard to, any Intellectual Property, or (iii)
claims that any default exists under any agreement or arrangement regarding
Intellectual Property. None of Company's Intellectual Property is subject to
any outstanding order, ruling, decree, judgment or stipulation by or with any
court, arbitrator, or administrative agency, or has been the subject of any
litigation within the last five years, whether or not resolved in favor of
Company.
(e) Due Registration, etc. Company has no Intellectual Property that
------------------------
has been registered with, filed and/or issued by, as the case may be, the United
States Patent and Trademark Office, United States Copyright Office or such other
filing offices, domestic or foreign.
(f) Use of Name and Mark. Except as set forth in Disclosure Schedule
-----------------------
4.08.6(f), there are no restrictions or limitations pursuant to any order,
decisions, injunctions, judgements, awards or decrees of any Governmental
Authority on Purchaser's right to use the names and marks set forth on
Disclosure Schedule 4.08.6(a) in the conduct of the Business as presently
carried on by Company.
4.08.7 Motor Vehicles. Disclosure Schedule 4.08.7 sets forth a complete
---------------
list of all motor vehicles owned by Company.
4.09 Contracts.
---------
(a) Disclosure Schedule 4.09 contains a complete and correct list of
all agreements, contracts, commitments and other instruments and arrangements
(whether written or oral) of the types described below (x) by which Company or
under which Company or any of its assets, businesses or operations receive
benefits, or (y) to which Company is a party or by which Company is bound in
connection with the Business (the "Contracts").
(i) leases, licenses, permits, franchises, insurance policies,
Governmental Approvals and other contracts concerning or relating to the Leased
Real Property in Sellers' or Company's possession;
(ii) employment, bonuses, vacations, pensions, profit sharing,
retirement, stock options, stock purchases, employee discounts or other employee
benefits, consulting, agency, collective bargaining or other similar contracts,
agreements, and other instruments and arrangements relating to or for the
benefit of current, future or former employees, officers, directors, sales
representatives, distributors, dealers, agents, independent contractors or
consultants which involves aggregate annual payments in excess of $15,000;
(iii) loan agreements, indentures, letters of credit, mortgages,
security agreements, pledge agreements, deeds of trust, bonds, notes,
guarantees, and other agreements and instruments relating to the borrowing of
money or obtaining of or extension of credit;
(iv) brokerage or finder's agreements;
(v) joint venture, partnership and similar contracts involving a
sharing of profits or expenses, including, but not limited to, joint research
and development and joint marketing contracts;
(vi) asset purchase agreements and other acquisition or
divestiture agreements, including, but not limited to, any agreements relating
to the sale, lease or disposal of any assets owned by Company (other than sales
of Inventory in the ordinary course of business) or involving continuing
indemnity or other obligations;
(vii) orders and other contracts for the purchase or sale of
Inventories, materials, supplies, products or services open or as to which any
liability exists as of the date hereof, each of which involves aggregate
payments in excess of $15,000;
(viii) contracts with respect to which the aggregate amount that
could reasonably expected to be paid or received thereunder in the future
exceeds $15,000;
(ix) sales agency, manufacturer's representative, marketing or
distributorship agreements;
(x) contracts, agreements or arrangements with respect to the
representation of the Business in foreign countries;
(xi) master lease agreements providing for the leasing of either
(a) personal property primarily used in, or held for use primarily in connection
with, the Business and (b) other personal property;
(xii) contracts, agreements or commitments with any director,
officer, employee, or Affiliate of Company or any of the Sellers, or with any
holder of more than five percent (5%) of any class of capital stock of Company
outstanding other than employment contracts; and
(xiii) any other contracts, agreements or commitments that are
material to the Business.
(b) Sellers have delivered to Purchaser complete and correct copies of
all written Contracts, together with all amendments thereto, and accurate
descriptions of all material terms of all oral Contracts, set forth or required
to be set forth in Disclosure Schedule 4.09.
(c) Company has not received notice of any plan or intention of any
party to any Contract to exercise any right to cancel or terminate any Contract.
To the best knowledge of Sellers, there does not exist under any Contract any
event of default or event or condition that, after notice or lapse of time or
both, would constitute a violation, breach or event of default thereunder on the
part of Company or, to the best knowledge of Sellers, any other party thereto,
except as set forth in Disclosure Schedule 4.09 and except for such events or
conditions that, individually and in the aggregate, (i) has not had or resulted
in, and will not have or result in a material effect on Company or its assets,
and (ii) has not and will not materially impair the ability of Company to
perform its obligations under this Agreement and under the Other Sellers
Documents. Except as set forth in Disclosure Schedule 4.09, no consent of any
third party is required under any Contract as a result of or in connection with,
and the enforceability of any Contract will not be affected in any manner by the
execution, delivery and performance of this Agreement or any of the Other
Sellers Documents or the consummation of the transactions contemplated thereby.
(d) Company has no outstanding power of attorney relating to the
Business.
4.10 Labor Disagreements. In connection with the operation of the Business
--------------------
of Company or any other business previously operated by Company, (i) Company is
not engaged in any unfair labor practice; (ii) Company has not been notified of
any unfair labor practice charge or complaint against Company pending and, to
the knowledge of Sellers, no such charge or complaint is threatened before the
National Labor Relations Board, any state labor relations board or any court or
tribunal; (iii) except as set forth on Disclosure Schedule 4.10, Company has not
been notified of any charge or claim filed at or with the Equal Employment
Opportunity Commission, any state agency having similar jurisdiction or any
court or tribunal, actually pending and, to the knowledge of Sellers, no such
charge or claim is threatened against Company in connection with the operation
of the Business of Company; (iv) there is no labor strike, dispute, request for
representation, slowdown or stoppage actually pending against or affecting
Company and, to the knowledge of Sellers, none is or has been threatened; (v)
Company has not been notified of any grievance which might have a material
effect on the conduct of the operations of the Business of Company; (vi)
Company has no labor contracts or collective bargaining agreements with respect
to any Company Personnel; (vii) no labor organization or group of employees of
Company has made a demand for recognition or certification, and, to the Sellers'
knowledge, there are no representation or certification proceedings or petitions
seeking a representation proceeding presently pending or threatened in writing
to be brought or filed with the National Labor Relations Board or any other
labor relations tribunal or authority, and (viii) Company has not been notified
of any organizing activities involving Company pending with any labor
organization or group of employees of Company.
4.11 Employee Benefit Information.
------------------------------
(i) Except as set forth on Disclosure Schedule 4.11(i), Company does
not maintain, is not required to contribute to and has no liabilities with
respect to any Employee Benefit Plans and no Company Personnel or dependent of
such Company Personnel is entitled to any benefits except as provided for by the
provisions of such Employee Benefit Plans or by applicable law.
(ii) Sellers have provided Purchaser with (a) copies of all Employee
Benefit Plans or in the case of any unwritten plan, a written description
thereof, (b) copies of any annual, financial or actuarial reports and Internal
Revenue Service determination letters relating to such Employee Benefit Plans
and (c) copies of the most recent summary plan descriptions (whether or not
required to be furnished under ERISA) and all material employee communications
relating to such Employee Benefit Plans and distributed to Company Personnel.
(iii) Except as set forth on Disclosure Schedule 4.11(iii), the events
contemplated by this Agreement (either alone or together with any other event)
will not (a) entitle any Company Personnel to severance pay, unemployment
compensation, or other similar payments under any Employee Benefit Plan or law,
(b) accelerate the time of payment or vesting or increase the amount of benefits
due under any Employee Benefit Plan or compensation to any Company Personnel,
(c) result in any payments (including parachute payments) under any Employee
Benefit Plan or law, becoming due to any Company Personnel, or (d) terminate or
modify or give a third party a right to terminate or modify the provisions or
terms of any Employee Benefit Plan.
(iv) The Acme Data Systems, Inc. Employee Savings Plan (the "401(k)
Plan") is qualified under Sections 401(a) and 401(k) of the Code and the related
trust is exempt from Tax under Section 501(a) of the Code and Company has no
other employees' savings plans qualified under Section 401(a) or any other
Section of the Code. The Internal Revenue Service has issued a determination
letter that the prototype plan to which the 401(k) Plan relates is so qualified
and nothing, to Seller's knowledge, has occurred since the date of such letter
to cause the letter to be no longer valid or effective assuming the plan is
amended on a timely basis to comply with changes to the Code, or other
legislative, regulatory or administrative requirements subject to the remedial
amendment period applicable to such Act. All contributions due with respect to
the periods ending on or before the Closing Date to the 401(k) Plan have been
timely made, and a pro rata portion of the contributions (including matching
contributions) for the plan year in which the Closing Date occurs shall have
been made on or prior to the Closing Date for the period ending on the Closing
Date. The Acme Data Systems, Inc. Cafeteria Plan (the "Cafeteria Plan")
satisfies all the applicable provisions of Section 125 of the Code.
(v) Neither Company nor any entity that is or was at any time treated
as a single employer with Company under Section 414(b), (c), (m) or (o) of the
Code has at any time (a) maintained, contributed to or been required to
contribute to any plan under which more than one employer makes contributions
(within the meaning of Section 4064(a) of ERISA) or any plan that is a
multi-employer plan as defined in Section 3(37) of ERISA, (b) incurred or
expects to incur any liability to the Pension Benefit Guaranty Corporation or
otherwise under Title IV or ERISA (other than the payment of premiums none of
which are overdue) or (c) incurred or expects to incur liability in connection
with an "accumulated funding deficiency" within the meaning of Section 412 of
the Code whether or not waived.
(vi) Company has, in the conduct of the affairs of the Business of
Company, complied in all material respects with all applicable laws, rules and
regulations relating to the employment of labor, including those relating to
wages, hours, terms and conditions of employment, collective bargaining and the
payment of social security and similar Taxes.
(vii) Company has not and prior to the Closing Date will not have
suffered a "plant closing" or "mass layoff" within the meaning of the Worker
Adjustment and Retraining Notification Act ("WARN").
(viii) To Seller's knowledge, the Company has complied in all material
respects with the Consolidated Omnibus Budget Reconciliation Act of 1984.
4.12 Burdensome Obligations. Except for agreements described in the
-----------------------
Disclosure Statement Exhibit 4.12, Company 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. Company is not subject to
or bound by any contract or other obligation whatsoever which materially
adversely affects its business, properties or prospects, except as expressly
disclosed in this Agreement.
4.13 Lawful Operations. To the best of Sellers' knowledge, the businesses
------------------
conducted and properties owned or leased by Company conform with all Applicable
Laws and all permits and licenses, if any, that are required to enable Company
to operate its Business have been obtained.
4.14 Legal Proceedings; Claims. Except as set forth in the Disclosure
---------------------------
Schedule 4.14, there are no decrees or order of any regulatory agency, court or
public authority materially affecting the operations of Company, and Company is
not a party to any litigation or other judicial or administrative proceedings.
Except as set forth in Disclosure Schedule 4.14, to Sellers' knowledge, neither
Company nor any Seller is a party to any litigation or other judicial,
administrative or other proceeding pending or known by Sellers to be threatened
which would affect Company's or Sellers' ability to perform this Agreement or
would materially affect the assets or operations of Company; and, to the best
of Sellers' knowledge there are no claims in existence or threatened against
Company 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 affect the properties, assets, business,
financial condition or corporate status of Company; and Company is not in
default with respect to any order or decree of any court or administrative
regulatory agency.
4.15 Taxes.
-----
A. Company has:
(i) Except as set forth in Disclosure Schedule 4.16, prepared in
accordance with reasonable interpretations of all Applicable Laws, and timely
filed all Tax Returns required to be filed or sent by it with respect to any
Taxes; copies of all Company federal and state income Tax Returns since January
1, 1994 have been provided to Purchaser;
(ii) timely paid all Taxes that are shown as due and payable on
said Tax Returns;
(iii) established on its books and records reserves that are
adequate for the payment of all Taxes not yet due and payable;
(iv) complied with all Applicable Laws, rules and regulations
relating to the payment and withholding of Taxes and have timely and properly
withheld from employee wages and paid over to the proper Governmental
Authorities all amounts required to be so withheld and paid over under all
Applicable Laws. There are no liens for Taxes upon the assets of Company except
for Liens for Taxes not yet due. Company is not a party to any agreement
providing for the allocation, sharing or indemnification of Taxes;
(v) that, except as reflected or reserved against in the Balance
Sheet of Company as of June 30, 1999, Company as of such date had no deferred
tax liabilities of any nature and Sellers represent and warrant that they do not
know nor do they have any reasonable grounds to know of any basis for any
deferred tax liability in any amount not fully reflected or reserved against in
the Balance Sheet as of June 30, 1999;
(vi) that all deductions taken on all the Company's tax returns
have been properly deducted by Company pursuant to pertinent provisions of the
Internal Revenue Code.
To Sellers' knowledge, Company is not currently under audit by any
Governmental Authority for any Taxes and has not extended the statute of
limitations relating to the filing of a Tax Return or the payment of any Taxes.
B. Sellers represent that:
(i) there has been no consent filed with the Internal Revenue
Service under Section 341(f) of the Code; and
(ii) Each Seller shall be responsible for his or its federal,
state and local income taxes relating to or arising from his or its ownership of
Company Shares.
4.16 Environmental Compliance.
-------------------------
(i) To Seller's knowledge, Company is not in violation, or alleged to
be in violation, of any Environmental Laws which would have a material effect on
the Business,
(ii) Company has not received a notice, complaint, order, directive,
claim or citation from any third party, including without limitation any
federal, state or local governmental authority, (A) that Company has been
identified by the Unites States Environmental Protection Agency ("EPA") as a
potentially responsible party under CERCLA with respect to a site listed on the
National Priorities List, 40 CFR Part 300 Appendix B, or the CERCLA Information
System; (B) that any Hazardous Materials which Company has generated, stored,
transported or disposed of has been released at any site at which a federal,
state or local agency has conducted or has ordered that any person conduct a
remedial investigation, removal or other response action pursuant to any
Environmental Law or has named Company as a potentially responsible party; or
(C) that Company is or shall be named party to any claim, action, cause of
action, complaint, or legal or administrative proceeding (in each case,
contingent or otherwise) arising out of any third party's incurrence of costs,
expenses, losses or damages of any kind whatsoever in connection with the
release of Hazardous Materials.
(iii) To the knowledge of Sellers, (A) no portion of the property of
Company has been used for the handling, processing, storage or disposal of
Hazardous Materials except in compliance in all material respects with
applicable Environmental Laws; and no underground tank or other underground
storage receptacle containing or formerly containing any Hazardous Materials is
located on any portion of any of the properties currently or formerly owned,
operated or leased by Company or any of its Affiliates during Company's or any
of its Affiliate's ownership, operation or lease of the properties; (B) in the
course of any activities conducted by Company or operators of Company's
properties, no Hazardous Materials have been generated or are being used on the
property except in compliance in all material respects with applicable
Environmental Laws; (C) there have been no releases (i.e., any past or present
releasing, spilling, leaking, leaching, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, disposing or dumping) or threatened releases
of Hazardous Materials on, upon, into or from the property currently or formerly
owned, operated or leased by Company or any of its Affiliates during or prior to
Company's or any of its Affiliate's ownership, operation or lease, which
releases would have a material effect on the value of any of the property or
adjacent properties or the environment; and (D) in addition any Hazardous
Materials, that have been generated or stored by Company or any of its
Affiliates on any of the currently or formerly owned, operated or leased
property of Company have been transported off site only by carriers having an
identification number issued by the EPA and treated or disposed of only by
treatment or disposal facilities maintaining valid permits as required under
applicable Environmental Laws, which transporters and facilities have been and
are operating in material compliance with such permits and applicable
Environmental Laws or, if any transporter or facility has not been or is not in
material compliance, such failure would not have a material effect on Company or
any of its Affiliates.
(iv) Sellers have provided to Purchaser all environmentally related
audits, studies, reports, analyses (including soil and groundwater analysis),
and results of investigations that have been performed with respect to the
currently or previously owned, leased, or operated properties of Company or any
of its Affiliates, and that are in the possession of Company, any of its
Affiliates or Sellers.
(v) There is not now nor, to the knowledge of Sellers, have there been
located at any of the properties of Company, whether owned or leased asbestos
containing material or equipment containing polychlorinated biphenyls in
violation of any applicable Environmental Law.
(vi) Company currently holds, and at all times has held, all required
federal, state, and local permits, licenses, certificates and approvals
necessary to Company's Business ("Environmental Permits"). Company has not been
notified by any relevant Governmental Authority that any Environmental Permit
will be modified, suspended, canceled or revoked, or cannot be renewed in the
ordinary course of business, which modification, suspense, cancellation,
revocation or non-renewal could affect in any material way the manner in which
Company operates Company's Business.
4.17 Insurance. Company 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 Closing Date. Attached
hereto as Disclosure Schedule 4.17 is a complete list of all insurance policies
owned by Company, indicating risks insured against, carrier, policy number,
amount of coverage, premiums and expiration dates.
4.18 Books and Records. The books of account of Company 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
Company 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 Company.
4.19 Certain Interests. Except as set forth in Disclosure Schedule 4.19,
------------------
Sellers do not directly or indirectly own any interest in any corporation, firm
or enterprise engaged in a business competitive with Company, except (i) Company
Shares or (ii) any passive investment by Sellers 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.
4.20 Officers and Directors; Certain Payments. Disclosure Schedule 4.20 is
-----------------------------------------
a true and complete list showing (a) the names of all officers and directors of
Company and the directorships and officerships in Company held by each; (b) the
names and address of each financial institution in which Company 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
Company and a summary statement of the terms thereof.
4.21 Commissions or Brokers Fees. Neither Company nor any Seller has
------------------------------
incurred any liability to any person for financial advice, finder's fees or
brokerage commission with respect to the transactions contemplated by this
Agreement, which liability may be asserted against Company, Purchaser or any
affiliate of Purchaser, except for Sellers' engagement of Growth Managers
Advisors, Inc., whose fee shall be paid by Sellers.
4.22 Assets Necessary to the Business. Company owns, leases, licenses, or
----------------------------------
has the right to use all assets and properties (tangible and intangible)
necessary to carry on its Business and operations as presently conducted. Such
assets and properties are all of the assets and properties necessary to carry on
the Business of Company as presently conducted and, except as set forth in
Disclosure Schedule 4.22, none of the Sellers (other than through their
ownership of stock in Company) 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 of Company.
4.23 Absence of Certain Business Practices. Neither Company, nor any
-----------------------------------------
officer, employee or agent of Company, nor any other Person acting on its
behalf, has, directly or indirectly, within the past five years given or agreed
to give any gift, bribe, rebate or kickback or otherwise provide any similar
benefit to any customer, supplier, governmental employee or any other Person who
is or may be in a position to help or hinder Company or the Business (or assist
Company in connection with any actual or proposed transaction relating to the
Business or any other business previously operated by Company) (i) which
subjected or might have subjected Company to any damage or penalty in any civil,
criminal or governmental litigation or proceeding, (ii) which if not given in
the past, might have had a material effect on Company or its assets, (iii) which
if not continued in the future, might have a material effect on Company or its
assets or subject Company to suit or penalty in any private or governmental
litigation or proceeding, (iv) for any of the purposes described in Section
162(c) of the Code or (v) for the purpose of establishing or maintaining any
concealed fund or concealed bank account.
4.24 Transactions with Affiliates. Except as disclosed on Disclosure
------------------------------
Schedule 4.24, there is no lease, sublease, contract, agreement or other
arrangement of any kind whatsoever entered into by Company with any Seller or
with any Affiliate of any Seller, except such of the foregoing which may be
terminated at Closing by Purchaser without further liability. Prior to Closing,
all indebtedness owed by any Seller to Company shall be repaid.
4.25 Territorial Restrictions. Except as described in Disclosure Schedule
-------------------------
4.25, Company is not restricted by any written agreement or understanding with
any other Person (excluding Applicable Laws of Governmental Authorities) from
carrying on the Business anywhere in the world. Neither Purchaser nor any of
its affiliates will, as a result of its acquisition of Company Shares, become
restricted in carrying on the Business anywhere in the world as a result of any
Contract or other agreement to which Company is a party or by which it is bound.
4.26 Customers. Disclosure Schedule 4.26 includes a correct list of the
---------
twenty-five (25) largest customers for Company for each of the past two (2)
fiscal years and the amount of business done by Company with each such customer
for each year. None of the Sellers have any knowledge or information, and are
aware of any facts indicating that any of the customers will or intend to (a)
cease doing business with Company; (b) materially alter the amount of business
they are presently doing with Company; or (c) not do business with Company after
the Closing Date.
4.27 Suppliers. Disclosure Schedule 4.27 sets forth the names of and
---------
description of contractual arrangements (whether or not binding or in writing)
with the fifteen (15) largest suppliers of Company and any sole suppliers of
significant goods or services (other than electricity, gas, telephone or water)
to Company with respect to which practical alternative sources of supply are not
readily available on comparable terms and conditions. None of the Sellers have
any knowledge or information, or are aware of any facts indicating that any of
the suppliers of Company will or intend to (a) cease doing business with
Company; (b) materially alter the amount of business they are presently doing
with Company; or (c) not do business with Company after the Closing Date.
4.28 Product Liability. Except as set forth in Disclosure Schedule 4.28
------------------
and for warranties under Applicable Law,
(a) there are no warranties, express or implied, written or oral, with
respect to the products of the Business;
(b) to Seller's knowledge, there are no pending or threatened claims
with respect to any warranty; and
(c) Company does not have, and to the best knowledge of Sellers, will
not have, any liability, after the Closing, with respect to any such warranty,
whether known or unknown, absolute, accrued, contingent, or otherwise and
whether due or to become due.
4.29 Disclosure. No representation or warranty made by any Seller in this
----------
Agreement and no exhibit, certificate or documents furnished or to be furnished
by any Seller pursuant hereto contains or will contain any known untrue
statement of a material fact or omits or will omit any known material fact
necessary in order to make the statements contained therein not misleading. The
Sellers have no knowledge of any factors materially affecting the future
prospects of Company's Business which have not been disclosed in this Agreement
and the Disclosure Schedule.
4.30 On October 15, 1998, Company redeemed all the issued and outstanding
shares of common stock of Company owned by Michael Steiff pursuant to the terms
and conditions contained in the Stock Redemption Agreement dated the 15th day of
October 15, 1998. In connection with the redemption of shares of common stock
from Michael Steiff, the Sellers represent and warrant that Company disclosed
all materials terms, conditions and considerations regarding Company that
occurred prior to the redemption. In making such disclosures to Michael Steiff
and in redeeming shares of common stock of Michael Steiff, the Sellers represent
and warrant that the Company did not make any untrue statement of a material
fact or omit to state a material fact necessary to make all such statements and
disclosures not misleading. Sellers shall indemnify and hold harmless
Purchaser, its successors and assigns, against all loss, liability, damage or
expenses (including, without limitation, interest, penalties and reasonable
attorneys' fees) arising from or in connection with any misrepresentation or
material omission or breach of the representations and warranties set forth in
this paragraph to the extent set forth in Article XI of this Agreement.
4.31 Any disclosure that is made by Sellers in the Disclosure Schedule under
the terms of this Agreement that are designated as pertaining to a particular
Section of the Disclosure Schedule shall constitute a disclosure for any other
Section of the Disclosure Schedule to the extent applicable.
ARTICLE V
5. Representations of Purchaser. Purchaser represents, warrants and
------------------------------
covenants to Sellers that the following statements are true as of the date
hereof and shall be true and correct as of the Closing Date as if made again at
and as of that time.
5.01 Organization. Purchaser is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware 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.
5.02 Authority. This Agreement is a valid and binding obligation of
---------
Purchaser, enforceable in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally,
or by the availability of equitable remedies or the application of general
equitable principles. Except as set forth in Disclosure Schedule 5.02, neither
the execution and delivery of this Agreement 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 upon any of the properties or assets of
Purchaser under any of the terms, conditions or provisions of the Articles of
Incorporation or Bylaws of Purchaser or of any note, bond, mortgage, indenture,
deed of trust, license, agreement or other instrument or obligation to which
Purchaser is a party, or by which Purchaser or any of its properties or assets
may be bound or affected, or
(ii) violate any order, writ, injunction or decree applicable to
Purchaser or any of its properties or assets or, to the knowledge of Purchaser,
violate any statute, rule or regulation applicable to Purchaser or any of its
properties or assets; or
(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 Purchaser
is a party or by which it is bound; or
(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 Purchaser.
(v) no Consent by, notice to or registration with any Governmental
Authority is required on the part of Purchaser prior or subsequent to the
Closing Date in connection with the execution, delivery and performance by
Purchaser of this Agreement or the consummation of any of the transactions
contemplated hereby.
5.03 Commissions or Brokers' Fees. Purchaser has not incurred any liability
----------------------------
to any person for financial advice, finder's fees or brokerage commission with
respect to the transactions contemplated by this Agreement, which liability may
be asserted against any Seller or Company.
5.04 MD& A Update
--------------
Since April 5, 1999, there has been no material adverse change in the
results of operations or financial condition of Purchaser, nor are there any
demands, commitments, events or uncertainties known to Purchaser which could
affect Purchaser's liquidity, capital resources, or results or operations as of
the date hereof (other than those previously disclosed by Purchaser in its
periodic reports filed with the Securities and Exchange Commission) that would
require discussion in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") prepared in accordance with Item
303 of Regulation S-K promulgated by the Securities and Exchange Commission if
such MD&A were required to be updated through the date hereof.
5.05 Shares.
------
The shares of Common Stock of Purchaser which are to be issued to Sellers
have been duly authorized and, when issued in accordance with the terms of this
Agreement, will be validly issued and outstanding, fully paid and nonassessable.
Purchaser common stock is properly listed and authorized for quotation on the
NASDAQ National Market System.
5.06 Accredited Investor.
--------------------
Purchaser hereby certifies the following:
(a) Purchaser has such knowledge and experience in financial and
business matters and has retained competent legal and accounting representation
to enable it to evaluate the merits and risks of its purchase of the Company
Shares and has determined to bear and afford the economic risks of such an
investment;
(b) Purchaser has had access to all material information concerning the
Company, its business and financial condition and all information necessary to
verify the accuracy of such information; and
(c) Purchaser has had the opportunity to ask questions of and receive
answers from the Company's directors and officers regarding the Company's
business and financial condition.
ARTICLE VI
6.01 Release by Sellers. Each Seller, as of the Closing Date, shall release
------------------
and discharge Company from all actions, claims or demands of every kind and
nature which any of the Sellers have or may have against Company whether based
upon contract or otherwise, arising before the execution of this Agreement.
Nothing contained herein shall constitute a release of any rights of the Sellers
arising under this Agreement, of any claims under any Employee Benefit Plans
currently maintained by Company, or with respect to anything which may occur
after the Closing Date.
ARTICLE VII
7.01 Covenants Not to Compete. As inducement for and in consideration of
---------------------------
Purchaser entering into this Agreement, the Sellers shall each enter into a
non-competition agreement. Such non-competition agreements are set forth in
Exhibits E and E-1 attached hereto and made a part hereof.
ARTICLE VIII
8.01 Employment Agreement. Upon the Closing Date, Company shall enter into
---------------------
an Employment Agreements with T. Schneider. A copy of said Employment Agreement
is attached hereto and made a part hereof as Exhibit F.
ARTICLE IX
9.1 Covenants of Sellers.
----------------------
9.01.1 Further Actions.
----------------
Sellers will, as promptly as practicable, file or supply, or cause to be
filed or supplied, all applications, notifications and information required to
be filed or supplied by them or Company pursuant to Applicable Law in connection
with this Agreement, the Other Sellers Documents and the consummation of the
other transactions contemplated hereby.
9.01.2 Further Assurances. Following the Closing, Sellers shall, and shall
-------------------
cause each of their Affiliates and Company to, from time to time, execute and
deliver such additional instruments, documents, conveyances or assurances and
take such other actions as shall be necessary, or otherwise reasonably requested
by Purchaser, to confirm and assure the rights and obligations provided for in
this Agreement and in the Other Sellers Documents and render effective the
consummation of the transactions contemplated thereby. Without limiting the
generality of the foregoing, the parties specifically contemplate closing the
transactions contemplated herein prior to the time that full compliance by
Sellers with the conditions precedent set forth in Section 12.01(2) will be
practicable. As a result, notwithstanding the Closing, this Section 9.01.4
shall require prompt delivery thereafter by Sellers of the consents, instruments
and agreements called for herein, including in Section 12.01(2).
9.01.3 Liability for Transfer Taxes. Sellers shall be responsible for the
-------------------------------
timely payment of, and shall indemnify and hold harmless Purchaser and their
Affiliates against, all sales, income, use, value added, documentary, stamp, and
any other taxes and fees attributable or arising out of the sale of the Company
Shares by Sellers to Purchaser. Sellers represent to Purchaser that there will
be no tax liability to Company arising out of the sale of the Company Shares.
ARTICLE X
10.01 Covenants of Purchaser.
------------------------
10.01.1 Further Actions.
----------------
Purchaser will, as promptly as practicable, file or supply, or cause to be
filed or supplied, all applications, notifications and information required to
be filed or supplied by it pursuant to applicable law in connection with this
Agreement, the Other Sellers Documents and the consummation of the other
transactions contemplated hereby.
10.01.2 Tax Elections. Purchaser will not file any election under Section
--------------
338 of the Code with respect to this Agreement or the transactions contemplated
herein.
10.01.3 Further Assurances. Following the Closing, Purchaser shall, and
-------------------
shall cause each of its Affiliates and Company to, from time to time, execute
and deliver such additional instruments, documents, conveyances or assurances
and take such other actions as shall be necessary, or otherwise reasonably
requested by Sellers, to confirm and assure the rights and obligations provided
for in this Agreement and in the Other Sellers Documents and render effective
the consummation of the transactions contemplated thereby. Without limiting the
generality of the foregoing, the parties specifically contemplate closing the
transactions contemplated herein prior to the time that compliance by Purchaser
with the conditions precedent set forth in Section 13.02(7) relating to the
releases of any of the Sellers of their guaranties of any of the Line of Credit
Indebtedness will be practicable. As a result, notwithstanding the Closing,
this Section 10.01.4 shall require prompt delivery thereafter by Purchaser of
the instruments and agreements called for herein, including that contained in
Section 13.02(7).
ARTICLE XI
11.01 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 11.04 and 11.05 hereof, at law or in
equity, for the period beginning on the date of Closing and ending three (3)
years there-after, except for the representations, warranties and agreements
designated and identified in Section 4.01, 4.02, 4.03, 4.05, 4.08 through
4.08.7, 4.15, 4.16, 5.01 and 5.02, which shall survive the Closing and shall
terminate in accordance with the statutes of limitation governing written
contracts and Exhibits E and E-1 and F, which shall terminate as provided
therein.
11.02 Reliance Upon and Enforcement of Warranties and Agreements of Sellers.
---------------------------------------------------------------------
Each Seller hereby agrees that, notwithstanding any right of Purchaser to fully
investigate the affairs of Company, and notwithstanding knowledge of facts
determined or determinable by Purchaser pursuant to such investigation or right
of investigation, Purchaser has the right to rely fully upon the
representations, covenants, warranties and agreements of each Seller contained
in this Agreement and upon the accuracy of any document, schedule, certificate
or exhibit given or delivered to Purchaser pursuant to the provisions of this
Agreement.
11.03 Reliance Upon and Enforcement of Representations, Warranties and
----------------------------------------------------------------------
Agreements of Purchaser. Purchaser hereby agrees that, notwithstanding any
--------------------
right of Sellers to fully investigate the affairs of Purchaser and
notwithstanding knowledge of facts determined or determinable by Sellers
pursuant to such investigation or right of investigation, Sellers have the right
to rely fully upon the representations, covenants, warranties and agreements of
Purchaser contained in this Agreement and upon the accuracy of any document,
certificate or exhibit given or delivered to Sellers pursuant to the provisions
of this Agreement.
11.04 Indemnification by Sellers. Each Seller, jointly and severally, shall
--------------------------
indemnify Purchaser against and hold it harmless from any Losses resulting from
or arising out of any inaccuracy in or breach of any representation, warranty,
covenant or obligation made or incurred by any Seller herein or in any other
agreement, instrument or document delivered by any Seller pursuant to the terms
of this Agreement. Subject to the limitations in Section 11.10 hereof, any
amounts to which Purchaser, its successors or assigns, is entitled to
indemnification pursuant to the provisions of this Section shall be offset
against the amounts payable to Sellers under the Notes (including proceeding
against Sellers for any amounts that may have been previously paid to Sellers
under the Notes). Provided, however, the offset in any one year may not exceed
the aggregate amount of principal and interest due on said applicable
subordinated promissory notes for said year and then against any amounts payable
to Sellers under Section 2.03.
11.05 Indemnification by Purchaser. Purchaser agrees to defend, indemnify
------------------------------
and hold harmless the Sellers from, against and in respect of any and all Losses
resulting from or arising out of an inaccuracy in or other breach of any
representation, warranty, covenant, or obligation made or incurred by Purchaser
herein or in any other agreement, instrument or document delivered by Purchaser
pursuant to the terms of this Agreement.
11.06 Notification of and Participation in Claims.
------------------------------------------------
(a) No claim for indemnification shall arise until notice thereof is
given to the party from whom indemnity is sought (the "Indemnifying Party").
Such notice shall be sent to the Indemnifying Party within ten (10) days after
the party asserting such right to indemnity (the "Party to be Indemnified") has
received notification of such claim, but failure to notify the Indemnifying
Party shall in no event prejudice the rights 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 Sellers on the one hand, or Purchaser on the
other hand, may have an obligation to indemnify the other, the Party to be
Indemnified shall give or cause to be given to 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 Party to be Indemnified in
the event the Party to be Indemnified decides to join in such defense. The
Parties 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 11.04 and 11.05 hereunder,
subject to the limitations set forth elsewhere in this Section 11. 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, negotia-tion
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 responsi-bility 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 11.04 or 11.05
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
11.04 or 11.05 hereof, including any and all expenses incurred by the Party to
be Indemnified incurred in connection with the defense, negotiation or
settlement of such matter. If the amount finally paid to resolve the claim is
equal to or greater than the amount of the original proposed settlement proposed
by the Indemnifying Party, then the Indemnifying Party shall provide
indemnification pursuant to Sections 11.04 and 11.05 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.
11.07 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 11, 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
Authority.
(c) Insurance. Prior to enforcing any claim for indemnification
---------
against the Indemnifying Party under this Agreement, the Party to be Indemnified
shall administratively file in good faith with any insurers all forms and
submissions required by applicable policies for the proceeds or 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
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 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
indemnity damages from the Indemnifying Party and such insurance proceeds) in
excess of the amount of indemnifiable 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 such
mitigation with the Party to be Indemnified.
11.08 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, and (ii)
any other person which has indemnified the Party to be Indemnified for such
liability. The parties shall cooperate reasonably in the pursuit of any such
remedies, rights and claims.
11.09 Exclusive Remedy. Anything contained in this Agreement or the Other
-----------------
Seller Documents to the contrary notwithstanding, the indemnification rights set
forth in this Section 11, all of which are subject to the terms, limitations,
and restrictions of this Section 11, shall be the exclusive remedy after Closing
against the Sellers and/or Purchaser 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 11 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 that any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties hereto agrees
that the other Party 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.
11.10 Limitation on Liability.
-------------------------
(a) Notwithstanding anything contained herein to the contrary, no
claims for indemnification shall be made by Purchaser against the Sellers until
such time as all claims hereunder exceed Seven Thousand Five Hundred Dollars
($7,500.00) and then indemnification shall be made only to the extent such claim
or claims exceed Seven Thousand Five Hundred Dollars ($7,500.00) in the
aggregate. In addition, notwithstanding anything contained herein to the
contrary, the maximum aggregate liability that the Sellers may be required to
pay to Purchaser under this Agreement shall be limited to an amount equal to Two
Million Six Thousand Two Hundred Dollars ($2,006,200) plus the total of all
amounts paid to Sellers by Purchaser pursuant to Section 2.03 of this Agreement.
(b) Notwithstanding anything contained herein to the contrary, in the
event that Company would discover any assets that are currently not reflected on
its financial statements and of which any of the Sellers have no knowledge of
such assets' existence, Purchaser shall not have any right to make any claim
against Sellers for any tax liability that may arise out of the recordation of
said item(s) into the financial statements of Company, provided, that the fair
market value of such unrecorded items is in excess of the tax liability. It
being the intent of the parties that Seller shall not incur an obligation
hereunder to the extent that Company and/or Purchaser receives a current
economic benefit that is in excess of the tax liability or other liability that
arises as a result of the recognition of said item(s) for financial and tax
reporting purposes.
ARTICLE XII
/EXPRESS CONDITIONS
-------------------
12.01 Notwithstanding anything herein to the contrary, Purchaser's
obligations hereunder are subject to the following conditions:
(a) Purchaser shall have obtained from its primary lender, Deutsche
Financial Services Company, consent to the transaction.
(b) Approval of the Board of Directors of Purchaser;
(c) Purchaser has completed its due diligence investiga-tion of the
books and records and business prospects of Company to its satisfaction.
The contingencies set forth in this Section shall have all been met, or
rejected in writing, by Purchaser and Sellers where applicable, no later than
August ___, 1999.
ARTICLE XIII
13. Conditions Precedent to the Obligations of Each Party. The obligations
------------------------------------------------------
of the Parties to consummate the transactions contemplated hereby shall be
subject to the fulfillment, on or prior to the Closing Date, of the following
conditions:
1. No Injunction, Etc. The consummation of the transaction
---------------------
contemplated hereby shall not have been restrained, enjoined or otherwise
prohibited by any Applicable Law, including any order, injunction, decree or
judgment of any Court or other Governmental Authority. No Court or other
Governmental Authority shall have determined any Applicable Law to make illegal
the consummation of the transactions contemplated hereby or by the other Sellers
Documents, and no proceeding with respect to the application of any such
Applicable Law to such effect shall be pending.
13.01 Conditions Precedent to Purchaser's Obligations. The obligations of
-------------------------------------------------
Purchaser to consummate the transactions contemplated hereby shall be subject to
the fulfillment (or waiver by Purchaser, in its sole discretion) on or prior to
the Closing Date of the following additional conditions, which Sellers agree to
use reasonable good faith efforts to cause to be fulfilled:
1. Representations, Performance. The representations and warranties of
----------------------------
Sellers contained in this Agreement and in the Other Sellers Documents (i) shall
be true and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material respects
(in the case of any representation or warranty without any materiality
qualification) at and as of the date hereof, and (ii) shall be repeated and
shall be true and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material respects
(in the case of any representation or warranty without any materiality
qualification) on and as of the Closing Date with the same effect as though made
on and as of the Closing Date. Sellers shall have duly performed and complied
in all material respects with all agreements and conditions required by this
Agreement and each of the Other Sellers Documents to be performed or complied
with by them prior to or on the Closing Date. Sellers shall have delivered to
Purchaser a duly authorized, properly executed certificate, dated the Closing
Date to the foregoing effect.
2. Consents. Sellers have obtained all Consents necessary to
--------
consummate the transactions contemplated hereby, unless the failure to obtain
any such Consent would not materially adversely affect the Company or its
assets.
3. No Material Adverse Effect. No event, occurrence, fact, condition,
---------------------------
change, development or effect shall have occurred, exist or come to exist since
December 31, 1998 that, individually or in the aggregate, would have a material
adverse effect on the Company or its assets.
4. Transfer Documents and Other Miscellaneous Matters. Sellers have
-----------------------------------------------------
delivered to Purchaser, at or before the Closing, the following documents, all
of which shall be in form and substance reasonably acceptable to Purchaser and
its counsel:
(i) A certificate or certificates for all of the Company Shares.
Such certificate(s) shall be in form for transfer, duly endorsed in blank by
Sellers, or with appropriate duly executed stock transfer powers attached;
(ii) Opinion letter of Harris, McClellan, Binau & Cox, PPL,
counsel for Sellers, addressed to Purchaser and dated the Closing Date;
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 the Company and
its corporate organization, business and assets;
(iv) Certificates, dated as of the most recent practicable date,
of the Secretary of State of Ohio as to the good standing of Company;
(v) The Disclosure Schedule;
(vi) Copies of the Certificate of Incorporation and By-Laws of
Company, certified as true and correct by an officer of Company;
(vii) Such resignations of officers and directors of Company as
Purchaser may request; and
(viii) Such other documents which Purchaser reasonably deems
necessary to effectuate this Agreement.
5. Certain Employment Agreement. T. Schneider shall have entered into
-----------------------------
the Employment Agreement described in Section 8.01.
6. Covenant Not to Compete Agreements. Sellers shall have entered into
----------------------------------
the Covenant Not to Compete Agreements in the form set forth in Exhibits E and
E-1.
7. Subordination Agreement. Sellers shall have entered into the
------------------------
Subordination Agreement set forth in Exhibit "B".
8. Seller shall have executed the Investor's Representation Agreement
set forth in Exhibit C.
9. Cancellation and Termination of Employment Agreements. Company and
------------------------------------------------------
Thomas J. Schneider, Rodney Leas and Michael Steiff shall enter into an
agreement in form and content satisfactory to Purchaser's counsel canceling and
terminating certain Employment Agreements between such Parties and the Company.
10. Current Lease Agreement. The current Lease Agreement between
-------------------------
Company and Advanced Marketing Group shall be terminated at Closing and
Purchaser and Advanced Marketing Group shall enter into a new Lease Agreement at
a fair market rental rate to be determined by an appraisal to be obtained by the
parties.
11. Sellers shall have executed any and all documentation necessary to
cancel any existing buy-sell agreements between the shareholders along with any
and all obligations of Company under an insurance trust agreement dated the 16th
day of May, 1994.
13.02 Conditions and Obligations of Sellers. The obligation of Sellers to
---------------------------------------
consummate the transactions contemplated hereby shall be subject to the
fulfillment (or waiver by the Sellers in their sole discretion), on or prior to
the Closing Date, of the following additional conditions, which Purchaser agrees
to use reasonable good faith efforts to cause to be fulfilled:
1. Representations, Performance. The representations and warranties of
----------------------------
Purchaser contained in the Agreement or in the Other Sellers Documents (i) shall
be true and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material respects
(in the case of any representation or warranty without any materiality
qualification) at and as of the date hereof, and (ii) shall be repeated and
shall be true and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material respects
(in the case of any representation or warranty without any materiality
qualification) on and as of the Closing Date with the same effect as though made
at and as of such date. Purchaser has duly performed and complied in all
material respects with all agreements and conditions required by this Agreement
and each of the Other Sellers Documents to be performed or complied with by it
prior to or on the Closing Date. Purchaser shall have delivered to Sellers a
certificate dated the Closing Date and signed by its duly authorized officer, to
the foregoing effect.
2. Consents and Approvals. Purchaser have obtained all Consents
------------------------
necessary to consummate the transactions contemplated hereby.
3. Consideration and Other Miscellaneous Deliveries. Purchaser shall
--------------------------------------------------
have delivered to Sellers at or before the Closing, the following documents, all
of which shall be in form and substance acceptable to Sellers and its counsel:
(i) A certified or cashiers checks or wire transfer for the
aggregate amount to be paid to each Seller at the Closing pursuant to Section
2.04(a) hereof;
(ii) The Notes as set forth in Section 2.04(b);
(iii) The common stock of Purchaser is delivered to each Seller
pursuant to Section 2.04(c) hereof;
(iv) Certified copies of the corporation actions taken by
Purchaser authorizing the execution, delivery and performance of this Agreement;
(v) A Certificate of Good Standing for Purchaser 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 Purchaser, addressed to Sellers and dated the Closing Date.
4. Certain Employment Agreements. T. Schneider shall have entered into
-----------------------------
the employment agreement described in Section 8.01.
5. Covenant Not to Compete Agreements. Sellers have entered into the
------------------------------------
Covenant Not to Compete Agreements set forth in Exhibits D and D-1.
6. Subordination Agreement. Sellers shall have entered into the
------------------------
Subordination Agreement set forth in Exhibit B.
7. Pay-off Line of Credit Indebtedness. Simultaneous with the closing,
-----------------------------------
Company pays off, or Purchaser assumes, the Line of Credit Indebtedness and
incident thereto procure the releases of any of the Sellers of their guarantees
of any of the Line of Credit Indebtedness.
8. Other Seller Documents. Purchaser shall have entered into each of
------------------------
the Other Seller Documents to which it is a party.
ARTICLE XIV
14.01 Closing. The Closing of the sale and purchase of the Company Shares
-------
(the "Closing") shall take place on August 20, 1999 at the offices of Lindhorst
& Dreidame, Cincinnati, Ohio, or at such other time and/or place as the parties
may mutually agree upon. The Closing shall be deemed effective as of the day of
Closing. The day on which the Closing actually occurs is herein sometimes
referred to as the Closing Date.
ARTICLE XV
15. General Provisions.
-------------------
15.01 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.
15.02 Publicity. Neither the Sellers, nor Company, nor Purchaser shall make
---------
any public announcements concerning this transaction without the prior written
consent of the other Parties hereto. Nothing herein contained shall restrict
Company or Purchaser from communicating with its employees concerning this
transaction. Each Party shall keep such communication confidential, and shall
use its best efforts to prevent its respective employees from disseminating such
information to the public. Nothing herein contained shall prohibit any
disclosure that is required by law or a court of competent jurisdiction.
15.03 Expenses. Except to the extent otherwise specifically provided
--------
herein, Purchaser will bear and pay all of its expenses incident to the
transactions contemplated by this Agreement which are incurred by Purchaser or
its representatives and Sellers shall bear and pay all of the expenses incident
to the transactions contemplated by this Agreement which were incurred by
Sellers or their representatives.
15.04 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 Purchaser, to:
Pomeroy Computer Resources, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
With a copy to:
James H. Smith III, Esq.
Lindhorst & Dreidame Co., L.P.A.
312 Walnut Street, Suite 2300
Cincinnati, Ohio 45201-4091
(b) If to Sellers, to:
Thomas F. Schneider
7778 Pembrook Drive
Reynoldsburg, Ohio 43068
With a copy to:
James B. Harris, Esq.
Harris, McClellan, Binau & Cox
37 West Broad Street, Suite 950
Columbus, Ohio 43215-4159
15.05 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 Party.
15.06 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.
15.07 Schedules and Exhibits. Schedules and exhibits referred to in this
------------------------
Agreement constitute and integral part of this Agreement as if fully rewritten
herein. Any disclosure made on any Schedule or Exhibit delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other Schedule
or Exhibit required hereby.
15.08 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which
--
constitute together one and the same document.
15.09 Governing Law. This Agreement shall be construed in accordance with
--------------
and governed by the laws of the State of Ohio.
15.10 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.
15.11 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. All remedies provided in this Agreement are in addition to all of the
remedies provided by law. No waiver of any of the provisions of this Agreement
shall be valid and enforceable unless such waiver is in writing and signed by
the party granting the same.
15.12 Entire Agreement. This Agreement and the agreements, instruments and
-----------------
other documents to be delivered hereunder constitute the entire understand 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.
15.13 Business Records. Sellers shall be permitted to retain copies of such
----------------
books and records relating to the business of Company as related to the
accounting and tax matters of the business, and have access to all original
copies of records so delivered to Purchaser at reasonable times, for any
reasonable business purpose, for a period of six years after the Closing Date.
15.14 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.
15.15 Knowledge. Whenever in this Agreement the terms "knowledge" or "best
---------
knowledge" are used with respect to any Party, it shall mean the actual
knowledge of the Party, or the officers and directors of the Party or Company,
as applicable.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
PURCHASER:
POMEROY COMPUTER RESOURCES, INC.
By: _______________________________
SELLERS:
___________________________________
THOMAS F. SCHNEIDER
___________________________________
RODNEY LEAS
<PAGE>
SUBORDINATED PROMISSORY NOTE
$1,003,100.00 Cincinnati, Ohio
(to be adjusted as hereinafter set forth) August ___, 1999
1. FOR VALUE RECEIVED, POMEROY COMPUTER RESOURCES, INC., a Delaware
corporation (hereinafter, together with its successors in title and assigns,
called the "Borrower") does hereby absolutely and unconditionally promise to pay
to the order of THOMAS F. SCHNEIDER ("Lender"), the sum of One Million Three
Thousand One Hundred Dollars ($1,003,100.00) (as may be adjusted in the manner
hereinafter set forth), together with interest on the outstanding principal
balance from the date hereof, at the rate specified below.
2. The initial face amount of this note, One Million Three Thousand One
Hundred Dollars ($1,003,100.00) shall be adjusted downward by any decrease
required by Sections 3.01 and 3.02 of the Stock Purchase Agreement. Such
adjustment and the manner in which it is to be made shall be done in accordance
with the Stock Purchase Agreement. If, prior to such adjustment, Borrower has
made any interest payment to Lender hereunder, the parties agree to adjust any
prior payments to equitably reflect the decrease made as a result of any
adjustment contained in Sections 3.01 and 3.02 of the Stock Purchase Agreement.
3. Interest shall accrue at the prime rate of Chase Manhattan Bank as of the
date of Closing. Interest on the unpaid principal balance of this note shall be
due and payable quarterly with the first interest payment due and payable ninety
(90) days from the date hereof and on the 20th day of each successive quarter
thereafter. Principal shall be paid in two (2) annual installments of Five
Hundred One Thousand Five Hundred Fifty Dollars ($501,550.00) with the first
principal payment commencing on the First Anniversary Date and the remaining
principal payment being due on the Second Anniversary Date, with such principal
payments being adjusted pursuant to the provisions of paragraph 2 of this Note.
4. All payments received hereunder shall be applied first to interest and
then to principal. Subject to the Subordination Agreement, as defined below,
this Note may be prepaid, in whole or in part, at any time, without penalty.
5. This Note and all obligations of the Borrower hereunder are subordinated
and made junior in right of payment to the extent and in the manner provided in
the Subordination Agreement of even date herewith (the "Subordination
Agreement") between Deutsche Financial Services Company, the Lender and the
Borrower and no action may be taken by the Lender except in accordance with the
terms of such Subordination Agreement as long as it is in effect.
6. Upon the occurrence of an Event of Default, the entire principal amount
outstanding under this Note, and accrued interest thereon, shall at once become
due and payable, at the option of the Lender and the Lender shall have the
remedies set forth in the Stock Purchase Documents and Subordination Agreement.
During the continuance of any Event of Default, all principal evidenced by this
Note (whether for principal or otherwise) shall (to the extent permitted by
applicable law) bear interest at the annual rate of twelve percent (12%). The
unpaid interest accrued during the continuation of any Event of Default on the
indebtedness evidenced by this Note (whether for principal or otherwise) in
accordance with the foregoing terms of this paragraph shall become and be
absolutely due and payable by the Borrower to the Lender hereof on demand by the
Lender of this Note at any time. Interest will continue to accrue on all
indebtedness evidenced hereby until the Event of Default shall be cured or
otherwise remedied.
1
<PAGE>
7. This Note is issued pursuant and subject to the terms and conditions of
the Stock Purchase Agreement. This Note is subject to all terms and conditions
set forth in the Stock Purchase Documents, including, but not limited to, terms
of default and rights of acceleration, if any. Any holder of this Note is
subject to all claims and defenses which the Borrower could pursue against
Lender under the Stock Purchase Agreement.
8. When this Note becomes due, by acceleration or otherwise, the Lender may,
at its option, subject to the Subordination Agreement, demand, sue for, collect
or make any compromise or settlement it deems desirable with reference to
property held as security herefor. The failure to exercise any option, to
declare the maturity hereof, or to exercise any other rights under any of the
covenants or conditions contained in the Stock Purchase Documents shall not be
taken or deemed to be a waiver of the right to exercise such option or to
declare such maturity after any subsequent violation of any such covenants or
conditions. All remedies provided for herein upon any default by the Borrower
shall be cumulative and not exclusive.
9. Notwithstanding the above, pursuant to the Stock Purchase Agreement,
Lender made certain representations, warranties, covenants and agreements with
and to the Borrower. Lender agrees that if the Borrower is entitled to
indemnification from the Lender under the Stock Purchase Agreement or any other
of the Stock Purchase Documents, the amount of such indemnification due from
Lender may be set off against the amounts payable hereunder if permitted under
the Stock Purchase Agreement, being first applied to interest and the
withholding all or any part of payment due hereunder as a result of such a set
off shall not be considered an Event of Default hereunder. Lender agrees that
the amount to which the Borrower may be entitled to recover from Lender shall
not be limited by either the amount paid or due to be paid to Lender hereunder
or by the terms of this Note but shall be governed by the terms of the Stock
Purchase Documents.
10. The provisions of this Note and the obligations of the Borrower
hereunder shall in all respects be governed by and interpreted and determined in
accordance with the internal laws of the State of Ohio.
11. The rights of the Lender hereunder are fully assignable and
transferrable, except that any assignment and/or transfer made to a competitor
of Borrower shall be made only with the prior written approval of Borrower,
which approval shall not be unreasonably withheld. A competitor of Borrower is
any individual or entity that engages in the leasing, servicing or selling of
computers, computer equipment or computer support solutions.
12. The Borrower hereby unconditionally and irrevocably waives notice of
acceptance, presentment, notice of nonpayment (except as provided herein),
protest, notice of protest, suit and all other conditions precedent in
connection with the delivery, acceptance, collection and/or enforcement of this
Note.
13. Should all or any part of the indebtedness represented by this Note be
collected by action in law, or in bankruptcy, insolvency, receivership or other
court proceedings, or should this Note be placed in the hands of attorneys for
collection after the occurrence of an Event of Default, the Borrower hereby
promises to pay to the Lender of this Note, upon demand by the Lender hereof at
any time, in addition to principal and all (if any) other amounts payable on or
in respect of this Note or the indebtedness evidenced hereby, all court costs
and reasonable attorneys' fees and all other reasonable collection charges and
expenses incurred or sustained by the Lender of this Note.
14. If for any circumstances whatsoever, the fulfillment of any provision of
this Note involves transcending the limit of validity prescribed by any
applicable usury statute or any other applicable law with regard to obligations
of like character and amount, then the obligation to be fulfilled will be
reduced to the limit of such validity as provided in such statute of law, so
that in no event shall any exaction of interest be possible under this Note in
excess of the limit of such validity. In no event shall the Borrower be bound
to pay interest of more than the legal limit for the use, forbearance or
detention of money, and the right to demand any such excess is hereby expressly
waived by the Lender.
15. No delay or omission of the holder of this Note to exercise any right or
power arising from any default shall impair any such right or power or be
considered to be a waiver of any such default or any acquiescence therein, nor
shall the action or non-action of the holder in case of default on the part of
the Borrower impair any right or power resulting therefrom.
16. As used herein, the following terms shall have the following meanings,
respectively:
(a) "First Anniversary Date" - August ___, 2000.
(b) Second Anniversary Date - August ___, 2001.
(c) "Stock Purchase Agreement" - The Stock Purchase Agreement by and
between the Borrower and the Lender dated August ___, 1999.
(d) "Stock Purchase Documents" - The Stock Purchase Agreement and all
Exhibits thereto (except for any employment agreements and all noncompetition
agreements, other than the one provided by Lender) by and between the parties to
the Stock Purchase Agreement.
(e) "Event of Default" -
(i) The failure of Borrower to make any payment of principal or
interest due under this Note for a period of ten (10) days after receipt of
written notice from the Lender to the Borrower that such installment has not
been paid; or
(ii) A default under the Senior Debt loan documentation that has
been declared in writing, remains uncured past any applicable cure period, and
results in the declared acceleration of the Senior Debt.
(f) "Senior Debt" - The Debt of the Borrower to Deutsche Financial
Services Company, as set forth in the Subordination Agreement.
WITNESSES: BORROWER
Pomeroy Computer Resources, Inc.
- ---------------------------------
By:
---------------------------------
- --------------------------------- Its:
---------------------------------
THE OBLIGATION REPRESENTED BY THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A
SUBORDINATION AGREEMENT DATED AUGUST ___, 1999 IN FAVOR OF DEUTSCHE FINANCIAL
SERVICES COMPANY, TO WHICH REFERENCE IS HEREBY MADE, RESTRICTING THE RIGHTS OF
THE MAKER OR DRAWER AND OF ANY HOLDER WITH RESPECT TO PAYMENTS ON ACCOUNT OF THE
PRINCIPAL AND INTEREST HEREOF.
2
<PAGE>
SUBORDINATED PROMISSORY NOTE
$1,003,100.00 Cincinnati, Ohio
(to be adjusted as hereinafter set forth) August ___, 1999
1. FOR VALUE RECEIVED, POMEROY COMPUTER RESOURCES, INC., a Delaware
corporation (hereinafter, together with its successors in title and assigns,
called the "Borrower") does hereby absolutely and unconditionally promise to pay
to the order of RODNEY LEAS ("Lender"), the sum of One Million Three Thousand
One Hundred Dollars ($1,003,100.00) (as may be adjusted in the manner
hereinafter set forth), together with interest on the outstanding principal
balance from the date hereof, at the rate specified below.
2. The initial face amount of this note, One Million Three Thousand One
Hundred Dollars ($1,003,100.00) shall be adjusted downward by any decrease
required by Sections 3.01 and 3.02 of the Stock Purchase Agreement. Such
adjustment and the manner in which it is to be made shall be done in accordance
with the Stock Purchase Agreement. If, prior to such adjustment, Borrower has
made any interest payment to Lender hereunder, the parties agree to adjust any
prior payments to equitably reflect the decrease made as a result of any
adjustment contained in Sections 3.01 and 3.02 of the Stock Purchase Agreement.
3. Interest shall accrue at the prime rate of Chase Manhattan Bank as of the
date of Closing. Interest on the unpaid principal balance of this note shall be
due and payable quarterly with the first interest payment due and payable ninety
(90) days from the date hereof and on the 20th day of each successive quarter
thereafter. Principal shall be paid in two (2) annual installments of Five
Hundred One Thousand Five Hundred Fifty Dollars ($501,550.00) with the first
principal payment commencing on the First Anniversary Date and the remaining
principal payment being due on the Second Anniversary Date with such principal
payments being adjusted pursuant to the provisions of paragraph 2 of this Note.
4. All payments received hereunder shall be applied first to interest and
then to principal. Subject to the Subordination Agreement, as defined below,
this Note may be prepaid, in whole or in part, at any time, without penalty.
5. This Note and all obligations of the Borrower hereunder are subordinated
and made junior in right of payment to the extent and in the manner provided in
the Subordination Agreement of even date herewith (the "Subordination
Agreement") between Deutsche Financial Services Company, the Lender and the
Borrower and no action may be taken by the Lender except in accordance with the
terms of such Subordination Agreement as long as it is in effect.
6. Upon the occurrence of an Event of Default, the entire principal amount
outstanding under this Note, and accrued interest thereon, shall at once become
due and payable, at the option of the Lender and the Lender shall have the
remedies set forth in the Stock Purchase Documents and Subordination Agreement.
During the continuance of any Event of Default, all principal evidenced by this
Note (whether for principal or otherwise) shall (to the extent permitted by
applicable law) bear interest at the annual rate of twelve percent (12%). The
unpaid interest accrued during the continuation of any Event of Default on the
indebtedness evidenced by this Note (whether for principal or otherwise) in
accordance with the foregoing terms of this paragraph shall become and be
absolutely due and payable by the Borrower to the Lender hereof on demand by the
Lender of this Note at any time. Interest will continue to accrue on all
indebtedness evidenced hereby until the Event of Default shall be cured or
otherwise remedied.
1
<PAGE>
7. This Note is issued pursuant and subject to the terms and conditions of
the Stock Purchase Agreement. This Note is subject to all terms and conditions
set forth in the Stock Purchase Documents, including, but not limited to, terms
of default and rights of acceleration, if any. Any holder of this Note is
subject to all claims and defenses which the Borrower could pursue against
Lender under the Stock Purchase Agreement.
8. When this Note becomes due, by acceleration or otherwise, the Lender may,
at its option, subject to the Subordination Agreement, demand, sue for, collect
or make any compromise or settlement it deems desirable with reference to
property held as security herefor. The failure to exercise any option, to
declare the maturity hereof, or to exercise any other rights under any of the
covenants or conditions contained in the Stock Purchase Documents shall not be
taken or deemed to be a waiver of the right to exercise such option or to
declare such maturity after any subsequent violation of any such covenants or
conditions. All remedies provided for herein upon any default by the Borrower
shall be cumulative and not exclusive.
9. Notwithstanding the above, pursuant to the Stock Purchase Agreement,
Lender made certain representations, warranties, covenants and agreements with
and to the Borrower. Lender agrees that if the Borrower is entitled to
indemnification from the Lender under the Stock Purchase Agreement or any other
of the Stock Purchase Documents, the amount of such indemnification due from
Lender may be set off against the amounts payable hereunder if permitted under
the Stock Purchase Agreement, being first applied to interest and the
withholding all or any part of payment due hereunder as a result of such a set
off shall not be considered an Event of Default hereunder. Lender agrees that
the amount to which the Borrower may be entitled to recover from Lender shall
not be limited by either the amount paid or due to be paid to Lender hereunder
or by the terms of this Note but shall be governed by the terms of the Stock
Purchase Documents.
10. The provisions of this Note and the obligations of the Borrower
hereunder shall in all respects be governed by and interpreted and determined in
accordance with the internal laws of the State of Ohio.
11. The rights of the Lender hereunder are fully assignable and
transferrable, except that any assignment and/or transfer made to a competitor
of Borrower shall be made only with the prior written approval of Borrower,
which approval shall not be unreasonably withheld. A competitor of Borrower is
any individual or entity that engages in the leasing, servicing or selling of
computers, computer equipment or computer support solutions.
12. The Borrower hereby unconditionally and irrevocably waives notice of
acceptance, presentment, notice of nonpayment (except as provided herein),
protest, notice of protest, suit and all other conditions precedent in
connection with the delivery, acceptance, collection and/or enforcement of this
Note.
13. Should all or any part of the indebtedness represented by this Note be
collected by action in law, or in bankruptcy, insolvency, receivership or other
court proceedings, or should this Note be placed in the hands of attorneys for
collection after the occurrence of an Event of Default, the Borrower hereby
promises to pay to the Lender of this Note, upon demand by the Lender hereof at
any time, in addition to principal and all (if any) other amounts payable on or
in respect of this Note or the indebtedness evidenced hereby, all court costs
and reasonable attorneys' fees and all other reasonable collection charges and
expenses incurred or sustained by the Lender of this Note.
14. If for any circumstances whatsoever, the fulfillment of any provision of
this Note involves transcending the limit of validity prescribed by any
applicable usury statute or any other applicable law with regard to obligations
of like character and amount, then the obligation to be fulfilled will be
reduced to the limit of such validity as provided in such statute of law, so
that in no event shall any exaction of interest be possible under this Note in
excess of the limit of such validity. In no event shall the Borrower be bound
to pay interest of more than the legal limit for the use, forbearance or
detention of money, and the right to demand any such excess is hereby expressly
waived by the Lender.
15. No delay or omission of the holder of this Note to exercise any right or
power arising from any default shall impair any such right or power or be
considered to be a waiver of any such default or any acquiescence therein, nor
shall the action or non-action of the holder in case of default on the part of
the Borrower impair any right or power resulting therefrom.
16. As used herein, the following terms shall have the following meanings,
respectively:
(a) "First Anniversary Date" - August ___, 2000.
(b) Second Anniversary Date - August ___, 2001.
(c) "Stock Purchase Agreement" - The Stock Purchase Agreement by and
between the Borrower and the Lender dated August ___, 1999.
(d) "Stock Purchase Documents" - The Stock Purchase Agreement and all
Exhibits thereto (except for any employment agreements and all noncompetition
agreements, other than the one provided by Lender) by and between the parties to
the Stock Purchase Agreement.
(e) "Event of Default" -
(i) The failure of Borrower to make any payment of principal or
interest due under this Note for a period of ten (10) days after receipt of
written notice from the Lender to the Borrower that such installment has not
been paid; or
(ii) A default under the Senior Debt loan documentation that has
been declared in writing, remains uncured past any applicable cure period, and
results in the declared acceleration of the Senior Debt.
(f) "Senior Debt" - The Debt of the Borrower to Deutsche Financial
Services Company, as set forth in the Subordination Agreement.
WITNESSES: BORROWER
Pomeroy Computer Resources, Inc.
- ---------------------------------
By:
---------------------------------
- --------------------------------- Its:
---------------------------------
THE OBLIGATION REPRESENTED BY THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A
SUBORDINATION AGREEMENT DATED AUGUST ___, 1999 IN FAVOR OF DEUTSCHE FINANCIAL
SERVICES COMPANY, TO WHICH REFERENCE IS HEREBY MADE, RESTRICTING THE RIGHTS OF
THE MAKER OR DRAWER AND OF ANY HOLDER WITH RESPECT TO PAYMENTS ON ACCOUNT OF THE
PRINCIPAL AND INTEREST HEREOF.
2
<PAGE>
AGREEMENT
---------
This Agreement made and entered into this _____ day of August 1999, by and
between THOMAS F. SCHNEIDER (hereinafter referred to as "Owner") and POMEROY
COMPUTER RESOURCES, INC., a Delaware corporation (hereinafter referred to as
"Purchaser").
W I T N E S S E T H :
WHEREAS, simultaneously with the execution of this Agreement, Purchaser entered
into a Stock Purchase Agreement ("Stock Purchase Agreement") with Owner and
RODNEY LEAS (hereinafter referred to collectively as the Shareholders) for the
acquisition by Purchaser of one hundred percent (100%) of the outstanding
capital shares in ACME DATA SYSTEMS, INC., an Ohio corporation (Company); and
WHEREAS, immediately prior to the closing date (as defined in the Stock Purchase
Agreement), Owner owned twenty-five (25) shares of the outstanding capital stock
of Company; and
WHEREAS, Purchaser would not have entered into the Stock Purchase Agreement with
all of the Shareholders without the consent of Owner to enter into this covenant
not to compete agreement; and
WHEREAS, pursuant to Article VII of said Stock Purchase Agreement, Owner agreed
to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants herein
contained and in consideration of the execution and closing of the Stock
Purchase Agreement, the parties hereto agree as follows:
1. As an inducement for Purchaser to enter into the Stock Purchase Agreement
with the Shareholders, Owner covenants and agrees that for a period equal to the
later of four (4) years from the closing of the Stock Purchase Agreement of even
date or one (1) year after the termination of Owners employment with Purchaser
pursuant to the terms of an Employment Agreement of even date, Owner will not,
or with any other person, corporation or entity, directly or indi-rectly, by
stock or other ownership, investment, management, employment or otherwise, or in
any relation-ship whatsoever:
(a) Solicit, divert or take away or attempt to solicit, divert or take
away, any of the business, clients, customers or patronage of Purchaser or any
affiliate or subsidiary thereof relating to the Business of Purchaser, as
defined below; or
1
<PAGE>
(b) Attempt to seek or cause any clients or customers of Purchaser or
any such affiliate or subsidiary relating thereto to refrain from continuing
their patronage of the Business of Purchaser; or
(c) Engage in the Business of Purchaser in any state in which Purchaser
or its subsidiaries has an office during the term of this Agreement. A list of
the states in which Purchaser and its subsidiaries currently transact business
is attached hereto as Exhibit A; or
(d) Knowingly employ or engage, or attempt to employ or engage, in any
capacity, any person in the employ of the Purchaser or any affiliate or
subsidiary.
(e) Nothing in this Agreement shall prohibit Owner from owning or
purchasing less than five percent (5%) of the outstanding stock of any
publicly-traded company whose stock is traded on a nationally or regionally
recognized stock exchange or is quoted on NASDAQ or the OTC bulletin board or
from taking any action described in items 1(b)-(d) above for the benefit of or
on behalf of Purchaser or any of its subsidiaries.
For purposes of this Section, the Business of Purchaser shall mean any
person, corporation, partnership or other legal entity engaged, directly or
indirectly, through subsidiaries or affiliates, in the following line of
business:
(i) Distributing of computer hardware, software, peripheral devices,
and related products and services to other entities or persons engaged in any
manner in the business of the distribution, sale, resale or servicing, whether
at the wholesale or retail level, or leasing or renting, of computer hardware,
software, peripheral devices or related products;
(ii) Sale or servicing, whether at the wholesale or retail level, or
leasing or renting, of computer hardware, software, peripheral devices or
related products;
(iii) Sale, servicing or supporting of microcomputer products and
microcomputer support solutions and computer integration products, peripheral
devices and related products, and the sale of networking services; and
(iv) Any other business activity which can reasonably be determined to
be competitive with the principal business activity being engaged in by
Purchaser or any of its subsidiaries.
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 Owner's Business acquired by Purchaser and have been
separately bargained for and agrees that Purchaser has been induced to enter
into the Stock Purchase Agree-ment and pay the consideration described in
Paragraph 2 by the represen-tation of Owner that he will abide by and be bound
by each of the covenants and restrictions herein; and Owner agrees that
Purchaser is entitled to injunctive relief in the event of any breach of any
covenant or restriction contained herein in addition to all other remedies
provided by law or equity. Owner hereby acknowledges that each and every one of
said covenants and restrictions is reasonable with respect to the subject
matter, the length of time and geographic area embraced therein, and agrees that
irrespec-tive 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 Stock Purchase Agreement, is being entered into to
protect the legitimate business interests of Purchaser, including, but not
limited to, (i) trade secrets; (ii) valuable confidential business or
professional information that otherwise does not qualify as trade secrets; (iii)
substantial relationships with specific prospective or existing customers or
clients; (iv) client or customer good will associated with an on-going 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 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 pro-visions of Paragraph 1 of
this Agreement shall continue in force and effect; and that if such invalidity
or unenforceability is due to the reason-ableness 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 deter-mined by
arbitration or by a Court of competent jurisdiction to be reasonable.
2. The consideration for Owner's covenant not to compete shall be One Dollar
($1.00) and other valuable consideration, including the consideration paid by
the Purchaser to Owner pursuant to an Stock Purchase Agreement.
3. The terms and conditions of this Agreement shall be binding upon the
Owner and Purchaser, and their successors, heirs and assigns.
4. This Agreement shall be construed in accordance with and governed by the
laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have executed this Agree-ment on the day
and year first above written.
__________________________________
THOMAS F. SCHNEIDER
POMEROY COMPUTER RESOURCES, INC.
By:________________________________
STEPHEN E. POMEROY, Chief Financial Officer
2
<PAGE>
EXHIBIT A
---------
STATES IN WHICH POMEROY
AND/OR ITS PARENT CORPORATION
AND/OR SUBSIDIARIES TRANSACT BUSINESS
1. Alabama
2. Arkansas
3. Florida
4. Georgia
5. Indiana
6. Illinois
7. Iowa
8. Kentucky
9. Mississippi
10. North Carolina
11. Ohio
12. Oklahoma
13. Pennsylvania
14. South Carolina
15. Tennessee
16. Texas
17. Virginia
18. West Virginia
3
<PAGE>
AGREEMENT
---------
This Agreement made and entered into this _____ day of August 1999, by and
between RODNEY LEAS (hereinafter referred to as "Owner") and POMEROY COMPUTER
RESOURCES, INC., a Delaware corporation (hereinafter referred to as
"Purchaser").
W I T N E S S E T H :
WHEREAS, simultaneously with the execution of this Agreement, Purchaser entered
into a Stock Purchase Agreement ("Stock Purchase Agreement") with Owner and
THOMAS F. SCHNEIDER (hereinafter referred to collectively as the Shareholders)
for the acquisition by Purchaser of one hundred percent (100%) of the
outstanding capital shares in ACME DATA SYSTEMS, INC., an Ohio corporation
(Company); and
WHEREAS, immediately prior to the closing date (as defined in the Stock Purchase
Agreement), Owner owned twenty-five (25) shares of the outstanding capital stock
of Company; and
WHEREAS, Purchaser would not have entered into the Stock Purchase Agreement with
all of the Shareholders without the consent of Owner to enter into this covenant
not to compete agreement; and
WHEREAS, pursuant to Article VII of said Stock Purchase Agreement, Owner agreed
to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants herein
contained and in consideration of the execution and closing of the Stock
Purchase Agreement, the parties hereto agree as follows:
1. As an inducement for Purchaser to enter into the Stock Purchase Agreement
with the Shareholders, Owner covenants and agrees that for a period equal to the
later of four (4) years from the closing of the Stock Purchase Agreement of even
date or one (1) year after the termination of Owners employment with Purchaser
pursuant to the terms of an Employment Agreement of even date, Owner will not,
or with any other person, corporation or entity, directly or indi-rectly, by
stock or other ownership, investment, management, employment or otherwise, or in
any relation-ship whatsoever:
(a) Solicit, divert or take away or attempt to solicit, divert or take
away, any of the business, clients, customers or patronage of Purchaser or any
affiliate or subsidiary thereof relating to the Business of Purchaser, as
defined below; or
1
<PAGE>
(b) Attempt to seek or cause any clients or customers of Purchaser or
any such affiliate or subsidiary relating thereto to refrain from continuing
their patronage of the Business of Purchaser; or
(c) Engage in the Business of Purchaser in any state in which Purchaser
or its subsidiaries has an office during the term of this Agreement. A list of
the states in which Purchaser and its subsidiaries currently transact business
is attached hereto as Exhibit A; or
(d) Knowingly employ or engage, or attempt to employ or engage, in any
capacity, any person in the employ of the Purchaser or any affiliate or
subsidiary.
(e) Nothing in this Agreement shall prohibit Owner from owning or
purchasing less than five percent (5%) of the outstanding stock of any
publicly-traded company whose stock is traded on a nationally or regionally
recognized stock exchange or is quoted on NASDAQ or the OTC bulletin board or
from taking any action described in items 1(b)-(d) above for the benefit of or
on behalf of Purchaser or any of its subsidiaries.
For purposes of this Section, the Business of Purchaser shall mean any
person, corporation, partnership or other legal entity engaged, directly or
indirectly, through subsidiaries or affiliates, in the following line of
business:
(i) Distributing of computer hardware, software, peripheral devices,
and related products and services to other entities or persons engaged in any
manner in the business of the distribution, sale, resale or servicing, whether
at the wholesale or retail level, or leasing or renting, of computer hardware,
software, peripheral devices or related products;
(ii) Sale or servicing, whether at the wholesale or retail level, or
leasing or renting, of computer hardware, software, peripheral devices or
related products;
(iii) Sale, servicing or supporting of microcomputer products and
microcomputer support solutions and computer integration products, peripheral
devices and related products, and the sale of networking services; and
(iv) Any other business activity which can reasonably be determined to
be competitive with the principal business activity being engaged in by
Purchaser or any of its subsidiaries.
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 Owner's Business acquired by Purchaser and have been
separately bargained for and agrees that Purchaser has been induced to enter
into the Stock Purchase Agree-ment and pay the consideration described in
Paragraph 2 by the represen-tation of Owner that he will abide by and be bound
by each of the covenants and restrictions herein; and Owner agrees that
Purchaser is entitled to injunctive relief in the event of any breach of any
covenant or restriction contained herein in addition to all other remedies
provided by law or equity. Owner hereby acknowledges that each and every one of
said covenants and restrictions is reasonable with respect to the subject
matter, the length of time and geographic area embraced therein, and agrees that
irrespec-tive 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 Stock Purchase Agreement, is being entered into to
protect the legitimate business interests of Purchaser, including, but not
limited to, (i) trade secrets; (ii) valuable confidential business or
professional information that otherwise does not qualify as trade secrets; (iii)
substantial relationships with specific prospective or existing customers or
clients; (iv) client or customer good will associated with an on-going 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 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 pro-visions of Paragraph 1 of
this Agreement shall continue in force and effect; and that if such invalidity
or unenforceability is due to the reason-ableness 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 deter-mined by
arbitration or by a Court of competent jurisdiction to be reasonable.
2. The consideration for Owner's covenant not to compete shall be One Dollar
($1.00) and other valuable consideration, including the consideration paid by
the Purchaser to Owner pursuant to an Stock Purchase Agreement.
3. The terms and conditions of this Agreement shall be binding upon the
Owner and Purchaser, and their successors, heirs and assigns.
4. This Agreement shall be construed in accordance with and governed by the
laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have executed this Agree-ment on the day
and year first above written.
__________________________________
RODNEY LEAS
POMEROY COMPUTER RESOURCES , INC.
By:________________________________
STEPHEN E. POMEROY, Chief Financial Officer
2
<PAGE>
EXHIBIT A
---------
STATES IN WHICH POMEROY
AND/OR ITS PARENT CORPORATION
AND/OR SUBSIDIARIES TRANSACT BUSINESS
1. Alabama
2. Arkansas
3. Florida
4. Georgia
5. Indiana
6. Illinois
7. Iowa
8. Kentucky
9. Mississippi
10. North Carolina
11. Ohio
12. Oklahoma
13. Pennsylvania
14. South Carolina
15. Tennessee
16. Texas
17. Virginia
18. West Virginia
3
<PAGE>
INCENTIVE DEFERRED COMPENSATION AGREEMENT
-----------------------------------------
This Incentive Deferred Compensation Agreement is made effective this ____ day
of _________, 1999, by and between POMEROY COMPUTER RESOURCES, INC., a Delaware
corporation (the "Company") and THOMAS F. SCHNEIDER ("Schneider").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution of this Agreement, the Company and
Schneider have entered into an Employment Agreement for the employment of
Schneider by Company;
WHEREAS, pursuant to Section 5(c) of said Employment Agreement, Schneider may be
entitled to incentive deferred compensation in the event certain economic
criteria are satisfied;
WHEREAS, the parties wish to define the terms governing the incentive deferred
compensation in the event the economic criteria and the terms and conditions of
the Employment Agreement are satisfied.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein set forth, the parties hereby covenant and agree as follows:
1. In the event Schneider satisfies the economic criteria set forth in the
Employment Agreement for such year and is entitled to incentive deferred
compensation, the incentive deferred compensation shall be governed by the terms
of this Agreement.
2. In the event Schneider should die or become disabled during the term of
the Employment Agreement, or if the Employment Agreement is not renewed by
Company at the expiration of the initial term or any renewal term, all incentive
deferred compensation earned shall be vested in full and shall be payable to
Schneider and/or his designated beneficiary at that time. For purposes of this
Paragraph, the term "disabled" shall have the meaning set forth in said
Employment Agreement.
3. In the event Schneider discontinues employment with the Company during
the initial term or any renewal term of this Employment Agreement or if
Schneider does not renew the Employment Agreement at the expiration of the
initial term or any renewal term and such discontinuation of employment is not a
result of Schneider becoming disabled, the vested portion of his deferred
compensation account will be paid to him at said time and all non-vested amounts
will be forfeited. Provided, however, if Schneider would violate the terms of
his covenant not to compete and confidentiality agreement as set forth in
Sections 8 and 9 of his Employment Agreement, the vested portion of his deferred
compensation account will likewise be forfeited. The incentive deferred
compensation shall vest according to the following schedule:
1
<PAGE>
<TABLE>
<CAPTION>
Years of Service With Company or its Percentage of Vested
- ------------------------------------ --------------------
Subsidiaries from the Effective Date Interest
- ------------------------------------ --------------------
of This Agreement
- ------------------------------------
<S> <C>
Less than 1 year 0%
One year . . . . . . . . . . . . . . 20%
Two years. . . . . . . . . . . . . . 40%
Three years. . . . . . . . . . . . . 60%
Four years . . . . . . . . . . . . . 80%
Five years . . . . . . . . . . . . . 100%
</TABLE>
This vesting schedule shall apply separately to each year that incentive
deferred compensation is earned by Schneider upon the satisfaction of the
economic criteria set forth in the Employment Agreement.
By way of illustration, if Schneider satisfied the economic criteria for years 1
and 2 of the Agreement, at the end of year 2, Schneider would be 40% vested as
to the incentive deferred compensation credited in year 1 and 20% vested as to
the incentive deferred compensation credited in year 2.
4. No deferred compensation shall be paid under the terms of this Agreement
in the event Schneider is discharged from the service of the Company for cause.
For purposes of this Paragraph, the term "cause" shall have the meaning set
forth in Section 10(a)(iii) of said Employment Agreement
5. Schneider shall not have the right to commute, sell, transfer, assign or
otherwise convey the right to receive any payments under the terms of this
Agreement. Any such attempted assignment or transfer shall terminate this
Agreement and the Company shall have no further liability hereunder.
6. It is the intention of the parties that the incentive deferred
compensation to be payable to Schneider hereunder (if applicable) shall be
includable for Federal Income Tax purposes in his, or such beneficiary's gross
income only in the taxable year in which he or the beneficiary actually receives
the payment and Company shall be entitled to deduct such incentive deferred
compensation as a business expense in its Federal Income Tax return in the
taxable year in which such payment is made to Schneider or his beneficiary.
7. Nothing contained in this Agreement shall in any way affect or interfere
with the right of Schneider to share or participate in a retirement plan of the
Company or any profit sharing, bonus or similar plan in which he may be entitled
to share or participate as an employee of the Company.
8. This Agreement shall be binding upon the heirs, administrators,
executors, successors and assigns of Schneider and the successors and assigns of
Company. This Agreement shall not be modified or amended except in writing
signed by both parties.
9. This Agreement shall be subject to and construed under the laws of the
State of Ohio.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the day and year first above written.
POMEROY COMPUTER RESOURCES, INC.
By:___________________________________
Stephen E. Pomeroy, Chief Financial Officer
_____________________________________
THOMAS F. SCHNEIDER
2
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the ______ day of _________, 1999, by and between
POMEROY COMPUTER RESOURCES, INC., a Delaware corporation ("Company"), and THOMAS
F. SCHNEIDER ("Employee").
W I T N E S S E T H :
WHEREAS, the Company entered into a Stock Purchase Agreement ("Purchase
Agreement") of even date pursuant to which it purchased one hundred percent
(100%) of the outstanding stock of Acme Data Systems, Inc., an Ohio corporation
("ADS"); and
WHEREAS, Employee owned fifty percent (50%) of the outstanding stock of ADS
prior to the closing of the Purchase Agreement;
WHEREAS, Employee, as an inducement for and in consideration of Company entering
into the Purchase Agreement, has agreed to enter into and execute this
Employment Agreement pursuant to Article VIII 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 20th day of August, 1999, and shall continue for a
period of four (4) years, four (4) months and sixteen (16) days, ending January
5, 2004 unless terminated earlier pursuant to the provisions of Section 10,
provided that Sections 8, 9, 10(b), if applicable, and 11, if applicable, shall
survive the termination of such employ-ment and shall expire in accordance with
the terms set forth therein.
3. Renewal Term. The term of Employee's employment shall automatically
-------------
renew for additional consecutive renewal terms of one (1) year unless either
party gives written notice of his/its intent not to renew the terms of this
Agreement sixty (60) days prior to expiration of the then expiring term.
4. Duties. Employee shall serve as Branch Manager for the Company's
------
Columbus, Ohio Division. Employee shall be responsible to and report directly
to the officers of Company. Employee shall at all time have such powers and
authorities 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 fur-ther 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.
1
<PAGE>
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 period August 20, 1999 through January 5,
2000, Employee shall be paid the sum of Eight Thousand Three Hundred Thirty
Three and 33/100 Dollars ($8,333.33) per month. Compensation due for a period
of less than one month shall be prorated for such period on the basis of a
thirty-day month. During each year of the initial term of this Agreement,
Employee shall be paid an annual base salary of One Hundred Thousand Dollars
($100,000.00). Said base salary shall be payable in accordance with the
historical payroll practices of the Company.
(b) Annual Cash Bonus - Columbus Division: In addition to Employee's
base salary as set forth in Section 5(a) above, for the period commencing
January 6, 2000 and ending January 5, 2001, Employee shall be entitled to a cash
bonus and incentive stock option award in the event Employee satisfies certain
economic criteria pertaining to the Company's Columbus Division as follows (the
economic criteria will be filled in by the parties in January, 2000 in
accordance with the provisions of Section 5(b)(vi)):
(i) Gross sales of Company's Columbus Division greater than
$_____________ but not less than $_____________ with net profit before taxes
("NPBT") greater than _%, equals $25,000.00 cash bonus plus 5,000 incentive
stock options;
(ii) Gross sales of Company's Columbus Division greater than
$_____________ but less than $_____________ with NPBT greater than _% equals
$35,000.00 cash bonus plus 7,000 incentive stock options;
(iii) Gross sales of Company's Columbus Division greater than
$_____________ with NPBT greater than _% equals $50,000.00 cash bonus plus
10,000 incentive stock options.
(iv) For purposes of this Section 5(b), the term "Gross Sales"
shall mean the gross sales of equipment, software and services by Company's
Columbus Division or any other Columbus Division operated by any subsidiary of
Company, determined on a consolidated basis during the applicable period. In
making said gross sales determination, all gains and losses realized on the sale
or other disposition of Company's or any subsidiary's Columbus Division's assets
not in the ordinary course shall be excluded. In addition, any gross sales of
Company's or its subsidiary's Columbus Division relating to any acquisitions
that are closed in such year shall be excluded. All refunds or returns which
are made during such period shall be subtracted along with all accounts
receivable derived from such sales that are written off during such period in
accordance with Company's Columbus Divisions's accounting system. Such gross
sales and NPBT of Company's Columbus Division shall be determined by the
Company's internally generated accounting statements determined on a
consolidated basis in the manner set forth above and in accordance with
generally accepted accounting principles. During the period commencing January
6, 2000 and ending January 5, 2001, a combined 1.5% MAS royalty fee and .3%
AdFund fee on gross sales by Company's Columbus Division shall be made incident
to said NPBT determination. For each subsequent fiscal year for which Employee
may be entitled to a bonus hereunder, the parties shall, in good faith, agree
upon MAS royalty and AdFund fees to be charged hereunder based on the level of
services and support being provided by the Company to its Columbus Division.
Provided, however, such MAS royalty and AdFund fees shall be 1.5% and .3%,
respectively, if the parties are unable to come to an agreement for such year.
Any cash bonus amount determined under Section 5 (b) shall be payable to
Employee within thirty (30) days of the determination. For purposes of this
Section, the term "Company's Columbus Division" shall be the business acquired
by Company from Seller under the Purchase Agreement including any part of the
business that is operated by Company's wholly-owned subsidiary, Pomeroy Select
Integration Solutions, Inc. and shall include Company's operations in Columbus,
Ohio that existed prior to the closing of the Purchase Agreement.
(v) Any award of the incentive stock options to acquire the common
stock of Company shall be made fifty percent (50%) in the shares of the Company
and fifty percent (50%) in the shares of the Company's subsidiary (Pomeroy
Select Integration Solutions, Inc.) if it is a publicly traded entity at such
time, as of January 5, 2001 or any other applicable date, which shall mean with
respect to such shares, the average between the high and low bid and asked
prices for such shares on the over-the-counter market 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). In the event
the stock of Pomeroy Select Integration Solutions, Inc. is not publicly traded
as of January 5, 2001, Company shall have the right to award 100% in the shares
of the Company (in lieu of 50%) or shall have the right to pay to Employee, in
cash, the fair market value of such 50% of the stock options of the Company
determined under the Black Scholes method of valuation of stock options. Any
options awarded shall be subject to a vesting period determined by the Board of
Directors of the Company, but in no event shall said vesting period be greater
than five (5) years.
(vi) The parties agree that in January, 2000, January, 2001,
January, 2002 and January, 2003, they will negotiate in good faith, the level of
gross sales and NPBT of Company's Columbus Division for the aforementioned cash
bonus and incentive stock option award to be earned for such years, which gross
sales and NPBT criteria shall be predicated upon Company's Columbus Division's
goals, projections and budgets established at the outset of such fiscal year.
(c) In addition to Employee's base salary as set forth in Section 5(a)
and any annual cash bonus/incentive stock option award that Employee may be
entitled to under Section 5(b) based on Company's Columbus Division's
performance, Employee shall be entitled to a cash bonus and incentive deferred
compensation and an incentive stock option award for the year 2000 in the event
Employee satisfies certain economic criteria pertaining to Company's performance
during the fiscal year 2000, as follows (the economic criteria will be filled in
by the parties in January of 2000 in accordance with the provisions of Section
5(c)(vi)).
(i) Gross sales of Company greater than $______________ but less
than or equal to $_______________ with NPBT greater than ____% equals $10,000.00
cash plus 3,000 incentive stock options;
(ii) Gross sales of Company greater than $______________ but less
than or equal to $______________ with NPBT greater than ____% equals $20,000.00
cash plus 5,000 incentive stock options;
(iii) Gross sales of Company greater than $______________ with
NPBT greater than ____% equals $30,000.00 cash plus 7,000 incentive stock
options.
(iv) For purposes of this Section, the term "Gross Sales" shall
mean the gross sales of equipment, software and services by Company during the
applicable period, determined on a consolidated basis. In making said gross
sales determination, all gains and losses realized on the sale or other
disposition of Company's assets not in the ordinary course shall be excluded.
All refunds or returns which are made during such period shall be subtracted
along with all accounts receivable derived from such sales that are written off
during such period in accordance with Company's accounting system. Such Gross
Sales and net pre-tax margin of Company shall be determined by the Chief
Financial Officer of the Company in accordance with generally accepted
accounting principles and such determination shall be final, binding and
conclusive upon all parties hereto. All amounts due Employee under Section 5(c)
(other than the award of any incentive stock options) will constitute incentive
deferred compensation which shall be payable to Employee according to the terms
and the Incentive Deferred Compensation Agreement attached hereto and
incorporated herein as Exhibit B. Any incentive deferred compensation shall be
fully vested over a five-year period, vesting 20% per year of employment from
the effective date of this Agreement.
(v) Any award of the incentive stock options to acquire the common
stock of Company shall be made fifty percent (50%) in the shares of the Company
and fifty percent (50%) in the shares of the Company's subsidiary (Pomeroy
Select Integration Solutions, Inc.) if it is a publicly traded entity at such
time, as of January 5, 2001 or any other applicable date, which shall mean with
respect to such shares, the average between the high and low bid and asked
prices for such shares on the over-the-counter market 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). In the event
the stock of Pomeroy Select Integration Solutions, Inc. is not publicly traded
as of January 5, 2001, Company shall have the right to award 100% in the shares
of the Company (in lieu of 50%) or shall have the right to pay to Employee, in
cash, the fair market value of such 50% of the stock options of the Company
determined under the Black Scholes method of valuation for stock options. Any
options awarded shall be subject to a vesting period determined by the Board of
Directors of the Company, but in no event shall said vesting period be greater
than five (5) years.
(vi) The parties agree that in January, 2000, January, 2001,
January, 2002 and January, 2003, they will negotiate in good faith the
implementation of economic criteria for the earning of incentive deferred
compensation and incentive stock option award for Employee for each of the
pertinent fiscal years of this Agreement which will be predicated upon the
attainment of Company's goals, projections and budgets established at the outset
for such fiscal year which shall be consistent with the goals set forth for
senior management of Company for such year(s). The incentive deferred
compensation and incentive stock option awards shall be predicated on the
structure (as to amounts) used for the incentive deferred
compensation/incentive stock option award of Company for the year 2000.
(vii) Company will deliver to Employee copies of the reports of
any determination made hereunder by Company for the subject period, along with
any documentation reasonably requested by Employee. Within fifteen (15) days
following delivery to Employee of such report, Employee shall have the right to
object in writing to the results contained in such determination. If timely
objection is not made by Employee to such determination, such determination
shall become final and binding for purposes of this Agreement. If a timely
objection is made by Employee, and the Company and Employee are able to resolve
their differences in writing within fifteen (15) days following the expiration
of the initial 15-day period, then such determination shall become final and
binding as it pertains to this Agreement. If timely objection is made by
Employee to Company, and Employee and Company are unable to resolve their
differences in writing within fifteen (15) days following the expiration of the
initial 15-day period, then all disputed matters pertaining to the report shall
be submitted and reviewed by the Arbitrator ("Arbitrator"), which shall be an
independent accounting firm selected by Company and Employee. If Employee and
Company are unable to promptly agree on the accounting firm to serve as the
Arbitrator, each shall select, by not later than fifteen (15) days following the
expiration of the initial fifteen (15) day period, one accounting firm and the
two selected accounting firms shall then be instructed to select promptly a
third accounting firm, such third accounting firm to serve as the Arbitrator.
The Arbitrator shall consider only the disputed matters pertaining to the
determination and shall act promptly to resolve all disputed matters. A
decision with respect to all disputed matters shall be final and binding upon
Company and Employee. The expenses of Arbitration shall be borne one-half by
Employee and one-half by Company. Each party shall be responsible for his/its
own attorney and accounting fees.
6. Fringe Benefits. During the term of this Agreement, Employee shall be
----------------
entitled to the following benefits:
(a) Health Insurance - Employee shall be provided with the standard
family medical health and insurance coverage maintained by Company on its
employees. Company and Employee shall each pay fifty percent (50%) of the cost
of such coverage.
(b) Vacation - Employee shall be entitled each year to a vacation of
three weeks during which time his compensa-tion will be paid in full. Provided,
however, such weeks may not be taken consecutively without the written consent
of Company.
(c) Retirement Plan - Employee shall participate, after meeting
eligibility requirements, in any qualified retirement plans and/or welfare plans
maintained by the Company during the term of this Agreement.
2
<PAGE>
(d) Other Company Programs - Employee shall be eligible to participate
in any other plans or programs implemented by the Company for all of its
employees with duties and responsibilities similar to Employee.
(e) Employee shall be responsible for any and all taxes owed, if any,
on the fringe benefits provided to him pursuant to this Section 6.
7. Expenses. During the term of this Agreement, Employee shall be entitled
--------
to receive prompt reimbursement for all reasonable and customary travel and
entertainment expenses or other out-of-pocket business expenses incurred by
Employee in fulfilling the Employee's duties and responsibilities hereunder,
including, all expenses of travel and living expenses while away from home on
business or at the request of and in the service of the Company, provided that
such expenses are incurred and accounted for in accordance with the reasonable
policies and procedures established by the Company.
8. Non-Competition. Employee expressly acknowledges the provisions of
---------------
Article VII of the Purchase Agreement relating to Employee's Covenant Not to
Compete with Company. Accordingly, such provisions of Article VII 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 the owners of the common stock of ADS, he has
received substantial consideration pursuant to such Purchase Agreement and that
as an inducement for, and in consideration of, Company entering into the
Purchase Agreement and Company entering into this Agreement, Employee has agreed
to be bound by such provisions of Article VII of the Pur-chase Agreement.
Accordingly, such provisions of Article VII 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 inside information" as such phrase is used for
purposes of the Securities Exchange Act of 1934, as amended;
all constitute valuable, special and unique proprietary and trade secret
information of the Company. In recognition of this fact, the Employee agrees
that the Employee will not disclose any such trade secrets or confidential or
proprietary information (except (i) information which becomes publicly available
without violation of this Agreement, (ii) information of which the Employee did
not know and should not have known was disclosed to the Employee in violation of
any other person's confidentiality obligation, and (iii) disclosure required in
connection with any legal process), nor shall the Employee make use of any such
information for the benefit of any person, firm, operation or other entity
except the Company and its subsidiaries or affiliates. The Employee's
obligation to keep all of such information confidential shall be in effect
during and for a period of five (5) years after the termination of his
employment; provided, however, that the Employee will keep confidential and will
not disclose any trade secret or similar information protected under law as
intangible property (subject to the same exceptions set forth in the
parenthetical clause above) for so long as such protection under law is
extended.
10. Termination.
-----------
(a) The Employee's employment with the Company may be terminated at any
time as follows:
(i) By Employee's death;
(ii) By Employee's physical or mental disability which renders
Employee unable to perform his duties hereunder;
(iii) 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 engaging by Employee in conduct which is demonstrably
and materially injurious to the Company, monetarily or otherwise, including but
not limited to any material misrepresentation related to the performance of his
duties; (ii) the conviction of Employee of a felony or other crime involving
theft or fraud, (iii) Employee's gross neglect, gross misconduct or gross
insubordination in carrying out his duties hereunder resulting, in either case,
in material harm to the Company; or (iv) any material breach by Employee of this
Agreement. Notwithstanding the foregoing, Employee shall not be deemed to have
been terminated for cause under (i) and (iv) above, unless and until there has
been delivered to him a copy of the resolution of an officer of the Company,
finding that Employee engaged in the conduct set forth above in this section and
specifying the particulars thereof in detail, and Employee shall not have cured
or abated such conduct to the reasonable satisfaction of the Company within
fifteen (15) days of receipt of such resolution. This provision shall be
applicable solely to the extent the conduct to which the alleged breach relates
is susceptible to being cured in the reasonable determination of such officer.
(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 Sections
5(b) and 5(c), which shall be payable (if applicable) pursuant to the terms
thereof.
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 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 Company.
12. Severability. In case any one (1) or more of the provisions or part of
------------
a provision contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement.
In such a situation, this Agreement shall be reformed and construed as if such
invalid, illegal or unenforceable provision, or part of a provision, had never
been contained herein, and such provision or part shall be reformed so that it
will be valid, legal and enforceable to the maximum extent possible.
13. Governing Law. This Agreement shall be governed and construed under the
-------------
laws of the State of Ohio and shall not be modified or discharged, in whole or
in part, except by an agreement in writing signed by the parties.
14. Notices. All notices, requests, demands and other communications
-------
relating to this Agreement shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed by certified or registered mail,
return receipt re-quested, postage prepaid to the following addresses (or to
such other address for a party as shall be specified by notice pursuant hereto):
If to Company, to: Pomeroy Computer Resources, Inc.
1020 Petersburg Road
Hebron, Kentucky 41048
With a copy to: James H. Smith III, Esq.
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 in Franklin County, Ohio, either at law or in equity, to obtain
damages for any breach of this Agreement, or to enforce the specific performance
of this Agreement by each party or to enjoin any party from activities in
violation of this Agreement. Should either party engage in any activities
prohibited by this Agreement, such party agrees to pay over to the other party
all compensation, remuneration, monies or property of any sort received in
connection with such activities. Such payment shall not impair any rights or
remedies of any non-breaching party or obligations or liabilities of any
breaching party pursuant to this Agreement or any applicable law.
16. Entire Agreement. This Agreement and the Purchase Agreement referred to
----------------
herein contain the entire understanding of the parties with respect to the
subject matter contained herein and may be altered, amended or superseded only
by an agreement in writing, signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
17. Parties in Interest.
---------------------
(a) This Agreement is personal to each of the parties hereto. No party
may assign or delegate any rights or obligations hereunder without first
obtaining the written consent of the other party hereto; provided, however, that
nothing in this Section 16 shall preclude (i) Employee from designating a
beneficiary to receive any benefit payable hereunder upon his death, or (ii)
executors, administrators, or legal representatives of Employee or his estate
from assigning any rights hereunder to person or persons entitled thereto.
Notwithstanding the foregoing, this Agreement shall be binding upon and inure to
the benefit of any successor corporation of Company
(b) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the assets of the Company or the business with respect to which the duties and
responsibilities of Employee are principally related, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
Company would have been required to perform it if no such succession had taken
place. As used in this Agreement "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the assumption agreement provided for in
this Section 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 simulta-neously in several
------------
counterparts, each of which shall be deemed an original part, which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed effec-tive as of the day
and year first above written.
WITNESSES: COMPANY:
POMEROY COMPUTER RESOURCES, INC.
__________________________
__________________________ By:_________________________________
Stephen E. Pomeroy
Chief Financial Officer
EMPLOYEE:
__________________________
__________________________ ____________________________________
THOMAS F. SCHNEIDER
3
<PAGE>
AMENDMENT TO BUSINESS CREDIT AND SECURITY AGREEMENT
---------------------------------------------------
THIS AMENDMENT TO BUSINESS CREDIT AND SECURITY AGREEMENT ("Amendment") is
---------
entered into as of the ____ day of September, 1999 by and among Deutsche
Financial Services Corporation ("DFS"), Pomeroy Computer Resources, Inc.
---
("Pomeroy"), and Global Combined Technologies, Inc. ("Global"); (Pomeroy and
------- ------
Global sometimes hereinafter being referred to individually and collectively as
"Borrower").
--------
RECITALS
--------
DFS and Borrower are parties to that certain Business Credit and Security
Agreement dated as of July 14, 1998 (as amended from time to time, the "Credit
------
Agreement"). Capitalized terms used but not defined herein shall have the
- ---------
meanings given them in the Credit Agreement.
Borrower wishes to increase the amount if its working capital facility to
$60,000,000. Borrower and DFS now desire to amend certain provisions of the
Credit Agreement on and subject to the terms hereof.
NOW, THEREFORE, in consideration of the forgoing premises and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Section 3.1(a) of the Credit Agreement shall be deleted in its
entirety and restated to read as follows:
"3.1(A) In consideration of Borrower's payment and performance of its
Obligations and subject to the terms and conditions contained in this Agreement,
DFS agrees to provide, and Borrower agrees to accept, an aggregate credit
facility (the 'Credit Facility') of up to One Hundred Twenty Million Dollars
---------------
($120,000,000) (the 'Total Credit Limit'), BUT ONLY TO THE EXTENT that DFS has
-------------------
received and continues to have in full force and effect, upon terms acceptable
to DFS, in its sole discretion, a Participation Agreement in which the
"Participant Commitment" (as defined in the Participation Agreement) is at least
Thirty Million Dollars ($30,000,000). The Credit Facility shall be available in
the form of Distribution Finance Loans, Working Capital Loans and Acquisition
Loans. No Loans need be made by DFS if Borrower is in Default or if there
exists any Unmatured Default. This is an agreement regarding the extension of
credit, and not the provision of goods or services."
2. Section 3.3 of the Credit Agreement shall be deleted in its entirety
and restated to read as follows:
"3.3 Working Capital Loans. Subject to the terms of this Agreement, DFS agrees,
---------------------
for so long as no Default exists, to provide to Borrower, and Borrower agrees to
accept, working capital financing (each advance being a 'Working Capital Loan')
---------------------
on Eligible Accounts in the maximum aggregate unpaid principal amount at any
time equal to the lesser of (i) the Borrowing Base and (ii) Sixty Million
Dollars ($60,000,000) ('Total Working Capital Credit Limit'), subject in all
-------------------------------------
events to the terms of Section 3.1(b) hereof; provided, however, that in no
-------------- -------- -------
event shall the maximum principal amount outstanding under the Working Capital
Loans and the Acquisition Facility exceed in the aggregate, at any time, Sixty
Million Dollars ($60,000,000). A request for a Working Capital Loan shall be
made, or shall be deemed to be made, as provided in Section 5.1 hereof."
-----------
3. Section 3.4 of the Credit Agreement shall be deleted in its entirety and
restated to read as follows:
"3.4 Acquisition Facility. Subject to the terms of this Agreement, DFS agrees,
--------------------
for so long as no Default exists, to provide Borrower with acquisition financing
for the purposes described herein (each advance being an 'Acquisition Loan'), up
-----------------
to an aggregate unpaid principal amount not to exceed at any time Ten Million
Dollars ($10,000,000), on and subject to the following terms and conditions (the
'Acquisition Facility'), subject in all events to the terms of Section 3.1(b)
---------------------- --------------
hereof; provided, however, that in no event shall the maximum principal amount
- ------ -------- -------
outstanding under the Acquisition Facility and the Working Capital Loans exceed
in the aggregate, at any time, Sixty Million Dollars ($60,000,000):
(a) An Acquisition Loan may be made to satisfy Borrower's working
capital needs to the extent they exceed the formula-determined Borrowing Base in
connection with the acquisition of the stock or assets of another corporation;
(b) Each Acquisition Loan shall be due and payable one-hundred eighty
(180) days after the date thereof; provided, DFS shall have the option,
exercisable in its sole discretion, to grant Borrower one (1) or more thirty
(30) day extensions of any such Acquisition Loan;
(c) no Guaranty shall be in default and each shall be in full force
and effect at the time any Acquisition Loan is requested;
(d) Borrower will pay DFS finance charges on the principal amount of
any Acquisition Loan outstanding at the end of each day at a rate that is
one-half of one percent (.50%) per annum above the Prime Rate; and
(e) except as provided to the contrary in clauses (a) through (d)
above, each Acquisition Loan pursuant to this Section 3.4 shall be subject to
all other terms and conditions of this Agreement.
As a precondition to any such Acquisition Loan, Borrower shall have signed
and sent to DFS, a request, setting forth in writing the amount of the proposed
Acquisition Loan along with a copy of the underlying acquisition agreement and
all related exhibits, schedules and agreements pursuant to which such
acquisition is to be consummated.
Notwithstanding anything else herein and unless otherwise agreed to in
writing by DFS, the total outstanding principal amount of all Loans under this
Agreement shall not at any time exceed the Total Credit Limit."
4. The address for DFS set forth in Section 13.8 shall be hereby amended
to read in its entirety as follows:
"Deutsche Financial Services Corporation
3075 Highland Parkway
Suite 600
Downers Grove, IL 60515
Attention: Vice President, Operations
Facsimile No.: (630)434-0074"
5. Miscellaneous. Except to the extent specifically amended herein, all
-------------
terms and conditions of the Credit Agreement and the other Loan Documents are
hereby ratified and reaffirmed and shall remain unmodified and in full force and
effect. Borrower waives notice of DFS' acceptance of this Amendment. DFS
reserves all of its rights and remedies under the Credit Agreement and the other
Loan Documents.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
ATTEST: POMEROY COMPUTER RESOURCES, INC.
By: By:___________________________________
Secretary Name:_________________________________
Title:________________________________
ATTEST: GLOBAL COMBINED TECHNOLOGIES, INC.
By: By:_____________________________________
Secretary Name:___________________________________
Title:__________________________________
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
1
<PAGE>
CONSENT, ACKNOWLEDGMENT AND AMENDMENT
-------------------------------------
Each undersigned Corporate Guarantor hereby acknowledges and consents to
the terms of the foregoing Amendment, and does hereby ratify and confirm its
guaranty in all respects. Each of the undersigned Corporate Guarantors hereby
further agrees that its Guaranty shall be amended to provide that each such
Corporate Guarantor's maximum aggregate liability under its Guaranty, should DFS
enforce it, will not exceed One Hundred Twenty Million Dollars ($120,000,000).
ATTEST: POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC.
By: By:____________________________________
Secretary Name:__________________________________
Title:_________________________________
ATTEST: TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC.
By: By:____________________________________
Secretary Print Name:____________________________
Title:_________________________________
2
<PAGE>
$20,000,000
BUSINESS CREDIT AND SECURITY AGREEMENT
Dated as of January 6, 1999
BETWEEN
POMEROY SELECT INTEGRATION SOLUTIONS, INC.
AND
DEUTSCHE FINANCIAL SERVICES CORPORATION
<PAGE>
BUSINESS CREDIT AND SECURITY AGREEMENT
BETWEEN: DEUTSCHE FINANCIAL SERVICES CORPORATION, a Nevada corporation ("DFS")
AND: POMEROY SELECT INTEGRATION SOLUTIONS, INC., a Delaware corporation
("BORROWER")
EFFECTIVE DATE: January 6, 1999
1. RECITALS
Borrower has requested that DFS provide Borrower with a credit
facility for working capital purposes.
2. DEFINITIONS
Terms defined in this Agreement shall have initial capital letters.
Those terms are defined below, in this SECTION 2, and elsewhere in this
Agreement. All financial and accounting terms used herein and not otherwise
defined, shall be defined in accordance with GAAP.
"AAA" shall have the meaning set forth in SECTION 14.2.
"ACCOUNT DEBTOR" shall mean any Person who is or who may become obligated
to Borrower under, with respect to, or on account of an Account, general
intangible or other Collateral.
"ACCOUNTS" shall have the meaning given to that term in the UCC, and, to
the extent not included therein, shall also mean all accounts, leases, contract
rights, chattel paper, general intangibles, choses in action and instruments,
including any Lien or other security interest that secures or may secure any of
the foregoing, plus all books, invoices, documents and other records in any form
evidencing or relating to any of the foregoing, now owned or hereafter acquired
by Borrower.
"ADDITIONAL MONTHLY REPORT" shall have the meaning set forth in SECTION
3.12(a).
"AFFILIATES" shall mean: (i) any individual who is an officer or director
of a Person; and (ii) any Person who directly or indirectly controls, is
controlled by, or is under common control or ownership with, another Person.
For the purposes of this definition, the term "control" shall mean the ownership
of or the ability to direct or control 10% or more of the beneficial interest in
the applicable entity.
"AGREEMENT" shall mean this Business Credit and Security Agreement, and
any amendments hereto.
"BORROWING BASE" shall mean, as of any date of determination, an amount
equal to the Eligible Account Availability minus the amount of any overdrafts
under Borrower's cash management facilities with Star Bank, N.A.
"BORROWING BASE CERTIFICATE" shall have the meaning set forth in SECTION
3.3(a).
"BUSINESS" shall mean the providing of integrated desktop management and
network services, including but not limited to, life cycle services,
internetworking services and end-user support services.
2
<PAGE>
"BUSINESS DAY" shall mean any day other than Saturdays, Sundays, legal
holidays designated by Federal law, and any other day on which DFS' office is
closed.
"CAPITAL EXPENDITURES" means, for any period, expenditures made by the
Borrower or any Subsidiary of Borrower to acquire or construct fixed assets,
plant and equipment (including renewals, improvements and replacements during
such period in the aggregate amount of items leased or acquired under
Capitalized Lease Obligations at the cost of the item, but excluding capital
expenditures made with insurance proceeds to the extent used to replace or
repair damaged fixed assets, plant and equipment) computed in accordance with
GAAP.
"CAPITALIZED LEASE OBLIGATIONS" means that portion of any obligation of
the Borrower or any Subsidiary of the Borrower as lessee under a lease which at
the time are recorded as capitalized lease obligations on the balance sheet of
the Borrower or such Subsidiary prepared in accordance with GAAP.
"COLLATERAL" shall mean all items described in SECTION 6.1.
"CORPORATE GUARANTOR" shall mean a corporate guarantor of any of the
Obligations.
"CREDIT FACILITY" shall have the meaning set forth in SECTION 3.1(a).
"DAILY CONTRACT BALANCE" shall have the meaning set forth in SECTION 3.6.
"DAILY RATE" shall have the meaning set forth in SECTION 3.6.
"DEBT" shall have the meaning set forth in SECTION 9.3.
"DEFAULT" shall have the meaning set forth in SECTION 10.
"DEFAULT INTEREST RATE" shall have the meaning set forth in SECTION 3.9.
"DFS COMPANIES" shall have the meaning set forth in SECTION 14.1.
"DISPUTES" shall have the meaning set forth in SECTION 14.1.
"EFFECTIVE DATE" shall mean the date set forth in the heading on page 1 of
this Agreement.
"ELECTRONIC TRANSFERS" shall have the meaning set forth in SECTION
3.6(b)(II).
"ELIGIBLE ACCOUNT AVAILABILITY" shall have the meaning set forth in
SECTION 3.3(a).
"ELIGIBLE ACCOUNTS" shall mean all Accounts that are not Ineligible
Accounts and all Eligible Vendor Accounts and Eligible Unbilled Accounts.
"ELIGIBLE UNBILLED ACCOUNTS" shall mean Accounts which are otherwise
Eligible Accounts except that such Accounts represent the right to payment for
goods sold or services rendered within the preceding sixty (60) days for which
Borrower is entitled to submit, but has not yet submitted, an invoice to the
Account Debtor; provided, however, no such Account shall be considered an
Eligible Unbilled Account hereunder unless Borrower has given written notice
thereof to DFS.
3
<PAGE>
"ELIGIBLE VENDOR ACCOUNTS" shall mean Accounts which are otherwise
Eligible Accounts but which represent amounts due and owing to Borrower from its
vendors, manufacturers and/or distributors in connection with rebates, discounts
or other incentive payments, and for which DFS has received an executed
agreement from such vendor, in form and substance acceptable to DFS, in which
such vendor waives it right to offset or otherwise deduct from its obligations
under such Account, any amounts owing to such vendor.
"ENVIRONMENTAL LAWS" shall mean the Resource Conservation and Recovery
Act, as amended, the Toxic Substances Control Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Solid
Waste Disposal Act, as amended, the Water Pollution Control Act, as amended, the
Clean Air Act, as amended, the Clean Water Act, as amended, and any successor or
comparable federal or state statutes, now existing or later enacted, or any
regulation promulgated under any of such federal or state statutes relating to
the protection of the environment.
"ENVIRONMENTAL LIEN" shall mean a Lien in favor of any governmental entity
for (a) any liability under any Environmental Law, or (b) damages arising from
or costs incurred by such governmental entity in response to a spillage,
disposal, or release into the environment of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance.
"EQUIPMENT" shall have the meaning as given to that term in the UCC, and,
to the extent not included therein, shall also mean all equipment, machinery,
trade fixtures, furnishings, furniture, supplies, materials, tools, machine
tools, office equipment, appliances, apparatus, parts and all attachments,
replacements, substitutions, accessions, additions and improvements to any of
the foregoing.
"EXCESS ADVANCES" shall have the meaning given in SECTION 5.2.
"FAA" shall have the meaning set forth in SECTION 14.5.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"GLOBAL" shall mean Global Combined Technologies, Inc., an Oklahoma
corporation.
"GOVERNMENTAL ACCOUNT DEBTOR" shall have the meaning given in the
definition of Ineligible Accounts.
"HAZARDOUS MATERIAL" shall mean any and all hazardous or toxic substances,
materials or wastes as defined or listed under the Environmental Laws.
"INDEBTEDNESS" shall mean any sum for borrowed money owed by Borrower or
any Subsidiary to a Person and shall include any debt guaranteed by Borrower or
any Subsidiary, any debt as to which the Borrower has granted or permitted to
exist a Lien on any asset even if non-recourse, letter of credit reimbursement
obligations, and capitalized lease obligations.
"INDEMNIFIED LIABILITIES" shall have the meaning set forth in SECTION
12.1.
"INDEMNITEES" shall have the meaning set forth in SECTION 12.1.
"INELIGIBLE ACCOUNTS" shall mean: (a) Accounts created from the sale of
goods and services on non-standard terms and/or that allow for payment to be
made more than thirty (30) days from date of sale; (b) Accounts unpaid: (i) more
4
<PAGE>
than one-hundred twenty (120) days from date of invoice if the Account Debtor is
the United States of America, any state, or any local government, or any
department, agency, instrumentality or subdivision thereof (herein, a
"GOVERNMENTAL ACCOUNT DEBTOR"), or (ii) more than ninety (90) days from date of
invoice if the Account Debtor is not a Governmental Account Debtor; (c) all
Accounts of any Account Debtor if fifty percent (50%) or more of the outstanding
balance of such Accounts are unpaid: (i) more than one hundred twenty (120) days
from the date of invoice if such Account Debtor is a Governmental Account
Debtor, or (ii) more than ninety (90) days from the date of invoice if such
Account Debtor is not a Governmental Account Debtor; (d) Accounts for which the
Account Debtor is an officer, director, shareholder (which is not publicly
traded on a recognized exchange), partner, member, owner, employee, agent,
parent, Subsidiary or Affiliate of, or is related to, Borrower or has common
shareholders, officers, directors, owners, partners or members with Borrower;
(e) Accounts arising from any bill-and-hold sale, guaranteed sale, sale and
return, sale on approval, consignment sale, or any sale on a repurchase or
return basis; (f) Accounts for which the payment is or may be conditional; (g)
Accounts for which the Account Debtor is not a commercial or institutional
entity or is not a resident of the United States or Canada; (h) Accounts with
respect to which any warranty or representation provided in SECTION 8.19 is not
true and correct; (i) Accounts which represent goods or services purchased for a
personal, family or household purpose; (j) Accounts which represent goods used
for demonstration purposes or loaned by Borrower to another party; (k) Accounts
which are progress payment, barter, or contra accounts; and (l) any and all
other Accounts which DFS deems to be ineligible, in its reasonable credit
judgment.
"INTANGIBLES" shall have the meaning set forth in SECTION 9.3.
"INVENTORY" shall have the meaning given to that term in the UCC, and, to
the extent not included therein, shall also mean all of Borrower's merchandise,
materials, finished goods, work-in-process, component materials, packaging,
shipping materials, parts and other tangible personal property, now owned or
hereafter acquired and held for sale or which contribute to the finished
products or the sale, promotion, storage and shipment thereof, whether located
at facilities owned or leased by Borrower, or in the course of transport to or
from facilities owned or leased by Borrower.
"LIEN" shall mean any security interest, mortgage, pledge, lien,
hypothecation, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including, without
limitation, the interest of lessors under capitalized leases and the interest of
a vendor under any conditional sale or other title retention agreement),
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting any of Borrower's property.
"LOAN" shall mean any advance made to or for the benefit of Borrower
pursuant to this Agreement, including but not limited to any Working Capital
Loan.
"LOAN DOCUMENTS" shall mean all documents executed by Borrower pursuant to
any financial accommodation between Borrower and DFS and all documents entered
into in connection with the transaction herein contemplated. The term "Loan
Documents" includes, but is not limited to, this Agreement, all financing
statements, all pledges, mortgages, deeds of trust, leasehold mortgages,
security agreements, guaranties, assignments, subordination agreements, and any
future or additional documents or writings executed under the terms of this
Agreement or any amendments or modifications hereto.
"MATERIAL ADVERSE EFFECT" means any act or circumstance or event that (a)
5
<PAGE>
could reasonably be expected to be material or adverse to the Business,
financial condition, results of operations, or business prospects of any Person,
or (b) in any manner whatsoever does or could reasonably be expected to
materially and adversely affect the validity or enforceability of any Loan
Document.
"MONTHLY REPORTS" shall have the meaning given in SECTION 3.12(b).
"OBLIGATIONS" shall mean all liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Borrower
(and/or any of its Subsidiaries and Affiliates, excluding, however, Global and
Pomeroy) to DFS, whether primary or secondary, joint or several, direct,
contingent, fixed or otherwise, secured or unsecured, or whether arising under
this Agreement, any other Loan Document or any other agreement now or hereafter
executed by Borrower (or any of its Subsidiaries or Affiliates, excluding,
however, Global and Pomeroy) and delivered to DFS. Obligations will include,
without limitation, any third party claims against Borrower (or any of its
Subsidiaries or Affiliates, excluding, however, Global and Pomeroy) satisfied or
acquired by DFS. Obligations will also include all obligations of Borrower to
pay to DFS: (a) any and all sums reasonably advanced by DFS to preserve or
protect the Collateral or the value of the Collateral or to preserve, protect,
or perfect DFS' security interests in the Collateral; (b) in the event of any
proceeding to enforce the collection of the Obligations after a Default, the
reasonable expenses of retaking, holding, preparing for sale, selling or
otherwise disposing of or realizing on the Collateral, or expenses of any
exercise by DFS of its rights, together with reasonable attorneys' fees,
expenses of collection and court costs, as provided in the Loan Documents; and
(c) any other indebtedness or liability of Borrower to DFS, whether direct or
indirect, absolute or contingent, now or hereafter arising.
"OPERATING LEASE" means any lease, as defined in the Financial Accounting
Standard Board Statement of Financial Accounting Standards No. 13, dated
November, 1976 or otherwise in accordance with GAAP.
"OSHA LAW" shall mean the Occupational Safety and Health Act of 1970, any
successor thereto, and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning employee health and/or
safety.
"OTHER REPORTS" shall have the meaning set forth in SECTION 3.12(c).
"PARTICIPANT" shall mean a Person or Persons, including but not limited to
Star Bank, National Association, a national banking association, who may from
time to time purchase an undivided economic participation in some or all of the
Loans, on terms acceptable to DFS.
"PARTICIPATION AGREEMENT" shall mean that certain Participation Agreement
of even date between DFS and Participant, as amended from time to time, pursuant
to which Participant, shall purchase an undivided economic participation in that
portion of the Working Capital Loans which exceed $10,000,000.
"PERMITTED LIENS" shall mean: (a) Liens for taxes, assessments or other
governmental charges or levies not yet delinquent or which are being contested
in good faith by appropriate action and as to which adequate reserves shall have
been set aside in conformity with GAAP and which are, in addition, satisfactory
to DFS in its reasonable discretion; (b) Liens of mechanics, materialmen,
landlords, warehousemen, carriers and similar Liens arising in the future in the
ordinary course of business for sums not yet delinquent, or being contested in
good faith if a reserve or other appropriate provision in accordance with GAAP
shall have been made therefor and which are, in addition, satisfactory to DFS in
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its reasonable discretion; (c) statutory Liens incurred in the ordinary course
of business in connection with workers' compensation, unemployment insurance,
social security, and similar items for sums not yet delinquent or being
contested in good faith, if a reserve or other appropriate provision in
accordance with GAAP shall have been made therefor and which are, in addition,
satisfactory to DFS in its reasonable discretion; (d) lessor's Liens arising
from operating leases entered into in the ordinary course of business; (e) Liens
arising from legal proceedings, so long as such proceedings are being contested
in good faith by appropriate proceedings, appropriate reserves have been
established therefor in accordance with GAAP and which are, in addition,
satisfactory to DFS in its reasonable discretion, and so long as execution is
stayed and bonded on appeal on all judgments resulting from any such
proceedings; (f) Liens in favor of DFS granted hereunder; and (g) Purchase
Money Liens securing Permitted Purchase Money Indebtedness which is not incurred
in violation of SECTION 9.2.11.
"PERMITTED PURCHASE MONEY INDEBTEDNESS" shall mean Purchase Money
Indebtedness of Borrower incurred in compliance with SECTION 9.2.11 which is
secured by a Purchase Money Lien and which, when aggregated with the principal
amount of all other such Indebtedness (excluding, however, Capitalized Lease
Obligations) of Borrower at the time outstanding, does not exceed $1,000,000.
For the purposes of this definition, the principal amount of any Purchase Money
Indebtedness consisting of capitalized leases shall be computed as a Capitalized
Lease Obligation.
"PERSON" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization, and a government or any department or agency thereof.
"POMEROY" shall mean Pomeroy Computer Resources, Inc., a Delaware
corporation (the parent corporation of Borrower).
"POMEROY BCSA" shall mean the Business Credit and Security Agreement of
Pomeroy and Global with DFS dated as of July 14, 1998, as amended from time to
time.
"PRIME RATE" shall mean a fluctuating interest rate per annum equal to the
prime rate of interest announced publicly from time to time (whether or not
charged in each instance) by The Chase Manhattan Bank (or any successor thereof)
as such bank's prime rate. Each change in the Prime Rate shall become effective
on the day such bank announces a change in its prime or reference rate. If the
bank listed above discontinues the practice of announcing or publishing a prime,
base or reference rate during the term of this Agreement, then DFS may, in its
reasonable judgment, designate a comparable bank and/or publicly announced rate
to be thereafter used as a basis for determining Prime Rate. Borrower
acknowledges that the bank listed above may extend credit at rates of interest
less than its announced prime, base or reference rate.
"PURCHASE MONEY INDEBTEDNESS" shall mean and include:
(i) Indebtedness for the payment of all or any part of the
purchase price of any assets,
(ii) any Indebtedness incurred at the time of or within ten (10)
days prior to or after the acquisition of any assets for the purpose of
financing all or any part of the purchase price thereof, and
(iii) any renewals, extensions or refinancings thereof, but not any
increases beyond the original principal amounts thereof outstanding at the time.
"PURCHASE MONEY LIEN" shall mean a Lien upon assets which secures Purchase
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Money Indebtedness, but only if such Lien shall at all times be confined solely
to the assets the purchase price of which was financed through the incurrence of
such Purchase Money Indebtedness.
"SUBORDINATED DEBT" shall have the meaning set forth in SECTION 9.3.
"SUBSIDIARIES" shall mean any corporation in which a Person owns or
controls greater than 50% of the voting securities, or any partnership, joint
venture or limited liability company in which a Person owns or controls greater
than 50% of the aggregate equitable interest. The term "Subsidiary" means any
one of the Subsidiaries.
"TANGIBLE NET WORTH" shall have the meaning set forth in SECTION 9.3.
"TOTAL CREDIT LIMIT" shall have the meaning set forth in SECTION 3.1(a).
"TOTAL WORKING CAPITAL CREDIT LIMIT" shall have the meaning set forth in
SECTION 3.3.
"UCC" shall mean the Uniform Commercial Code as in effect in the State of
Kentucky and any successor statute, together with any regulations thereunder, in
each case as in effect from time to time. References to sections of the UCC
shall be construed to also refer to any successor sections.
"UNMATURED DEFAULT" shall mean any event which, but for the passage of
time or notice, or both, would be a Default.
"WORKING CAPITAL LOAN" shall have the meaning set forth in SECTION 3.3.
3. CREDIT FACILITY
3.1 TOTAL CREDIT FACILITY.
(a) In consideration of Borrower's payment and performance of its
Obligations and subject to the terms and conditions contained in this Agreement,
DFS agrees to provide, and Borrower agrees to accept, an aggregate credit
facility (the "CREDIT FACILITy") of up to Twenty Million Dollars ($20,000,000)
(the "TOTAL CREDIT LIMIT"), BUT ONLY TO THE EXTENT that DFS has received and
continues to have in full force and effect, upon terms acceptable to DFS, in its
sole discretion, a Participation Agreement in which the "Participant Commitment"
(as defined in the Participation Agreement) is at least Ten Million Dollars
($10,000,000). The Credit Facility shall be available in the form of Working
Capital Loans. No Loans need be made by DFS if Borrower is in Default or if
there exists any Unmatured Default. This is an agreement regarding the
extension of credit, and not the provision of goods or services.
(b) In furtherance of the foregoing, anything in this Agreement to
the contrary notwithstanding, DFS shall have no obligation to make any Loan
hereunder if the "PARTICIPANT COMMITMENT" (as defined in the Participation
Agreement) is less than Ten Million Dollars ($10,000,000), or if there exists a
default under or termination of a Participation Agreement. DFS may exercise its
rights as described herein ninety (90) days after having given written notice to
Borrower, and thereupon the aggregate maximum amount available for Working
Capital Loans will be reduced by the amount of the terminated or nonperforming
Participation Agreement(s), as the case may be; provided, however, DFS shall
have no such notice obligation, and the resulting reduction shall be automatic
if at such time Borrower is in Default. DFS represents and warrants to Borrower
that concurrently with the execution of this Agreement, it shall enter into a
Participation Agreement with Star Bank, National Association.
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3.2 [RESERVED]
3.3 WORKING CAPITAL LOANS. Subject to the terms of this
Agreement, DFS agrees, for so long as no Default exists, to provide to Borrower,
and Borrower agrees to accept, working capital financing (each advance being a
"WORKING CAPITAL LOAN") on Eligible Accounts in the maximum aggregate unpaid
principal amount at any time equal to the lesser of (i) the Borrowing Base and
(ii) Twenty Million Dollars ($20,000,000) ("TOTAL WORKING CAPITAL CREDIT
LIMIT"), subject in all events to the terms of SECTION 3.1(b) hereof. A request
for a Working Capital Loan shall be made, or shall be deemed to be made, as
provided in SECTION 5.1 hereof.
(a) ELIGIBLE ACCOUNTS. On receipt of each Borrowing Base
Certificate initially in the form set forth on EXHIBIT 3.3, and, thereafter, in
such form as DFS may require from time to time, together with such supporting
information as DFS may require from time to time (the "BORROWING BASE
CERTIFICATE"), DFS will credit Borrower with ninety percent (90%) of the net
amount of the Eligible Accounts which are, absent error or other discrepancy,
listed in such Borrowing Base Certificate, subject to the Total Working Capital
Credit Limit (the "ELIGIBLE ACCOUNT AVAILABILITY"). For purposes hereof, the
net amount of Eligible Accounts at any time shall be the face amount of such
Eligible Accounts LESS any and all returns, discounts (which may, at DFS'
option, be calculated on shortest terms), credits, rebates, allowances, or
excise taxes of any nature at any time issued, owing, claimed by Account
Debtors, granted, outstanding, or payable in connection with such Accounts at
such time.
3.4 [RESERVED]
3.5 MANDATORY PREPAYMENT. If at any time and for any reason the
aggregate amount of outstanding Working Capital Loans exceeds the Borrowing
Base, after application of the reserve contemplated by the last clause of the
definition of "Borrowing Base" in the Pomeroy BCSA, Borrower will, immediately
upon demand, repay an amount of the Working Capital Loans made to it by DFS
hereunder equal to such excess. In addition, Borrower shall immediately pay DFS
whatever sums may be necessary from time to time to remain in compliance with
the Total Credit Limit and the Total Working Capital Credit Limit, as such
limits may change from time to time, including, without limitation, as a result
of any Collateral no longer being deemed eligible, or as a result of any change
in the amount of any Eligible Account.
3.6 INTEREST; CALCULATION OF CHARGES; FEES.
(a) [RESERVED]
(b) WORKING CAPITAL LOANS.
(i) INTEREST; CALCULATION. Borrower will pay DFS finance
charges on the Daily Contract Balance (as defined below) at a rate equal to the
Prime Rate minus one and one-quarter of one percent (1.25%) per annum; PROVIDED,
HOWEVER, that if at any time the aggregate monthly volume under the
"Distribution Finance Facility" of Pomeroy and Global (as that term is defined
in the Pomeroy BCSA), is less than Twenty Million Dollars ($20,000,000.00) per
month for a three-month consecutive period, then for the following month and for
every month thereafter until the month after such aggregate volume again exceeds
Twenty Million Dollars ($20,000,000.00) per month for a three-month consecutive
period, Borrower agrees to pay interest to DFS, on the Daily Contract Balance,
at a rate equal to the Prime Rate minus one-half of one percent (.50%) per
annum. The finance charges attributable to such rate will: (i) be computed
based on a 360 day year; (ii) be calculated with respect to each day by
multiplying the Daily Rate (as defined below) by the Daily Contract Balance; and
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(iii) accrue from the date DFS authorizes any Electronic Transfer (as defined in
SECTION 3.6(b)(II) below) or otherwise advances a Working Capital Loan to or for
the benefit of Borrower, until DFS receives full payment of the principal debt
Borrower owes DFS in good funds in accordance with DFS' payment recognition
policy and DFS applies such payment to Borrower's principal debt in accordance
with the terms of this Agreement.
(ii) METHOD OF TRANSFER. Working Capital Loans will be made
by DFS, at Borrower's direction, by paper check, electronic transfer by
Automated Clearing House ("ACH"), Fed Wire Funds Transfer ("FED WIRE") or such
other electronic means as DFS may announce from time to time (ACH, Fed Wire and
such other electronic transfer are collectively referred to as "ELECTRONIC
TRANSFERS"). If Borrower does not request a Working Capital Loan be made in a
specific method of transfer, DFS may determine from time to time in its sole
discretion what method of transfer to use.
(c) DEFINITIONS. The "DAILY RATE" is the quotient of the
applicable annual rate provided herein divided by 360. The "DAILY CONTRACT
BALANCE" is the amount of outstanding principal debt which Borrower owes DFS on
the Working Capital Loans at the end of each day (including the amount of all
Electronic Transfers authorized) after DFS has credited payments which it has
received on the Working Capital Loans.
(d) CERTAIN CHARGES. Borrower will (i) reimburse DFS for all
charges made by banks, including charges for collection of checks and other
items of payment and (ii) pay DFS all fees and charges in effect from time to
time for transfers of funds to or from the Borrower.
3.7 BILLING STATEMENT. DFS will send Borrower a monthly billing
statement identifying all charges due on Borrower's account with DFS. The
charges specified on each billing statement will be: (a) due and payable in full
immediately on receipt; and (b) an account stated, absent manifest error. DFS
may adjust the billing statement at any time to conform to applicable law and
this Agreement.
3.8 LOAN PROCEEDS. The parties intend that all indebtedness
incurred hereunder shall be governed exclusively by the terms of this
Agreement and the other Loan Documents, and shall not, unless requested by
DFS, be evidenced by notes or other evidences of indebtedness. Upon any such
request, Borrower will immediately execute and deliver any such note or other
evidence reasonably requested by DFS. Any fees, charges or expenses charged
to DFS by any bank for payments made by DFS at Borrower's request shall be
immediately payable by Borrower. All advances and other obligations of
Borrower made hereunder will constitute a single obligation.
3.9 DEFAULT INTEREST RATE. If a Default occurs, and unless and
until cured, DFS may without prior demand, raise the rate of interest accruing
on the disbursed unpaid principal balance of any Loan by three percentage points
(3%) above the rate of interest otherwise applicable (the "DEFAULT INTEREST
RATE"), whether or not DFS elects to accelerate the unpaid principal balances as
a result of a Default. DFS will notify Borrower in writing before imposing the
Default Interest Rate permitted by this Section.
3.10 INTEREST RATE AFTER CERTAIN EVENTS. If a judgment is entered
against Borrower for sums due under any of the Obligations, as applicable, the
amount of the judgment entered (which may include principal, interest,
reasonable attorneys' fees and costs) shall bear interest at the judgment rate
as permitted under applicable law as of the date of entry of the judgment. All
Obligations of Borrower described in clauses (a) and (b) of the definition
thereof shall bear interest at the Default Interest Rate.
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3.11 VERIFICATION RIGHTS OF DFS. DFS may, without notice to
Borrower and at any time or times hereafter verify the validity, amount or any
other matter relating to any Account by mail, telephone or other means, in the
name of Borrower or DFS.
3.12 REPORTS.
(a) ADDITIONAL MONTHLY REPORTS. Borrower agrees to provide
DFS with a report by the 25th day of each month, or more frequently if requested
by DFS, in each case as of the 15th day of such month, which shall be in such
form as is satisfactory to DFS, including supporting information regarding, but
not limited to (i) a Borrowing Base Certificate; and (ii) an aging of Accounts
(the "ADDITIONAL MONTHLY REPORT").
(b) MONTHLY REPORTS. Borrower agrees to provide to DFS by
the 15th day of each month, or more frequently if requested by DFS, in each case
as of the last day of the immediately prior month, each of the following: (i)
aging of Accounts; (ii) an updated EXHIBIT 8.17; and (iii) aging of Borrower's
accounts payable (the "MONTHLY REPORTS").
(c) OTHER REPORTS. Borrower agrees to provide DFS within
five (5) Business Days after each request by DFS any other report or information
requested by DFS (the "OTHER REPORTS").
(d) ACCURACY OF REPORTS. The Additional Monthly Report,
Monthly Reports and the Other Reports will be true and correct in all material
respects. Borrower acknowledges DFS' reliance on the truthfulness and accuracy
in all material respects of each Additional Monthly Report, Monthly Report and
the Other Reports.
3.13 ESTABLISHMENT OF RESERVES. Notwithstanding the foregoing
provisions of SECTION 3.3, DFS shall have the right to establish reserves in
such amounts, and with respect to such matters, as DFS shall deem necessary or
appropriate, against the amount of Working Capital Loans which Borrower may
otherwise request under SECTION 3.3, including, without limitation, with respect
to (a) price adjustments, damages, unearned discounts, returned products or
other matters for which credit memoranda are issued in the ordinary course of
Borrower's business; (b) shrinkage, spoilage and obsolescence of Inventory; (c)
slow moving Inventory; (d) other sums chargeable against Borrower as Working
Capital Loans under any section of this Agreement; (e) a material increase in
Dealer's dilution percentage, as determined by DFS; and (f) such other matters,
events, conditions or contingencies as to which DFS, in its sole reasonable
credit judgment determines reserves should be established from time to time
hereunder. DFS will notify Borrower in writing before establishing any reserve
described herein; PROVIDED, HOWEVER, that DFS shall have no obligation to
provide such prior notice to Borrower upon the occurrence and during the
continuance of a Default.
3.14 CAPITAL ADEQUACY.
(a) In the event that DFS shall have determined that the
adoption of any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof or compliance by
DFS with any request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or governmental authority, does
or shall have the effect of reducing the rate of return on DFS' capital as a
consequence of its obligations hereunder to a level below that which DFS could
have achieved but for such adoption, change or compliance (taking into
consideration DFS' policies with respect to capital adequacy) by an amount
deemed by DFS, in its sole discretion, to be material, then from time to time,
after submission by DFS to Borrower of a written demand therefor, Borrower shall
pay to DFS such additional
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amount or amounts as will compensate DFS for such reduction.
(b) A certificate of DFS claiming entitlement to payment as
set forth in SECTION 3.14(a) above shall be conclusive in the absence of
manifest error. Such certificate shall set forth the nature of the occurrence
giving rise to such payment, the additional amount or amounts to be paid to DFS,
and the method by which such amounts were determined. In determining such
amount, DFS may use any reasonable averaging and attribution method.
3.15 COLLECTIONS. Unless otherwise directed by DFS, to expedite
collection of Accounts for the benefit of DFS, Borrower shall notify all of its
Account Debtors to make payment of the Accounts to one or more lock-boxes under
the sole control of DFS. The lock-box, and all accounts into which the proceeds
of any such lock-box(es) are deposited, shall be established at banks selected
by the Borrower and satisfactory to DFS. Borrower shall issue to any such banks
an irrevocable letter of instruction, in form and substance acceptable to DFS,
directing such banks to deposit all payments or other remittances received in
the lock-box to such account or accounts as DFS shall direct, for application
against the outstanding balance of the Obligations. Until all Obligations have
been satisfied in full, all funds deposited in the lock-box or any such account
immediately shall become the property of DFS, and any disbursements of the
proceeds in the lock-box or any such account will only be made to DFS. Borrower
shall obtain the agreement of such banks to waive any offset rights against the
funds so deposited. DFS assumes no responsibility for such lock-box
arrangement, including, without limitation, any claim of accord and satisfaction
or release with respect to deposits which any banks accept thereunder. All
remittances which Borrower receives in payment of any Accounts, and the proceeds
of any of the other Collateral, shall be: (i) kept separate and apart from
Borrower's own funds so that they are capable of identification as DFS'
property; (ii) held by Borrower as trustee of an express trust for DFS' benefit;
and (iii) shall be immediately deposited in such accounts designated by DFS.
All proceeds received or collected by DFS with respect to Accounts, and reserves
and other property of Borrower in possession of DFS at any time or times
hereafter, may be held by DFS without interest to Borrower until all Obligations
are paid in full or applied by DFS on account of the Obligations. DFS may
release to Borrower such portions of such reserves and proceeds as DFS may
determine. Upon the occurrence and during the continuance of a Default, DFS may
notify the Account Debtors that the Accounts have been assigned to DFS, collect
the Accounts directly in its own name and charge the collection costs and
expenses, including reasonable attorneys' fees, to Borrower. DFS has no duty to
protect, insure, collect or realize upon the Accounts to preserve rights in
them.
3.16 ADVANCEMENTS. If Borrower fails to (a) perform any of the
affirmative covenants contained herein, (b) protect or preserve the Collateral
or (c) protect or preserve the status and priority of the Liens and security
interest of DFS in the Collateral, DFS may make advances to perform those
obligations. DFS will use reasonable efforts to attempt to give Borrower notice
prior to making such advancement. All sums so advanced will be due and payable
upon demand and will immediately upon advancement become secured by the security
interests created by this Agreement and will be subject to the terms and
provisions of this Agreement and all of the Loan Documents. DFS may add all
sums so advanced, plus any expenses or costs incurred by DFS, including
reasonable attorney's fees, as outstanding Loans as DFS may designate in its
sole discretion. The provisions of this Section will not be construed to
prevent the institution of rights and remedies of DFS upon the occurrence of a
Default. Any provisions in this Agreement to the contrary notwithstanding, the
authorizations contained in this Section will impose no duty or obligation on
DFS to perform any action or make any advancement on behalf of Borrower and are
for the sole benefit and protection of DFS.
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3.17 CONTINUING REQUIREMENTS - ACCOUNTS. Borrower will: (a) if
from time to time required by DFS, immediately upon their creation, deliver to
DFS copies of all invoices, delivery evidences and other such documents relating
to each Account; (b) without DFS' consent not permit or agree to any extension,
compromise or settlement or make any change to any Account; (c) affix
appropriate endorsements or assignments upon all such items of payment and
proceeds so that the same may be properly deposited by DFS to DFS' account; (d)
immediately notify DFS in writing which Accounts may be deemed Ineligible
Accounts; and (e) mark all chattel paper and instruments now owned or hereafter
acquired by it to show that the same are subject to DFS' security interest and
immediately thereafter deliver such chattel paper and instruments to DFS with
appropriate endorsements and assignments to DFS.
4. TERM OF AGREEMENT
4.1 TERMINATION. Either party may terminate this Agreement at
any time by written notice received by the other party. If DFS terminates this
Agreement, Borrower agrees that if: (a) there exists no Default, 30 days prior
notice of termination is reasonable and sufficient (although this provision
shall not be construed to mean that shorter periods may not, in particular
circumstances, also be reasonable and sufficient); or (b) there exists a
Default, no prior notice of termination is required. If such notice of
termination is given by Borrower to DFS, such notice will be ineffective unless
Borrower pays to DFS all Obligations on or before the termination date. Any
such written notice of termination delivered by Borrower to DFS shall be
irrevocable. Any termination of this Agreement by Borrower or DFS will have the
effect of accelerating the maturity of all Obligations not then otherwise due.
It is understood that Borrower may elect to terminate this Agreement in its
entirety only, no section or lending facility may be terminated singly.
4.2 EFFECT OF TERMINATION. Borrower will not be relieved from any
Obligations to DFS arising out of DFS' advances or commitments made before the
effective termination date of this Agreement. DFS will retain all of its
rights, interests and remedies hereunder until Borrower has paid all of
Borrower's Obligations to DFS. All waivers set forth within this Agreement will
survive any termination of this Agreement.
5. BORROWING AND REPAYMENT PROCEDURES
5.1. BORROWING PROCEDURES.
(a) GENERALLY. A request for a Working Capital Loan shall be made,
or shall be deemed to be made, in the following manner: (i) Borrower may give
DFS written notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date;
(ii) upon the occurrence and during the continuance of a Default, the becoming
due of any amount required to be paid under this Agreement as interest shall be
deemed irrevocably to be a request for a Working Capital Loan on the due date in
the amount required to pay such interest; and (iii) upon the occurrence and
during the continuance of a Default, the becoming due of any other Obligations
shall be deemed irrevocably to be a request for a Working Capital Loan on the
due date in the amount then so due.
For purposes of subpart (i) above, Borrower agrees that DFS may rely and act
upon any request for a Working Capital Loan from any individual listed by
Borrower on EXHIBIT 5.1(a), attached hereto.
(b) CONDITIONS PRECEDENT TO EACH WORKING CAPITAL LOAN. Without
limiting the applicability of the conditions precedent set forth in SECTION 7
below to DFS' obligation to make any Working Capital Loan, the obligation of DFS
to make any Working Capital Loan shall be subject to the further conditions
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precedent that, on the date of each such Working Capital Loan:
(i) The following statements shall be true: (A) the
representations and warranties contained in SECTION 8 hereof are correct in all
material respects on and as of the date of such Working Capital Loan as though
made on and as of such date, and (B) there exists no Default or Unmatured
Default, nor would any Default or any Unmatured Default result from the making
of the Working Capital Loan requested by Borrower;
(ii) Borrower shall have signed and sent to DFS, if DFS so
requests, a request for advance, setting forth in writing the amount of the
Working Capital Loan requested; PROVIDED, HOWEVER, that the foregoing condition
precedent shall not prevent DFS, if it so elects in its sole discretion, from
making a Working Capital Loan pursuant to Borrower's non-written request
therefor;
(iii) DFS shall have received a completed Borrowing Base
Certificate, signed by the Borrower, and dated not more than sixteen (16) days
prior to the date of Borrower's request for such Working Capital Loan; and
(iv) DFS shall have received such other approvals, opinions or
documents as it may reasonably request.
Borrower agrees that the making of a request by Borrower for a Working Capital
Loan, shall constitute a certification by Borrower and the Person(s) executing
or giving the same that all representations and warranties of Borrower herein
are true in all material respects as of the date thereof and that all required
conditions to the making of the Working Capital Loan have been met.
5.2 EXCESS ADVANCES. DFS, in its sole and absolute discretion,
may elect to permit the total unpaid balance of Loans to exceed the Total Credit
Limit (the "EXCESS ADVANCES"), and no such event or occurrence shall cause or
constitute a waiver by DFS of its right to demand payment of all or any part of
the Loans at any time within the terms of this Agreement or to refuse, in its
sole and absolute discretion, to make such further Loans. Any such Excess
Advances shall be payable immediately upon demand therefor, unless otherwise
specifically agreed to by DFS, and shall bear interest at the Default Interest
Rate.
5.3 ALL LOANS ONE OBLIGATION. All Obligations of Borrower to DFS
under this Agreement and all other agreements between Borrower and DFS shall
constitute one obligation to DFS secured by the security interest granted in
this Agreement, and by all other Liens heretofore, now, or at any time or
times hereafter granted by Borrower. All of the rights of DFS set forth in this
Agreement shall apply to any modification of or supplement to this Agreement, or
Exhibits hereto, unless otherwise agreed in writing.
5.4 PAYMENTS OF PRINCIPAL AND INTEREST. Without waiving any other
rights Borrower may otherwise have, all payments and amounts due hereunder by
Borrower shall be made or be payable without set-off or counterclaim and shall
be made to DFS on the date due at its office(s) responsible for Borrower's
account, or at such other place which DFS may designate to Borrower in writing.
Any payments received after such time shall be deemed received on the next
Business Day. Whenever any payment to be made hereunder shall be stated to be
due on a date other than a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall be included in the
computation of payment of interest or any fees.
5.5 COLLECTION DAYS. All payments and all amounts received
hereunder will be credited by DFS to Borrower's account one (1) Business Day
after good funds have been deposited into DFS' general operating account.
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6. SECURITY FOR THE OBLIGATIONS
6.1 GRANT OF SECURITY INTEREST. To secure payment of all of
Borrower's current and future Obligations and to secure Borrower's performance
of all of the provisions under this Agreement and the other Loan Documents,
Borrower grants DFS a security interest in all of Borrower's Inventory,
equipment, fixtures, accounts, contract rights, chattel paper, security
agreements, instruments, deposit accounts, reserves, documents and general
intangibles; and all judgments, claims, insurance policies, and payments owed or
made to Borrower thereon; all whether now owned or hereafter acquired, all
attachments, accessories, accessions, returns, repossessions, exchanges,
substitutions and replacements thereto, and all proceeds thereof. All such
assets are collectively referred to herein as the "COLLATERAL." All such terms
for which meanings are provided in the Uniform Commercial Code are used herein
with such meanings. All Collateral financed by DFS, and all proceeds thereof,
will be held in trust by Borrower for DFS, with such proceeds being payable in
accordance with this Agreement. Borrower covenants with DFS that DFS may
realize upon all or part of any Collateral in any order it desires and any
realization by any means upon any Collateral will not bar realization upon any
other Collateral. Borrower's liability under this Agreement is direct and
unconditional and will not be affected by the release or nonperfection of any
security interest granted hereunder.
6.2 FUTURE ADVANCES. DFS' security interests shall secure all
current and all future advances to Borrower made by DFS under the Loan
Documents.
6.3 FINANCING STATEMENTS. Borrower shall execute and deliver to
DFS for the benefit of DFS such financing statements, certificates of title and
original documents as may be required by DFS with respect to DFS' security
interests.
6.4 GUARANTIES. Borrower shall cause any and all Subsidiaries,
whether now existing or hereafter acquired, Pomeroy and Global to execute and
deliver guaranties of the Obligations secured by a first priority, perfected
security interest in substantially all of the assets of each such Person.
6.5 FURTHER ASSURANCES. Borrower will execute and deliver to DFS,
at such time or times as DFS may request, all financing statements, security
agreements, assignments, certificates, affidavits, reports, schedules, and other
documents and instruments that DFS may deem necessary to perfect and maintain
perfected DFS' security interests in the Collateral and to fully consummate the
transactions contemplated under all Loan Documents. All filing, recording or
registration fees shall be payable by Borrower.
6.6 INTELLECTUAL PROPERTY. Borrower shall execute and deliver a
collateral assignment of patents, copyrights and trademarks in form and
substance reasonably acceptable to DFS granting DFS a first priority security
interest in and to the items listed in EXHIBIT 8.21 in form acceptable for
recordation.
7. CONDITIONS PRECEDENT
All duties and obligations of DFS under the Loan Documents on the
Effective Date, and at all times during the term of this Agreement, are
specifically subject to the full and continued satisfaction by Borrower of the
conditions precedent set forth below.
7.1 CONDITIONS PRECEDENT. The following conditions must be
satisfied as of the Effective Date:
(a) DFS' COUNSEL. DFS' counsel must approve of all matters pertaining
to
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(i) title to the Collateral; (ii) the form, substance and due execution
of all Loan Documents; (iii) Borrower's organizational documents; and (iv)
all other legal matters, including the application of any laws relating to
usury.
(b) MATERIAL CHANGE. There must not have been any change, between
October 5, 1998 and the Effective Date, which would have a Material
Adverse Effect on the condition of Borrower, the condition of the
Business, the value and condition of the Collateral, the structure of
Borrower other than as contemplated herein, or in the financial
information, audits and the like obtained by DFS.
(c) PERFECTED LIENS. DFS shall have a perfected first priority Lien and
security interest in the Collateral, subject only to the Permitted Liens.
(d) INSURANCE. Borrower shall provide DFS with certificates of
insurance evidencing that Borrower and each Corporate Guarantor has
obtained the insurance as required in SECTION 9.1.2.
(e) LAWS. Borrower and its Subsidiaries shall be in compliance with all
applicable laws and governmental regulations, including, but not limited
to, all Environmental Laws, the failure to comply with which would have a
Material Adverse Effect on Borrower, its Subsidiaries or the Business.
(f) CERTIFICATE OF GOOD STANDING. A certificate of good standing for
Borrower (or other similar certificate) must be delivered to DFS, from the
appropriate governmental authority of Borrower's and each Corporate
Guarantor's state of incorporation and other jurisdictions in which
Borrower and each such Corporate Guarantor does business, dated not
earlier than 30 days prior to the Effective Date.
(g) OPINION OF BORROWER'S COUNSEL. DFS must receive a written opinion
from counsel for Borrower and each Corporate Guarantor, dated the
Effective Date, and addressed to and for the benefit of DFS, in form and
substance satisfactory to DFS.
(h) UCC SEARCHES. DFS must receive a certificate from a provider of
financing statement searches acceptable to DFS which identifies all
financing statements of public record not more than 30 days before the
Effective Date, that pertain to the Collateral and the collateral of each
Corporate Guarantor.
(i) OTHER DOCUMENTS. Such other documents, certificates, submissions,
insurance policies and other matters as reasonably requested by DFS
relating to the transaction herein contemplated, including but not limited
to (A) Collateralized Guarantees from each of the Borrower's Subsidiaries,
Pomeroy and Global, along with such other documents as are necessary to
provide DFS with a first priority, fully perfected security interest in
all of the assets of each such Person, and (B) the Participation
Agreement.
(j) PRESIDENT'S CERTIFICATE (OR CHIEF EXECUTIVE OFFICER'S CERTIFICATE,
FOR GLOBAL). In the form attached hereto as EXHIBIT 7.1(j) compliance
with all of the terms and conditions in the Loan Documents.
(k) ARTICLES OF INCORPORATION. A certified copy of the Articles of
Incorporation, By-Laws and the resolutions of the directors of Borrower
authorizing the transactions contemplated by this Agreement.
(l) SECRETARY'S CERTIFICATE OF RESOLUTION AND INCUMBENCY. In the form
attached hereto as EXHIBIT 7.1(l).
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(m) PAYOFF LETTER. A lien release and payoff letter executed by any and
all lienholders on any of the Collateral, other than with respect to the
Permitted Liens.
8. REPRESENTATIONS AND WARRANTIES
To induce DFS to enter into this Agreement, Borrower makes the
representations and warranties set forth below, all of which will remain true in
all material respects during the term of this Agreement. Borrower acknowledges
DFS' justifiable right to rely upon the representations and warranties set forth
below.
8.1 FINANCIAL STATEMENTS. Pomeroy's audited consolidated
financial statements as of January 5, 1998, Pomeroy's unaudited consolidated
financial statements as of October 5, 1998, and Borrower's pro forma
financial statements for the same periods as the aforementioned financial
statements, copies of which have been previously submitted to DFS, have been
prepared in conformity with GAAP (except for the absence of footnotes and non
year-end adjustments on the unaudited financial statements) and present
fairly the financial condition of Borrower and its consolidated Subsidiaries
as at such dates and the results of their operations for the periods then
ended. Borrower warrants and represents to DFS that all financial statements
and information relating to Borrower or any Corporate Guarantor which have
been or may hereafter be delivered by Borrower or any Corporate Guarantor are
true and correct in all material respects and have been and will be prepared
in accordance with GAAP and, with respect to such previously delivered
statements or information, there has been no change which would have a
Material Adverse Effect on the financial or business condition of Borrower or
any Corporate Guarantor since the submission to DFS, either as of the date of
delivery, or, if different, the date specified therein, and Borrower
acknowledges DFS' reliance thereon.
8.2 NON-EXISTENCE OF DEFAULTS. Neither Borrower nor any of its
Subsidiaries is in default with respect to any material amount of its existing
Indebtedness. The making and performance of this Agreement and all other Loan
Documents, will not immediately, or with the passage of time, the giving of
notice, or both: (a) violate the provisions of the bylaws or any other
corporate document of Borrower; (b) violate any laws to the best of Borrower's
knowledge after reasonable inquiry, except where the failure to so comply could
not reasonably be expected to have a Material Adverse Effect upon Borrower, the
Business or Borrower's operations or financial condition; (c) result in a
material default under any contract, agreement, or instrument to which Borrower
is a party or by which Borrower or its properties are bound; or (d) result in
the creation or imposition of any security interest in, or Lien or encumbrance
upon, any of the Collateral except the Permitted Liens.
8.3 LITIGATION. Set forth on EXHIBIT 8.3 is a list of all
actions, suits, investigations or proceedings pending or, to the knowledge of
Borrower, threatened against Borrower or any of its Subsidiaries, as of the date
hereof in which there is a reasonable probability of an adverse decision which
would Material and Adverse Effect upon Borrower, the Business, or the
Collateral.
8.4 MATERIAL ADVERSE EFFECT. Borrower does not know of or expect
any change which would have a Material Adverse Effect on the Business, or on
Borrower's or any of the Subsidiaries' assets, liabilities, properties, or
condition, financial or otherwise, including changes in Borrower's financial
condition from October 5, 1998 through the Effective Date.
8.5 TITLE TO COLLATERAL. Except as set forth on EXHIBIT 8.5,
Borrower has good and marketable title to all of the Collateral, free and clear
of any and all Liens, claims and encumbrances, other than the Permitted Liens.
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8.6 CORPORATE STATUS. Borrower and each of the Subsidiaries is a
corporation duly organized and validly existing, in good standing, with
perpetual corporate existence, under the laws of their respective jurisdictions
of formation. Borrower and its Subsidiaries have the corporate power and
authority to own their properties and to transact the Business in which they are
engaged and presently propose to engage. Borrower and each Subsidiary is duly
qualified as a foreign corporation and in good standing in all states where the
nature of their Business or the ownership or use of their property requires such
qualification, and where failure to so qualify would have a Material Adverse
Effect on its Business, operations or financial condition.
8.7 SUBSIDIARIES. EXHIBIT 8.7 hereto lists the Subsidiaries as of
the Effective Date.
8.8 POWER AND AUTHORITY. Borrower has the corporate power to
borrow and to execute, deliver and carry out the terms and provisions of the
Loan Documents. Borrower has taken or caused to be taken all necessary
corporate action to authorize the execution, delivery and performance of this
Agreement and all other Loan Documents and the borrowing thereunder.
8.9 PLACE OF BUSINESS. Borrower's chief executive office and the
principal place of business is located at 1020 Petersburg Road, Hebron, KY
41048. Borrower's records concerning the Collateral are kept at such chief
executive office, or will be kept at such other place that Borrower informs DFS
of not less than 30 days in advance of relocation.
8.10 ENFORCEABILITY OF THE LOAN DOCUMENTS. The Loan Documents
executed by Borrower are the valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their terms, except as limited
by bankruptcy, insolvency, or other laws of general application relating to the
enforcement of creditors' rights.
8.11 TAXES. Borrower's federal tax identification number is
61-1337096. Borrower has: (a) filed all federal, state and local tax returns
and other reports that it is required by law to file the failure of which
would have a Material Adverse Effect on the Business or Borrower's or any
Subsidiary's assets, (b) paid or caused to be paid all taxes, assessments and
other governmental charges that are due and payable, the failure of which to
pay would have a Material Adverse Effect on the Business, except those
contested in good faith and in accordance with accepted procedures, and for
which adequate reserves have been established in accordance with GAAP, and
(c) made adequate provision for the payment of such taxes, assessments or
other charges accruing but not yet payable. Borrower has no knowledge of any
deficiency or additional assessment in a material amount in connection with
any taxes, assessments or charges.
8.12 COMPLIANCE WITH LAWS. Borrower, to the best of its knowledge
after reasonable inquiry, has complied, and shall cause each Subsidiary to
comply, in all material respects with all applicable laws, including any
Environmental Laws and any zoning laws, the failure to comply with which would
have a Material Adverse Effect on Borrower individually, or Borrower and its
Subsidiaries on a consolidated basis.
8.13 CONSENTS. Borrower and the Subsidiaries have obtained all
material consents, permits, licenses, approvals or authorization of, or effected
the filing, registration or qualification with, any governmental entity which is
required to be obtained or effected by Borrower and the Subsidiaries in
connection with the Business or the execution and delivery of this Agreement and
the other Loan Documents the failure of which to obtain or effect would have a
Material Adverse Effect on Borrower individually, or on Borrower and its
Subsidiaries on a consolidated basis.
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8.14 PURPOSE. Borrower will use the advances which DFS makes under
the Credit Facility solely for lawful purposes and as described in SECTION 3
hereof.
8.15 CONDITION OF THE BUSINESS. All material assets used in the
conduct of the Business are in good operating condition and repair and are fully
usable in the ordinary course thereof, reasonable wear and tear excepted.
8.16 CAPITAL. All issued shares and all outstanding shares in the
Subsidiaries as reflected in Borrower's financial statements are validly issued
pursuant to proper authorization of the board of directors of such Subsidiary,
and are fully paid, and non-assessable. Except for those stock option plans and
Shareholders Right Plan described on EXHIBIT 8.16, which plans shall not be
materially amended without notice to DFS, there are no outstanding
subscriptions, warrants, options, calls or commitments, obligations or
securities convertible or exchangeable for shares of any stock of Borrower or
the Subsidiaries. Borrower and the Subsidiaries shall give DFS thirty days (30)
prior written notice before entering any agreement to register its equity or
debt securities under the Securities Act of 1933, as amended, or any state
securities law. All Borrower's and Subsidiary's issued shares and outstanding
capital stock are fully paid and non-assessable, and each such Person's capital
structure is as set forth on EXHIBIT 8.16.
8.17 LOCATION OF COLLATERAL. EXHIBIT 8.17 describes the locations
where any of the Collateral is located or stored as of the date hereof.
8.18 REAL PROPERTY. Neither Borrower nor any Subsidiary own or
lease any real property, except as set forth on EXHIBIT 8.18 attached hereto.
8.19 WARRANTIES AND REPRESENTATIONS-ACCOUNTS. For each Account
listed by Borrower on any Borrowing Base Certificate, Borrower warrants and
represents to DFS that at all times: (a) such Account is genuine; (b) such
Account is not evidenced by a judgment or promissory note or similar instrument
or agreement; (c) it represents an undisputed bona fide transaction completed in
accordance with the terms of the invoices and purchase orders relating thereto;
(d) the goods sold or services rendered which resulted in the creation of such
Account have been delivered or rendered to and accepted by the Account Debtor;
(e) the amounts shown on the Borrowing Base Certificate, Borrower's books and
records and all invoices and statements delivered to DFS with respect thereto
are owing to Borrower and are not contingent; (f) no payments have been or will
be made thereon except payments turned over to DFS pursuant to the terms of this
Agreement; (g) there are no offsets, counterclaims or disputes existing or
asserted with respect thereto and Borrower has not made any agreement with the
Account Debtor for any deduction or discount of the sum payable thereunder
except regular discounts allowed by Borrower in the ordinary course of its
business for prompt payment; (h) there are no facts or events which in any way
impair the validity or enforceability thereof or reduce the amount payable
thereunder from the amount shown on the Borrowing Base Certificate, Borrower's
books and records and the invoices and statements delivered to DFS with respect
thereto; (i) to the best of Borrower's knowledge, all persons acting on behalf
of the Account Debtor thereon have the authority to bind the Account Debtor; (j)
the goods sold or transferred giving rise thereto are not subject to any Lien,
claim, encumbrance or security interest which is superior to that of DFS other
than a Permitted Lien; (k) such Account is subject to DFS' perfected, first
priority security interest and no other Lien other than a Permitted Lien; and
(l) there are no proceedings or actions known to Borrower or which to Brrower's
knowledge are threatened or pending against the Account Debtor thereon which
might have a Material Adverse Effect on such Account Debtor's financial
condition.
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8.20 ENVIRONMENTAL, HEALTH AND SAFETY MATTERS. Except as disclosed
on EXHIBIT 8.20, to the best of Borrower's knowledge, after reasonable inquiry:
(a) the operations of Borrower and each of the Subsidiaries complies in all
respects with (i) all applicable Environmental Laws, and (ii) all applicable
OSHA Laws; (b) none of the operations of Borrower or any Subsidiary are subject
to any judicial or administrative proceeding alleging the Violation of any
Environmental Law or OSHA Law; (c) none of the operations of Borrower or any
Subsidiary is the subject of federal or state investigation evaluating whether
any remedial action is needed to respond to (i) a spillage, disposal or release
into the environment of any Hazardous Material or other hazardous, toxic or
dangerous waste, substance or constituent, or other substance, or (ii) any
unsafe or unhealthful condition at any premises of Borrower or any Subsidiary;
(d) neither Borrower nor any Subsidiary has filed any notice under any
Environmental Law or OSHA Law indicating or reporting (i) any past or present
spillage, disposal or release into the environment of, or treatment, storage or
disposal of, any Hazardous Material or other hazardous, toxic or dangerous
waste, substance or constituent, or other substance or (ii) any unsafe or
unhealthful condition at any premises of Borrower or any Subsidiary; and (e)
neither Borrower nor any Subsidiary has any known contingent liability in
connection with (i) any spillage, disposal or release into the environment of,
or otherwise with respect to, any Hazardous Material or other hazardous, toxic
or dangerous waste, substance or constituent, or other substance or (ii) any
unsafe or unhealthful condition at any premises of Borrower or any Subsidiary.
8.21 PATENTS, COPYRIGHTS, TRADEMARKS, ETC. The Borrower and each
of the Subsidiaries possesses or has the right to use all of the patents,
trademarks, trade names, service marks and copyrights, and applications
therefor, and all technology, know-how, processes, methods and designs used in
or necessary for the conduct of its business, without known conflict with the
rights of others, except to the extent that the failure to so obtain or apply
could be expected not to have a Material Adverse Effect on the Borrower, any
Subsidiary or the Collateral. All such licenses, patents, trademarks, trade
names, service marks and copyrights, and applications therefor existing on the
date hereof are listed on EXHIBIT 8.21.
8.22 SOLVENCY. The Borrower and each of the Subsidiaries now has
capital sufficient to carry on its respective business and transactions and all
business and transactions in which it is about to engage and is now solvent and
able to pay its respective debts as they mature, and Borrower and each of the
Subsidiaries now owns property having a value, greater than the amount required
to pay Borrower's or such Subsidiary's debts.
8.23 LEASES. EXHIBIT 8.23(a) attached hereto is a complete listing
of all capitalized leases of Borrower and EXHIBIT 8.23(b) attached hereto is a
complete listing of all Operating Leases of Borrower.
8.24 LABOR RELATIONS. Except as described on EXHIBIT 8.24 attached
hereto and made a part hereof, neither Borrower nor any of its Subsidiaries is a
party to any collective bargaining agreement, and there are no material
grievances, disputes or controversies with any union or any other organization
of Borrower's employees, or threats of strikes, work stoppages or any asserted
pending demands for collective bargaining by any union or organization.
8.25 BUSINESS LOCATIONS; AGENT FOR PROCESS. During the preceding
six (6) year period, Borrower has had no office, place of business or agent for
service of process located in any state or county other than as shown on
EXHIBIT 8.17.
8.26 WARRANTIES AND REPRESENTATIONS-INVENTORY. Borrower covenants,
warrants and represents to DFS that at all times: (a) Inventory will be kept
only at the locations indicated on EXHIBIT 8.17; (b) no Inventory is or will be
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produced in violation of the Federal Fair Labor Standards Act; (c) Borrower now
keeps and will keep correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, Borrower's cost therefor and the
selling price thereof, the daily withdrawals therefrom and the additions
thereto; (d) Inventory is not and will not be stored with a bailee, repairman,
warehouseman or similar party without DFS' prior written consent, and Borrower
will, concurrently with delivery to such party, cause any such party to issue
and deliver to DFS, in form acceptable to DFS, warehouse receipts, in DFS' name
evidencing the storage of such Inventory, and waivers of warehouseman's liens in
favor of DFS; (e) Borrower will pay all of its taxes, rents, business taxes, and
the like on the premises where the Inventory is located; and (f) Borrower will
not rent, lease, lend, demonstrate, pledge, consign, transfer or secrete any of
the Inventory or use any of the Inventory for any purpose other than exhibition
and sale to buyers in the ordinary course of business, without DFS' prior
written consent.
8.27 REAFFIRMATION. Each request for a Loan made by Borrower
pursuant to this Agreement or any of the other Loan Documents shall constitute
(a) an automatic representation and warranty by Borrower to DFS that there does
not then exist any Default or any Unmatured Default, and (b) a reaffirmation as
of the date of said request of all of the representations and warranties of
Borrower contained in this Agreement and the other Loan Documents, except to the
extent (i) previously fulfilled in accordance with the terms hereof or (ii)
previously waived in writing by DFS with respect to any particular factual
circumstance.
8.28 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower
covenants, warrants and represents to DFS that all representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall be true at the time of Borrower's execution of this Agreement
and the other Loan Documents, and shall survive the execution, delivery and
acceptance thereof by DFS and the parties thereto and the closing of the
transactions described therein or related thereto.
9. BORROWER'S COVENANTS
9.1 AFFIRMATIVE COVENANTS. During the term of this Agreement and
thereafter for so long as any Obligations are outstanding and unpaid, Borrower
covenants that unless otherwise consented to by DFS in writing, it shall perform
all the acts and promises required by this Agreement and all the acts and
promises set forth below.
9.1.1 PAYMENT AND PERFORMANCE. Borrower will pay and perform
all Obligations in full when and as due hereunder.
9.1.2 INSURANCE.
(a) TYPE OF INSURANCE. Borrower will at all times
cause the Business and the Collateral to be insured by
insurers of reasonable financial soundness and having an
A. M. Best rating of A or better, with such policies,
against such risks and in such amounts as are
appropriate for reasonably prudent businesses in
Borrower's industry and of Borrower's size and financial
strength.
(b) REQUIREMENTS AS TO INSURANCE POLICIES. The
policies of insurance which Borrower is required to
carry shall comply with the requirements listed below:
(i) Each such policy shall provide that it may not be
canceled or allowed to lapse at the end of a policy
period
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without at least 30 days' prior written notice to DFS;
(ii) Each liability and hazard insurance policy shall
name DFS as an additional insured; and
(iii) Each property insurance policy required hereunder
shall contain a standard lender's loss payable clause in
favor of DFS. Such insurance policies shall also
contain lender's loss payable endorsements satisfactory
to DFS providing, among other things, that any loss
shall be payable in accordance with the terms of such
policy notwithstanding any act of Borrower which might
otherwise result in forfeiture of such insurance;
(c) COLLECTION OF CLAIMS. Borrower will promptly
advise DFS of any insured casualty in excess of $500,000
and Borrower agrees that DFS may direct all insurance
proceeds therefrom to be paid directly to DFS to the
extent that such loss is not adequately insured under an
insurance policy which names DFS as a loss payee, and
hereby appoints DFS its attorney-in-fact for such
purpose.
(d) BLANKET POLICIES. Any insurance required hereunder
may be supplied by means of a blanket or umbrella
insurance policy.
(e) DELIVERY OF POLICIES OR CERTIFICATES OF INSURANCE.
Borrower shall deliver to DFS certificates of insurance
issued by insurers to evidence that the insurance
maintained by Borrower complies with the requirements
hereunder.
9.1.3 COLLECTION OF RECEIVABLES; SALE OF INVENTORY. Borrower
will collect its Accounts and sell its Inventory only in the ordinary course of
business, unless written permission to the contrary is obtained from DFS.
9.1.4 NOTICE OF LITIGATION AND PROCEEDINGS. Borrower will
give prompt notice to DFS of: (a) any litigation or proceeding (including fines
and penalties of any public authority) in which it, or any of the Subsidiaries
is a party in which there is a reasonable probability of an adverse decision
which would require it or any of the Subsidiaries to pay money or deliver
assets, whether or not the claim is considered to be covered by insurance that
might have a Material Adverse Effect upon Borrower's or any of its Subsidiary's
operations, financial condition, property or business; (b) any class action
litigation against it, regardless of size, that might have a Material Adverse
Effect upon Borrower's or any of its Subsidiary's operations, financial
condition, property or business; and (c) the institution of any other suit or
proceeding that might have a Material Adversely Effect on its or any of its
Subsidiary's operations, financial condition, property or the Business.
9.1.5 PAYMENT OF INDEBTEDNESS TO THIRD PERSONS. Borrower
will, and will cause each Subsidiary to, pay, when due, all Indebtedness and any
other liability due third persons, except when the amount thereof is being
contested in good faith by appropriate proceedings and with adequate reserves
therefor satisfactory to DFS in accordance with GAAP being set aside by Borrower
or such Subsidiary. DFS will use reasonable efforts to attempt to give Borrower
notice before DFS requires Borrower to set aside additional reserves.
9.1.6 NOTICE OF CHANGE OF BUSINESS LOCATION. Borrower will
notify DFS 30 days in advance of: (a) any change in or discontinuation of any
warehouse location of Borrower or any Subsidiary, any other location of a
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material amount of the Collateral, Borrower's principal place of business, or
any of the Subsidiaries' existing offices or places of business, (b) the
establishment of any new places of business relating to the Business, and (c)
any change in or addition to the locations where Borrower's Inventory or records
are kept.
9.1.7 PAYMENT OF TAXES. Borrower will, and will cause each
Subsidiary to, pay or cause to be paid, when and as due, all taxes, assessments
and charges or levies imposed upon it or on any of its property or that it is
required to withhold and pay over to the taxing authority or that it must pay on
its income, the failure of which to pay would have a Material Adverse Effect on
Borrower individually, or on Borrower and the Subsidiaries on a consolidated
basis, except where contested in good faith by appropriate proceedings with
adequate reserves therefor satisfactory to DFS, in accordance with GAAP, having
been set aside by Borrower or such Subsidiary. DFS will use reasonable efforts
to attempt to give Borrower notice before DFS requires additional reserves.
However, Borrower will and will cause each Subsidiary to, pay or cause to be
paid all such taxes, assessments, charges or levies immediately whenever
foreclosure of any Lien that attaches on the Collateral appears imminent.
9.1.8 FURTHER ASSURANCES. Borrower agrees to, and will cause
each Subsidiary to, execute such other and further documents, including, without
limitation, deeds of trust, promissory notes, security agreements, financing
statements, continuation statements, certificates of title, and the like as may
from time to time in the reasonable opinion of DFS be necessary to perfect,
confirm, establish, re-establish, continue, or complete the security interests,
collateral assignments and Liens in the Collateral, and the purposes and
intentions of this Agreement.
9.1.9 MAINTENANCE OF STATUS. Borrower will take all
necessary steps to (a) preserve its, and each Subsidiary's, existence as a
corporation, (b) preserve Borrower's and the Subsidiaries' franchises and
permits, and (c) comply with all present and future material agreements to which
Borrower, or any of the Subsidiaries, is subject, and (d) maintain, and cause
each Subsidiary to maintain, its qualification and good standing in all states
in which such qualification is necessary or in which the failure to be so
qualified might have a Material Adverse Effect on the financial condition or
properties of Borrower or the Business. Borrower will not change the nature of
the Business during the term of this Agreement.
9.1.10 FINANCIAL STATEMENTS; REPORTING REQUIREMENTS;
CERTIFICATION AS TO EVENTS OF DEFAULTS. During the term of this Agreement,
Borrower will furnish one copy of the following to DFS, upon DFS' request
therefore:
(a) within 120 days after the end of each fiscal year, annual
financial statements for Pomeroy and its Subsidiaries as of
the end of such fiscal year, consisting of a consolidated and
consolidating balance sheet, consolidated and consolidating
statement of operations, consolidated and consolidating
statements of cash flows and consolidated and consolidating
statement of stockholder's equity, in comparative form,
together with a narrative description of the financial
condition and results of operations and the liquidity and
capital resources of Borrower and setting forth in comparative
form the corresponding figures for the corresponding period of
the prior fiscal year and the corresponding figures from the
most recent financial projections of Borrower, discussing the
reasons for any significant variations. The statements and
balance sheet will be audited by an independent firm of
certified public
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accountants selected by Borrower, and certified by that firm
of certified public accountants to have been prepared in
accordance with GAAP. The certified public accountants will
render an unqualified opinion as to such statements and
balance sheets. DFS will have the absolute and irrevocable
right, from time to time, to discuss the affairs of Borrower
directly with the independent certified public accountant
after prior notice to Borrower and the reasonable opportunity
of Borrower to be present at any such discussions;
(b) by the 45th day of each quarter, a certificate of the
President, or Chief Financial Officer, in the form of
EXHIBIT 9.1.10(b) attached hereto, of Borrower stating that
such Person has reviewed the provisions of the Loan
Documents and that a review of the activities of Borrower
during such quarter has been made by or under such Person's
supervision with a view to determining whether Borrower has
observed and performed all of Borrower's obligations under
the Loan Documents, and that, to the best of such Person's
knowledge, information and belief, Borrower has observed
and performed each and every undertaking contained in the
Loan Documents and is not at the time in default in the
observance or performance of any of the terms and
conditions thereof or, if Borrower will be so in default,
specifying all of such defaults and events of which such
Person may have knowledge;
(c) within 60 days after the end of each fiscal year, an
annual budget and income statement with cash flow projections
for the current fiscal year;
(d) promptly upon receipt thereof, copies of all final
reports and final management letters submitted to Borrower or
any of the Borrower's Subsidiaries by independent accountants
in connection with any annual or interim audit of the books of
Borrower or such Subsidiaries made by such accountants;
(e) copies of any and all reports, filings and other
documentation delivered to the Securities and Exchange
Commission by or on behalf of Borrower promptly after the
delivery thereof, if applicable; and
(f) any other statements, reports and other information as
DFS may reasonably request concerning the financial condition
or operations of Borrower and its properties.
9.1.11 NOTICE OF EXISTENCE OF DEFAULT. Borrower will, and
will cause its Subsidiaries to, promptly notify DFS of: (a) the existence of
any known condition or event, which constitutes a Default or an Unmatured
Default and (b) the actual or threatened termination, suspension, lapse or
relinquishment of any material license, authorization, permit or other right
granted Borrower or for Borrower's benefit and used in the Business, or granted
to any of its Subsidiaries or for any such Subsidiaries' benefit, by any
governmental agency material to the Business.
9.1.12 COMPLIANCE WITH LAWS. Borrower will, and will cause
its Subsidiaries to, comply in all material respects with all applicable laws,
rules, regulations and orders the failure to comply with which would have a
Material Adverse Effect on Borrower individually, or Borrower and its
Subsidiaries on a consolidated basis.
9.1.13 MAINTENANCE OF COLLATERAL. Borrower will maintain all
material Collateral and every part thereof in good condition and repair.
Borrower will not permit the value of the Collateral to be materially impaired.
Borrower will defend the Collateral against all claims and legal proceedings by
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persons other than DFS. Borrower will not transfer the Collateral from the
premises where now located (other than Inventory sold in the ordinary course of
business and other Collateral transferred in the ordinary course of business),
or permit the Collateral to become a fixture or accession (unless so affixed on
the Effective Date) to any goods which are not items of Collateral, without the
prior written approval of DFS. Borrower will not permit the Collateral to be
used in violation of any applicable law, regulations, or any policy of
insurance. As to Collateral consisting of instruments and chattel paper,
Borrower will preserve rights in it against prior parties.
9.1.14 COLLATERAL RECORDS AND STATEMENTS. Borrower will keep
such accurate and complete books and records pertaining to the Collateral in
such detail and form as DFS reasonably requires, including, but not limited to:
schedules of Inventory; original orders; invoices; shipping documents; billing
settlements and receivables; sold receivables; Inventory listing containing
model, serial number (if available) and location. Other reporting will be
available upon request by DFS, including, but not be limited to, accounts
payable agings in such form as DFS reasonably requires. The statements will be
in the form and will contain the information as is prescribed by DFS.
9.1.15 INSPECTION OF COLLATERAL. DFS and any third party
appraiser selected by DFS may examine the Collateral at any time, and from time
to time during normal business hours. DFS and any third party appraiser
selected by DFS will have full access to, and the right to: (a) review, inspect
and make abstracts and copies from Borrower's books and records pertaining to
the Collateral, and (b) inspect and examine Inventory and check and test the
same as to quality, quantity, value and condition, wherever located, at any time
during reasonable business hours, and from time to time. Borrower will assist
DFS and any third party appraiser selected by DFS in so doing.
9.1.16 LANDLORD'S AGREEMENTS. Borrower will provide or cause
to be provided, on the Effective Date, landlord waivers and agreements in a form
acceptable to DFS with respect to leased real property and with respect to any
future leases, prior to entering into them.
9.2 NEGATIVE COVENANTS. During the term of this Agreement and
thereafter, for so long as any Obligations are outstanding and unpaid, Borrower
covenants that unless otherwise consented to in writing by DFS, Borrower shall
not perform or cause or permit to be performed the following acts:
9.2.1 CHANGE OF NAME, ETC. Borrower and the Subsidiaries
will not change their name, or begin to trade under any assumed names or trade
names without thirty (30) days prior written notice to DFS. Borrower will not,
and will not permit any Subsidiary to, change its manner of organization, enter
into any mergers, consolidations, reorganizations or recapitalizations without
DFS' prior written consent which shall not be unreasonably withheld, other than
as contemplated herein.
9.2.2 SALE OR TRANSFER OF ASSETS. Except in the ordinary
course of business, except for other asset sales not exceeding $100,000 in
the aggregate during any fiscal year, or except as consented to in writing by
DFS, Borrower and the Subsidiaries will not sell, transfer, lease (including
sale-leaseback) or otherwise dispose of all or any substantial part of their
assets. This provision will not apply to any sale if the proceeds of such
sale pay the Obligations in full.
9.2.3 ENCUMBRANCE OF ASSETS. Borrower will not, and will not
permit a Subsidiary to, mortgage, pledge, grant or permit to exist a security
interest in or Lien upon any of the Collateral, now owned or hereafter acquired
except for the Permitted Liens.
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9.2.4 ACQUISITION OF STOCK OR ASSETS; NEW SUBSIDIARIES.
Borrower and the Subsidiaries will not, without at least thirty (30) days prior
written notice to DFS, acquire, or enter into any agreement, to acquire, all or
substantially all the assets of, equity interest or stock in, another business,
nor will the Borrower hereafter create any new Subsidiaries. Borrower and the
Subsidiaries shall give DFS prompt written notice of entering into any
commitment letter or letter of intent to acquire all or substantially all of the
assets of, equity interest or stock in another business.
9.2.5 FALSE CERTIFICATES OR DOCUMENTS. Borrower has not and
will not, and will not permit any Subsidiary to, furnish DFS with any
certificate or other document that contains any untrue statement of material
fact or that omits to state a material fact necessary to make it not misleading
in light of the circumstances under which it was furnished.
9.2.6 ASSIGNMENT. Borrower will not assign or attempt to
assign the Loan Documents or any of its interests under the Loan Documents,
except in favor of DFS.
9.2.7 TRANSACTIONS WITH AFFILIATES. Borrower will not
enter into any contracts, leases, sales or other transactions with any
Affiliate on terms less favorable than could be obtained generally by
Borrower from a non-Affiliate.
9.2.8 DIVIDENDS. Borrower will not declare or pay any
dividends (other than a stock dividend) upon its capital stock in any given
fiscal year in amount in excess of fifty percent (50%) of Borrower's net profits
for such fiscal year, without DFS' prior written consent.
9.2.9 LOANS BY BORROWER. Borrower will not, and will not
permit any Subsidiary to, make any loan to any Person which exceed in the
aggregate at any time One Million Dollars ($1,000,000), except for loans in
anticipation of reasonable and normally reimbursable business expenses and trade
credit extended in the ordinary course of Business.
9.2.10 FISCAL YEAR. Borrower will not change its fiscal
year-end without sixty (60) days prior written notice to DFS.
9.2.11 TOTAL INDEBTEDNESS. Borrower shall not create, incur,
assume, or suffer to exist, or permit any Subsidiary to create, incur or suffer
to exist, any Indebtedness, except:
(a) the Obligations;
(b) Subordinated Debt;
(c) Indebtedness of any Subsidiary to Borrower;
(d) Accounts payable to trade creditors and current operating
expenses (other than for money borrowed) incurred in the
ordinary course of business which are aged not more than
thirty (30) days past due, unless actively contested in good
faith and by appropriate and lawful proceedings and for which
adequate reserves have been established in accordance with
GAAP;
(e) Permitted Purchase Money Indebtedness;
(f) Capitalized Lease Obligations not to exceed $250,000
outstanding at any time;
(g) [RESERVED];
(h) [RESERVED]; and
(i) Obligations under Operating Leases permitted by SECTION
9.2.16.
9.2.12 ADVERSE TRANSACTIONS. Borrower will not enter into
any transaction, or permit any Subsidiary to enter into any transaction, which
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materially and adversely affects or may materially and adversely affect the
Collateral or Borrower's ability to repay the Obligations or permit or agree to
any material extension, compromise or settlement or make any change or
modification of any kind or nature with respect to any Account, including any of
the terms relating thereto, other than discounts and allowances in the ordinary
course of business, all of which shall be reflected in the Borrowing Base
Certificate submitted to DFS pursuant to SECTION 3.3 of this Agreement.
9.2.13 GUARANTIES. Borrower will not guarantee, assume,
endorse or otherwise, in any way, become directly or contingently liable with
respect to the Indebtedness of any Person, except by endorsement of instruments
or items of payment for deposit or collection.
9.2.14 MARGIN SECURITIES. Borrower will not own, purchase or
acquire, or permit any Subsidiary to own, purchase or acquire, (or enter, or
permit any Subsidiary to enter, into any contract to purchase or acquire) any
"margin security" as defined by any regulation of the Federal Reserve Board as
now in effect or as the same may hereafter be in effect unless, prior to any
such purchase or acquisition or entering into any such contract, DFS shall have
received an opinion of counsel satisfactory to DFS to the effect that such
purchase or acquisition will not cause this Agreement to violate Regulations G
or U or any other regulation of the Federal Reserve Board then in effect.
9.2.15 TAX CONSOLIDATION. Borrower will not file or consent
to the filing of any consolidated income tax return with any Person other than a
Subsidiary.
9.2.16 OPERATING LEASES. The Borrower shall not, and shall
not permit any Subsidiary of the Borrower to, enter into any Operating Leases
except for Operating Leases entered into in the ordinary course of business in
the manner and to the extent consistent with past practice; provided, however,
that the total rent per annum for all Operating Leases of the Borrower and its
Subsidiaries shall not exceed $1,000,000 in the aggregate, for any fiscal year.
9.3 FINANCIAL COVENANTS.
9.3.1 AMOUNTS. Borrower agrees that it will cause Pomeroy to
at all times maintain the following:
(a) a Tangible Net Worth plus Subordinated Debt in the combined
amount of not less than Fifty Million Dollars ($50,000,000);
(b) a ratio of Debt minus Subordinated Debt to Tangible Net Worth
plus Subordinated Debt of not more than Four to One (4.0:1.0); and
(c) a ratio of Current Tangible Assets to current liabilities of not
less than One and Twenty One-Hundredths to One (1.20:1.0).
For purposes of this paragraph: (i) "TANGIBLE NET WORTH" means the
book value of Borrower's assets less liabilities (including as
liabilities all reserves for contingencies and other potential
liabilities), excluding from such assets all Intangibles; (ii)
"INTANGIBLES" means and includes general intangibles (as that term
is defined in the Uniform Commercial Code); accounts receivable and
advances due from officers, directors, member, owner, employees,
stockholders and affiliates; leasehold improvements net of
depreciation; licenses; good will; prepaid expenses; escrow
deposits; covenants not to compete; the excess of cost over book
value of acquired assets; franchise fees; organizational costs;
finance reserves held for recourse obligations; capitalized research
and development costs; and such other similar items as DFS may from
time to time
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determine in DFS' sole discretion; (iii) "DEBT" means all of
Borrower's liabilities and indebtedness for borrowed money of
any kind and nature whatsoever, whether direct or indirect, absolute
or contingent, and including obligations under capitalized leases,
guaranties or with respect to which Borrower has pledged assets to
secure performance, whether or not direct recourse liability has
been assumed by Borrower; (iv) "SUBORDINATED DEBT" means all of
Borrower's Debt which is subordinated to the payment of Borrower's
liabilities to DFS by an agreement in form and substance
satisfactory to DFS; and (v) "CURRENT TANGIBLE ASSETS" means
Borrower's current assets less, to the extent otherwise included
therein, all Intangibles. The foregoing terms will be determined
in accordance with GAAP, and on a consolidated basis at Pomeroy's
level ("FINANCIAL COVENANTS").
9.3.2 COVENANT COMPLIANCE CERTIFICATE. The President or
Chief Financial Officer of Borrower will certify to DFS by the 45th day of each
quarter, or more often if requested by DFS, that Borrower is in compliance with
the Financial Covenants as set forth in a form acceptable to DFS in its sole
discretion.
10. DEFAULT/REMEDIES
Borrower will be in default under this Agreement (each, a "DEFAULT")
if:
(a) Borrower breaches any terms, covenants, warranties or
representations contained herein, or in any other Loan Document;
(b) any Corporate Guarantor breaches any terms, covenants,
warranties or representations contained in any guaranty or other agreement
between such Corporate Guarantor and DFS, revokes or attempts to revoke any such
guaranty agreement, or repudiates such Corporate Guarantor's liability
thereunder;
(c) any representation, statement, report or certificate made or
delivered by Borrower or any Corporate Guarantor to DFS is not accurate when
made and such breach is not cured to DFS' satisfaction within five (5) days
after the sooner to occur of Borrower's receipt of notice of such breach from
DFS or the date on which such breach becomes known to any officer of Borrower;
(d) Borrower fails to pay any portion of Borrower's debts to DFS
when due and payable hereunder or under any other agreement between DFS and
Borrower;
(e) Borrower abandons any material amount of the Collateral;
(f) Borrower or any Corporate Guarantor is or becomes in default of
any obligation owed to any third party which exceeds at any time the aggregate
amount of $1,000,000;
(g) money judgment(s) are issued against Borrower or any Corporate
Guarantor which are not dismissed, satisfied or discharged within 30 days and
which exceed at any time the aggregate amount of $1,000,000;
(h) an attachment, sale or seizure issues or is executed against any
assets of Borrower or against any assets of any Corporate Guarantor which is not
satisfied or released within ten (10) days;
(i) [RESERVED];
(j) Borrower or any Corporate Guarantor ceases existence as a
corporation unless such Corporate Guarantor ceases existence pursuant to a
merger with and into Borrower;
(k) (i) Borrower ceases or suspends business, or (ii) any Corporate
Guarantor ceases or suspends business outside the ordinary course of its
business; provided, however, that the cessation or suspension of the business of
any Corporate Guarantor for any reason whatsoever shall be a Default if such
event occurs without prior notice thereof to DFS;
(l) Borrower or any Corporate Guarantor makes a general assignment
for the benefit of creditors;
(m) Borrower or any Corporate Guarantor becomes insolvent or
voluntarily or involuntarily becomes subject to the Federal Bankruptcy Code, any
state insolvency law or any similar law;
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(n) any receiver is appointed for any of Borrower's or any Corporate
Guarantor's assets;
(o) any guaranty of Borrower's debts to DFS is terminated or
notification of Corporate Guarantor's intent to so terminate is given to DFS;
(p) Borrower loses any franchise, permission, license or right to
sell or deal in any Collateral which would have a Material Adverse Effect upon
Borrower;
(q) Borrower or any Corporate Guarantor misrepresents Borrower's or
such Corporate Guarantor's financial condition or organizational structure;
(r) any of the Collateral becomes subject to any Lien, claim,
encumbrance or security interest other than a Permitted Lien and other than any
other Liens, not to exceed $100,000 in the aggregate at any time;
(s) Borrower shall be enjoined, restrained or in any way prevented
by court, governmental or administrative order from conducting all or any
material part of its Business; or any material lease or agreement pursuant to
which Borrower leases, uses or occupies any property shall be canceled or
terminated prior to the expiration of its stated term, or any material part of
the Collateral shall be taken through condemnation or the value thereof shall be
impaired through condemnation;
(t) [RESERVED];
(u) there shall occur a change which has a Material Adverse Effect
on the financial or other condition or business prospects of Borrower or any
Corporate Guarantor;
(v) [RESERVED];
(w) there exists any default under the terms of a Participation
Agreement, including but not limited to, Participant's failure to fund its share
of any Working Capital Loan or to provide at least $10,000,000 of participations
in the Working Capital Loans;
(x) the Participation Agreement is terminated for any reason; or
(y) DFS determines in good faith that it is insecure with respect to
any of the Collateral or the payment of any part of Borrower's Obligations.
In the event of a Default:
(i) DFS may at any time at DFS' election, with notice or demand to
Borrower, do any one or more of the following: cease making further
Loans and declare all or any of the Obligations immediately due and
payable, together with all costs and expenses of DFS' collection
activity, including, without limitation, all reasonable attorneys'
fees; exercise any or all rights under applicable law (including,
without limitation, the right to possess, transfer and dispose of
the Collateral); and/or cease extending any additional credit to
Borrower.
(ii) Borrower will segregate and keep the Collateral in trust for DFS,
and in good order and repair, and will not sell, rent, lease,
consign, otherwise dispose of or use any Collateral, nor further
encumber any Collateral.
(iii) Upon DFS' oral or written demand, Borrower will immediately deliver
the Collateral to DFS, in good order and repair, at a place
specified by DFS, together with all related documents; or DFS may,
in DFS' sole discretion and without notice or demand to Borrower,
take immediate possession of the Collateral together with all
related documents.
(iv) DFS may, without notice, apply the Default Interest Rate.
(v) DFS may, without notice to Borrower and at any time or times,
enforce payment and collect, by legal proceedings or otherwise,
Accounts in the name of Borrower or DFS; and take control of any
cash or non-cash items of payment or proceeds of Accounts and of any
rejected, returned, repossessed or stopped in transit goods relating
to Accounts. DFS may at its sole election and without demand enter,
with or without process of law, any premises where Collateral might
be and, without charge or liability to DFS therefor do one or more
of the following: (i) take possession of the Collateral and use or
store it
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in said premises or remove it to such other place or places
as DFS may deem convenient; (ii) take possession of all or part of
such premises and the Collateral and place a custodian in the
exclusive control thereof until completion of enforcement of DFS'
security interest in the Collateral or until DFS' removal of the
Collateral and, (iii) remain on such premises and use the same,
together with Borrower's materials, supplies, books and records,
for the purpose of liquidating or collecting such Collateral and
conducting and preparing for disposition of such Collateral.
(vi) Upon the occurrence of a Default under SECTIONS 10.1 (l), (m), OR
(n), all Obligations shall automatically be accelerated and due and
payable and the Default Interest Rate shall automatically apply as
of the date of the first occurrence of such Default, without any
prior notice, demand or action of any type on the part of DFS.
All of DFS' rights and remedies are cumulative. DFS' failure to exercise
any of DFS' rights or remedies hereunder will not waive any of DFS' rights
or remedies as to any past, current or future Default.
11. SALE OF COLLATERAL
Borrower agrees that if DFS conducts a private sale of any
Collateral by requesting bids from 10 or more dealers or distributors in that
type of Collateral, any sale by DFS of such Collateral in bulk or in parcels
within 120 days of: (a) DFS' taking possession and control of such Collateral;
or (b) when DFS is otherwise authorized to sell such Collateral; whichever
occurs last, to the bidder submitting the highest cash bid therefor, is a
commercially reasonable sale of such Collateral under the Uniform Commercial
Code. Borrower agrees that the purchase of any Collateral by a vendor, as
provided in any agreement between DFS and the vendor, if any, is a commercially
reasonable disposition and private sale of such Collateral under the Uniform
Commercial Code, and no request for bids shall be required. Borrower further
agrees that 7 or more days prior written notice will be commercially reasonable
notice of any public or private sale (including any sale to a vendor). Borrower
irrevocably waives any requirement that DFS retain possession and not dispose of
any Collateral until after an arbitration hearing, arbitration award,
confirmation, trial or final judgment. If DFS disposes of any such Collateral
other than as herein contemplated, the commercial reasonableness of such
disposition will be determined in accordance with the laws of the state
governing this Agreement.
12. INDEMNIFICATIONS
12.1 GENERAL INDEMNITY. In addition to the payment of expenses and
attorneys' fees, if applicable, whether or not the transactions contemplated
hereby shall be consummated, Borrower agrees to indemnify, pay and hold DFS and
the officers, directors, employees, agents, and affiliates of DFS (collectively
called the "INDEMNITEES") harmless from and against, any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for any of such Indemnitees in connection with any investigative, administrative
or judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto), that may be imposed on,
incurred by, or asserted against the Indemnitees, in any manner relating to or
arising out of the Loan Documents, the statements contained in any commitment
letters delivered by DFS, DFS' agreement to make the Loans or any other payment
hereunder, or the use or intended use of the proceeds of any of the Loans
hereunder (the "INDEMNIFIED LIABILITIES"); PROVIDED, HOWEVER, that Borrower
shall have no obligation to an Indemnitee hereunder with respect to Indemnified
Liabilities arising from the gross negligence or willful misconduct of an
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Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, Borrower shall contribute the maximum
portion that it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees or any of them. The provisions of the undertakings and
indemnification set out in this SECTION 12.1 shall survive satisfaction and
payment of the Obligations and termination of this Agreement.
12.2 ENVIRONMENTAL AND SAFETY AND HEALTH INDEMNITY. Borrower
hereby indemnifies the Indemnitees and agrees to hold the Indemnitees harmless
from and against any and all losses, liabilities, damages, injuries, costs,
expenses and claims of any and every kind whatsoever (including, without
limitation, court costs and attorneys' fees) which at any time or from time to
time may be paid, incurred or suffered by, or asserted against, an Indemnitee
for, with respect to, or as a direct or indirect result of the violation by
Borrower or any Subsidiary, of any Environmental Law or OSHA Law; or with
respect to, or as a direct or indirect result of (a) the presence on or under,
or the escape, seepage, leakage, spillage, disposal, discharge, emission or
release from, properties utilized by Borrower and/or any Subsidiary in the
conduct of its business into or upon any land, the atmosphere, or any
watercourse, body of water or wetland, of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance (including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under the Environmental
Laws) or (b) the existence of any unsafe or unhealthful condition on or at any
premises utilized by Borrower and/or any Subsidiary in the conduct of its
business. The provision of and undertakings and indemnification set out in this
SECTION 12.2 shall survive satisfaction and payment of the Obligations and
termination of this Agreement.
13. OTHER TERMS
13.1 AMENDMENT, CHANGES AND MODIFICATION. The Loan Documents may
be amended, changed or modified only as may be agreed upon in writing by
Borrower and DFS from time to time.
13.2 BINDING EFFECT. The Loan Documents will be binding upon the
parties, their successors and assigns, provided, however, that Borrower shall
not assign or attempt to assign this Agreement, any other Loan Document or any
of its interests under the Loan Documents, without the prior written consent of
DFS.
13.3 BROKER FEE. Neither party is obligated to pay any premium or
other charge, brokerage fee or commission in connection with the agreements set
forth herein. Each party will indemnify the other and hold it harmless from any
such claim arising out of such party's acts or those of its representatives.
13.4 ENTIRE AGREEMENT. The Loan Documents embody the entire
agreement of the parties relating to the Credit Facility. There are no
promises, terms, conditions, obligations or warranties other than those
contained in the Loan Documents. The Loan Documents supersede all prior
communications, representations or agreements, verbal or written, between the
parties relating to the Credit Facility.
13.5 HEADINGS. The headings to the sections of this Agreement are
included only for the convenience of the parties and will not have the effect of
defining, diminishing or enlarging the rights of the parties or affecting the
construction or interpretation of any portion of this Agreement.
13.6 INCORPORATION BY REFERENCE. All other Loan Documents are
incorporated herein by this reference and are made a part of this Agreement as
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if fully set forth herein. This Agreement, prior to such incorporation,
controls in the event of any conflict with the terms of any other Loan
Documents.
13.7 INTERPRETATION. For the purpose of construing this Agreement,
unless the context otherwise requires, words in the singular will be deemed to
include words in the plural, and vice versa.
13.8 NOTICES. Any notice under the Loan Documents, will be in
writing. Any notice to be given or document to be delivered under the Loan
Documents will be deemed to have been duly given upon delivery, if delivered in
person or by any expedited delivery service which provides proof of delivery,
upon tested telex or facsimile transmission, or on the fifth Business Day after
mailing, if mailed by certified mail, return receipt requested, postage prepaid
mail, addressed to DFS or Borrower at the appropriate addresses. DFS will use
reasonable efforts to deliver any notice DFS is required to give to Borrower;
provided, however, that failure by DFS to actually give any such notice will not
be deemed to be a waiver of any rights or remedies of DFS and will not give rise
to any claims, defenses or damages by Borrower. The addresses for notices are
those set forth below or such other addresses as may be hereafter specified by
written notice by the parties:
to DFS: Deutsche Financial Services Corporation
1630 Des Peres Road, Suite 240
St. Louis, MO 63131
Attention: Regional Vice President
Facsimile No.: (314) 821-7751
with a copy to: Deutsche Financial Services Corporation
655 Maryville Centre Drive
St. Louis, MO 63141-5832
Attention: General Counsel
Facsimile No.: (314) 523-3228
to Borrower: Pomeroy Select Integration Solutions, Inc.
1020 Petersburg Road
Hebron, KY 41048
Attention: Stephen E. Pomeroy, Chief Financial Officer
Facsimile No.: (606) 334-5399
with a copy to: Lindhorst & Dreidame Co., L.P.A.
Suite 2300
312 Walnut Street
Cincinnati, OH 45201-4091
Attention: James H. Smith, III, Esq.
Facsimile No.: (513) 421-0212
13.9 NO THIRD PARTY BENEFICIARY RIGHTS AND RELIANCE. No Person not
a party to this Agreement will have any benefit under this Agreement nor have
third-party beneficiary rights as a result of any of the Loan Documents, nor
will any party be entitled to rely on any actions or inactions of DFS or its
agents, all of which are done for the sole benefit and protection of DFS.
13.10 PROTECTION OR PRESERVATION OF COLLATERAL. DFS will not have
any contractual duty to protect, insure, collect or realize upon the Collateral
or preserve rights in it against prior parties. DFS will not be responsible or
liable for any shortage, discrepancy, damage, loss or destruction of any part of
the Collateral regardless of the cause, excepting those arising directly from
DFS' gross negligence or willful misconduct.
13.11 RELATIONSHIP OF THE PARTIES. Neither DFS on the one hand nor
32
<PAGE>
Borrower on the other hand will be deemed a partner, joint venturer or related
entity of the other by reason of the Loan Documents.
13.12 REVERSAL OF PAYMENTS. To the extent that Borrower makes a
payment or payments to DFS, which payment or payments or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law, or equitable cause,
then to the extent of such payment or proceeds received, the Credit Facility
will be revived and continue in full force and effect, as if such payment or
proceeds had not been received by DFS.
13.13 SEVERABILITY. If any provision of this Agreement (either
generally, or as to a specific application to a set of facts) will be held to be
invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement (either
in its entirety, or as to or the application of such provision to any other set
of facts), but this Agreement will be construed as if such invalid, illegal or
unenforceable provision never had been included in this Agreement.
13.14 MAXIMUM INTEREST. Borrower acknowledges that DFS intends to
strictly conform to the applicable usury laws governing this Agreement.
Regardless of any provision contained herein or in any other document executed
or delivered in connection herewith or therewith, DFS shall never be deemed to
have contracted for, charged or be entitled to receive, collect or apply as
interest on this Agreement (whether termed interest herein or deemed to be
interest by judicial determination or operation of law), any amount in excess of
the maximum amount allowed by applicable law, and, if DFS ever receives,
collects or applies as interest any such excess, such amount which would be
excessive interest will be applied first to the reduction of the unpaid
principal balances of advances under this Agreement, and, second, any remaining
excess will be paid to Borrower. In determining whether or not the interest
paid or payable under any specific contingency exceeds the highest lawful rate,
Borrower and DFS shall, to the maximum extent permitted under applicable law:
(a) characterize any non-principal payment (other than payments which are
expressly designated as interest payments hereunder) as an expense or fee rather
than as interest; (b) exclude voluntary pre-payments and the effect thereof; and
(c) spread the total amount of interest throughout the entire term of this
Agreement so that the interest rate is uniform throughout such term.
13.15 WAIVERS BY DFS. DFS may at any time or from time to time
waive all or any rights under any of the Loan Documents, but any waiver or
indulgence at any time or from time to time will not constitute, unless
specifically so expressed by DFS in writing, a future waiver by DFS of
performance by Borrower.
13.16 SURVIVAL. The grant of security interest herein to secure all
Obligations, and all provisions relating to the Collateral will survive
termination of this Agreement and will remain in full force and effect until all
Obligations have been paid in full and this Agreement has been terminated. The
Agreement to arbitrate all Disputes will survive termination of this Agreement.
13.17 PARTICIPATIONS; ASSIGNMENTS. DFS may, without the consent of
Borrower, grant participations in or assign, at any time and from time to time
hereafter, its interest in this Agreement or any Loan Document, or of any
portion thereof.
13.18 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
33
<PAGE>
13.19 INFORMATION. DFS may provide to any third party any credit
information on Borrower that DFS may from time to time possess.
13.20 RELEASE. Borrower releases DFS from all claims and causes of
action which Borrower may now or hereafter have for any loss or damage to it
claimed to be caused by or arising from: (a) any failure of DFS to protect,
enforce or collect, in whole or in part, any Account; (b) DFS' notification to
any Account Debtors thereon of DFS' security interest in any of the Accounts;
(c) DFS' directing any Account Debtor to pay any sum owing to Borrower directly
to DFS; and (d) any other act or omission to act on the part of DFS, its
officers, agents or employees, except for willful misconduct or gross
negligence. DFS will have no obligation to preserve rights to Accounts against
prior parties.
13.21 MISCELLANEOUS. Time is of the essence regarding Borrower's
performance of its obligations to DFS notwithstanding any course of dealing or
custom on DFS' part to grant extensions of time. Borrower's liability under
this Agreement is direct and unconditional and will not be affected by the
release or nonperfection of any security interest granted hereunder. DFS will
have the right to refrain from or postpone enforcement of this Agreement or any
other Loan Documents without prejudice and the failure to strictly enforce the
Loan Documents will not be construed as having created a course of dealing
between DFS and Borrower contrary to the specific terms of the Loan Documents or
as having modified, released or waived the same. The express terms of this
Agreement and the other Loan Documents will not be modified by any course of
dealing, usage of trade, or custom of trade which may deviate from the terms
hereof. If Borrower fails to pay any taxes, fees or other obligations which may
impair DFS' interest in the Collateral, or fails to keep the Collateral insured,
DFS may, but shall not be required to, pay such taxes, fees or obligations and
pay the cost to insure the Collateral, and the amounts paid will be: (a) an
additional debt owed by Borrower to DFS, which shall be subject to finance
charges as provided herein; and (b) due and payable immediately in full.
Borrower agrees to pay all of DFS' reasonable attorneys' fees and expenses
incurred by DFS in enforcing DFS' rights hereunder.
13.22 WAIVERS BY BORROWER. Borrower irrevocably waives notice of:
DFS' acceptance of this Agreement, presentment, demand, protest, nonpayment,
nonperformance, and dishonor. Borrower and DFS irrevocably waive all rights to
claim any punitive and/or exemplary damages. Borrower waives all rights of
offset Borrower may have against DFS. Borrower waives all notices of default
and non-payment at maturity of any or all of the Accounts.
13.23 NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LEND
MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU,
(BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH
IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS
WE MAY LATER AGREE IN WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS
BETWEEN THE PARTIES. DFS may, from time to time, announce in writing to
Borrower its policies and procedures regarding its administration of this
facility including, without limit, DFS' fees and/or charges for transfers of
funds to or from Borrower, including Electronic Transfers; any subsequent use by
Borrower of this facility following any such announcement shall constitute
Borrower's acceptance of such revised policies and procedures.
13.24 SUPPLEMENT. If Borrower and DFS have heretofore executed
other agreements in connection with all or any part of the Collateral, this
Agreement shall supplement each and every other agreement previously executed by
and between Borrower and DFS, and in that event, this Agreement shall neither be
deemed a novation nor a termination of such previously executed agreement nor
34
<PAGE>
shall execution of this Agreement be deemed a satisfaction of any obligation
secured by such previously executed agreement.
13.25 USE OF COUNSEL AND RECEIPT OF AGREEMENT. Borrower
acknowledges that it has received a true and complete copy of this Agreement.
Borrower acknowledges that it has (a) had representation of counsel during
negotiation of this Agreement, and (b) read and understood this Agreement.
13.26 FACSIMILES, ETC. Notwithstanding anything herein to the
contrary: (a) DFS may rely on any facsimile copy, electronic data transmission
or electronic data storage of any statement, financial statements or other
reports, and (b) such facsimile copy, electronic data transmission or electronic
data storage will be deemed an original, and the best evidence thereof for all
purposes, including, without limitation, under this Agreement or any other Loan
Documents, and for all evidentiary purposes before any arbitrator, court or
other adjudicatory authority.
13.27 POWER OF ATTORNEY. Borrower irrevocably appoints DFS (and any
Person designated by it) as Borrower's true and lawful Attorney with full power
to at any time, in the discretion of DFS (whether or not Default has occurred)
to: (a) endorse the name of Borrower upon any of the items of payment of
proceeds of the Collateral and deposit the same in the account of DFS for
application to the Obligations; (b) sign the name of Borrower to verify the
accuracy of the Accounts; (c) sign the name of Borrower on any document or
instrument that DFS shall deem necessary or appropriate to perfect and maintain
perfected the security interests in the Collateral under this Agreement and
other Loan Documents; (d) initiate and settle any insurance claim and endorse
Borrower's name on any check, instrument or other item of payment; (e) endorse
the name of Borrower upon financing statements, instruments, Certificates of
Title and Statements of Origin pertaining to the Collateral; (f) supply omitted
information and correct errors in any documents between DFS and Borrower; and
(g) do anything to preserve and protect the Collateral and DFS' rights and
interest therein. In the event of a Default, Borrower irrevocably appoints DFS
(and any Person designated by it) as Borrower's true and lawful Attorney with
full power to at any time, in the discretion of DFS to: (i) demand payment,
enforce payment and otherwise exercise all of Borrower's rights, and remedies
with respect to the collection of any Accounts; (ii) settle, adjust, compromise,
extend or renew any Accounts; (iii) settle, adjust or compromise any legal
proceedings brought to collect any Accounts; (iv) sell or assign any Accounts
upon such terms, for such amounts and at such time or times as DFS may deem
advisable; (v) discharge and release any Accounts; (vi) prepare, file and sign
Borrower's name on any Proof of Claim in Bankruptcy or similar document against
any Account Debtor; (vii) endorse the name of Borrower upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading o similar document
or agreement relating to any Account or goods pertaining thereto; and (viii)
take control in any manner of any item of payments or proceeds and for such
purpose to notify the Postal Authorities to change the address for delivery of
mail addressed to Borrower to such address as DFS may designate. This power of
attorney is for value and coupled with an interest and is irrevocable so long as
any Obligations remain outstanding and by DFS exercising such right, DFS shall
not waive any right against Borrower until the Obligations are paid in full.
13.28 EXPENSES. Borrower agrees, whether or not any Loan is made
hereunder, to pay DFS upon demand for all reasonable expenses, including
reasonable fees of attorneys for DFS (who may be employees of DFS), incurred by
DFS in connection with the enforcement of the Borrower's obligations hereunder
or under any other Loan Document. Borrower also agrees to (i) indemnify and
hold DFS harmless from any loss or expense which may arise or be created by the
acceptance of telephonic or other instructions for making Loans, except for any
loss or expense arising from DFS' gross negligence or willful misconduct
(provided, however, that reliance alone upon telephonic or other instructions
35
<PAGE>
shall not itself be deemed to constitute gross negligence or willful
misconduct), and (ii) to pay and save DFS harmless from all liability for, any
stamp or other taxes which may be payable with respect to the execution or
delivery of this Agreement or any of the other Loan Documents. Borrower's
obligations under this SECTION 13.28 shall survive any termination of this
Agreement.
14. BINDING ARBITRATION.
14.1 ARBITRABLE CLAIMS. Except as otherwise specified below, all
actions, disputes, claims and controversies under common law, statutory law or
in equity of any type or nature whatsoever (including, without limitation, all
torts, whether regarding negligence, breach of fiduciary duty, restraint of
trade, fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, usury or any other tort, all contract
actions, whether regarding express or implied terms, such as implied covenants
of good faith, fair dealing, and the commercial reasonableness of any Collateral
disposition, or any other contract claim, all claims of deceptive trade
practices or lender liability, and all claims questioning the reasonableness or
lawfulness of any act), whether arising before or after the date of this
Agreement, and whether directly or indirectly relating to: (a) this Agreement
and/or any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (b) any previous or subsequent agreement between DFS and
Borrower; (c) any act committed by DFS or by any parent company, subsidiary or
affiliated company of DFS (the "DFS COMPANIES"), or by any employee, agent,
officer or director of a DFS Company whether or not arising within the scope and
course of employment or other contractual representation of the DFS Companies
provided that such act arises under a relationship, transaction or dealing
between DFS and Borrower; and/or (d) any other relationship, transaction or
dealing between DFS and Borrower (collectively the "DISPUTES"), will be subject
to and resolved by binding arbitration.
14.2 ADMINISTRATIVE BODY. All arbitration hereunder will be conducted by
the American Arbitration Association ("AAA"). If the AAA is dissolved,
disbanded or becomes subject to any state or federal bankruptcy or insolvency
proceeding, the parties will remain subject to binding arbitration which will be
conducted by a mutually agreeable arbitral forum. The parties agree that all
arbitrator(s) selected will be attorneys with at least five (5) years secured
transactions experience. The arbitrator(s) will decide if any inconsistency
exists between the rules of any applicable arbitral forum and the arbitration
provisions contained herein. If such inconsistency exists, the arbitration
provisions contained herein will control and supersede such rules. The site of
all arbitration proceedings will be in the Division of the Federal Judicial
District in which AAA maintains a regional office that is closest to Borrower.
14.3 DISCOVERY. Discovery permitted in any arbitration proceeding
commenced hereunder is limited as follows. No later than thirty (30) days after
the filing of a claim for arbitration, the parties will exchange detailed
statements setting forth the facts supporting the claim(s) and all defenses to
be raised during the arbitration, and a list of all exhibits and witnesses. No
later than twenty-one (21) days prior to the arbitration hearing, the parties
will exchange a final list of all exhibits and all witnesses, including any
designation of any expert witness(es) together with a summary of their
testimony; a copy of all documents and a detailed description of any property to
be introduced at the hearing. Under no circumstances will the use of
interrogatories, requests for admission, requests for the production of
documents or the taking of depositions be permitted. However, in the event of
the designation of any expert witness(es), the following will occur: (a) all
information and documents relied upon by the expert witness(es) will be
delivered to the opposing party, (b) the opposing party will be permitted to
depose the expert witness(es), (c) the opposing party will be permitted to
36
<PAGE>
designate rebuttal expert witness(es), and (d) the arbitration hearing will be
continued to the earliest possible date that enables the foregoing limited
discovery to be accomplished.
14.4 EXEMPLARY OR PUNITIVE DAMAGES. The Arbitrator(s) will not have the
authority to award exemplary or punitive damages and each party hereby
irrevocably waives any right to claim any exemplary or punitive damages.
14.5 CONFIDENTIALITY OF AWARDS. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential (except to the
extent disclosure is required by law or by any governmental agency), although
any award or order rendered by the arbitrator(s) pursuant to the terms of this
Agreement may be entered as a judgment or order in any state or federal court
and may be confirmed within the federal judicial district which includes the
residence of the party against whom such award or order was entered. This
Agreement concerns transactions involving commerce among the several states. The
Federal Arbitration Act, Title 9 U.S.C. Sections 1 et seq., as amended ("FAA")
will govern all arbitration(s) and confirmation proceedings hereunder.
14.6 PREJUDGMENT AND PROVISIONAL REMEDIES. Nothing herein will be
construed to prevent DFS' or Borrower's use of bankruptcy, receivership,
injunction, repossession, replevin, claim and delivery, sequestration, seizure,
attachment, foreclosure, dation and/or any other prejudgment or provisional
action or remedy relating to any Collateral for any current or future debt owed
by either party to the other. Any such action or remedy will not waive DFS' or
Borrower's right to compel arbitration of any Dispute.
14.7 ATTORNEYS' FEES. If either Borrower or DFS brings any other action
for judicial relief with respect to any Dispute (other than those set forth in
SECTION 14.6) the party bringing such action will be liable for and immediately
pay all of the other party's costs and expenses (including attorneys' fees)
incurred to stay or dismiss such action and remove or refer such Dispute to
arbitration. If either Borrower or DFS brings or appeals an action to vacate or
modify an arbitration award and such party does not prevail, such party will pay
all costs and expenses, including attorneys' fees, incurred by the other party
in defending such action. Additionally, if one party sues the other party or
institutes any arbitration claim or counterclaim against the other party in
which the other party prevails, the first party will pay all costs and expenses
(including attorneys' fees) incurred by the prevailing party in the course of
defending such action or proceeding.
14.8 LIMITATIONS. Any arbitration proceeding must be instituted: (a)
with respect to any Dispute for the collection of any debt owed by either party
to the other, within two (2) years after the date the last payment was received
by the instituting party; and (b) with respect to any other Dispute, within two
(2) years after the date the incident giving rise thereto occurred, whether or
not any damage was sustained or capable of ascertainment or either party knew of
such incident. Failure to institute an arbitration proceeding within such
period will constitute an absolute bar and waiver to the institution of any
proceeding, whether arbitration or a court proceeding, with respect to such
Dispute.
14.9 SURVIVAL AFTER TERMINATION. The agreement to arbitrate will survive
the termination of this Agreement.
15. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS
AGREEMENT IS FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH
RESPECT TO ANY DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE WITHOUT A JURY. BORROWER AND DFS WAIVE ANY RIGHT TO A JURY TRIAL IN ANY
SUCH PROCEEDING.
37
<PAGE>
16. GOVERNING LAW. Borrower acknowledges and agrees that this and all
other agreements between Borrower and DFS have been substantially negotiated,
and will be substantially performed, in the state of Missouri. Accordingly,
Borrower agrees that all Disputes will be governed by, and construed in
accordance with, the laws of such state, except to the extent inconsistent with
the provisions of the FAA which shall control and govern all arbitration
proceedings hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
38
<PAGE>
IN WITNESS WHEREOF, the parties have, by their duly authorized
officers, executed this Agreement as of the Effective Date.
THIS AGREEMENT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS
ATTEST: POMEROY SELECT INTEGRATION SOLUTIONS, INC.
By:________________________ By:
Secretary Print Name: _______________________________
Title:
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:
Print Name: Michael Scott
Title: Regional Vice President
1
<PAGE>
INDEX OF EXHIBITS
EXHIBIT 3.3 BORROWING BASE CERTIFICATE
EXHIBIT 5.1(a) AUTHORIZED BORROWING OFFICERS
EXHIBIT 7.1(j) PRESIDENT'S CERTIFICATE
EXHIBIT 7.1(l) SECRETARY'S CERTIFICATE OF RESOLUTION
AND INCUMBENCY
EXHIBIT 8.3 LITIGATION
EXHIBIT 8.5 LIENS
EXHIBIT 8.7 SUBSIDIARIES
EXHIBIT 8.16 CAPITAL STRUCTURE/OPTION PLANS
EXHIBIT 8.17 COLLATERAL LOCATIONS
EXHIBIT 8.18 REAL PROPERTY OWNED OR LEASED
EXHIBIT 8.20 ENVIRONMENTAL, HEALTH AND
SAFETY MATTERS
EXHIBIT 8.21 PATENTS, COPYRIGHTS, TRADEMARKS
EXHIBIT 8.23(a) CAPITALIZED LEASES
EXHIBIT 8.23(b) OPERATING LEASES
EXHIBIT 8.24 LABOR RELATIONS
EXHIBIT 9.1.10(b) BUSINESS CREDIT AND SECURITY
AGREEMENT CERTIFICATIONS
2
<PAGE>
<TABLE>
<CAPTION>
Pomeroy Computer Resources, Inc.
Exhibit 11 - Computation of Earnings Per Share
(in thousands, except per share amounts)
Quarter Ended Nine Months Ended
October 5, October 5,
---------------- ----------------
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
BASIC
Weighted average common shares
outstanding. . . . . . . . . . . . 11,505 11,744 11,450 11,709
======= ======= ======= =======
Net income . . . . . . . . . . . . $ 5,393 $ 6,532 $14,678 $17,280
======= ======= ======= =======
Net income per common share. . . . $ 0.47 $ 0.56 $ 1.28 $ 1.48
======= ======= ======= =======
DILUTED
Weighted average common shares
outstanding. . . . . . . . . . . . 11,505 11,744 11,450 11,709
Dilutive effect of stock options
outstanding during the period. . . 240 87 304 115
------- ------- ------- -------
Total common and common equivalent
shares . . . . . . . . . . . . . . 11,745 11,831 11,754 11,824
======= ======= ======= =======
Net income . . . . . . . . . . . . $ 5,393 $ 6,532 $14,678 $17,280
======= ======= ======= =======
Net income per common share. . . . $ 0.46 $ 0.55 $ 1.25 $ 1.46
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following Financial Data Schedule contains restated standard data for the
Nine Months Ended October 5, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-05-1999
<PERIOD-START> JAN-06-1998
<PERIOD-END> OCT-05-1998
<CASH> 1519
<SECURITIES> 0
<RECEIVABLES> 138816
<ALLOWANCES> 739
<INVENTORY> 40218
<CURRENT-ASSETS> 181886
<PP&E> 22208
<DEPRECIATION> 9477
<TOTAL-ASSETS> 221250
<CURRENT-LIABILITIES> 110674
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> 104937
<TOTAL-LIABILITY-AND-EQUITY> 221250
<SALES> 457831
<TOTAL-REVENUES> 457831
<CGS> 396993
<TOTAL-COSTS> 396993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2011
<INCOME-PRETAX> 23298
<INCOME-TAX> 8620
<INCOME-CONTINUING> 14678
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14678
<EPS-BASIC> 1.28
<EPS-DILUTED> 1.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following Financial Data Schedule contains standard data for the Nine Months
Ended October 5, 1999.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-05-2000
<PERIOD-START> JAN-06-1999
<PERIOD-END> OCT-05-1999
<CASH> 5386
<SECURITIES> 0
<RECEIVABLES> 209106
<ALLOWANCES> 2350
<INVENTORY> 23837
<CURRENT-ASSETS> 241855
<PP&E> 25223
<DEPRECIATION> 12229
<TOTAL-ASSETS> 299769
<CURRENT-LIABILITIES> 162087
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 132109
<TOTAL-LIABILITY-AND-EQUITY> 299769
<SALES> 547862
<TOTAL-REVENUES> 547862
<CGS> 474240
<TOTAL-COSTS> 474240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 2832
<INCOME-PRETAX> 28861
<INCOME-TAX> 11581
<INCOME-CONTINUING> 17280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17280
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.46
</TABLE>
