-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I+VlwTEbqTGwk3xEKc7cYTn3b/Qb1weJc+SgDxYaXQ1RoOE4dt0qlXQazi9Y+yJM CevBQnUj0Nttiu3O+LDYEA== 0000883979-98-000009.txt : 19980407 0000883979-98-000009.hdr.sgml : 19980407 ACCESSION NUMBER: 0000883979-98-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 30 CONFORMED PERIOD OF REPORT: 19980105 FILED AS OF DATE: 19980406 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: POMEROY COMPUTER RESOURCES INC CENTRAL INDEX KEY: 0000883979 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 311277808 STATE OF INCORPORATION: DE FISCAL YEAR END: 0105 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20022 FILM NUMBER: 98588177 BUSINESS ADDRESS: STREET 1: 1020 PETERSBURG ROAD CITY: HEBRON STATE: KY ZIP: 41048 BUSINESS PHONE: 6065860600 MAIL ADDRESS: STREET 1: 1840 AIRPORT EXCHANGE BLVD STREET 2: SUITE 240 CITY: ERLANGER STATE: KY ZIP: 41018 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 5, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-20022 POMEROY COMPUTER RESOURCES, INC. ________________________________ (Exact name of registrant as specified in its charter) DELAWARE 31-1227808 ________ __________ (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 1020 Petersburg Road, Hebron, Kentucky 41048 ______________________________________ _____ (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area (606)586-0600 code _____________ Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange ___________________ on which registered None ______________________ None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $.01 ____________________________ Title of Class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained , to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock of the Registrant held by non affiliates was $200,508,000 as of March 30, 1998. The number of shares outstanding of the Registrant's common stock as of March 30, 1998 was 11,431,876. DOCUMENTS INCORPORATED BY REFERENCE Document Part of Form 10-K Into Which ________ Portions of Documents are Incorporated ____________________________ Definitive Proxy Statement Part III for the 1998Annual Meeting of Stockholders to be Filed with the Securities and Exchange Commission prior to May 5, 1998 POMEROY COMPUTER RESOURCES, INC. FORM 10-K YEAR ENDED JANUARY 5, 1998 TABLE OF CONTENTS PART I Page ____ Item 1. Business 1 Item 2. Properties 5 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security Holders 5 PART II Item 5. Market for the Registrant's Common Stock and Related 5 Stockholder Matters Item 6. Selected Financial Data 6 Item 7. Management's Discussion and Analysis of Financial 8 Condition and Results of Operations Item 8. Financial Statements and 10 Supplementary Data Item 9. Disagreements on Accounting and Financial Disclosures 10 PART III Item 10. Directors and Executive 10 Officers of the Registrant Item 11. Executive Compensation 10 Item 12. Security Ownership of Certain Beneficial Owners 10 and Management Item 13. Certain Relationships and 10 Transactions PART IV Item 14. Exhibits, Financial Statement Schedules and 11 Reports on Form 8-K SIGNATURE Chief Executive Officer, Chief Financial Officer and 21 Chief Accounting Officer Directors 21 Independent Auditor's Report F-1 Financial Statements F-2 to F-18 Exhibits Special Cautionary Notice Regarding Forward-Looking Statements ______________________________________________________________ Certain of the matters discussed under the captions "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" may constitute forward- looking statements for purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause the actual results, performance or achievements of the Company to differ materially from the Company's expectations are disclosed in this document and in documents incorporated herein by reference, including, without limitation, those statements made in conjunction with the forward-looking statements under "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the factors discussed under "Business - Certain Business Factors." . All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by such factors. PART I ITEM 1. BUSINESS Pomeroy Computer Resources, Inc. (the "Company" ) is a Delaware Corporation organized in February 1992 to consolidate and reorganize predecessor companies. All of the predecessor companies were controlled by David B. Pomeroy, the Company's Chairman of the Board, President and Chief Executive Officer. The Company operates primarily in one industry segment -- sales and services of desktop computer products, configuration, network integration and technology support services to businesses nationwide -- and no separate industry segment information is presented. The Company offers a broad range of microcomputers and related products and provides a comprehensive selection of integration and support services including network and system design, equipment selection and procurement, complex network configuration, integration, Internet and electronic commerce services, depot repair, on-site maintenance, staffing and network management. The Company provides products and services to large and medium sized commercial, health care, governmental, financial and educational customers. The Company's strategy for building shareholder value is to provide comprehensive solutions to improve the productivity of its clients' information systems. Key elements of the Company strategy are: (1) to leverage client relationships to continue expanding higher-margin services revenues, (2) to capitalize on the trend toward build-to-order/configure-to-order systems, and (3) to expand offerings and geographic coverage through strategic acquisitions. The Company offers microcomputer products from an array of manufacturers including Compaq, Hewlett-Packard, IBM, Lexmark and Toshiba. The Company sells these products together with a broad selection of networking, integration and software products from manufacturers including 3Com, Bay Networks, Intel, Microsoft, and Novell. Services provided by the Company allow customers to outsource the selection, installation, integration and maintenance of their microcomputer systems. The Company is an authorized dealer or reseller for the products of over 35 major vendors. The Company believes that its access to major vendors enables it to offer a wide range of products to meet the diverse requirements of its customers. However, the increasing demand for microcomputers has resulted in significant product supply shortages from time to time because manufacturers have been unable to produce sufficient quantities of certain products to meet demand. The Company has in the past and expects in the future to experience some difficulty in obtaining an adequate supply of products from its major vendors which has resulted, and may continue to result, in delays in completing sales. These delays have not had, and are not anticipated to have, a material adverse effect on the Company's results of operations, although failure to obtain adequate product supply could have a material adverse effect on the Company's results of operations. The Company has entered into dealer agreements with its major vendors/manufacturers. These agreements are typically subject to periodic renewal and to termination on short notice. Substantially all of the Company's dealer agreements may be terminated by the vendor without cause upon 30 to 90 days advance notice, or immediately upon the occurrence of certain events. A vendor could also terminate an authorized dealer agreement for reasons unrelated to the Company's performance. Although the Company has never lost a major vendor/manufacturer, the loss of such a vendor/product line or the deterioration of the Company's relationship with such a vendor/manufacturer would have a material adverse effect on the Company. The Company is a participant in the IBM channel assembly program. To date, this program has not been utilized in a significant portion of the Company's shipments , but the Company expects this program to be utilized in a larger proportion of its shipments during fiscal 1998. The Company is in discussion with other major manufacturers regarding channel assembly. The objective of channel assembly programs is to achieve cost savings through lower finished goods inventory, higher inventory turns and lower price protection requirements and passing such cost savings on to the customer, minimizing the direct marketers' pricing advantage. The Company believes that being able to effectively utilize its vendors' channel assembly programs will play an important role in its competitiveness and future financial performance. The Company's sales are generated primarily by its 217 person direct sales and sales support personnel located in 20 regional offices in Kentucky, Iowa, Tennessee, Florida, Alabama, Indiana, Ohio, West Virginia, North Carolina and South Carolina. The Company's business strategy is to provide its customers with a complete package of advanced microcomputer products, high level services and support, including designing and installing systems, training system users, maintaining and repairing hardware and software and brokering used equipment. The Company believes that its ability to combine competitive pricing of microcomputer hardware and related products with higher margin sophisticated services and support allows it to compete effectively against a variety of alternative microcomputer distribution channels, including independent dealers, superstores, mail order and direct sales by manufacturers. With many businesses seeking assistance to optimize their information technology investments and control ongoing costs throughout the life cycle of technology systems, the Company is using its resources to assist customers in their decision-making, project implementation and equipment management. Most microcomputer products are sold pursuant to purchase orders. For larger procurements, the Company will enter into written contracts with customers. These contracts typically establish prices for certain equipment and services and require short delivery dates for equipment and services ordered by the customer. These contracts do not require the customer to purchase microcomputer products or services exclusively from the Company and may be terminated without cause upon 30 to 90 days' notice. Most contracts are for a term of 12 to 24 months and, in order to be renewed, may require submission of a new bid in response to the customer's request for proposal. As of January 5, 1998, the Company had been awarded contracts which it estimates will result in an aggregate of approximately $35.8 million of net sales and revenues after January 5, 1998. Of this amount, the Company estimates that $29.5 million of net sales and revenues will be generated during fiscal year 1998 and the remainder will be generated after the end of fiscal year 1998. As of January 5, 1997, the Company had been awarded contracts which it estimated would result in an aggregate of approximately $71.3 million of net sales and revenues after January 5, 1997. Of this amount, the Company estimated that $35.5 million of net sales and revenues will be generated during fiscal year 1997 and the remainder will be generated after the end of fiscal year 1997.The estimates of management could be materially less than stated as a result of factors which would cause one or more of these customers to order less product or services than is anticipated. Such factors include that the customer finds another supplier for the desired products at a lower price or on better terms, the internal business needs of the customer change causing the customer to require less or different products and services, or a significant change in technology or other industry conditions occurs which alters the customer's needs or timing of purchases. An estimate of the value of contracts awarded as of a comparable date in the preceding fiscal year is not available. For fiscal years 1995, 1996 and 1997, sales of microcomputers, peripheral products, supplies and software accounted for approximately 91.5%, 91.2% and 89.7%, respectively, of the consolidated net sales and revenues of the Company. The Company's revenues from its service and support activities have also grown over the last several years. For fiscal years 1995, 1996 and 1997, revenues from service and support activities were approximately $19.6 million, $29.6 million and $50.5 million, respectively, and accounted for approximately 8.5%, 8.8% and 10.3%, respectively, of the consolidated net sales and revenues of the Company. Competition The microcomputer products and services market is highly competitive. Distribution has evolved from manufacturers selling through direct sales forces to sales by manufacturers to aggregators (wholesalers), resellers and value-added resellers. Competition, in particular the pressure on pricing, has resulted in industry consolidation. In the future the Company may face fewer but larger and better financed competitors as a consequence of such consolidation. In response to continuing competitive pressures, including specific price pressure from the direct telemarketing and mail order distribution channels, the microcomputer distribution channel is currently undergoing segmentation into value-added resellers who emphasize advanced systems together with service and support for business networks, as compared to computer "superstores," who offer retail purchasers a relatively low cost, low service alternative and direct-mail suppliers which offer low cost and limited service. Certain superstores have expanded their marketing efforts to target segments of the Company's customer base, which could have a material adverse impact on the Company's operations and financial results. While price is an important competitive factor in the Company's business, the Company believes that its sales are principally dependent upon its service, technical expertise, reputation and experience. The Company's principal competitive strengths include: (i) quality assurance; (ii) service and technical support; (iii) lower pricing of products through alternative distribution sources; (iv) prompt delivery of products to customers; and (v) various financing alternatives. The Company competes for product sales directly with local, national and international distributors and resellers. In addition, the Company competes with microcomputer manufacturers that sell their product through their own direct sales forces and to distributors. Although the Company believes its prices and delivery terms are competitive, certain competitors offer more aggressive hardware pricing to their customers. CERTAIN BUSINESS FACTORS DEPENDENCE ON MAJOR CUSTOMERS During fiscal 1997, approximately 41.2% of the Company's total net sales and revenues were derived from its top 10 customers, including one customer which accounted for 12.3% of total net sales and revenues. This customer did not select the Company as its fiscal 1998 computer product supplier. The Company does not expect that this loss will have a near-term material impact on its financial condition or results of operations. RAPID GROWTH The Company has experienced rapid growth both internally and through acquisitions, and the Company intends to continue to pursue both types of growth opportunities as part of its business strategy. There can be no assurance that the Company will be successful in maintaining its rapid growth in the future. The Company expects that more of its future growth will result from acquisitions. In 1997, the Company completed several acquisitions and continues to evaluate expansion and acquisition opportunities that would complement its ongoing operations. There can be no assurance that the Company will be able to identify, acquire or profitably manage additional companies or successfully integrate such additional companies into the Company without substantial costs, delays or other problems. In addition, there can be no assurance that companies acquired in the future will be profitable at the time of their acquisition or will achieve levels of profitability that justify the investment therein. Acquisitions may involve a number of special risks, including, but not limited to, adverse short-term effects on the Company's reported operating results, diversion of management's attention, dependence on retaining, hiring and training key personnel, risks associated with unanticipated problems or legal liabilities and amortization of acquired intangible assets, some or all of which could have a material adverse effect on the Company's operations and financial results. VENDOR REBATES AND VOLUME DISCOUNTS The Company's profitability has been favorably affected by its ability to obtain rebates and volume discounts from manufacturers and through aggregators and distributors. Any change in the level of rebates, volume discount schedules or other marketing programs offered by manufacturers that results in the reduction or elimination of rebates or discounts currently received by the Company could have a material adverse effect on the Company's operations and financial results. In particular, a reduction or elimination of rebates related to government and educational customers could adversely affect the Company's ability to serve those customers profitably. MANUFACTURER MARKET DEVELOPMENT FUNDS Several manufacturers offer market development funds, cooperative advertising and other promotional programs to computer resellers. These funds are accounted for as a reduction in selling, general and administrative expenses, thereby increasing net income. While such programs have been available to the Company in the past, there is no assurance that these programs will be continued. Any discontinuance or material reduction of these programs could have an adverse effect on the Company's operations and financial results. MANAGEMENT INFORMATION SYSTEM The Company relies upon the accuracy and proper utilization of its management information system to provide timely distribution services, manage its inventory and track its financial information. To manage its growth, the Company is continually evaluating the adequacy of its existing systems and procedures (including Year 2000 issues) and has recently implemented a new warehouse management system and continues to integrate additional functions. The Company anticipates that it will regularly need to make capital expenditures to upgrade and modify its management information system, including software and hardware, as the Company grows and the needs of its business change. There can be no assurance that the Company will anticipate all of the demands which its expanding operations will place on its management information system. The occurrence of a significant system failure or the Company's failure to expand or successfully implement its systems could have a material adverse effect on the Company's operations and financial results. DEPENDENCE ON TECHNICAL EMPLOYEES The success of the Company's services business, in particular its network and integration services, depends in large part upon the Company's ability to attract and retain highly skilled technical employees in competitive labor markets. There can be no assurance that the Company will be able to attract and retain sufficient numbers of skilled technical employees. The loss of a significant number of the Company's existing technical personnel or difficulty in hiring or retaining technical personnel in the future could have a material adverse effect on the Company's operations and financial results. INVENTORY MANAGEMENT The PC industry is characterized by rapid product improvement and technological change resulting in relatively short product life cycles and rapid product obsolescence. While most of the inventory stocked by the Company is for specific customer orders, inventory devaluation or obsolescence could have a material adverse effect on the Company's operations and financial results. Current industry practice among manufacturers is to provide price protection intended to reduce the risk of inventory devaluation, although such policies are subject to change at any time and there can be no assurance that such price protection will be available to the Company in the future. Many manufacturers have announced plans to reduce the number of days for which they will provide price protection. Also, the Company currently has the option of returning inventory to certain manufacturers and distributors, subject to certain limitations. The amount of inventory that can be returned to manufacturers without a restocking fee varies under the Company's agreements and such return policies may provide only limited protection against excess inventory. There can be no assurance that new product developments will not have a material adverse effect on the value of the Company's inventory or that the Company will successfully manage its existing and future inventory. In addition, the Company stocks parts inventory for its services business. Parts inventory is more likely to experience a decrease in valuation as a result of technological change and obsolescence and there are no price protection practices offered by manufacturers with respect to parts. DEPENDENCE ON KEY PERSONNEL The success of the Company is dependent on the services of David B. Pomeroy,II, its Chairman of the Board, President and Chief Executive Officer and other key personnel. The Company maintains $1.0 million in key man life insurance insuring the life of Mr. Pomeroy. The loss of the services of Mr. Pomeroy or other key personnel could have a material adverse effect on the Company's business. The Company has entered into employment agreements with certain of its key personnel, including Mr. Pomeroy. The Company's success and plans for future growth will also depend on its ability to attract and retain highly skilled personnel in all areas of its business. Employees As of January 5, 1998 the Company had 1,287 full-time employees consisting of the following: 685 service and technical personnel including 180 systems engineers; 217 direct sales representatives and sales support personnel; 63 management personnel; and 322 administrative and distribution personnel. The Company has no collective bargaining agreements and believes its relations with its employees are good. Backlog The Company does not have a significant backlog of business since it normally delivers and installs products purchased by its customers within 10 days from the date of order. Accordingly, backlog is not material to the Company's business or indicative of future sales. From time to time, the Company experiences difficulty in obtaining products from its major vendors as a result of general industry conditions. These delays have not had, and they are not anticipated to have, a material adverse effect on the Company's results of operations. Patents and Trademarks The Company owns no trademarks or patents. Although the Company's various dealer agreements do not generally allow the Company to use the trademarks and trade names of these various manufacturers, the agreements do permit the Company to refer to itself as an "authorized dealer" of the products of those manufacturers and to use their trademarks and trade names for marketing purposes. The Company considers the use of these trademarks and trade names in its marketing efforts to be important to its business. Acquisitions Acquisitions have contributed significantly to the Company's growth. The Company believes that acquisitions are one method of increasing its presence in existing markets, expanding into new geographic markets, adding experienced service personnel, gaining new product offerings and services, obtaining more competitive pricing as a result of increased purchasing volumes of particular products and improving operating efficiencies through economies of scale. In recent years, there has been consolidation among providers of microcomputer products and services and the Company believes that this consolidation will continue, which, in turn, may present additional opportunities for the Company to grow through acquisitions. The Company continually seeks to identify and evaluate potential acquisition candidates. The Company is currently engaged in preliminary discussions with potential acquisition candidates. Although it has no binding commitments to acquire such candidates, management believes that the Company may acquire one or more of these candidates in the future. During fiscal 1997, the Company completed several acquisitions. The total consideration given consisted of $3.7 million in cash, subordinated notes of $1.3 million and 37 thousand unregistered shares of the Company's common stock with an approximate value of $1.0 million. Interest on the subordinated notes is payable quarterly. Principal is payable in equal annual installments. ITEM 2. Properties The Company's principal executive offices and distribution facility are located in Hebron, Kentucky, comprised of approximately 36,000 and 161,000 square feet of space, respectively. These facilities are leased from Pomeroy Investments, LLC ( "Pomeroy Investments" ), a Kentucky limited liability company controlled by David B. Pomeroy, II, Chief Executive Officer of the Company, under a ten year triple-net lease agreement which expires in May 2006. The lease agreement provides for 2 five year renewal options. The Company expanded the distribution facility by 70,000 square feet in 1997 to include a new depot repair facility. Pomeroy Investments financed, purchased and owns the land and improvements necessary which accommodate the new depot repair facility. The Company leases the additional space from Pomeroy Investments at an annual lease rate no less favorable to the Company than can be obtained from unaffiliated third parties. The Company also has noncancelable operating leases for its regional offices, expiring at various dates between 1997 and 2006. The Company believes there will be no difficulty in negotiating the renewal of its real property leases as they expire or in finding other satisfactory space. In the opinion of management, the properties are in good condition and repair and are adequate for the particular operations for which they are used. The Company does not own any real property. ITEM 3. Legal Proceedings There are various legal actions arising in the normal course of business that have been brought against the Company. Management believes these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. ITEM 4. Submission of Matters to a Vote of Security Holders None PART II ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters The following table sets forth, for the periods indicated, the high and low sales price for the Common Stock for the quarters indicated as reported on the NASDAQ National Market. The following prices have been adjusted to reflect the three-for-two stock splits in the form of a stock dividend effected on October 4, 1996 and October 6, 1997, respectively. 1996 1997 _________________ ____________________ High Low High Low First quarter $7.00 $5.33 $25.33 $12.1 Second quarter $7.56 $5.67 $19.17 $12.5 Third quarter $14.67 $6.11 $29.17 $16.6 Fourth quarter $25.33 $13.58 $31.25 $14.0 As of March 30, 1998, there were approximately 289 holders of record of the Company's common stock. Dividends _________ The Company has not paid any cash dividends since its organization and the completion of its initial public offering. The Company has no plans to pay cash dividends in the foreseeable future, and the payment of such dividends are precluded under the Company's current borrowing agreement. SELECTED FINANCIAL DATA (In Thousands Except Per Share Data For the Fiscal Years Ended January _____________________________________________ 1994 1995(1) 1996 1997(2) 1998(3) Consolidated Statement of Income Data: Net sales and revenues $112,178 $144,575 $230,710 $336,358 $491,448 Cost of sales and service 94,151 120,901 197,174 281,753 410,063 ________ ________ ________ ________ ________ Gross profit 18,027 23,674 33,536 54,605 81,385 Operating expenses: Selling, general and administrative 12,969 17,231 23,247 35,175 50,597 Royalty expense 605 - - - - Depreciation and amortization 400 886 1,004 2,561 3,940 ________ ________ ________ ________ ________ Total operating expenses 13,974 18,117 24,251 37,736 54,537 Income from operations 4,053 5,557 9,285 16,869 26,848 Other expense (income): Interest expense 850 1,031 1,999 2,170 974 Litigation settlement and related costs - - - 4,392 - Miscellaneous (57) (57) (64) (221) 54 ________ ________ ________ ________ ________ Total other expense 793 974 1,935 6,341 1,028 Income before income taxes 3,260 4,583 7,350 10,528 25,820 Income tax expense 1,360 1,856 2,983 4,296 9,507 ________ ________ ________ ________ ________ Net income $1,900 $2,727 $4,367 $6,232 $16,313 Earnings per common share (diluted)(5) $0.35 $0.50 $0.73 $0.77 $1.44 Consolidated Balance Sheet Data: Working capital $6,339 $6,556 $10,340 $27,203 $63,028 Long-term debt, net of current maturities - 167 100 2,189 1,434 Equity 10,594 13,130 19,200 46,593 88,777 Total assets 34,086 57,061 63,985 121,380 167,264 (1) During fiscal 1994 the Company acquired the outstanding stock of Xenas Communications Corp. (2) In March 1996 and October 1996, the Company acquired the assets of TCSS and DILAN, respectively. See Note 12 of Notes to Consolidated Financial Statements. (3) In 1997 the Company acquired Magic Box, Micro Care and The Computer Store. See Note 12 of Notes to Consolidated Financial Statements. (4) Fiscal year 1996 reflects the Vanstar litigation settlement and related costs of $4,392. Without this charge, net income would have been $8,845 and diluted earnings per common share would have been $1.09. (5) Earnings per common share are calculated using weighted average shares outstanding adjusted for the three-for-two stock split in the form of a stock dividend effective on October 6, 1997. QUARTERLY RESULTS OF OPERATIONS (in thousands, except per share da The following table sets forth certain unaudited operating results This information is unaudited, but in the opinion of management in consisting of normal recurring adjustments, necessary for a fair p operations of such periods. Fiscal 1997(1) __________________________________________ First Second Third Fourth Quarter Quarter(2) Quarter(3) Quarter __________ _________ _________ _________ Net sales and revenues $ 100,366 $ 118,218 $ 130,729 $ 142,135 Gross profit 16,904 19,135 21,533 23,813 Net income $ 2,958 $ 3,969 $ 4,540 $ 4,846 Earnings per common share: Basic $ 0.29 $ 0.35 $ 0.40 $ 0.43 Diluted $ 0.28 $ 0.34 $ 0.39 $ 0.41 Fiscal 1996(1) __________________________________________ First Second Third Fourth Quarter(5) Quarter Quarter Quarter(6) __________ _________ _________ _________ Net sales and revenues $ 63,224 $ 77,836 $ 92,975 $ 102,323 Gross profit 9,600 12,846 14,667 17,492 Net income(loss) $ (1,355) $ 1,853 2,619 $ 3,115 Earnings(loss) per common share: Basic $ (0.23) $ 0.30 $ 0.28 $ 0.32 Diluted $ (0.22) $ 0.28 $ 0.27 $ 0.31 (1) All per share amounts have been restated to reflect the stock split effected as a stock dividend in the fourth quarter of 1997 and the adoption of SFAS No. 128. (2) During the second quarter of fiscal 1997 the Company acquired substantially all of the assets of Magic Box. See Note 12 of Notes to Consolidated Financial Statements. (3) During the third quarter of fiscal 1997 the Company acquired certain assets of Micro Care. See Note 12 of Notes to Consolidated Financial Statements. (4) During the fourth quarter of fiscal 1997 the Company acquired CSI. See Note 12 of Notes to Consolidated Financial Statements. (5) During the first quarter of fiscal 1996, the Company acquired certain assets of TCSS. See Note 12 of Notes to Consolidated Financial Statements. The first quarter of 1996 also includes the effect of the Vanstar litigation settlement and related costs of $4.4 million. Without this charge, net income would have been $1.3 million and earnings per common share would have been $0.21. (6) During the fourth quarter of fiscal 1996, the Company acquired certain assets of DILAN. See Note 12 of Notes to Consolidated Financial Statements. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996 Total Net Sales and Revenues. Total net sales and revenues increased $155.0 million, or 46.1%, to $491.4 million in fiscal 1997 from $336.4 million in fiscal 1996. This increase was attributable to an increase in sales to existing and new customers and to acquisitions completed in fiscal years 1997 and 1996. Excluding acquisitions completed in fiscal years 1997 and 1996, total net sales and revenues increased 35.8%. Sales of equipment and supplies increased $134.2 million, or 43.8%, to $440.9 million in fiscal 1997 from $306.7 million in fiscal 1996. On a comparable basis, as described above, sales of equipment and supplies increased 33.9%. Service and other revenues increased $20.8 million, or 70.0%, to $50.5 million in fiscal 1997 from $29.7 million in fiscal 1996. On a comparable basis, as described above, service revenues increased 55.3%. Gross Profit. Gross profit margin was 16.6% in fiscal 1997 compared to 16.2% in fiscal 1996. The Company improved its gross margin by increasing the volume of higher-margin service revenues which offset a decrease in hardware gross margins and the growth in equipment sales. Service and other revenues increased to 10.3% of total net sales and revenues in fiscal 1997 compared to 8.8% of total net sales and revenues in fiscal 1996. Factors that may have an impact on gross margin in the future include the percentage of equipment sales with lower-margin customers and the ratio of service revenues to total net sales and revenues. Operating Expenses. Selling, general and administrative expenses (including rent expense and provision for doubtful accounts) expressed as a percentage of total net sales and revenues decreased to 10.3% in fiscal 1997 from 10.5% for fiscal 1996. This decrease is primarily attributable to the increased productivity of technical personnel which contributed to the growth of the Company's service business. Total operating expenses expressed as a percentage of total net sales and revenues decreased to 11.1% in fiscal 1997 from 11.2% in fiscal 1996 due to the factor described above. Income from Operations. Income from operations increased $9.9 million, or 58.6 %, to $26.8 million in fiscal 1997 from $16.9 million in fiscal 1996. The Company's operating margin increased to 5.5% in fiscal 1997 from 5.0% in fiscal 1996 because of the increase in gross margin and the decrease in operating expenses as a percentage of total net sales and revenues. Interest Expense. Total interest expense was $1.0 million in fiscal 1997 compared with $2.2 million in fiscal 1996. This decrease is primarily related to lower average borrowings during fiscal 1997 as a result of the secondary public offering in February 1997. Income Taxes. The Company's effective tax rate was 36.8% in fiscal 1997 compared to 40.8% in fiscal 1996. This reduction is the result of Kentucky state income tax credits earned in fiscal 1997. Net Income. Net income increased $10.1 million, or 162.9%, to $16.3 million in fiscal 1997 from $6.2 million in fiscal 1996. The increase was a result of the factors described above. Net income, excluding the impact of the Vanstar settlement in fiscal 1996, increased $7.5 million, or 85.2%, in fiscal 1997 compared with $8.8 million in fiscal 1996. FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995 Total Net Sales and Revenues. Total net sales and revenues increased $105.7 million, or 45.8%, to $336.4 million in fiscal 1996 from $230.7 million in fiscal 1995. This increase was attributable to the acquisitions in fiscal 1996 and increased sales to existing and new customers. Excluding acquisitions completed in fiscal 1996, total net sales and revenues increased 14.9%. Sales of equipment and supplies increased $95.6 million, or 45.3%, to $306.7 million in fiscal 1996 from $211.1 million in fiscal 1995. On a comparable basis, as described above, sales of equipment and supplies increased 12.7%. Service and other revenues increased $10.0 million, or 51.0%, to $29.6 million in fiscal 1997 from $19.6 million in fiscal 1996. On a comparable basis, as described above, service revenues increased 39.6%. Gross Profit. Gross profit margin was 16.2% in fiscal 1996 compared to 14.5% in fiscal 1995. This increase was primarily attributable to a lesser number of lower margin, high volume equipment roll-outs, larger vendor rebates and the increase in higher margin service revenues. Vendor rebates increased $3.7 million, or 78.9%, to $8.4 million in fiscal 1996 from $4.7 million in fiscal 1995. Provided there are no changes in rebate programs, the level of vendor rebates is expected to continue into fiscal 1997 as volume purchases with major manufacturers continue to increase. Operating Expenses. Selling, general and administrative expenses (including rent expense and provision for doubtful accounts) expressed as a percentage of total net sales and revenues increased to 10.5% in fiscal 1996 from 10.1% for fiscal 1995. This increase is primarily attributable to the addition of technical personnel as a result of the growth of the Company's service business. As the personnel reach full productivity, their costs as a percentage of services revenues are expected to decrease. In addition, market development funds, which reduce selling, general and administrative expenses, have declined as a percentage of total net sales and revenues during fiscal 1996 to 1.0% from 1.3% in fiscal 1995 primarily as a result of vendors shifting funds to rebates. Total operating expenses expressed as a percentage of total net sales and revenues increased to 11.2% in fiscal 1996 from 10.5% in fiscal 1995 due to the reduction of market development funds and the increase in depreciation related to the new headquarters and distribution facilities and amortization of goodwill related to the acquisitions of TCSS and DILAN. Income from Operations. Income from operations increased $7.6 million, or 81.7 %, to $16.9 million in fiscal 1996 from $9.3 million in fiscal 1995. The Company's operating margin increased to 5.0% in fiscal 1996 from 4.0% in fiscal 1995 because the increase in gross margin more than offset the increase in operating expenses as a percentage of total net sales and revenues. Interest Expense. Total interest expense was $2.2 million in fiscal 1996 compared with $2.0 million in fiscal 1995. Income Taxes. The Company's effective tax rate was 40.8% in fiscal 1996 compared to 40.6% in fiscal 1995. Litigation Settlement and Related Costs. On April 29, 1996, the Company agreed to a settlement of the litigation with Vanstar. The settlement of $3.3 million consisted of a payment made by the Company to Vanstar of $1.65 million in cash and a $1.65 million note which was paid on August 27, 1996. The settlement agreement also provided for mutual forgiveness of any and all claims or obligations of the parties, resulting in a write-off of $0.5 million of receivables from Vanstar and additional expenses of $0.5 million for costs related to the litigation. Net Income. Net income increased $1.8 million, or 42.7%, to $6.2 million in fiscal 1996 from $4.4 million in fiscal 1995. The increase was a result of the factors described above. Excluding the impact of the Vanstar settlement, net income in fiscal 1996 would have been $8.8 million, an increase of 102.2% over the comparable period in 1995. Liquidity and Capital Resources _______________________________ Cash used in operating activities was $22.9 million in fiscal 1997. Cash used in investing activities included $3.5 million for acquisitions and $2.4 million for capital expenditures. Cash provided by financing activities included $23.3 million of net proceeds from a stock offering, $1.5 million from the exercise of stock options less $1.5 million of net payments on bank notes payable and $0.8 million of repayments on various notes payable. A significant part of the Company's inventories is financed by floor plan arrangements with third parties. At January 5, 1998, these lines of credit totaled $47.0 million, including $12.0 million with IBM Credit Corporation ( "ICC") and $35.0 million with Deutsche Financial Services ( "DFS"). Borrowings under the ICC floor plan arrangement are made on sixty day notes, with one-half of the note amount due in thirty days. Borrowings under the DFS floor plan arrangement are made on thirty day notes. All such borrowings are secured by the related inventory. Financing on substantially all of the arrangements is interest free due to subsidies by manufacturers. The average rate on the plans overall is less than 1.0%. The Company classifies amounts outstanding under the floor plan arrangements as accounts payable. The Company's financing of receivables is provided through its Credit Facility, which during fiscal 1997 permited the Company to borrow up to the lesser of $20.0 million or an amount based upon a formula of eligible trade receivables. The Credit Facility carries a variable interest rate based on (i) Star Bank's prime rate less the Incentive Pricing Spread or (ii) LIBOR plus the Incentive Pricing Spread, at the Company's election. The Incentive Pricing Spread is adjusted quarterly. At January 5, 1998, the amount outstanding was $22.6 million, including $6.5 million of overdrafts on the Company's books in accounts at Star Bank, which was at an interest rate of 7.5%. The overdrafts were subsequently funded through the normal course of business. The Credit Facility is collateralized by substantially all of the assets of the Company, except those assets that collateralize certain other financing arrangements. Under the terms of the Credit Facility, the Company is prohibited from paying any cash dividends and is subject to various financial covenants. In January 1998 the Company revised its Credit Facility to borrow up to $40.0 million. The revised Credit Facility, which expires May 31, 1998, carries a variable interest rate based solely on the prime rate of Star Bank less 125 basis points. Further, the Company is in the process of finalizing a $ 120.0 million line of credit, under terms similar to the revised Credit Facility, with DFS and Star Bank is expected to have a participation interest in the new Credit Facility. When finalized this line of credit will replace the $40.0 million Credit Facility. At the beginning of the third quarter of 1997, the Company hired a president for Technology Integration Financial Services, Inc. ( "TIFS"), a wholly-owned subsidiary of the Company (f/k/a Pomeroy Computer Leasing Company, Inc.), in an effort to increase its leasing business. Through TIFS, the Company can directly provide its customers with leasing alternatives. Increased leasing operations could impact one or more of total net sales and revenues, gross margin, operating income, net income, total debt and liquidity, depending on the amount of leasing activity and the types of leasing transactions. However, the impact of any increased leasing operations for fiscal 1997 was not material. On November 5, 1997, TIFS executed a $20.0 million collateral based recourse loan facility ( "Recourse Facility" ) with The Fifth Third Bank of Northern Kentucky, Inc. ( "Fifth Third" ). The loan, which is guaranteed by the Company, will be used to fund all lease transactions financed on a recourse basis and will expire on October 1, 1998. The Recourse Facility will carry a variable interest rate based on (i) Fifth Third's prime rate less an incentive pricing spread (the "Incentive Pricing Spread" ) or (ii) Treasury notes plus the Incentive Pricing Spread, at the Company's election. The Company completed a secondary public offering of its stock on February 28, 1997. Net proceeds to the Company were approximately $23.3 million from the issuance of 1.02 million shares of common stock. The proceeds were used to reduce amounts outstanding under its line of credit. The Company believes that the anticipated cash flow from operations and current financing arrangements will be sufficient to satisfy the Company's capital requirements for the next twelve months. Historically, the Company has financed acquisitions using a combination of cash, shares of its Common Stock and seller financing. The Company anticipates that any future acquisitions will be financed in a similar manner. OTHER The Company is heavily dependent upon complex computer systems for all phases of its operations, which include sales and distribution. The Company began addressing the affect of the Year 2000 compliance issue in 1996.The Year 2000 date issue arises from the fact that many computer programs use only two digits to identify a year in a date field. The Company has completed an assessment of its own systems and determined that its principle systems are Year 2000 compliant. Management does not expect that any costs associated with the Company becoming Year 2000 compliant will have a material adverse impact on the Company's financial position, results of operations or cash flows. The Company is continuing to assess the Year 2000 issue with respect to its customers and suppliers. The Company could be adversely impacted by the Year 2000 date issue if its suppliers, customers and other businesses do not address this issue successfully. Management continues to assess these risks in order to be able to respond in a manner which would reduce any impact on the Company. Item 8. Financial Statements and Supplementary Data Registrant hereby incorporates the financial information required by this item by reference to Item 14 hereof. Item 9. Disagreements on Accounting and Financial Disclosure None PART III Items 10-13. The Registrant hereby incorporates the information required by Form 10-K, Items 10-13 by reference to the Company's definitive proxy statement for its 1998 Annual Meeting of shareholders which will be filed with the Commission prior to May 5, 1998. PART IV Item. 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - Index (a) The following documents are filed as a part of this report: 1997 Form 10-K Page _________ 1. Financial Statements: Independent Auditor's Report F-1 Consolidated Balance Sheets, January 5, 1997 and January 5, 1998 F-2 to F-3 For each of the three fiscal years in the period ended January 5, 1998: Consolidated Statements of Income F-4 Consolidated Statements of Cash F-5 Flows Consolidated Statements of Equity F-6 Notes to Consolidated Financial F-7 to F-xx Statements 2. Financial Statement Schedules: None Filed Herewith (page #) or Incorporated by Reference to: ________________ 3. Exhibits ________ 3(a) Certificate of Incorporation Exhibit 3(a) of the Company of Company's Form S-1 filed Feb. 14, 1992 3(b) Bylaws of the Company Exhibit 3(b) of Company's Form S-1 filed Feb. 14, 1992 4 Rights Agreement between the Exhibit 4 of Company and The Fifth Third Company's Form Bank, as Rights Agent dated 8-K filed March as of February 23,1998 xx, xxxx 10(i) Material Agreements (a)(1) Loan Agreement between Star Exhibit Bank, NA and the Company 10(i)(a)(1) of dated November 19, 1992 Company's Form 10-K filed March 31, 1993 (a)(2) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(2) of December 16, 1992 by and Company's Form among Star Bank, NA, the 10-K filed March Company and C&N Corp. 31, 1993 (a)(3) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(3) of March 12, 1993 by and among Company's Form Star Bank, N.A., the Company 10-K filed April and C&N Corp. 7, 1994 (a)(4) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(4) of April 30, 1993 by and among Company's Form Star Bank, N.A., the Company 10-K filed April and C&N Corp. 7, 1994 (a)(5) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(5) of June 30, 1993 by and among Company's Form Star Bank, N.A., the Company 10-K filed April and C&N Corp. 7, 1994 (a)(6) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(6) of August 5, 1993 by and among Company's Form Star Bank, N.A., the Company 10-K filed April and C&N Corp. 7, 1994 (a)(7) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(7) of November 29, 1993 by and Company's Form among Star Bank, N.A., the 10-K filed April Company and C&N Corp. 7, 1994 (a)(8) Amendment to Loan Agreement Exhibit by Letter Agreement dated May 10(i)(a)(8) of 6, 1994 by and among Star Company's Form Bank, N.A., the Company and 10-K filed April C&N Corp. 4, 1995 (a)(9) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(9) of November 3, 1994 by and among Company's Form Star Bank, N.A., the Company 10-K filed April and C&N Corp. 4, 1995 (a)(10) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(10) of November 8, 1994 by and among Company's Form Star Bank, N.A., the Company 10-K filed April and C&N Corp. 4, 1995 (a)(11) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(11) of November 30, 1994 by and Company's Form among Star Bank, N.A., the 10-K filed April Company and C&N Corp. 4, 1995 (a)(12) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(12) of January 30, 1995 by and among Company's Form Star Bank, N.A., the Company 10-K filed April and C&N Corp. 4, 1995 (a)(13) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(13) of March 31, 1995 by and among Company's Form Star Bank, N.A., the Company, 10-Q filed May C&N Corp. and Xenas 18, 1995 Communications Corp. (a)(14) Amendment to Loan Agreement Exhibit by Letter Agreement date May 10(i)(a)(14) of 31, 1995 by and among Star Company's Form Bank, N.A., the Company, C&N 10-Q filed Corp. and Xenas August 18,1995 Communications Corp. (a)(15) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(15) of October 19,1995 by and among Company's Form Star Bank, N.A., the Company, 10-Q filed C&N Corp. and Xenas November 17, Communications Corp. 1995 (a)(16) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(16) of December 18,1995 by and among Company's Form Star Bank, N.A., the Company, 10-K filed April C&N Corp. and Xenas 4, 1996 Communications Corp. (a)(17) Amended and Restated Loan Exhibit Agreement dated March 14, 10(i)(a)(17) of 1996 by and between Star Company's Form Bank, N.A., the Company, C&N S-1 filed June Corp., Xenas Communications 4, 1996 Corp. and Pomeroy Computer Leasing Company, Inc. (a)(18) Letter Agreement and Exhibit Promissory Note dated June 10(i)(a)(18) of 12, 1996 by and among Star Company's Form Bank, N.A., the Company, C&N 10-Q filed Corp. and Xenas August 15, 1996 Communications Corp. (a)(19) Waiver Letter dated June 20, Exhibit 1996 by and among Star Bank, 10(i)(a)(19) of N.A., the Company, C&N Corp. Company's Form and Xenas Communications 10-Q filed Corp. August 15, 1996 (a)(20) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(20) of June 21, 1996 by and among Company's Form Star Bank, N.A., the Company, 10-Q filed C&N Corp. and Xenas August 15, 1996 Communications Corp. (a)(21) Amendment to Loan Agreement Exhibit 10.1 of by Letter Agreement dated Company's Form June 27, 1996 by and among S-3 filed Star Bank, N.A., the Company, January 3, 1997 C&N Corp. and Xenas Communications Corp. (a)(22) Amendment to Loan Agreement Exhibit by Letter Agreement dated 10(i)(a)(22) of October 18, 1996 by and among Company's Form Star Bank, N.A., the Company, 10-Q filed C&N Corp. and Xenas November 19, Communications Corp. 1996 (a)(23) Amendment to Loan Agreement Exhibit 10.2 of by Letter Agreement dated Company's Form December 20, 1996 by and S-3 filed among Star Bank, N.A., the January 3, 1997 Company, C&N Corp., Xenas Communications Corp. and Pomeroy Computer Leasing Company, Inc. (a)(24) Promissory Note dated April Exhibit 30, 1997 by and among Star 10(i)(a)(24) of Bank, N.A., the Company, Company's Form Pomeroy Computer Leasing 10-Q filed Company, Inc. and Xenas August 11, 1997 Communications Corp. (b)(1) Agreement for Wholesale Exhibit Financing (Security 10(i)(b)(1) of Agreement) between IBM Credit Company's Form Corporation and the Company 10-K filed April dated April 2, 1992 7, 1994 (b)(2) Addendum to Agreement for Exhibit Wholesale Financing between 10(i)(b)(2) of IBM Credit Corporation and Company's Form the Company dated July 7, 10-K filed April 1993 7, 1994 (c)(1) Agreement for Wholesale Exhibit Financing (Security 10(i)(c)(1) of Agreement) between ITT Company's Form Commercial Finance 10-K filed April Corporation and the Company 7, 1994 dated March 27, 1992 (c)(2) Addendum to Agreement for Exhibit Wholesale Financing between 10(i)(c)(2) of ITT Commercial Finance Company's Form Corporation and the Company 10-K filed April dated July 7, 1993 7, 1994 (c)(3) Amendment to Agreement for Exhibit Wholesale Financing between 10(i)(c)(3) of Deutsche Financial Services Company's Form f/k/a ITT Commercial Finance 10-Q filed May Corporation and the Company 18, 1995 dated May 5, 1995. (d)(1) Asset Purchase Agreement Exhibit 10(i)(z) among the Company; TCSS; and of Company's Richard Feaster, Victoria Form 8-K dated Feaster, Harry Feaster, March 14, 1996 Carolyn Feaster, Victoria Feaster, trustee of the Emily Patricia Feaster Trust, and Victoria Feaster, as trustee of the Nicole Ann Feaster Trust dated March 14, 1996 (d)(2) Lease between the Company and Exhibit 10.48 of TCSS dated March 15, 1996 Company's Form S-1 filed June 4, 1996 (d)(3) Lease between Arthur K. Jones Exhibit 10.49 of Trust, Firststar Bank Des Company's Form Moines, N.A., and William A. S-1 filed June Jones, Trustees, and The 4, 1996 Computer Supply Store, Inc. dated July 1, 1994 (assigned to the Company effective as of March 14, 1996) (d)(4) Registration Rights Agreement Exhibit 10.50 of between the Company and TCSS Company's Form dated March 14, 1996 S-1 filed June 4, 1996 (d)(5) Employment Agreement between Exhibit 10.51 of the Company and Richard Company's Form Feaster dated March 14, 1996 S-1 filed June 4, 1996 (d)(6) Employment Agreement between Exhibit 10.52 of the Company and Victoria Company's Form Feaster dated March 14, 1996 S-1 filed June 4, 1996 (e)(1) IBM Agreement for Authorized Exhibit Dealers 10(i)(e)(1) and Industry Remarketers with of Company's the Company, dated September 3, Form S-1 filed 1991 Feb. 14, 1992 (e)(2) Schedule of Substantially Exhibit 10(i)(e)(2) Identical IBM Agreements for of Company's Authorized Dealers and Form S-1 filed Industry Remarketers Feb. 14, 1992 (f) Compaq Computer Corporation Exhibit 10(i)(f) United States Dealer Agreement with of Company's the Company, dated September 27, Form S-1 filed 1990 Feb. 14, 1992 (g) Dealer Sales Agreement Exhibit 10(i)(g) between Apple Computer, Inc. and the of Company's Company, dated April 1, 1991 Form S-1 filed Feb. 14, 1992 (h) Lease between Sydney A. Warm Exhibit 10(i)(h) and the Company for 1021 West Eighth of Company's Street, Cincinnati, OH, dated May Form S-1 filed 15, 1990 Feb. 14, 1992 (i) Lease between F.G.&H. Exhibit 10(i)(i) Partnership and the Company for 908 of Company's DuPont Road, Louisville, KY, dated May 9, Form S-1 filed 1990 Feb. 14, 1992 (j)(1) Purchase Agreement between Exhibit 10.86 of the Company and First of Company's Form Michigan Corporation dated S-1 filed June March 28, 1996 4, 1996 (j)(2) Purchase Agreement between Exhibit 10.87 of the Company and John C. Company's Form Donnelly dated March 28, 1996 S-1 filed June 4, 1996 (j)(3) Purchase Agreement between Exhibit 10.88 of the Company and Dan B. French Company's Form dated March 28, 1996 S-1 filed June 4, 1996 (j)(4) Purchase Agreement between Exhibit 10.89 of the Company and James C. Company's Form Penman dated March 28, 1996 S-1 filed June 4, 1996 (k)(1) Lease between Industrial Exhibit Developments International, 10(i)(k)(1) of Inc., and the Company for Company's Form 1840 Airport Exchange Blvd., 10-K filed March Suite 240, Erlanger, KY dated 31, 1993 November 2, 1992 (k)(2) Amendment to lease between Exhibit Industrial Developments 10(i)(k)(2) of International, Inc., and the Company's Form Company for 1840 Airport 10-K filed March Exchange Blvd., Suite 240, 31, 1993 Erlanger, KY dated December 31, 1992 (k)(3) Lease between Industrial Exhibit Developments International, 10(i)(k)(3) of Inc., and the Company for Company's Form 1850 Airport Exchange Blvd., 10-K filed March Suite 600, Erlanger, KY dated 31, 1993 November 2, 1992 (k)(4) Amendment to lease between Exhibit Industrial Developments 10(i)(k)(4) of International, Inc., and the Company's Form Company for 1850 Airport 10-K filed March Exchange Blvd., Suite 600, 31, 1993 Erlanger, KY dated December 31, 1992 (l) Covenant not to Compete Exhibit between the Company and 10(i)(l)(2) of Richard C. Mills dated July Company's Form 7, 1993 10-K filed April 7, 1994 (m)(1) Asset Purchase Agreement Exhibit 10.5 of among the Company, AA Company's Form Microsystems, Inc. and Stuart S-3 filed Raburn dated August 2, 1996 January 3, 1997 (m)(2) Promissory Note dated August Exhibit 10.6 of 2, 1996 of the Company in Company's Form favor of AA Microsystems, S-3 filed Inc. January 3, 1997 (n)(1) Lease between Crown Exhibit 10(i)(n) Development Group and the of Company's Company for 3740 St. Johns Form 10-K filed Bluff Road, Suite 19, March 31, 1993 Jacksonville, FL dated September 17, 1992 (n)(2) Amendment to Lease between Exhibit Crown Development Group and 10(i)(n(2 of the Company for 3740 St. Company's Form Johns Bluff Road, Suite 19, 10-K filed April Jacksonville, FL dated 4, 1996 December 11, 1995 (o) Lease between Lincoln Exhibit 10(i)(o) National Investment of Company's Management Company and the Form 10-K filed Company for Suite 150F in the March 31, 1993 Terraces on Market Place Blvd., Knoxville, TN dated September 30, 1992 (p)(1) Remarketing and Agency Exhibit Agreement (the "Remarketing 10(i)(p)(1) of Agreement") between Company's Form Information Leasing S-1 filed Feb. Corporation and the Company 14, 1992 dated January 7, 1990 (p)(2) Amendment No. 1 to the Exhibit Remarketing Agreement dated 10(i)(p)(2) of November 12, 1991 Company's Form S-1 filed Feb. 14, 1992 (p)(3) Letter, dated February 2, Exhibit 1994, extending term of 10(i)(p)(3) of Remarketing Agreement to May Company's Form 1, 1996 10-K filed April 4, 1996 (p)(4) Amendment No. 2 to the Exhibit Remarketing Agreement dated 10(i)(p)(4) of October 10, 1995 Company's Form 10-K filed April 4, 1996 (q) Lease between Athens Exhibit 10(i)(q) Properties and the Company of Company's for Crosspark Drive, Form 10-K filed Knoxville, TN dated October April 4, 1996 31, 1995 (r)(1) Asset Purchase Agreement Exhibit 10.7 of among the Company, Company's Form Communications Technology, S-3 filed Inc. d/b/a DILAN and Robert January 3, 1997 Martin dated October 11, 1996 (r)(2) Subordinated Promissory Note Exhibit 10.8 of dated October 11, 1996 of the Company's Form Company in favor of S-3 filed Communications Technology, January 3, 1997 Inc. (r)(3) Subordination Agreement among Exhibit 10.9 of the Company, Communications Company's Form Technology, Inc. and Star S-3 filed Bank, N.A. dated October 11, January 3, 1997 1996 (s) Services Agreement between Exhibit 10.13 of the Company and Nationwide Company's Form Mutual Insurance and the S-3 filed Company dated December 11, January 3, 1997 1996 (t1) Asset Purchase Agreement Exhibit among the Company and Magic 10(i)(t)(1) of Box, Inc. dared June 26, 1997 Company's Form 10-Q filed August 11, 1997 (t)(2) Employment Agreement between Exhibit the Company and Israel Fintz, 10(i)(t)(2) of dated June 26, 1997 Company's Form 10-Q filed August 11, 1997 (t)(3) Incentive Deferred Exhibit Compensation Agreement 10(i)(t)(3) of between the Company and Company's Form Israel Fintz, dated June 26, 10-Q filed 1997 August 11, 1997 (t)(4) Employment Agreement between Exhibit the Company and Allison 10(i)(t)(4) of Sokol, dated June 26, 1997 Company's Form 10-Q filed August 11, 1997 (t)(5) Incentive Deferred Exhibit Compensation Agreement 10(i)(t)(5) of between the Company and Company's Form Allison Sokol, dated June 26, 10-Q filed 1997 August 11, 1997 (t)(6) Power of Attorney given to Exhibit the Company by Magic Box, 10(i)(t)(6) of Inc. for the collection of Company's Form Accounts Receivable, dated 10-Q filed June 26, 1997 August 11, 1997 (t)(7) Agreement for the Assumption Exhibit of Liabilities between the 10(i)(t)(7) of Company and Magic Box, Inc. Company's Form 10-Q filed August 11, 1997 (t)(8) Subordination Agreement by Exhibit and among the Company, Magic 10(i)(t)(8) of Box, Inc. and Star Bank, Company's Form N.A., dated June 26, 1997 10-Q filed August 11, 1997 (t)(9) Subordinated Promissory Note Exhibit between the Company and 10(i)(t)(9) of Israel Fintz, dated June 26, Company's Form 1997 10-Q filed August 11, 1997 (t)(10) Subordinated Promissory Note Exhibit between the Company and 10(i)(t)(10) of Allison Sokol, dated June 26, Company's Form 1997 10-Q filed August 11, 1997 (t)(11) Subordinated Promissory Note Exhibit between the Company and 10(i)(t)(11) of Marvin Rosen, dated June 26, Company's Form 1997 10-Q filed August 11, 1997 (t)(12) Subordinated Promissory Note Exhibit between the Company and M. 10(i)(t)(12) of Ronald Krongold, dated June Company's Form 26, 1997 10-Q filed August 11, 1997 (t)(13) General Bill of Sale between Exhibit the Company and Magic Box, 10(i)(t)(13) of Inc., dated June 26, 1997 Company's Form 10-Q filed August 11, 1997 (t)(14) Non Compete Agreement between Exhibit the Company and Israel Fintz, 10(i)(t)(14) of dated June 26, 1997 Company's Form 10-Q filed August 11, 1997 (t)(15) Non Compete Agreement between Exhibit the Company and Allison 10(i)(t)(15) of Sokol, dated June 26, 1997 Company's Form 10-Q filed August 11, 1997 (t)(16) Non Compete Agreement between Exhibit the Company and Marvin Rosen, 10(i)(t)(16) of dated June 26, 1997 Company's Form 10-Q filed August 11, 1997 (t)(17) Non Compete Agreement between Exhibit the Company and M. Ronald 10(i)(t)(17) of Krongold, dated June 26, 1997 Company's Form 10-Q filed August 11, 1997 (t)(18) Non Compete Agreement between Exhibit the Company and Magic Box, 10(i)(t)(18) of Inc., dated June 26, 1997 Company's Form 10-Q filed August 11, 1997 (u) Lease between NWI Airpark Exhibit 10(i)(u) L.P. and the Company for 717 of Company's Airpark Center Drive, Form 10-K filed Nashville, TN dated February April 4, 1995 24, 1994 (v)(1) Promissory Note dated May 30, Exhibit 1997 by and among Star Bank, 10(i)(v)(1) of N.A., the Company and Pomeroy Company's Form Computer Leasing Company, 10-Q filed Inc. August 11, 1997 (v)(2) Loan Agreement dated October E-1 to E - 53 31,1997 between The Fifth Third Bank of Northern Kentucky, Inc. and Technology Integration Financial Services, Inc. (v)(3) Guarantor Agreement dated E-54 October 31,1997 between Pomeroy Computer Resoucres, Inc and The Fifth Third Bank of Northern Kentucky, Inc. (v)(4) Addendum 1 to Guarantor E-55 to E-57 Agreement dated October 31,1997 between Pomeroy Computer Resoucres, Inc and The Fifth Third Bank of Northern Kentucky, Inc. (v)(5) Assignment Agreement between E-58 to E-60 dated October 31,1997 between The Fifth Third Bank of Northern Kentucky, Inc. and Technology Integration Financial Services, Inc. (v)(6) Incumbency and Authorization E-61 Agreement dated October 31,1997 between The Fifth Third Bank of Northern Kentucky, Inc. and Technology Integration Financial Services, Inc. (v)(7) Draw Facility Note dated E-62 to E-67 October 31,1997 between The Fifth Third Bank of Northern Kentucky, Inc. and Technology Integration Financial Services, Inc. (v)(8) Revolving Credit Note dated E-68 to E72 October 31,1997 between The Fifth Third Bank of Northern Kentucky, Inc. and Technology Integration Financial Services, Inc. (v)(9) Security Agreement dated E-73 to E-95 October 31,1997 between The Fifth Third Bank of Northern Kentucky, Inc. and Technology Integration Financial Services, Inc. (w)(1) Non Compete Agreement between Exhibit the Company and Microcare 10(i)(w)(1) of Computer Services, Inc., Company's Form dated July 24, 1997 10-Q filed November 10, 1997 (w)(2) Non Compete Agreement between Exhibit the Company and Microcare, 10(i)(w)(2) of Inc., dated July 24, 1997 Company's Form 10-Q filed November 10, 1997 (w)(3) Assignment and Assumption Exhibit Agreement between the 10(i)(w)(3) of Company, and Microcare Company's Form Computer Services, Inc., and 10-Q filed Microcare Inc., dated July November 10, 24, 1997 1997 (w)(4) Assumption of Liabilities Exhibit Agreement between the 10(i)(w)(4) of Company, and Microcare Company's Form Computer Services, Inc., and 10-Q filed Microcare Inc., dated July November 10, 24, 1997 1997 (w)(5) Non Compete Agreement between Exhibit the Company, and Robert L. 10(i)(w)(5) of Versprille, dated July 24, Company's Form 1997 10-Q filed November 10, 1997 (w)(6) Consent for Use of Similar Exhibit Name between the Company and 10(i)(w)(6) of Microcare, Inc., dated July Company's Form 24, 1997 10-Q filed November 10, 1997 (w)(7) Subordination Agreement Exhibit between the Company, and 10(i)(w)(7) of Microcare Computer Services, Company's Form Inc., and Star Bank, N.A., 10-Q filed dated July 24, 1997 November 10, 1997 (w)(8) Subordinated Promissory Note Exhibit between the Company and 10(i)(w)(8) of Microcare Computer Services, Company's Form Inc., dated July 24, 1997 10-Q filed November 10, 1997 (w)(9) Registration Rights Agreement Exhibit between the Company and 10(i)(w)(9) of Microcare Computer Services, Company's Form Inc., dated July 24, 1997 10-Q filed November 10, 1997 (w)(10) General Bill of Sale and Exhibit Assignment between the 10(i)(w)(10) of Company and Microcare Company's Form Computer Services, Inc., 10-Q filed dated July 24, 1997 November 10, 1997 (w)(11) General Bill of Sale and Exhibit Assignment between the 10(i)(w)(11) of Company and Microcare, Inc., Company's Form dated June 24, 1997 10-Q filed November 10, 1997 (w)(12) Asset Purchase Agreement Exhibit between the Company, and 10(i)(w)(12) of Microcare Computer Services, Company's Form Inc., Microcare Inc., and 10-Q filed Robert L. Versprille dated November 10, July 24, 1997 1997 (w)(13) Employment Agreement between Exhibit the Company and Robert L. 10(i)(w)(13) of Versprille, dated July 24, Company's Form 1997 10-Q filed November 10, 1997 (x) Lease between the Company and Exhibit 10(i)(x) Pomeroy Investments, LLC for of Company's buildings at Airpark Form 10-Q filed International dated September November 17, 5, 1995 1995 (y) Lease between the Company and Exhibit 10(i)(y) New England Mutual Life of Company's Insurance Company for Form 10-Q filed building at Lexington November 17, Business Center dated October 1995 4, 1995 (z)(1) Asset Purchase Agreement Exhibit between the Company and 10(i)(z)(1) of Cabling Unlimited, Inc. dated Company's Form October 13, 1995 10-K filed April 4, 1996 (z)(2) Agreement between Cabling Exhibit Unlimited, Inc. and the 10(i)(z)(2) of Company dated October 13, Company's Form 1995 10-K filed April 4, 1996 (z)(3) Agreement between Karen Exhibit Epperson and the Company 10(i)(z)(3) of dated October 13, 1995 Company's Form 10-K filed April 4, 1996 (z)(4) Employment Agreement between Exhibit Karen Epperson and the 10(i)(z)(4) of Company dated October 13, Company's Form 1995 10-K filed April 4, 1996 (z)(5) Assumption of Liabilities Exhibit between Cabling Unlimited, 10(i)(z)(5) of Inc. and the Company dated Company's Form October 13, 1995 10-K filed April 4, 1996 (aa) Lease between Gleeson, Inc. Exhibit and the Company for 115 10(i)(aa) of Wiltshire Ave., Louisville, Company's Form KY dated May 10, 1995 10-K filed April (assigned to the Company 4, 1996 effective October 13, 1995) (bb) Columbia/HCA Agreement Exhibit between Columbia/HCA 10(i)(bb) of Information Services, Inc. Company's Form and the Company dated 10-K filed April December 12, 1995 4, 1996 (cc)(1) Plan of Reorganization dated E-96 to E-137 October 17,1997 between Pomeroy Computer Resources of South Carolina and The Computer Store, Inc. (cc)(2) Plan of Merger dated October E-138 to E142 17,1997 between Pomeroy Computer Resources of South Carolina and The Computer Store, Inc. (cc)(3) Articles of Merger dated E-143 to E-145 October 17,1997 between Pomeroy Computer Resources of South Carolina and The Computer Store, Inc. (cc)(4) Employment Agreement dated E-146 to E-153 October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc. and Jeffrey F. Hipp (cc)(5) Employment Agreement dated E-154 to E-163 October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc. and Ronald D. Hildreth (cc)(6) Employment Agreement dated E-164 to E-172 October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc. and Authur M. Cox (cc)(7) Guarnaty of Employment E-173 to E-175 Agreement dated October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc. and Authur M. Cox (cc)(8) Guarnaty of Employment E-176 to E-178 Agreement dated October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc. and Ronald D. Hildreth (cc)(9) Guarnaty of Employment E-179 to E-181 Agreement dated October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc. and Jeffery F. Hipp (cc)(10)Non-Compete Agreement dated E-182 to E-186 October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc. and Authur M. Cox (cc)(11)Non-Compete Agreement dated E-187 to E-191 October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc. and Ronald D. Hildreth (cc)(12)Non-Compete Agreement dated E-192 to E-196 October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc. and Jeffrey F. Hipp (cc)(13)Investor's Certificate dated E-197 to E-199 October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc. and Jeffrey F. Hipp (cc)(14)Investor's Certificate dated E-200 to E-202 October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc. and Ronald D. Hildreth (cc)(15)Investor's Certificate dated E-203 to E-205 October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc. and Authur M. Cox (cc)(16)Escrow Agreement dated E-206 to E-212 October 17,1997 between Pomeroy Computer Resources of South Carolina, Inc., Authur M. Cox, Ronald D. Hildreth, and Jeffrey F. Hipp (cc)(17)Opinion Letter on Plan of E-213 to E-215 Merger dated October 17,1997 between Pomeroy Computer Resources of South Carolina and The Computer Store, Inc. 10(iii) Material Employee Benefit and Other Agreements (a)(1) Employment Agreement between Exhibit the Company 10(iii)(a) and David B. Pomeroy, dated of Company's March 12, 1992 Form S-1 filed Feb. 14, 1992 (a)(2) First Amendment to Employment Exhibit Agreement between the Company 10(iii)(a)(2) of and David B. Pomeroy Company's Form effective July 6, 1993 10-K filed April 7, 1994 (a)(3) Second Amendment to Exhibit Employment Agreement between 10(iii)(a)(3) of the Company and David B. Company's Form Pomeroy dated October 14, 10-K filed April 1993 7, 1994 (a)(4) Agreement between the Company Exhibit and David B. Pomeroy related 10(iii)(a)(4) of to the personal guarantee of Company's Form the Datago agreement by David 10-K filed April B. Pomeroy and his spouse 7, 1994 effective July 6, 1993 (a)(5) Third Amendment to Exhibit Employment Agreement between 10(iii)(a)(5) of the Company and David B. Company's Form Pomeroy effective January 6, 10-Q filed 1995 November 17, 1995 (a)(6) Supplemental Executive Exhibit Compensation Agreement 10(iii)(a)(6) of between the Company and David Company's Form B. Pomeroy effective January 10-Q filed 6, 1995 November 17, 1995 (a)(7) Collateral Assignment Split Exhibit Dollar Agreement between the 10(iii)(a)(7) of Company; Edwin S. Weinstein, Company's Form as Trustee; and David B. 10-Q filed Pomeroy dated June 28, 1995 November 17,1995 (a)(8) Fourth Amendment to Exhibit Employment Agreement between 10(iii)(a)(8) of the Company and David B. Company's Form Pomeroy dated December 20, 10-Q filed May 1995, effective January 6, 17, 1996 1995 (a)(9) Fifth Amendment to Exhibit Employment Agreement between 10(iii)(a)(9) of the Company and David B. Company's Form Pomeroy effective January 6, 10-Q filed May 1996 17, 1996 (a)(10) Sixth Amendment to Exhibit 10.10 of Employment Agreement between Company's Form the Company and David B. S-3 filed Pomeroy effective January 6, January 3, 1997 1997 (a)(11) Award Agreement between the Exhibit 10.11 of Company and David B. Pomeroy Company's Form effective January 6, 1997 S-3 filed January 3, 1997 (a)(12) Registration Rights Agreement Exhibit 10.12 of between the Company and David Company's Form B. Pomeroy effective January S-3 filed 6, 1997 January 3, 1997 (b) Employment Agreement between Exhibit the Company and Edwin S. 10(iii)(c) of Weinstein dated February 13, Company's Form 1992 S-1 filed Feb. 14, 1992 (c)(1) Employment Agreement between Exhibit the Company and Victor Eilau 10(iii)(c)(1) of dated July 6, 1997 Company's Form 10-Q filed August 11, 1997 (c)(2) Performance Share Right Exhibit Agreement between the Company 10(iii)(c)(2) of and Victor Eilau dated July Company's Form 6, 1997 10-Q filed August 11, 1997 (d) The Company Savings 401(k) Exhibit Plan, 10(iii)(d) effective July 1, 1991 of Company's Form S-1 filed Feb. 14, 1992 (e) The Company's Employee Stock Exhibit Ownership Plan and Trust, 10(iii)(e) of effective July 1, 1992 Company's Form 10-K filed March 31, 1993 (f) The Company's 1992 Non- Exhibit Qualified 10(iii)(f) and Incentive Stock Option of Company's Plan, dated February 13, 1992 Form S-1 filed February 14, 1992 (g) The Company's 1992 Outside Exhibit Directors 10(iii)(g) Stock Option Plan, dated of Company's February 13, 1992 Form S-1 filed Feb. 14, 1992 (h) Employment Agreement between Exhibit the Company and Richard C. 10(iii)(h) of Mills dated July 7, 1993 Company's Form 10-K filed April 7, 1994 (I) Employment Agreement between Exhibit 10.64 of the Company and James Eck Company's Form dated February 6, 1996, and S-1 filed June effective as of September 18, 4, 1996 1995 (j)(1) Employment Agreement between Exhibit 10.3 of the Company and Stephen E. Company's Form Pomeroy dated November 13, S-3 filed 1996 January 3, 1997 (j)(2) Incentive Deferred Exhibit 10.4 of Compensation Agreement Company's Form between the Company and S-3 filed Stephen E. Pomeroy dated January 3, 1997 November 13, 1996 11 Computation of Per Share E-216 Earnings 21 Subsidiaries of the Company E-217 27 Financial Data Schedule E-218 to E-219 (b) Reports on Form 8-K: None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Pomeroy Computer Resources, Inc. By: /s/ David B. Pomeroy David B. Pomeroy Chairman of the Board, President and Chief Executive Officer By: /s/ Stephen E. Pomeroy Stephen E. Pomeroy Chief Financial Officer and Chief Accounting Officer Dated: April 5, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature and Title Date ___________________ ____ By: /s/ David B. Pomery April 5, 1998 ___________________________ David B. Pomeroy, Director By: /s/ Stephen E. Pomeroy April 5, 1998 ___________________________ Stephen E. Pomeroy, Director By: /s/ James H. Smith April 5, 1998 ___________________________ James H. Smith III, Director By: ___________________________ Dr. David W. Rosenthal, Director By: ___________________________ Michael E. Rohrkemper, Director By: ___________________________ Kenneth E. Waters, Director By: /s/ Richard C. Mills April 5, 1998 ___________________________ Richard C. Mills, Director REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders Pomeroy Computer Resources, Inc. We have audited the accompanying consolidated balance sheets of Pomeroy Computer Resources, Inc. as of January 5, 1997 and 1998, and the related consolidated statements of income, equity, and cash flows for each of the three years in the period ended January 5, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pomeroy Computer Resources, Inc. at January 5, 1997 and 1998, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended January 5, 1998 in conformity with generally accepted accounting principles. Grant Thornton LLP Cincinnati, Ohio February 6, 1998, except for Note 18 as to which the date is March 6, 1998 F-1 POMEROY COMPUTER RESOURCES, INC. CONSOLIDATED BALANCE SHEETS (in thousands)
January 5, January 5, 1997 1998 __________ __________ ASSETS Current assets: Cash................................... $ 6,809 $ 380 Accounts receivable: Trade, less allowance of $372 and $355 at January 5, 1997 and 1998, respectively............... 53,374 79,531 Vendor receivables, less allowance of $137 and $223 at January 5, 1997 and 1998, respectively............... 14,411 19,575 Other................................ 309 601 __________ __________ Total receivables.............. 68,094 99,707 __________ __________ Inventories............................ 23,426 39,160 Other.................................. 739 816 __________ __________ Total current assets........... 99,068 140,063 __________ __________ Equipment and leasehold improvements: Furniture, fixtures and equipment...... 8,639 12,174 Leasehold improvements................. 4,437 5,142 __________ __________ Total.......................... 13,076 17,316 Less accumulated depreciation.......... 3,864 6,770 __________ __________ Net equipment and leasehold improvements......... 9,212 10,546 __________ __________ Investment in lease residuals............ 3,043 3,480 Goodwill and other intangible assets..... 9,435 12,697 Other assets............................. 622 478 __________ __________ Total assets................... $ 121,380 $ 167,264 ========== ========== See notes to consolidated financial statements.
F - 2 POMEROY COMPUTER RESOURCES, INC. CONSOLIDATED BALANCE SHEETS
(in thousands) January 5, January 5, 1997 1998 __________ __________ LIABILITIES AND EQUITY Current liabilities: Current portion of notes payable....... $ 907 $ 2,077 Accounts payable: Floor plan financing................. 34,609 22,818 Trade................................ 5,734 17,220 __________ __________ Total accounts payable......... 40,343 40,038 Bank notes payable..................... 24,146 22,611 Deferred revenue....................... 2,318 3,503 Accrued liabilities: Employee compensation and benefits... 2,016 2,938 Income taxes......................... 1,544 5,051 Interest............................. 147 76 Miscellaneous........................ 444 741 __________ __________ Total current liabilities...... 71,865 77,035 Notes payable............................ 2,189 1,434 Deferred income taxes.................... 733 18 Equity: Preferred stock (no shares issued or outstanding)...... - - Common stock (6,469 and 11,402 shares issued and outstanding at January 5, 1997 and 1998, respectively)........... 65 114 Paid-in capital........................ 34,402 60,226 Retained earnings...................... 12,330 28,641 __________ __________ 46,797 88,981 Less treasury stock, at cost (21 shares at January 5, 1997 and 1998, respectively).......................... 204 204 __________ __________ Total equity................... 46,593 88,777 __________ __________ Total liabilities and equity... $ 121,380 $ 167,264 ========== ========== See notes to consolidated financial statements.
F - 3 POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME Fiscal Years Ended January 5, ____________________________________ (in thousands, except per share data) 1996 1997 1998 __________ __________ __________ Net sales and revenues: Sales - equipment and supplies....... $ 211,149 $ 306,745 $ 440,983 Service.............................. 19,561 29,613 50,465 __________ __________ __________ Total net sales and revenues. 230,710 336,358 491,448 __________ __________ __________ Cost of sales and service: Equipment and supplies............... 192,839 275,272 400,059 Service.............................. 4,335 6,481 10,004 __________ __________ __________ Total cost of sales and service.................. 197,174 281,753 410,063 __________ __________ __________ Gross profit......................... 33,536 54,605 81,385 __________ __________ __________ Operating expenses: Selling, general and administrative.. 21,863 33,384 48,316 Rent expense......................... 894 1,546 1,956 Depreciation......................... 770 1,925 2,958 Amortization......................... 234 636 982 Provision for doubtful accounts...... 490 245 325 __________ __________ __________ Total operating expenses..... 24,251 37,736 54,537 __________ __________ __________ Income from operations................. 9,285 16,869 26,848 Other expense (income): Interest expense..................... 1,999 2,170 974 Litigation settlement and related costs - 4,392 - Miscellaneous........................ (64) (221) 54 __________ __________ __________ Total other expense................ 1,935 6,341 1,028 __________ __________ __________ Income before income tax............... 7,350 10,528 25,820 Income tax expense..................... 2,983 4,296 9,507 __________ __________ __________ Net income............................. $ 4,367 $ 6,232 $ 16,313 ========== ========== ========== Weighted average shares outstanding: Basic................................ 5,660 7,834 11,052 ========== ========== ========== Diluted.............................. 6,007 8,106 11,367 ========== ========== ========== Earnings per common share: Basic................................ $0.77 $0.80 $1.48 ========== ========== ========== Diluted.............................. $0.73 $0.7 7 $1.44 ========== ========== ========== See notes to consolidated financial statements.
F - 4 POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years Ended January 5, ___________________________________ (in thousands, except per share data) 1996 1997 1998 __________ __________ __________ Cash Flows from Operating Activities: Net income........................ $ 4,367 $ 6,232 $ 16,313 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation.................... 771 1,925 2,958 Amortization.................... 234 636 982 Deferred income taxes........... 258 57 (638) Net acquisition of lease residuals................. (1,294) (273) (437) Issuance of common shares for stock awards.................... 40 40 65 Changes in working capital accounts, net of effects of subsidiary company purchased: Accounts receivable........... (2,130) (24,007) (29,618) Inventories................... (1,814) (1,959) (16,369) Floor plan financing.......... (1,298) 16,932 (11,791) Trade payables................ (688) (3,949) 10,321 Deferred revenue.............. 586 (355) 1,031 Income tax payable............ 67 426 3,270 Other, net.................... 486 (591) 973 __________ __________ __________ Net operating activities........... (415) (4,886) (22,940) __________ __________ __________ Cash Flows from Investing Activities: Capital expenditures.............. (1,070) (3,459) (2,399) Payments for covenants not to compete................... (238) - - Acquisition of subsidiary companies, net of cash acquired............. (20) - (509) Acquisition of reseller assets.... (425) (9,934) (2,990) __________ __________ __________ Net investing activities.......... (1,753) (13,393) (5,898) __________ __________ __________ Cash Flows from Financing Activities: Payments on notes payable......... (305) (1,288) (843) Net proceeds of stock offering.... - 17,924 23,256 Net proceeds (payments) under bank notes payable............... 1,435 6,419 (1,535) Proceeds from exercise of stock options.................... 1,560 1,767 1,531 Retirement of stock warrants...... - (330) - __________ __________ __________ Net financing activities........ 2,690 24,492 22,409 __________ __________ __________ Increase (decrease) in cash ...... 522 6,213 (6,429) Cash: Beginning of period............. 74 596 6,809 __________ __________ __________ End of period................. $ 596 $ 6,809 $ 380 ========== ========== ========== See notes to consolidated financial statements.
F-5 POMEROY COMPUTER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF EQUITY (in thousands, except for Common Paid-in Retained Treasury Total share amounts) stock capital earnings stock equity ________ ________ ________ ________ ________ Balances at January 5, 1995.. $ 22 $ 8,158 $ 5,153 $ (204) $ 13,129 Net income........... 4,367 4,367 4,000 common shares issued for stock awards............. 40 40 5,755 common shares issued for acquisition ....... 100 100 Stock options exercised and related tax benefit............ 2 1,558 1,560 Stock dividend....... 2 3,420 (3,422) Tax benefit of costs related to initial public offering.... 3 3 ________ ________ ________ ________ ________ Balances at January 5, 1996.. 26 13,279 6,098 (204) 19,199 Net income........... 6,232 6,232 3,076 common shares issued for stock awards... 40 40 113,316 common shares issued for acquisitions .. 1 1,474 1,475 Stock options exercised and related tax benefit 4 2,049 2,053 Retirement of stock warrants..... (330) (330) Effect of 3 for 2 stock split........ 20 (20) 1,402,500 common shares issued by public offering... 14 17,910 17,924 ________ ________ ________ ________ ________ Balances at January 5, 1997.. 65 34,402 12,330 (204) 46,593 Net income........... 16,313 16,313 5,188 common shares issued for stock awards... 65 65 36,953 common shares issued for acquisitions .. 1,021 1,021 Stock options exercised and related tax benefit 1 1,530 1,531 Effect of 3 for 2 stock split........ 38 (38) (2) (2) 1,020,000 common shares issued by public offering... 10 23,246 23,256 ________ ________ ________ ________ ________ Balances at January 5, 1998.. $ 114 $ 60,226 $ 28,641 $ (204) $ 88,777 ======== ======== ======== ======== ======== See notes to consolidated financial statements.
F-6 POMEROY COMPUTER RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED JANUARY 5, 1996, JANUARY 5, 1997 AND JANUARY 5, 1998 1. Company Description Pomeroy Computer Resources, Inc. (the "Company" ) was organized in February 1992 to consolidate and reorganize predecessor companies. Since the owner of the Company and the predecessor businesses were the same, this transaction constituted a combination of the predecessor businesses under common control and was accounted for at historical cost in a manner similar to that followed for a pooling of interests. The Company has 15 million shares of $.01 par value common stock authorized, with 11.4 million shares outstanding. The Company is also authorized to issue 2 million shares of $.01 par value preferred stock. In fiscal 1995 the Company formed a wholly-owned subsidiary, Technology Integration Financial Services, Inc. ( "TIFS") (f/k/a - Pomeroy Computer Leasing Company, Inc. ( "PCL")), for the purpose of leasing computer equipment to the Company's customers. In fiscal 1997 the Company formed a wholly-owned subsidiary, Pomeroy Computer Resources of South Carolina, Inc. ( "PCR-SC") for the purpose of acquiring The Computer Store ( "TCS" ) , a computer reseller and service provider located in Columbia, South Carolina. The Company sells, installs and services microcomputers and microcomputer equipment primarily for commercial, health care, governmental, financial and educational customers. The Company also derives revenue from customer support services, including network analysis and design, systems configuration, cabling, custom installation, training, maintenance and repair. The Company has twenty regional offices in Kentucky, Ohio, Indiana, Tennessee, Florida, Alabama, Iowa, West Virginia, North Carolina and South Carolina, and grants credit to substantially all customers in these areas. 2. Summary of Significant Accounting Policies Principles of Consolidation - The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Xenas Communication Corp., TIFS, and PCR-SC. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the 1996 financial statements included herein to conform with the presentation used in 1997. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Fiscal Year - The Company's fiscal year is a 12- month period ending January 5. References to fiscal 1995, 1996 and 1997 are for the fiscal years ended January 5, 1996, January 5, 1997 and January 5, 1998, respectively. Goodwill and Other Intangible Assets - Goodwill is amortized using the straight-line method over periods of fifteen to twenty-five years. In accordance with SFAS No. 121, "Accounting for The Impairment of Long-Lived Assets", the Company evaluates its goodwill on an ongoing basis to determine potential impairment by comparing the carrying value to the undiscounted estimated expected future cash flows of the related assets. Other intangible assets are amortized using the straight-line method over periods up to ten years. Equipment and Leasehold Improvements - Equipment and leasehold improvements are stated at cost. Depreciation on equipment is computed using the straight-line method over estimated useful lives. Depreciation on leasehold improvements is computed using the straight-line method over estimated useful lives or the term of the lease, whichever is less. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of assets are capitalized. Upon sale or retirement of depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected in the results of operations. Income Taxes - Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be F-7 POMEROY COMPUTER RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Vendor Incentive Rebates - Certain vendors provide incentive rebates to perform product training, advertising and other sales and market development activities. The Company recognizes these rebates when it has completed its obligation to perform under the specific incentive arrangement. Incentive rebates are recorded as reductions of selling, general and administrative expense or, if volume based, cost of sales. Inventories - Inventories are stated at the lower of cost or market. Cost is determined by the average cost method. Revenue Recognition - The Company recognizes revenue on the sale of equipment and supplies when the products are shipped. Service revenue is recognized when the applicable services are provided. Deferred Revenue - Revenues received on maintenance contracts are recognized ratably over the lives of the contracts. Costs related to maintenance contracts are recognized when incurred. Stock-Based Compensation - The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" , in the Fall of 1995. The statement encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value beginning in fiscal 1996. The Company elected to account for stock-based compensation using the intrinsic value method prescribed in "Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees" . Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's common stock at the date of grant over the amount an employee must pay to acquire the stock. The Company adopted SFAS No. 123 for disclosure purposes and for non-employee stock options. This had no material effect on the results of operations or financial position of the Company. Earnings per Common Share - The computation of basic earnings per common share is based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share is based upon the weighted average number of common shares outstanding during the period plus, in periods in which they have a dilutive effect, the effect of common shares contingently issuable, primarily from stock options. In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS 128 changed the computation, presentation and disclosure requirements for earnings per share ("EPS") . Under SFAS 128, EPS is presented as basic earnings per share ( "basic EPS" ) and diluted earnings per share ( "diluted EPS" ) and replaces the presentation of primary EPS and fully diluted EPS. The adoption of SFAS 128 resulted in the restatement of earnings per share for all periods presented in the Company's consolidated financial statements. The following is a reconciliation of the number of shares used in the basic EPS and diluted EPS computations: (in thousands, except per share data) 1995 1996 1997 ______________ _____________ _____________ Per Share Per Share Per Share Shares Amount Shares Amount Shares Amount Basic EPS 5,660 $ 0.77 7,834 $ 0.80 11,052 $ 1.48 Effect of dilutive stock options 332 (0.44) 272 (0.03) 315 (0.04) Contingent shares 25 - - - - - ______ ______ _____ ______ ______ ______ Diluted EPS 6,007 $ 0.73 8,106 $ 0.77 11,367 $ 1.44 Use of Estimates in Financial Statements - In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the F-8 POMEROY COMPUTER RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value Disclosures - The fair value of financial instruments approximates carrying value. New Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ( "SFAS No. 130" ) with an effective date for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for the reporting of comprehensive income in a company's financial statements. Comprehensive income includes all changes in a company's equity during the period that result from transactions and other economic events other than transactions with its stockholders. In the fourth quarter of 1997, the Company elected to early adopt SFAS No. 130 retroactive to January 6, 1997. The adoption of SFAS No. 130 did not affect the financial reporting in the accompanying consolidated financial statements because the Company does not presently have any comprehensive income other than net income. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ( "SFAS No. 131" ) with an effective date for fiscal years beginning after December 15, 1997. A reportable segment, referred to as an operating segment, is a component of an entity about which separate financial information is produced internally, that is evaluated by the chief operating decision-maker to assess performance and allocate resources. The Company does not presently believe that it operates in more than one identifiable segment. 3. Accounts Receivable The following table summarizes the activity in the allowance for doubtful accounts for fiscal 1995, 1996 and 1997 (in thousands) Trade Other __________ __________ Balance January 5, 1995 $ 65 $ 225 Provision 1995 94 417 Accounts written-off (89) (444) Recoveries 131 12 __________ __________ Balance January 5, 1996 201 210 Provision 1996 250 31 Accounts written-off (249) (604) Recoveries 170 500 __________ __________ Balance January 5, 1997 372 137 Provision 1997 125 200 Accounts written-off (601) (415) Recoveries 459 301 __________ __________ Balance January 5, 1998 $ 355 $ 223 F-9 POMEROY COMPUTER RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 4. Inventories Inventories consist of items held for resale and are comprised of the following components as of the end of fiscal: (in thousands) 1996 1997 _________ _________ Equipment and supplies $ 21,730 $ 36,265 Service parts 1,696 2,895 _________ _________ Total $ 23,426 $ 39,160 5. Goodwill and Other Intangible Assets Goodwill and other intangible assets consist of the following as of the end of the fiscal year, net of accumulated amortization of $984 thousand (1996) and $1,826 thousand (1997), respectively: (in thousands) 1996 1997 __________ ___________ Goodwill $ 8,698 $ 12,159 Covenants not to compete 208 61 Customer lists 529 477 __________ ___________ $ 9,435 $ 12,697 As a result of its litigation with Vanstar Corporation, the Company in fiscal 1994 wrote-off unamortized costs in the amount of $251 thousand related to its agreement with Vanstar which are included in amortization expense. On April 29, 1996 the Company and Vanstar entered into a settlement agreement which in effect terminated all agreements between the parties. In 1993, the Company acquired certain assets, principally customer lists, of a computer reseller in Louisville, Kentucky. Also, the Company entered into a five year covenant not to compete with the reseller and its owners. Amounts paid to the reseller for these intangibles were $194 thousand for customer lists and $241 thousand for the covenant not to compete. The Company entered into an additional covenant not to compete with a former owner of the reseller whereby the Company paid a total of $277 thousand in two installments during 1994 and 1995. In fiscal 1996, the Company acquired certain assets of The Computer Supply Store, Inc. ("TCSS") a privately held computer reseller located in Des Moines, Iowa, AA Microsystems, Inc. ("AA Micro"), a network service provider located in Birmingham, Alabama, and Communications Technology, Inc. ( "DILAN" ), a privately held network integrator located in Hickory, North Carolina (See Note 12). The Company recorded $5.7 million, $0.4 million and $2.5 million of goodwill in connection with those acquisitions, respectively. In fiscal 1997, the Company acquired certain assets of Magic Box, Inc. ( "Magic Box" ) , a privately held network integrator located in Miami, Florida, and Micro Care, Inc. ( "Micro Care" ), a privately held systems integrator located in Indianapolis, Indiana. A wholly owned subsidiary of the Company, Pomeroy Computer Resources of South Carolina, Inc., acquired all the assets and liabilities of The Computer Store Inc., a network integrator located in Columbia, South Carolina. The Company recorded $1.7 million, $1.9 million and $0.4 million in connection with those acquisitions, respectively. 6. Borrowing Arrangements The Company has an available line of credit up to the lesser of $20 million, or an amount based upon a formula of eligible trade receivables, at an interest rate that varies based on the prime rate of the bank or the LIBOR rate at the Company's election. At January 5, 1997 and 1998, bank notes payable include $2.2 million and $6.5 million, respectively, of overdrafts in accounts with the Company's primary lender. These amounts were subsequently funded through the normal course of business. The interest rate charged was 7.25% and 7.50% at January 5, 1997 and January 5, 1998 respectively. The agreement, which expires in June 1998, is collateralized by substantially all assets of the Company, except those assets which collateralize certain other financing arrangements. Under the revolving credit F-10 POMEROY COMPUTER RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued agreement, the Company may not make any cash dividend payments. The maximum amount outstanding and the average amount outstanding on bank revolving credit agreements were as follows: (in thousands) Maximum Average Amount Amount Period Ending Outstanding Outstanding _______________ ___________ ___________ January 5, 1996 $ 19,000 $ 14,741 January 5, 1997 $ 26,687 $ 17,402 January 5, 1998 $ 25,800 $ 8,002 The above average amounts outstanding are calculated by dividing the sum of the average daily balances for each month by the number of months in the period. The weighted average interest rate on the bank revolving credit agreements was 8.7%, 8.2% and 7.3% in fiscal 1995, 1996 and 1997, respectively. In November 1994 the Company exercised an option in its revolving credit agreement to borrow $500 thousand on a term note with interest at a rate 0.5% above the bank's prime rate. The interest rate was raised to the bank's prime rate in March, 1995. The term note matured July 31, 1996 and was paid off. The Company finances inventory through floor plan arrangements with two finance companies. As of January 5, 1998 the floor plan lines of credit were $12 million with IBM Credit Corporation ("ICC") and $35 million with Deutsche Financial Services ("DFS"). Borrowings under the ICC floor plan arrangement are made on sixty day notes, with one-half of the note amount due in thirty days. Borrowings under the DFS floor plan arrangement are made on thirty day notes. Financing on many of the arrangements which are subsidized by manufacturers is interest free. The average rate on the plans overall is less than 1.0%. The maximum amount outstanding and the average amount outstanding on each of the floor plan arrangements were as follows: (in thousands) ICC DFS __________________ ___________________ Maximum Average Maximum Average Amount Amount Amount Amount Period Ending Outstanding Outstanding _______________ ______ ______ _______ _______ January 5, 1996 $6,300 $4,191 $21,045 $15,979 January 5, 1997 $9,045 $5,779 $27,349 $18,532 January 5, 1998 $19,985 $10,459 $39,092 $25,069 The average amount outstanding is calculated by dividing the sum of the outstanding balances at the end of each month by the number of months in the applicable period. F-11 POMEROY COMPUTER RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 7. Income Taxes The provision for income taxes consists of the following: (in thousands) 1995 1996 1997 Current: Federal $ 2,071 $ 3,205 $ 8,742 State 654 1,034 1,036 ________ ________ ________ Total current 2,725 4,239 9,778 ________ ________ ________ Deferred: Federal 206 46 (21) State 52 11 (54) ________ ________ ________ Total deferred 258 57 (271) Total income tax provision $ 2,983 $ 4,296 $ 9,507 The approximate tax effect of the temporary differences giving rise to the Company's deferred income tax assets (liabilities) are: (in thousands) 1996 1997 Deferred Tax Assets: Bad debt provision $208 $282 Depreciation - 193 Deferred compensation 210 409 _______ _______ Total deferred tax assets 418 884 _______ _______ Deferred Tax Liabilities: Acquisition of lease residuals (847) (620) Depreciation (96) - Accounts Receivable - (518) _______ ________ Total deferred tax liabilities (943) (1,138) _______ ________ Net deferred tax liability $ (525) $ (254) ======= ======== The Company's effective income tax rate differs from the Federal statutory rate as follows: 1995 1996 1997 _____ _____ _____ Tax at Federal statutory rate 34.0% 34.0% 35.0% State taxes 6.3 6.6 4.7 Kentucky Relocation Credits - - (2.2) Other 0.3 0.2 (0.7) _____ _____ _____ Effective tax rate 40.6% 40.8% 36.8% ===== ===== ===== F-12 POMEROY COMPUTER RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 8. Operating Leases The Company leases office and warehouse space, vehicles and certain office equipment from various lessors. Lease terms vary in duration and include various option periods. The leases generally require the Company to pay taxes and insurance. Future minimum lease payments under noncancelable operating leases with initial or remaining terms in excess of one year as of January 5, 1998 are as follows: (in thousands) Fiscal Year 1998 $2,153 1999 1,741 2000 1,376 2001 1,019 2002 828 Thereafter 2,554 ________ Total minimum lease payments $ 9,671 ======= 9. Employee Benefit Plans In the fourth quarter of 1997, the Company was in the process of terminating the Employee Stock Ownership Plan ("ESOP"). As of January 5, 1998, the ESOP held 72,661 shares of Company stock. No contributions were made or accrued in fiscal 1996 and 1997. The distribution to employees of the ESOP should be completed by the second quarter of 1998. The Company also has a savings plan intended to qualify under sections 401(a) and 401(k) of the Internal Revenue Code. The plan covers substantially all employees of the Company. The Company did not contribute to the plan in 1996 or 1997. Beginning in fiscal 1998 the Company will make contributions to the plan based on a participant's annual pay. 10. Investment in Lease Residuals The Company participates in a Remarketing and Agency Agreement ("Agreement") with Information Leasing Corporation ("ILC") whereby the Company obtains rights to 50% of lease residual values for services rendered in connection with locating the lessee, selling the equipment to ILC and agreeing to assist in remarketing the used equipment. During fiscal 1995, 1996 and 1997, the Company sold equipment and related support services to ILC, for lease to ILC's customers, in amounts of $23.7 million, $15.2 million and $7.7 million, respectively. The Company also obtained rights to lease residuals from ILC in the amount of $875 thousand, $575 thousand and $562 thousand in 1995, 1996 and 1997, respectively. Such amounts are recorded as a reduction of the related cost of sales. Residuals acquired in this manner are recorded at the estimated present value of the interest retained. The Company also purchases residuals associated with separate leasing arrangements entered into by ILC. Such transactions do not involve the sale of equipment and related support services by the Company to ILC. Residuals acquired in this manner are accounted for at cost. The carrying value of investments in lease residuals is evaluated on a quarterly basis, and is subject only to downward market adjustments until ultimately realized through a sale or re-lease of the equipment. 11. Major Customers Sales to a major customer were approximately $43.8 million for fiscal 1995. Sales to a major customer were approximately $40.3 million for fiscal 1996. Sales to a major customer were approximately $ 60.4 million for fiscal 1997. F-13 POMEROY COMPUTER RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 12. Acquisitions During fiscal 1996, the Company completed several acquisitions. The total consideration given consisted of $7.2 million in cash, subordinated notes of $4.0 million and 170 thousand unregistered shares of the Company's common stock with an approximate value of $1.5 million. Interest on the subordinated notes is payable quarterly. Principal is payable in equal annual installments. The acquisitions were accounted for as purchases, accordingly the purchase price was allocated to assets and liabilities based on their estimated value as of the dates of acquisition. The results of operations of the acquisitions are included in the consolidated statement of income from the dates of acquisition. The following table summarizes, on an unaudited pro forma basis, adjusted to reflect a 10% stock dividend paid on May 22, 1995 and three-for-two splits of the Company's common stock in the form of a stock dividends paid on October 4, 1996 and October 6, 1997, the estimated combined results of the Company and the 1996 acquisitions assuming the acquisitions had occurred on January 6, 1995. These results include certain adjustments, primarily goodwill amortization and interest expense, and are not necessarily indicative of what results would have been had the Company owned these businesses during the periods presented: (in thousands) Fiscal Year _________________ 1995 1996 __________ __________ Net sales and revenues $ 309,655 $ 364,005 Net income $ 4,630 $ 6,250 Net income per common share: Basic $ 0.80 $ 0.80 Diluted $ 0.75 $ 0.77 During fiscal 1997, the Company completed several acquisitions. The total consideration given consisted of $3.7 million in cash, subordinated notes of $1.3 million and 37 thousand unregistered shares of the Company's common stock with an approximate value of $1.0 million. Interest on the subordinated notes is payable quarterly. Principal is payable in equal annual installments. The acquisitions were accounted for as purchases, accordingly the purchase price was allocated to assets and liabilities based on their estimated value as of the dates of acquisition. The results of operations of the acquisitions are included in the consolidated statement of income from the dates of acquisition. If the 1997 acquisitions had occurred on January 6, 1996, the pro forma operations of the Company would not have been materially different than that reported in the accompanying consolidated statements of income. 13. Related Parties During fiscal 1995 the Company entered into a ten year triple-net lease agreement commencing in 1996 for a new headquarters and distribution facility with a company that is controlled by the Chief Executive Officer of the Company. During fiscal 1997 the lease agreement was amended to include an expansion of the distribution facility. The base rental for 1997 on an annualized basis is $858 thousand. The annual rental for these properties was determined on the basis of a fair market value rental opinion provided by an independent real estate company. During fiscal 1996, the Company made periodic advances to a company that is controlled by the Chief Executive Officer of the Company. No interest was charged on the advances which were repaid in December 1996. F-14 POMEROY COMPUTER RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 14. Supplemental Cash Flow Disclosures Supplemental disclosures with respect to cash flow information and non-cash investing and financing activities are as follows: (in thousands) 1995 1996 1997 Interest paid $2,037 $2,065 $1,045 Income taxes paid $2,658 $3,813 $4,920 Business combinations accounted for as purchases: Assets acquired $774 $24,526 $7,358 Liabilities assumed (24) (9,121) (1,495) Note payable (225) (3,996) (1,343) Stock issued (100) (1,475) (1,021) ________ _________ _________ Net cash paid $ 425 $ 9,934 $3,499 15. Stockholders' Equity and Stock Option Plans In July 1996, the Company completed a secondary public offering of 1.4 million new shares of its common stock. The net proceeds of $17.9 million were used to reduce amounts outstanding under the line of credit. If this secondary offering had been completed as of January 6, 1996, pro forma basic and diluted earnings per share would have been $0.77 and $0.75, respectively, for fiscal 1996. This computation assumes no interest expense related to the credit line and the issuance of only a sufficient number of shares to eliminate the credit line at the beginning of fiscal 1996. In February 1997, the Company completed a secondary public offering of 1.02 million shares of its common stock. The net proceeds of $23.3 million were used to reduce amounts outstanding under the Company's line of credit. If this secondary offering had been completed as of January 6, 1997, pro forma basic and diluted earnings per share would have been $1.38 and $1.34 , respectively, for fiscal 1997. This computation assumes no interest expense related to the credit line and the issuance of only a sufficient number of shares to eliminate the credit line at the beginning of fiscal 1997. On September 6, 1996, the Company's Board of Directors authorized a three-for-two stock split in the form of a stock dividend payable October 4, 1996, to shareholders of record September 19, 1996. The split resulted in the issuance of 2.1 million new shares of common stock. The stated par value of each share was not changed from $0.01. A total of $20 thousand was reclassified from the Company's additional paid in capital account to the Company's common stock account. Accordingly, net income per common share, weighted average shares outstanding and stock option plan information have been restated to reflect the stock split. On September 8, 1997, the Company's Board of Directors authorized a three-for-two stock split in the form of a stock dividend payable October 6, 1997, to shareholders of record September 22, 1997. The split resulted in the issuance of 3.8 million new shares of common stock. The stated par value of each share was not changed from $0.01. A total of $38 thousand was reclassified from the Company's additional paid in capital account to the Company's common stock account. Accordingly, net income per common share, weighted average shares outstanding and stock option plan information have been restated to reflect the stock split. The Company's 1992 Non-Qualified and Incentive Stock Option Plan provides certain employees of the Company with options to purchase common stock of the Company through options at an exercise price equal to the market value on the date of grant. 990,000 shares of the common stock of the Company are reserved for issuance under the plan. The plan will terminate ten years from the date of adoption. Stock options granted under the plan are exercisable in accordance with various terms as authorized by the Compensation Committee. To the extent not exercised, options will expire not more than ten years after the date of grant. The Company's 1992 Outside Directors' Stock Option Plan provides outside directors of the Company with options to purchase common stock of the Company at an exercise price equal to the market value of the shares at the date of grant. 175,000 shares of common stock of the Company are reserved for issuance under the plan. The plan will terminate ten years from the date of adoption. Pursuant to the F-15 POMEROY COMPUTER RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued plan, an option to purchase 10,000 shares of common stock automatically will be granted on the first day of the initial term of a director. An additional 2,500 shares of common stock automatically will be granted to an eligible director upon the first day of each consecutive year of service on the board. Options may be exercised after one year from the date of grant for not more than one-third of the shares subject to the option and an additional one- third of the shares subject to the option may be exercised for each of the next two years thereafter. To the extent not exercised, options will expire five years after the date of grant. The following summarizes the stock option transactions under the plans for the three fiscal years ended January 5, 1998: Weighted Average Shares Exercise price _________ ________________ Options outstanding January 5, 1995 283,832 $8.69 Granted 66,300 10.95 Exercised (164,975) 8.27 Stock dividend effect 33,383 8.32 _________ ________________ Options outstanding January 5, 1996 218,540 8.32 Granted 149,600 13.83 Exercised (197,047) 8.97 Stock split effect 121,082 7.21 _________ ________________ Options outstanding January 5, 1997 292,175 7.27 Granted 216,328 30.10 Exercised (95,260) 8.70 Forfeitures (4,700) 34.19 Stock split effect 227,754 5.61 _________ ________________ Options outstanding January 5, 1998 636,297 $12.01 ========= ================ The following summarizes options outstanding and exercisable at January 5, 1998: Options Outstanding Options Exercisable _________________________________________ __________________ Number Weighted Average Weighted Number Weighted Range of Outstanding Remaining Average Exercisable Average Exercise at 1/5/98 Contractual Exercise at 1/5/98 Exercise Prices Life Price Price ______________ ___________ _______________ ___________ __________ _________ $2.67 to $5.67 252,264 0.8 $4.38 220,616 $4.45 $6.33 to $16.50 165,000 2.1 $11.00 120,000 $11.31 $17.09 to $25.67 219,033 1.5 $21.56 215,283 $21.63 __________ __________ 636,297 1.6 $12.01 555,899 $12.58 ========== ========== The weighted average fair value at date of grant for options granted during fiscal 1996 and 1997 was $2.75 and $6.77, respectively. The fair value of options at the date of grant was estimated using the Black-Scholes model with the following weighted average assumptions: Fiscal 1995 Fiscal 1996 Fiscal 1997 ___________ ___________ ___________ Expected life (years) 2.4 1.7 1.8 Interest rate 7.3% 5.8% 6.1% Volatility 50% 55% 56% Dividend yield 0% 0% 0% Had compensation cost for the Company's stock option plans been determined based on the fair value F-16 POMEROY COMPUTER RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued at the grant date for awards in fiscal 1995 and 1996 consistent with the provisions of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: (in thousands, except per share amounts) Fiscal 1995 Fiscal 1996 Fiscal 1997 ___________ ___________ ___________ Net income - as reported $4,367 $6,232 $16,313 Net income - pro forma $4,196 $5,777 $14,455 Net income per common share - as reported Basic $0.77 $0.80 $1.48 Diluted $0.73 $0.77 $1.44 Net income per common share - pro forma Basic $0.74 $0.74 $1.31 Diluted $0.70 $0.71 $1.27 In 1995, 1996 and 1997, 4,000, 3,076 and 544, respectively, shares of common stock were awarded to officers of the Company. Compensation expense resulting from the awards was $40 thousand in fiscal 1995 and 1996 and $20 thousand in fiscal 1997. 16. Litigation There are various legal actions arising in the normal course of business that have been brought against the Company. Management believes these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. 17. Risk of Loss from Concentrations During fiscal 1997, approximately 41.2% of the Company's total net sales and revenues were derived from its top ten customers, including one customer which accounted for 12.3% of total net sales and revenues. The Company was not selected as the fiscal 1998 product supplier by the largest customer. The Company does not expect that this loss will have a near-term material impact on its financial condition or results of operation. Due to the demand for the products sold by the Company, significant product shortages occur from time to time because manufacturers are unable to produce certain products to meet increased demand. Failure to obtain adequate product shipments could have a material adverse effect on the Company's operations and financial results. The Company is required to have authorizations from manufacturers in order to sell their products. The loss of a significant vendor's authorization could have a material adverse effect on the Company's business. 18. Subsequent Events Stockholder Rights Plan. On February 18, 1998, the Company's Board of Directors declared a dividend of one preferred share purchase right (a "Right" ) for each outstanding share of common stock, par value $.01 per share (the "Common Share" ) on March 15, 1998 (the "Record Date" ) to the stockholders of record on that date. The Rights become exercisable only if a person or group (an "Acquiring Person" ) acquires, or makes a tender offer to acquire, beneficial ownership of 15% or more of the outstanding Common Shares of the Company. The Rights expire on March 1, 2008, unless extended or are earlier redeemed by the Company. When the Rights become exercisable, the holder of each Right, other than the Acquiring Person, is entitled to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $.01 per share (the "Preferred Shares" ), of the Company, at a price of $115.00 per one one-thousandth of a Preferred Share (the "Purchase Price" ), subject to adjustment. Alternatively, under certain circumstances each holder of a Right, other than Rights beneficially owned by the Acquiring Person, will thereafter have the right to receive upon exercise, in lieu of Preferred F-17 POMEROY COMPUTER RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Shares, that number of Common Shares having a market value of two times the exercise price of the Right. In the event that, at any time after a Person becomes an Acquiring Person, the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power is sold, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. Acquisitions. In March 1998, the Company completed two acquisitions. The total consideration given consisted of $11.5 million in cash and subordinated notes of $2.0 million. Interest on the subordinated notes is payable quarterly while principal is payable in equal annual installments. The acquisitions will be accounted for as purchases, accordingly the purchase prices will be allocated to assets and liabilities based on their estimated values as of the dates of acquisition. The results of operations of the acquisitions will be included in the consolidated statement of income from the dates of acquisition. If these acquisitions had occurred on January 6, 1997, the pro forma operations of the Company would not have been materially different than that reported in the accompanying consolidated statements of income. Amendment to Line of Credit. In January 1998, the Company amended its revolving credit agreement. The amended agreement provides for borrowings up to $40.0 million at the bank's prime rate minus 1.25%. A new financial covenant requires that the Company maintain trade accounts receivable less than ninety days old at a ratio greater than 1.25 to 1.0 to amounts outstanding under the revolving credit agreement at any time. The revolving credit agreement expires May 31, 1998. Repricing of Stock Options. In January 1998, the Board of Directors of the Company approved the repricing of certain unexercised options granted under the 1992 Non-Qualified and Incentive Stock Option Plan. As a result, 109,649 options granted during fiscal 1997 will be repriced to $16.63 per share from $34.19 per share. These amounts approved by the Board of Directors do not give effect to the stock split approved after the date of the original grant of the options. F-18 EX-10 2 LOAN AGREEMENT dated as of October 31, 1997 by and between THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC. as the Lender and TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC. as the Borrower Table of Contents Page SECTION I - Definitions. . . . . . . . . . . . . . . . . . 1 E-1 SECTION II - Purposes. . . . . . . . . . . . . . . . . . . 1 SECTION III - The Revolving Credit Loans . . . . . . . . . 2 3.01 Revolving Credit Loans. . . . . . . . . . . 2 3.02 Maximum Amount. . . . . . . . . . . . . . . 2 3.03 Purposes of the Revolving Credit Loans. . . 2 3.04 Procedures and Conditions . . . . . . . . . 2 3.05 Notation of Disbursements and Payments. . . 5 3.06 Optional and Mandatory Revolving Credit Loan Note Principal Payment . . . . . . . . 5 3.07 Revolving Credit Loan Note Interest Payments 6 3.08 Mandatory Prepayments; Collateral Substitution 6 3.09 Termination of Revolving Credit . . . . . . 7 3.10 Extension of Revolving Credit . . . . . . . 7 SECTION IV - The Draw Facility . . . . . . . . . . . . . . 7 4.01 Amount of Draw Facility . . . . . . . . . . 7 4.02 Term of the Draw Facility . . . . . . . . . 7 4.03 Termination of Draw Facility . . . . . . . 7 4.04 Extension of Draw Facility . . . . . . . . 8 4.05 Purposes of the Draw Facility . . . . . . . 8 4.06 Procedures and Conditions . . . . . . . . . 8 4.07 Notation of Disbursements and Payments. . . 11 4.08 Non-Revolving . . . . . . . . . . . . . . . 11 4.09 Interest Rate on the Draw Facility Notes . 11 4.10 Payment of Interest and Principal on the Draw Facility Notes . . . . . . . . . . 11 4.11 Term of Draw Facility Notes . . . . . . . . 11 E-2 4.12 Mandatory Prepayments on Draw Facility Notes . . . . . . . . . . . . . . . . . . . 12 SECTION V - Security for the Revolving Credit Loans. . . . 12 5.01 Security for the Revolving Credit Loans . . 12 SECTION VI - Conditions Precedent. . . . . . . . . . . . . 13 6.01 Conditions Precedent . . . . . . . . . . . 13 6.02 Conditions Precedent to Subsequent Disbursements . . . . . . . . . . . . . . . 15 SECTION VII - General Covenants. . . . . . . . . . . . . . 15 7.01 Insurance . . . . . . . . . . . . . . . . . 15 7.02 Taxes and Other Payment Obligations . . . . 16 7.03 Financial Statements. . . . . . . . . . . . 17 7.04 Financial Records . . . . . . . . . . . . . 18 7.05 Properties. . . . . . . . . . . . . . . . . 18 7.06 Corporate Existence and Good Standing . . . 18 7.07 Notice Requirements . . . . . . . . . . . . 18 7.08 Compliance with Law . . . . . . . . . . . . 19 7.09 Liens . . . . . . . . . . . . . . . . . . . 19 7.10 Letters of Credit . . . . . . . . . . . . . 20 7.11 Articles of Incorporation and Bylaws. . . . 20 7.12 Mergers, Sales, Transfers and Other Dispositions of Assets. . . . . . . . . . . 20 7.13 Loans . . . . . . . . . . . . . . . . . . . 21 7.14 Financial Covenants . . . . . . . . . . . . 21 7.15 Location of Inventory . . . . . . . . . . . 21 E-3 7.16 Control and Operation . . . . . . . . . . . 22 7.17 Lockbox . . . . . . . . . . . . . . . . . . 22 7.18 Compliance with Other Borrower Documents. . 23 SECTION VIII - Representations and Warranties. . . . . . . 23 8.01 Corporate Organization and Existence. . . . 23 8.02 Right to Act. . . . . . . . . . . . . . . . 23 8.03 No Conflicts. . . . . . . . . . . . . . . . 23 8.04 Authorization . . . . . . . . . . . . . . . 24 8.05 Litigation and Taxes. . . . . . . . . . . . 24 8.06 Financial Statements. . . . . . . . . . . . 24 8.07 Compliance with Contractual Obligations, Laws and Judgments. . . . . . . . . . . . . 25 8.08 Location of Inventory . . . . . . . . . . . 25 8.09 No Undisclosed Liabilities or Guaranties. . 25 8.10 Title to Properties . . . . . . . . . . . . 25 8.11 Trademarks and Permits. . . . . . . . . . . 25 8.12 Disclosure. . . . . . . . . . . . . . . . . 26 SECTION IX - Events of Default . . . . . . . . . . . . . . 26 9.01 Failure to Pay. . . . . . . . . . . . . . . 26 9.02 [INTENTIONALLY OMITTED] . . . . . . . . . . 26 9.03 Notice Required . . . . . . . . . . . . . . 26 9.04 Falsity of Representation or Warranty . . . 26 9.05 Judgments . . . . . . . . . . . . . . . . . 27 9.06 Adverse Financial Change. . . . . . . . . . 27 9.07 Other Obligations to the Lender and its Affiliates. . . . . . . . . . . . . . . . . 27 E-4 9.08 Dissolution or Termination of Existence . . 27 9.09 Solvency. . . . . . . . . . . . . . . . . . 27 SECTION X - Remedies Upon Default. . . . . . . . . . . . . 28 10.01 Right to Offset . . . . . . . . . . . . . . 28 10.02 Enforcement of Rights . . . . . . . . . . . 29 10.03 Rights Under Security Instruments . . . . . 29 10.04 Cumulative Remedies . . . . . . . . . . . . 29 SECTION XI - Fees and Expenses . . . . . . . . . . . . . . 29 11.01 Transactions Expenses . . . . . . . . . . . 29 11.02 Enforcement Expenses. . . . . . . . . . . . 30 SECTION XII - Miscellaneous Provisions . . . . . . . . . . 30 12.01 Banking Days. . . . . . . . . . . . . . . . 30 12.02 Term of this Agreement. . . . . . . . . . . 30 12.03 No Waivers. . . . . . . . . . . . . . . . . 30 12.04 Course of Dealing . . . . . . . . . . . . . 31 12.05 Waivers by the Borrower . . . . . . . . . . 31 12.06 Severability. . . . . . . . . . . . . . . . 31 12.07 Time of the Essence . . . . . . . . . . . . 31 12.08 Benefit and Binding Effect. . . . . . . . . 31 12.09 Further Assurances. . . . . . . . . . . . . 31 12.10 Incorporation by Reference. . . . . . . . . 31 12.11 Entire Agreement; No Oral Modifications . . 31 12.12 Headings. . . . . . . . . . . . . . . . . . 32 E-5 12.13 Governing Law . . . . . . . . . . . . . . . 32 12.14 Assignments . . . . . . . . . . . . . . . . 32 12.15 Multiple Counterparts . . . . . . . . . . . 32 12.16 Notices . . . . . . . . . . . . . . . . . . 33 12.17 Survival of Covenants . . . . . . . . . . . 34 12.18 Consent to Jurisdiction and Venue . . . . . 34 12.19 Acknowledgement . . . . . . . . . . . . . . 34 Exhibit 1 Definitions 2 Financial Covenants 3 List of Prohibited Parties Annexes A Form of Assignment B Form of Guaranty Agreement C Form of Revolving Credit Note D Form of Security Agreement E Form of Draw Facility Note F Form of Opinion of Counsel Schedules 8.09 Borrower's Contingent Liabilities 8.10 Encumbrances on the Borrower's Properties LOAN AGREEMENT This is a Loan Agreement (this "Agreement") dated as of October 31, 1997, between THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC., a Kentucky banking corporation (the "Lender"), and TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC., a Kentucky corporation formerly known as Pomeroy Computer Leasing Company, Inc., (the "Borrower"). Recitals WHEREAS, the Borrower has requested, and the Lender has agreed to such request, that the Lender provide a warehouse revolving credit facility (the "Revolving Credit") not to exceed Five Million Dollars ($5,000,000.00) and a draw loan facility (the "Draw Facility") not to exceed Fifteen Million Dollars ($15,000,000.00); and E-6 NOW, THEREFORE, the undersigned parties for full and valid consideration, desire to enter into this Agreement to and set forth the terms and conditions of the Revolving Credit and the Draw Facility. SECTION I Definitions Capitalized terms not otherwise defined herein shall have the meanings given them in the exhibit attached as Exhibit 1 to this Agreement which is hereby incorporated into this Agreement as if set out in full in this Section. The meanings assigned to capitalized terms, whether defined herein or in Exhibit 1, shall be equally applicable to both the singular and plural forms of the terms defined. SECTION II Purposes 2.01 Revolving Credit Purpose. The purpose of the Revolving Credit shall be to provide short term financing, not to exceed ninety (90) days, to the Borrower to enable the Borrower to fund Eligible Customer Leases. 2.02 Draw Facility Purpose. The purpose of the Draw Facility will be to convert, at least every ninety (90) days, the principal outstanding under the Revolving Credit to long term, amortizing loans. Draws will be made on the Draw Facility to pay down the Revolving Credit, with each draw on the Draw Facility being set up as a separate loan (each a "Draw Loan"), evidenced by a separate promissory note (each a "Draw Facility Note"). SECTION III The Revolving Credit 3.01 Revolving Credit . (a) Subject to the terms and conditions of this Agreement, so long as the Revolving Credit remains in effect and is not terminated, and no Unmatured Default or Event of Default has occurred, the Lender shall grant the Borrower such disbursements as the Borrower may request from time to time in accordance with the provisions of this Agreement. The unpaid principal balance of each disbursement shall bear interest at an annual rate equal to the Lending Rate from the date that disbursement is made pursuant to this Agreement until the entire principal balance of that disbursement has been paid in full. The Revolving Credit shall be evidenced by and payable in accordance with the terms of the Revolving Credit Note and on the terms of this E-7 Agreement. In the event of any discrepancy between the terms of the Revolving Credit Note and this Agreement, the terms of the Revolving Credit Note shall prevail. (b) The "Lending Rate" for the Revolving Credit shall be the annual rate of interest as determined by the terms and conditions set forth in the Revolving Credit Note. 3.02 Maximum Amount. At no time shall the aggregate unpaid principal balance of the Revolving Credit at any time exceed Five Million Dollars ($5,000,000.00). 3.03 Term of the Revolving Credit. The Revolving Credit is effective as of the date of this Agreement, and unless the Revolving Credit is sooner terminated or extended as provided in this Agreement, shall continue in effect until October 1, 1998. Unless sooner terminated or extended, the Revolving Credit shall terminate on October 1, 1998 and thereafter the Borrower shall not be entitled to any additional disbursements, draws or advances on the Revolving Credit. 3.04 Procedures and Conditions. Each disbursement under the Revolving Credit obtained by the Borrower shall be subject to the following terms and conditions: (a) General. (1) Each disbursement obtained by the Borrower shall be in the minimum principal sum of Ten Thousand Dollars ($10,000.00). (2) The Borrower may obtain disbursements only in connection with Eligible Customer Leases. (3) The Borrower's right to obtain the requested disbursement is subject to the Borrower's compliance with the Assignment in connection with all of the Customer Leases and Related Documents described in the Security Agreement delivered under Subsection (c)(2). (4) The Borrower hereby authorizes the treasurer of the Borrower, and any person designated by the board of directors of the Borrower pursuant to a resolution which has been certified to the Lender by the corporate secretary or an assistant corporate secretary of the Borrower, to make either an oral or a written request for disbursement. As long as the Lender believes in good faith that the person actually making any oral request for disbursement is, in fact, such treasurer or other person designated by the Borrower's board of directors, then any disbursement made as a result of the request for disbursement shall be deemed to have been made pursuant to a valid and authorized request for disbursement, regardless of E-8 whether the maker of the request for disbursement was truly who he or she claimed to be. (5) The Borrower shall not be entitled to obtain any disbursement if any Event of Default or Unmatured Default shall exist at the time of the making of the request for disbursement, or would exist upon the making of the disbursement requested, even if the Lender does not elect to terminate the disbursement as a result of such Event of Default or Unmatured Default. The Lender agrees to provide the Borrower with notice of any determination by the Lender to refuse to make additional advances of the Revolving Credit because of the existence of an Unmatured Default as soon as practicable following any such determination, and the Lender acknowledges that the Borrower shall again be entitled to advances of the Revolving Credit if, in such event, such Unmatured Default is cured prior to the occurrence of any Event of Default. (6) The Borrower shall not be entitled to obtain any requested disbursement if immediately after the disbursement were to be made, a mandatory prepayment would be required under Section 3.08 below. The Borrower also shall not be entitled to obtain any disbursement if immediately after the disbursement were to be made, the aggregate of the unpaid principal balance of the Revolving Credit would exceed the maximum amount permitted under Section 3.02. (7) All disbursements shall be made in strict compliance with the terms and provisions of this Agreement, unless the Lender elects in its sole discretion to waive any of those terms and conditions. The waiver of any terms and conditions with respect to any one disbursement shall not constitute a waiver of the same or any other terms or conditions with respect to any other disbursement. (8) Each request by the Borrower for a disbursement hereunder shall constitute the making of the following representations and warranties by the Borrower to the Lender: (A) That the Borrower is then, and at the time the disbursement actually is made will be, entitled under this Agreement to obtain that disbursement; and (B) That all of the respective covenants, agreements, representations and warranties made by the Borrower in this Agreement, the Security Agreement, and in any writing delivered to the Lender by or on behalf of the Borrower are true, correct and complete in all material respects, and have been complied with in all E-9 material respects (to the extent required by the terms thereof) as of such dates. For purposes of this representation and warranty, the Borrower is representing and warranting solely with respect to its respective covenants, agreements, representations and warranties contained in the Borrower Documents and in any other writing expressly stating further covenants, agreements, representations and warranties of such Person, which is signed by such Person and delivered to the Lender, by or on behalf of such Person. (b) [INTENTIONALLY OMITTED] (c) Funding. Whenever the Borrower desires to obtain a disbursement of the Revolving Credit pursuant to this Agreement, the Borrower shall cause an authorized representative to: (1) Request from the Lender a disbursement either orally or in writing, not less than three (3) business days prior to the date on which the Borrower desires that the Revolving Credit be disbursed, stating with specificity (A) the amount of the disbursement requested, the amount of which shall not exceed the Borrower's Cost, and (B) the day on which the Borrower desires the funds to be made available (the "Funding Date"); (2) Deliver to the Lender on or before the Funding Date, an original, fully executed Assignment of Customer Leases and Related Documents (as defined in the Security Agreement) which describes, with such information and in such detail as the Lender may reasonably require from time to time, the specific Customer Leases and Related Documents that are being assigned in connection with that particular disbursement, as well as the original Customer Leases being assigned to the Lender; (3) Deliver to the Lender on or before the Funding Date, evidence satisfactory to the Lender, in its discretion, that the Borrower has created and perfected a first priority security interest in each and every item of Leased Equipment leased pursuant to the Customer Lease assigned to the Lender pursuant to the Security Agreement, unless this requirement is waived in writing by Lender; (4) Such information and documentation as is acceptable to the Lender conclusively establishing the Borrower's cost of the Leased Equipment to be leased to the respective Customer ("Borrower's Costs"); and (5) Deliver to the Lender on or before the Funding Date with respect to each Customer, all of the documentation and information reasonably requested by Lender. E-10 3.05 Notation of Disbursements and Payments. Disbursements of, and payments of principal with respect to, the Revolving Credit shall be evidenced by notations by the Lender on its electronic data processing equipment, showing the date and amount of each advance and each payment of principal. The principal amount outstanding under the Revolving Credit from time to time shall also be recorded by the Lender on that electronic data processing equipment. The Lender shall give the Borrower monthly written notices of the outstanding principal balance of the Revolving Credit not fewer than five (5) days prior to the date on which each monthly interest payment is due under the Revolving Credit and shall further disclose the applicable interest rates. The Borrower agrees and acknowledges that the Lender's undertaking is for the convenience of the Borrower only, and that the Lender's failure to provide the principal balance and interest rate shall not excuse the Borrower from making any payment or otherwise taking or refraining from any action that the Borrower would otherwise be required to take or refrain from taking under this Agreement and/or any other Borrower Document. The aggregate amount of all disbursements of the Revolving Credit made and shown on the Lender's electronic data processing equipment, over all of the payments of principal made by the Borrower and recorded on the Lender's electronic data processing equipment, shall be prima facie evidence of the outstanding principal balance due under the Revolving Credit. 3.06 Optional and Mandatory Revolving Credit Loan Note Principal Payment. (a) The Borrower may make optional prepayments of principal of the Revolving Credit from time to time without penalty or additional interest. All payments of principal of the Revolving Credit shall replenish the Revolving Credit (up to but not exceeding the maximum amount provided in Section 3.02), and may be reborrowed (in accordance with and subject to this Agreement) once repaid. (b) The Borrower shall pay to the Lender, on the last calendar day of each March, June, September and December during the term of this Agreement the outstanding principal balance of the Revolving Credit as of such date. For purposes of making such principal payments due on the last calendar day of March, June, September and December, Borrower may request a draw on the Draw Facility, in accordance with and subject to Section IV below, for the sole and limited purpose of paying in full the principal outstanding on the Revolving Credit as of such date and converting such indebtedness into long term financing. The amount of principal available under the Revolving Credit shall be replenished in an amount equal to the amount drawn on the Draw Facility, provided however, that at no time E-11 shall the maximum amount available under the Revolving Credit exceed Five Million Dollars ($5,000,000.00). 3.07 Revolving Credit Interest Payments. The Borrower shall pay all accrued but unpaid interest on the outstanding principal balance of the Revolving Credit on the 10th day of each calendar month, beginning on November 10, 1997, and on the 10th day of each calendar month thereafter during such time as any principal balance of the Revolving Credit remains unpaid. At least five (5) days before the date upon which each interest payment of the Revolving Credit is due, the Lender shall give the Borrower notice of the amount of the payment due and the total balance outstanding of all disbursement of the Revolving Credit. Any failure by the Lender to give such notice shall not relieve the Borrower of the obligation to make the payment then due. 3.08 Mandatory Prepayments; Collateral Substitution. If (a) either (i) payments of $150,000 or more in the aggregate due under Customer Leases assigned to the Lender pursuant to the Security Agreement (each an "Assigned Lease") or (ii) fifteen percent (15%) or more of the regular monthly lease payments due the Borrower under the Assigned Leases, are more than ninety (90) days past due, or (b) the Customer obligor(s) on fifteen percent (15%) of the total, aggregate dollars volume of Assigned Leases institutes bankruptcy, insolvency, reorganization, liquidation or receivership proceedings, or has a petition for any such proceeding filed against it and does not contest such filing within thirty (30) days thereafter, or (c) an Assigned Lease has not been assigned and delivered to the Lender under the Security Agreement, or (d) except as provided in Section 3.04(c)(3) above, the Borrower fails to create, perfect or maintain a first perfected security interest in any Leased Equipment securing an Assigned Lease, or (e) any of the representations or warranties contained in the Security Agreement related to the Assigned Lease shall be or become materially untrue, then such Assigned Leases shall no longer constitute Eligible Collateral and shall be deemed ineligible collateral ("Ineligible Collateral"). Within ten (10) days of the occurrence of an Assigned Lease becoming Ineligible Collateral (an "Occurrence"), the Borrower shall provide the Lender written notice of an Occurrence. Within thirty (30) days of an Occurrence, the Borrower shall, unless it corrects the event resulting in the Occurrence, eliminate the Ineligible Collateral from the Collateral securing the Revolving Credit by (1) prepaying all principal and all accrued but unpaid interest on the Revolving Credit related to the Ineligible Collateral, or (2) substituting by assignment a new Customer Lease satisfactory to the Lender, as determined in the Lender's sole discretion. 3.09 Termination of Revolving Credit. The Lender shall have the right, at its sole option and absolute E-12 discretion, to terminate the Revolving Credit upon the occurrence of any Event of Default and upon giving the Borrower notice of termination. The termination of the Revolving Credit shall not in any way release the Borrower from its obligations under this Agreement and the other Borrower Documents, nor shall it terminate this Agreement or the other Borrower Documents, and the security shall continue in full force and effect until all amounts owed by the Borrower to the Lender on the Revolving Credit, the Draw Facility and the Draw Facility Notes, including, without limitation, interest, penalties, and other charges, shall have been paid in full. 3.10 Extension of Revolving Credit. The Lender is under no duty to extend the period of the Revolving Credit beyond October 1, 1998. Before, at or after the termination of the Revolving Credit, the Lender may extend the term of the Revolving Credit on a basis and with terms and conditions satisfactory to the Lender in its sole discretion, for one or more successive one year terms. Any such extension must be done in writing signed by the Lender and specifically providing for an extension of the Revolving Credit in order to be binding on the Lender. Upon any extension of the period of the Revolving Credit, the Security Agreement, the Guaranty Agreement and the other Borrower Documents shall remain in effect and shall continue to apply to the Revolving Credit, as extended, until the Revolving Credit, as extended, renewed or replaced, shall have been paid in full. SECTION IV The Draw Facility The Lender hereby establishes a non-revolving draw facility (the "Draw Facility") in favor of the Borrower as follows: 4.01 Amount of Draw Facility. The maximum principal amount of the Draw Facility shall not exceed Fifteen Million Dollars ($15,000,000.00). 4.02 Term of the Draw Facility. The Draw Facility is effective as of the date of this Agreement, and unless the Draw Facility is sooner terminated or extended as provided in this Agreement, shall continue in effect until October 1, 1998. Unless sooner terminated or extended, the Draw Facility shall terminate on October 1, 1998, and thereafter the Borrower shall not be entitled to obtain any additional draws or advances on the Draw Facility. 4.03 Termination of Draw Facility. The Lender shall have the right, at its sole option and absolute discretion, to terminate the Draw Facility upon the occurrence of any E-13 Event of Default and upon giving the Borrower notice of termination. The termination of the Draw Facility shall not in any way release the Borrower from its obligations under this Agreement and the other Borrower Documents, nor shall it terminate this Agreement or the other Borrower Documents, and the security shall continue in full force and effect until all amounts owed by the Borrower to the Lender on the Revolving Credit, the Draw Facility or the Draw Facility Notes, including, without limitation, interest, penalties, and other charges, shall have been paid in full. 4.04 Extension of Draw Facility. The Lender is under no duty to extend the period of the Draw Facility beyond October 1, 1998. Before, at or after the termination of the Draw Facility, the Lender may extend the term of the Draw Facility, on a basis and with terms and conditions satisfactory to the Lender in its sole discretion, for one or more successive one year terms. Any such extension must be done in a writing signed by the Lender and specifically providing for an extension of the Draw Facility in order to be binding on the Lender. Upon any extension of the period of the Draw Facility, the Security Agreement, the Guaranty Agreement and the other Borrower Documents shall remain in effect and shall continue to apply to the Draw Facility, as extended, until the Draw Facility, as extended, renewed or replaced, shall have been paid in full. The failure of the Lender to extend the Draw Facility shall not, in itself, act as an acceleration of the Draw Facility Notes (as defined below). 4.05 Purposes of the Draw Facility. Proceeds of the Draw Facility shall be used by the Borrower strictly and solely to pay down the principal outstanding on the Revolving Credit, as provided in Section 3.06 above, and refinance such principal in accordance with the terms and conditions of a Draw Facility Note. 4.06 Procedures and Conditions. Each draw on the Draw Facility that is requested by the Borrower shall be subject to the following terms and conditions: (a) General. (1) Each draw by the Borrower on the Draw Facility pursuant to Section 3.06(b) shall be secured by the Eligible Customer Leases previously assigned to the Lender as security for the respective disbursements of the Revolving Credit. Each draw made by the Borrower on the Draw Facility shall be evidenced by a separate Draw Facility Note dated as of the date of such draw in a principal amount equal to such draw. Borrower agrees to pay the Lender a note processing fee of One Hundred Dollars ($100.00) for each Draw Facility Note established hereunder. E-14 (2) The Borrower may obtain draws on the Draw Facility only in connection with principal payments required to be made on the Revolving Credit as provided in Section 3.06(b) above. (3) The Borrower's right to obtain the requested draw on the Draw Facility is subject to the Borrower's continued compliance with the Security Agreement in connection with all of the Customer Leases and Related Documents described in the Security Agreement. (4) The Borrower hereby authorizes the treasurer of the Borrower, and any person designated by the board of directors of the Borrower pursuant to a resolution which has been certified to the Lender by the corporate secretary or an assistant corporate secretary of the Borrower, to make either an oral or a written request for disbursement. As long as the Lender believes in good faith that the person actually making any oral request for disbursement is, in fact, such treasurer or other person designated by the Borrower's board of directors, then any draw made as a result of the request for a draw on the Draw Facility shall be deemed to a have been made pursuant to a valid and authorized request for a draw on the Draw Facility, regardless of whether the maker of the request for the draw was truly who he or she claimed to be. (5) The Borrower shall not be entitled to obtain any draw on the Draw Facility if any Event of Default or Unmatured Default shall exist at the time of the making of the request for the draw, or would exist upon the making of the draw on the Draw Facility requested, even if the Lender does not elect to terminate the Draw Facility as a result of such Event of Default or Unmatured Default. The Lender agrees to provide the Borrower with notice of any determination by the Lender to refuse to make additional draws of the Draw Facility because of the existence of an Unmatured Default as soon as practicable following any such determination, and the Lender acknowledges that the Borrower shall again be entitled to request draws of the Draw Facility if, in such event, such Unmatured Default is cured prior to the occurrence of any Event of Default. (6) The Borrower shall not be entitled to obtain any draw on the Draw Facility if immediately after the draw were to be made, a mandatory prepayment would be required under Section 4.12 below. The Borrower also shall not be entitled to obtain any draw on the Draw Facility if immediately after the draw were to be made, the aggregate of the unpaid principal balance of the Draw Facility would exceed the maximum amount permitted under Section 4.01. (7) All draws on the Draw Facility shall be made in strict compliance with the terms and provisions of E-15 this Agreement, unless the Lender elects in its sole discretion to waive any of those terms and conditions. The waiver of any terms and conditions with respect to any one draw shall not constitute a waiver of the same or any other terms or conditions with respect to any other draw. (8) Each request by the Borrower for a draw hereunder shall constitute the making of the following representations and warranties by the Borrower to the Lender: (A) That the Borrower is then, and at the time the draw actually is made will be, entitled under this Agreement to obtain that draw; and (B) That all of the respective covenants, agreements, representations and warranties made by the Borrower in this Agreement, the Security Agreement, and in any writing delivered to the Lender by or on behalf of the Borrower are true, correct and complete in all material respects, and have been complied with in all material respects (to the extent required by the terms thereof) as of such dates. For purposes of this representation and warranty, the Borrower is representing and warranting solely with respect to its covenants, agreements, representations and warranties contained in the Borrower Documents and in any other writing expressly stating further covenants, agreements, representations and warranties of such Person, which is signed by such Person and delivered to the Lender, by or on behalf of such Person. (b) [INTENTIONALLY OMITTED] (c) Funding. Whenever the Borrower desires to obtain a draw on the Draw Facility pursuant to this Agreement, the Borrower shall cause an authorized representative to: (1) Request from the Lender a draw, either orally or in writing, not less than three (3) business days prior to the date on which the Borrower desires that the draw be disbursed, stating with specificity (A) the amount of the draw requested, the amount of which shall not exceed the principal amount then outstanding on the Revolving Credit as of the Funding Date, and (B) the day on which the Borrower decides the funds are to be made available (the "Funding Date"), which shall be either the last calendar day of March, June, September or December; (2) Deliver to the Lender, if the Borrower has not already done so, on or before the Funding Date, an Assignment of Customer Leases and Related Documents (as defined in the Security Agreement) which describes with such information and in such detail as the Lender may E-16 require from time to time, the specific Customer Leases and Related Documents that are being assigned in connection with that particular Draw Facility Note; (3) Deliver to the Lender, if the Borrower has not already done so, on or before the Funding Date, evidence satisfactory to the Lender, in its sole discretion, that the Borrower has created and perfected a first priority security interest in each item of Leased Equipment leased pursuant to a Customer Lease assigned to the Lender pursuant to the Security Agreement; (4) Deliver to the Lender, if the Borrower has not already done so, on or before the Funding Date with respect to each Customer, all of the documentation and information identified in this section to the extent not previously submitted to the Lender; and (5) Such other documentation that the Lender may reasonably require. 4.07 Notation of Disbursements and Payments. Disbursements of principal with respect to the Draw Facility shall be evidenced by notations by the Lender on its electronic data processing equipment, showing the date and amount of each advance of principal. The principal amount outstanding under each Draw Facility Note from time to time shall also be recorded by the Lender on that electronic data processing equipment. 4.08 Non-Revolving. The Draw Facility is a non- revolving credit facility, and the amount of principal repaid on the Draw Facility Notes shall not be available to be reborrowed or redrawn under the Draw Facility or under the respective Draw Facility Note. 4.09 Interest Rate on the Draw Facility Notes. At the time there is a draw on the Draw Facility and a corresponding Draw Facility Note is executed, the Borrower shall have the option of choosing one of the five (5) methods of determining the per annum interest rate that will accrue on such loan that are set forth in the Draw Facility Note. Other terms and conditions of the Draw Facility Notes, which shall be in a form substantially similar to Annex E attached hereto, with appropriate insertions, are incorporated herein by reference, specifically including but not limited to terms concerning the calculation of interest and when interest is to be paid. 4.10 Payment of Interest and Principal on the Draw Facility Notes. There shall be monthly interest and principal payments on a respective Draw Facility Note. The principal payments shall be equal payments amortized over the term of the respective Draw Facility Note. The monthly E-17 aggregate lease payments received by the Borrower on the Assigned Leases securing the respective Draw Facility Notes shall be applied first to any accrued but unpaid interest, and all remaining lease payments shall then be applied to the principal payment due on such Draw Facility Note. Payments shall be due on the dates set forth in the respective Draw Facility Note. 4.11 Term of Draw Facility Notes. The term of each respective Draw Facility Note shall be for a period not to exceed three (3) years without the Lender's prior consent, which term shall commence on the execution date of such Draw Facility Note. 4.12 Mandatory Prepayments on Draw Facility Notes. If (a) either (i) payments of $150,000 or more in aggregate due under one or more Customer Leases assigned to the Lender to secure a Draw Facility Note pursuant to the Assignment (an "Assigned Lease") or (ii) fifteen percent (15%) or more of the regular monthly lease payments due the Borrower under the Assigned Leases, are more than ninety (90) days past due, or (b) the Customer obligor(s) on fifteen percent (15%) of the total, aggregate dollars volume of Assigned Leases institutes bankruptcy, insolvency, reorganization, liquidation or receivership proceedings, or has a petition for any such proceedings filed against it and does not contest such filing within thirty (30) days thereafter, or (c) an Assigned Lease had not been assigned and delivered to the Lender under the Security Agreement, or (d) except as provided in Section 3.04(c)(3) above, the Borrower fails to create, perfect or maintain a first priority security interest in any Leased Equipment securing an Assigned Lease, or (e) any of the representations or warranties contained in the Security Agreement related to the Assigned Lease shall be or become materially untrue, then such Assigned Leases shall no longer constitute Eligible Collateral and shall be deemed ineligible collateral ("Ineligible Collateral"). Within (10) days of the occurrence of an Assigned Lease becoming Ineligible Collateral (an "Occurrence"), the Borrower shall provide the Lender written notice of an Occurrence. Within thirty (30) days of an Occurrence, the Borrower shall, unless it corrects the event resulting in the Occurrence, eliminate the Ineligible Collateral from the Collateral securing the respective Draw Facility Note by (1) prepaying all principal and all accrued but unpaid interest on the respective Draw Facility Note related to the Ineligible Collateral, or (2) substituting by assignment a new Eligible Customer Lease satisfactory to the Lender, as determined in the Lender's sole discretion. Furthermore, in the event any Customer makes a prepayment on a respective Eligible Customer Lease, then the Borrower shall make a principal prepayment on the respective Draw Facility Note in an amount equal to the amount prepaid by the Customer. Provided however, in the event the Borrower makes a E-18 prepayment, such prepayment shall not change any such payment due date or the amount on the regularly scheduled installment of principal due on the respective Draw Facility Note. SECTION V 5.01 Security for the Loans. The Revolving Credit and the Draw Facility Loans are and shall be individually and collectively secured by and entitled to the benefits of all of the following: (a) Right of Offset. The right of offset provided in Section 10.01 of this Agreement. (b) Security Interest in the Collateral. A security interest granted by the Borrower in the Collateral, pursuant to the Security Agreement substantially in the form attached hereto as Annex D. (c) Guaranty. By the payment guaranty of the Guarantor pursuant to the Guaranty Agreement substantially in the form attached hereto as Annex B. SECTION VI Conditions Precedent 6.01 Conditions Precedent. The Lender's obligation to provide the Borrower with draws under the Revolving Credit and/or the Draw Facility shall be conditioned upon the fulfillment of all the following conditions: (a) Resolutions. The Borrower and the Guarantor shall have each furnished the Lender with a certified copy of the resolutions of their respective board of directors (1) authorizing the execution of the following documents to which they are parties: this Agreement, the Revolving Credit Note, the Draw Facility Notes, the Security Agreement, the Guaranty Agreement, and any other documents, instruments and agreements referred to herein which are required to be executed and delivered by the Borrower or the Guarantor and (2) authorizing consummation of the transactions contemplated by, and performance of this Agreement. (b) Opinion of Counsel. The Borrower shall have furnished the Lender, at the Borrower's expense, with the legal opinion of Lindhorst and Dreidame, as counsel for the Borrower and Guarantor addressed to the Lender, dated as of the Date hereof, satisfactory to the Lender and its counsel and substantially in the form attached hereto as Annex F. E-19 (c) Certificate of Incumbency. The Borrower and the Guarantor shall have furnished the Lender with certificates of their respective secretaries certifying the names of the respective officers of the Borrower and Guarantor authorized to sign the Borrower Documents, together with the true signatures of such officers. (d) Executed Agreements. The Borrower and the Guarantor shall have duly executed each of the following documents to which they are parties and shall have delivered to the Lender the following: (1) this Agreement; (2) the Revolving Credit Note and the Draw Facility Notes (each to be executed and delivered at the time of the related advance of funds); (3) the Security Agreement; (4) the Guaranty Agreement; and (5) such financing statements or other documents for filing with public officials with respect to the Assignment and the Security Agreement as the Lender may request. (e) Representations and Warranties. Each and every representation and warranty made by or on behalf of the Borrower, the Guarantor or either of them at the time of or after the execution of this Agreement relating to the Borrower Documents to which they are a party or the transactions contemplated thereby shall be substantially true, complete and correct on and as of the date draw or disbursement is to be made under the Revolving Credit and/or the Draw Facility. (f) No Defaults. There shall exist no Event of Default or Unmatured Default which has not been cured to the Lender's satisfaction. (g) No Change in the Borrower's or the Guarantor's Condition. There shall have been no material adverse change in the condition, financial or otherwise, of the Borrower and the Guarantor, from that existing on the date of the financial statements described in Section 8.06 of this Agreement. For purposes hereof, "material adverse change" shall mean a 25% or greater decrease in the Tangible Net Worth of the Guarantor and the Borrower on an aggregate basis. E-20 (h) Documentation. The Borrower shall have complied with Section 3.04 of this Agreement in all respects, and delivered all documents and instruments required thereby. (i) Recordings and Filings. All financing statements or other instruments as the Lender may reasonably request have been executed and delivered by the Borrower and filed or recorded in such public offices as the Lender may request to perfect and maintain the perfection of the security interests which secure the Revolving Credit and/or the Draw Facility. (j) Assurances and Opinions for Property Outside Kentucky. The Lender shall have received reports of searches of personal property records from the appropriate reporting agency in the states outside of Kentucky in which any Collateral is located, which do not disclose any security interest in the Collateral or any purchase money security interests existing as of the date of this Agreement except as disclosed on Schedule 8.10, that is prior to the Lender's security interest in such Collateral, on or after the perfection of the Lender's security interest in such Collateral. The Lender may obtain such reports, but the Borrower shall pay all reasonable costs associated with obtaining them. (k) Insurance Certificates. The Lender shall have received the certificates of insurance required by Section 7.01 of this Agreement. (l) Counsel Fees. The Borrower shall have paid the Lender's counsel fees and expenses in accordance with Section X of this Agreement. (m) [INTENTIONALLY OMITTED] 6.02 Conditions Precedent to Subsequent Disbursements. The Lender's obligation to make disbursements of Revolving Credit and/or the Draw Facility after the first disbursement shall be conditioned upon the fulfillment prior to the making of each such disbursement, of the conditions set out in Section 6.01 of this Agreement and to the further condition that the representations set out in Section 3.04(a)(8) are true, complete and correct. SECTION VII General Covenants During the term of this Agreement, the Borrower shall comply with all of the following provisions: E-21 7.01 Insurance. The Borrower shall maintain insurance as follows: (a) Casualty Insurance. Maintain and/or cause to be maintained insurance policies on all real and personal property of Borrower (including, but not by way of limitation, the Collateral and other security for the obligations provided for herein) with reputable carriers acceptable to the Lender to such extent and against such hazards and liabilities as is commonly maintained by companies similarly situated, such policies to specify the Lender as the "loss payee" of Borrower and carry endorsements that require thirty (30) days advance notice to the Lender of any alteration to or cancellation of same, and at least annually (and more frequently if requested by the Lender) provide the Lender with certificates of insurance or other satisfactory evidence thereof. (b) Liability Insurance. Maintain in full force and effect such liability insurance with respect to the activities of Borrower and other insurance as is commonly maintained by similar companies and as may be reasonably required by Lender, all such insurance to be provided by reputable carriers acceptable to Lender. (c) General Insurance Requirements. (1) All insurance shall provide that any loss thereunder shall be payable notwithstanding any action, inaction, breach of warranty or condition, breach of declarations, misrepresentation or negligence of the Borrower. (2) Prior to the expiration date of any policy of insurance maintained pursuant to this Agreement, the Borrower shall provide the Lender with a certificate of insurance evidencing the acquisition of a new policy, or an extension or renewal of an existing policy, evidencing the Borrower's due compliance with this section. (3) If the Borrower fails to acquire any policy of insurance required to be maintained pursuant to this section, or fails to renew or replace any such policy at least ten (10) days prior to the expiration thereof, or fails to keep any such policy in full force and effect, the Lender shall have the option (but not the obligation) to pay the premiums on any such policy of insurance or to take out new insurance in amount, type, coverage and terms satisfactory to the Lender, after first notifying the Borrower of the Lender's intent to pay it. Any amount paid therefor by the Lender shall be immediately due and payable to the Lender by the Borrower upon demand. No exercise by the Lender of such option shall in any way affect the provisions of this Agreement, including the E-22 provision that failure by the Borrower to maintain the prescribed insurance shall constitute an Event of Default. 7.02 Taxes and Other Payment Obligations. (a) The Borrower shall pay and discharge, or cause to be paid and discharged, before any of them become in arrears, all taxes, assessments, governmental charges, levies, and claims for labor, materials or supplies which if unpaid might become a lien or charge upon any of their property, and all of their other debts, obligations and liabilities. (b) The Borrower may refrain from paying any amount it would be required to pay pursuant to subparagraph (a) of this section if the validity or amount thereof is being contested in good faith by appropriate proceedings timely instituted which shall operate to prevent the collection or enforcement of the obligation contested, provided that if the Borrower engaged in such a contest, shall have set aside on its books appropriate reserves with respect thereto. If the validity or amount of any such obligations in excess of Fifty Thousand Dollars ($50,000.00) shall be contested pursuant to the provisions of this subparagraph, the Borrower shall notify the Lender immediately upon the institution of the proceedings contesting the obligation. 7.03 Financial Statements. (a) Statements. As soon as available, and in any event within ninety (90) days after the end of each fiscal year of the Guarantor, the Guarantor shall furnish to the Lender a copy of its annual audited consolidated financial statements of Guarantor (specifically including but not limited to Borrower) prepared in accordance with generally accepted accounting principle applied on a basis consistent with that of preceding fiscal year, with detail consistent with past financial statements ((i) including, at a minimum, a profit and loss statement with proper footnotes, a balance sheet, statement of retained earnings and sources and application of funds), and signed by an independent certified public accountant; (ii) as filed at the time with SEC, but in any event within seventy five (75) days after the last day of each fiscal quarter, a copy of its Form 10-Q with attached balance sheet and income statement for such quarters. (b) Additional Corporate Financial Information. The Borrower shall deliver to the Lender: (1) Within ten (10) days after the filing thereof in the office of the Secretary of State of the E-23 Commonwealth of Kentucky, certified copies of all amendments to the Borrower's Articles of Incorporation. (2) Such additional information with respect to its financial condition as may be reasonably requested by the Lender from time to time. (c) Lease Register. Within fifteen (15) days after the end of each fiscal month, the Borrower shall deliver to the Lender a lease register covering all Assigned Leases which are current (the "Current Register") and a separate lease register covering all Assigned Leases which are delinquent (the "Delinquent Lease Register"). The Current Register shall set forth the name of each Customer obligor on an Assigned Lease who is current as of the last day of the immediately preceding month, the total payment made by each of those Customers during that month, and the remaining lease balance at the end of the month owed by each of those Customers under its respective Assigned Lease. The Delinquent Register shall set forth the name of the each Customer obligor on an Assigned Lease who is delinquent as of the last day of the immediately preceding month, the amount of the delinquent payment or payments which each of those Customers has failed to make, the duration of each delinquent payment and the remaining lease balance at the end of the month owed by each of those Customers under its respective Assigned Lease. 7.04 Financial Records. The Borrower shall maintain a standard modern system of accounting in which full, true and correct entries shall be made of all dealings or transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a basis consistent with prior years and, without limitation, making appropriate accruals. 7.05 Properties. The Borrower shall maintain its facilities, if any, and other fixed assets in good condition, subject only to normal wear and tear (fire and other acts of God excepted), and make all necessary and proper repairs, renewals and replacements. The Borrower shall comply with all material leases and other material agreements in order to prevent loss or forfeiture, unless compliance is being contested in good faith by appropriate proceedings timely instituted which shall operate to prevent enforcement of the loss or forfeiture. The Lender shall have the right to inspect the Borrower's facilities, if any, and other fixed assets at all reasonable times, and from time to time. 7.06 Corporate Existence and Good Standing. The Borrower shall preserve its corporate existence in good standing and shall be and remain qualified to do business and in good standing in all states and countries in which E-24 the nature and conduct of its business operations requires qualification and in which the failure to be so qualified would have a materially adverse affect on the business operation and financial condition of the Borrower taken as a whole. 7.07 Notice Requirements. (a) Default. The Borrower shall cause its President, or in his absence an officer of the Borrower designated by it, to notify the Lender in writing within five (5) days, after the Borrower, or any of the Borrower's officers or directors, has notice of any Event of Default or Unmatured Default or has notice that any representation or warranty made in this Agreement, or in any related document or instrument, for any reason was not true and complete and not misleading in any material respect when made. Such notice shall specify the nature of such Event of Default or Unmatured Default and the action the Borrower has taken or will take to correct it. (b) Material Litigation. The Borrower promptly shall notify the Lender in writing of the institution or existence of any litigation or administrative proceeding to which the Borrower may be or become a party which might involve any material risk of any judgment or liability which (1) would be in excess of Five Hundred Thousand Dollars ($500,000.00), (2) would otherwise result in any material adverse change in the Borrower's business, assets or condition, financial or otherwise or (3) would monetarily affect the Lender's Security interest in the Collateral. (c) Other Information. From time to time, upon request by the Lender, the Borrower shall furnish to the Lender such information regarding the Borrower's business, assets and condition, financial or otherwise, as the Lender may reasonably request. The Lender shall have the right during reasonable business hours to examine all of the Borrower's business and financial books and records and to make notes and abstracts therefrom, to make an independent examination of the Borrower's books and records for the purposes of verifying the accuracy of reports delivered by the Borrower and ascertaining compliance with this Agreement. 7.08 Compliance with Law. The Borrower shall comply in all material respects with (a) all valid and applicable statutes, rules and regulations of the United States of America, of the States thereof and their counties, municipalities and other subdivisions and of any other jurisdiction applicable to the Borrower; (b) the orders, judgments and decrees of all courts or administrative agencies with jurisdiction over the Borrower; or its business; and (c) the provisions of licenses issued to the E-25 Borrower pursuant thereto, except where compliance therewith shall be currently contested in good faith by appropriate proceedings, timely instituted, which shall operate to stay any order with respect to such non-compliance. 7.09 Liens. Except for security interests previously granted by the Borrower to the Lender and those disclosed in Section 8.10(c) of this Agreement, and except for liens permitted in this Agreement or the other Borrower Documents, the Borrower shall not (a) create or incur or suffer to be created or incurred or to exist any encumbrance, mortgage, pledge, lien, charge, restriction or other security interest of any kind upon any of the Collateral, whether owned or held on the date of this Agreement or acquired thereafter, or upon the income or profits therefrom, or (b) transfer any such Collateral or the income or profits therefrom for the purpose of subjecting the same to payment of indebtedness or performance of any other obligation except payments made in accordance with Section 7.02 of this Agreement or payments made to the Lender in accordance with the terms and provisions of this Agreement, or (c) acquire, or agree or have an option to acquire, any Collateral upon conditional sale or other title retention or purchase money security agreement, device or arrangement, or (d) sell or transfer (except Inventory sold in the ordinary course of business), assign, or pledge any Collateral, with or without recourse. The Borrower may incur or create, or suffer to be incurred or created or to exist, the following liens (the "Permitted Liens") without violating the provisions of this Section 7.09: (1) Statutory liens to secure claims for labor, material or supplied to the extent that payment thereof shall not at the time be required to be made in accordance with Section 7.02 of this Agreement. (2) Deposits or pledges made in connection with, or to secure payment of, workers' compensation, unemployment insurance, old age pensions or other social security, or in connection with contests, to the extent that payment thereof shall not at that time be required to be made in accordance with Section 7.02 of this Agreement. (3) Statutory liens for taxes or assessments or governmental charges or levies if payment shall not at the time be required to be made in accordance with Section 7.02 of this Agreement. (4) Purchase money liens or security interests in property acquired by the Borrower and granted to vendors and lending institutions, which arise in the ordinary course of business, including but not necessarily limited to any Inventory acquired by Borrower through financing obtained on a non-recourse basis from such vendors and/or lending E-26 institutions (including but not limited to the Lender and its affiliates). (5) Statutory liens (and contractual liens that provide to the secured party no greater rights than equivalent statutory liens) to secure payment of rent or lease payments with respect to leases of real property to the extent that such payments shall not at the time be required to be made in accordance with Section 7.02 of this Agreement. (6) Liens granted in the normal course of business to procure bid, performance or surety bonds (so long as any of the liens noted in Subsections 1, 3, 5 and 6 herein, separately or in the aggregate, do not materially adversely offset the property or operations of the Borrower or materially diminish the Collateral or Lender's interest therein). Lender agrees that, in the event any promissory note is paid in full as a result of the Borrower obtaining non-recourse financing from a lending institution (including but not limited to affiliates of the Lender), the Lender shall subordinate its security interest in the specific item(s) of Leased Equipment and the Assigned Leases securing such promissory note to such lending institution. 7.10 Letters of Credit. Without the Lender's prior written consent which shall not be unreasonably withheld, the Borrower shall not have outstanding any letters of credit upon which the Borrower is the obligor or guarantor. 7.11 Articles of Incorporation and Bylaws. Without the Lender's prior written consent, which shall not be withheld or delayed unreasonably the Borrower shall not make any changes in or amendments to its articles of incorporation. 7.12 Mergers, Sales, Transfers and Other Dispositions of Assets. (a) Except as set forth in Subsection (b) of this Section, the Borrower shall not do any of the following without the Lender's prior written consent, which shall not be unreasonably withheld or delayed: (1) Be a party to any consolidation, reorganization (including without limitation those types referred to in Section 368 of the United States Internal Revenue Code of 1986, as amended), "stock-swap" or merger; (2) Sell or otherwise transfer any material part of its assets; E-27 (3) Purchase all or a substantial part of the capital stock or assets of any corporation or other business enterprise; (4) Effect any change in their respective capital structure; (5) Sell, assign, or otherwise dispose of, with or without recourse, settle or compromise any of its Accounts Receivable or notes receivable or other intangibles, except the endorsement of negotiable instruments for the purpose of collection in the ordinary course of business and as permitted in Section 12 of the Security Agreement; or (6) Liquidate or dissolve or take any action with a view toward liquidation or dissolution. (b) Without the Lender's prior written consent, the Borrower may sell or otherwise transfer from time to time its property, tangible or intangible, in the normal course of business or involving the sale of damaged, obsolete or discontinued assets. 7.13 Loans. The Borrower shall not make any loan or advance any funds whatsoever to any business, entity, party or individual, except advances not to exceed One Hundred Thousand Dollars ($100,000.00) in the aggregate at any one time outstanding. 7.14 Financial Covenants. The Borrower shall at all times comply with the financial covenants set forth in Exhibit 2 to this Agreement. 7.15 Location of Inventory. The initial location of the Leased Equipment will be disclosed by Borrower to the Lender at the time the Assigned Lease is assigned to Lender. Borrower and Lender acknowledge that a portion of the Leased Equipment are and will be mobile goods, and will be moved from one jurisdiction to another and Borrower will be unable to inform Lender as to such movement. Borrower will use its best efforts, if it has actual knowledge of the relocation of any Inventory (including but not limited to Leased Equipment) to: (a) Notify the Lender of the location to which the Inventory is being moved, located or relocated; (b) Pay the Lender's reasonable expenses incurred in obtaining searches of the public records of such proposed Inventory locations, or reimbursing the Lender for its reasonable expenses in obtaining such record searches; and E-28 (c) File or causing to be filed such financing statements or other documents as the Lender may require with such public authorities as the Lender shall deem necessary to perfect and protect the Lender's security interest in the Borrower's Inventory. 7.16 Control and Operation. Borrower shall remain as a wholly owned subsidiary of the Guarantor and the Guarantor shall be managed by persons reasonably acceptable to the Lender. 7.17 Lockbox. (a) On or before the tenth (10th) day following the assignment of an Assigned Lease to the Lender, the Borrower shall notify each obligor of the Assigned Lease of the Lender's security interest in the Assigned Lease created pursuant to the Assignment and direct each obligor to remit all future payments or other amounts provided in such Assigned Lease directly to a post office box designated by the Lender (the "Lockbox"). The Borrower may, from time to time, direct particular obligors of Assigned Leases to remit specific payments directly to the Borrower as part of the Borrower's usual and customary procedures for collecting payments from obligors whose payments are or have been paid late or otherwise require special handling or attention as a collection matter. (b) If any Unmatured Default or Event of Default has occurred and is continuing, the Lender may, at its option, have sole access to, and control and power of withdrawal over the Lockbox and use the proceeds from any payments collected through the Lockbox, beginning twenty- four (24) hours after such Unmatured Default or Event of Default and while it is continuing, to satisfy any Indebtedness of the Borrower to the Lender. In the event of such satisfaction, the Lender shall credit the proceeds as payment of the Revolving Credit, the Draw Facility Notes, and other Indebtedness first to reasonable costs incurred by Lender, then to interest, then to principal, but otherwise, as the Lender may desire, in its discretion. Any credit given to the Borrower in cash or solvent credit for the conditional upon final payment to the Borrower in cash or solvent credit for the items, and if any item is not paid the amount of any credit given for it shall be charged to the Borrower whether or not the item is returned, and such amount shall be a part of the obligations secured by the Security Agreement and the Guaranty Agreement. 7.18 Compliance with Other Borrower Documents. The Borrower shall pay the Revolving Credit Note and the Draw Facility Notes, in accordance with their respective terms, and the Borrower shall comply with the provisions of the Security Agreement and all other Borrower Documents. The E-29 Guarantor shall comply with the provisions of the Guaranty Agreement. 7.19 Depository Account. The Borrower shall contemporaneously with the execution hereof open a non- interest bearing depository account with the Lender and shall at all times maintain a minimum average daily balance of $200,000 in said account until the latter of (i) all amounts outstanding under the Revolving Credit Note are paid in full or (ii) the Lender is no longer obligated to disburse sums under the Revolving Credit pursuant to this Agreement. SECTION VIII Representations and Warranties To induce the Lender to enter into this Agreement and to make the Revolving Credit and the Draw Facility, the Borrower represents and warrants to the Lender as follows (which warranties and representations shall be deemed to be remade and restated in full (subject only to changes of circumstances which (1) are fully disclosed by the Borrower to the Lender in writing, describing the changed circumstances, and (2) do not result in any material violation of any condition, provision, promise and/or covenant of this Agreement, or otherwise result in an Unmatured Default or an Event of Default) whenever a disbursement under the Revolving Credit or Draw Facility is requested by the Borrower): 8.01 Corporate Organization and Existence. The Borrower is a corporation duly organized, validly existing, and in good standing under the laws of the Commonwealth of Kentucky. The Borrower has all necessary power and authority to carry on its business conducted on the date of this Agreement. The Borrower is qualified to do business as a foreign corporation, is in good standing, in all states and in all foreign countries in which it is required to be so qualified pursuant to Section 7.06 hereof, and is duly authorized, qualified and licensed under all laws, regulations, ordinances or orders of public authorities to carry on its business in the places and in the manner conducted on the date of this Agreement. 8.02 Right to Act. No registration with or consent or approval of any governmental agency of any kind is required for the execution, delivery performance and enforceability of the Borrower Documents. The Borrower has full power and authority, corporate and otherwise, to execute, deliver and perform the Borrower Documents to which it is a party. E-30 8.03 No Conflicts. The Borrower's execution, delivery and performance of the Borrower Documents to which it is a party does not, and will not, (a) violate any existing provision of the articles of incorporation or bylaws of the Borrower, or any law, rule, regulation, or judgment, order or decree applicable to the Borrower, or (b) otherwise constitute a default, or result in the imposition of any lien under (1) any existing contract or other obligation binding upon the Borrower or its respective property, with or without the passage of time or the giving of notice or both, or (2) any law, rule or regulation applicable to the Borrower or its business, or (3) any judgment, order or decree of any court or administrative agency applicable to the Borrower or its business. 8.04 Authorization. The execution, delivery and performance by the Borrower of the Borrower Documents to which it is a party has been duly authorized, and the Borrower Documents have been duly executed and delivered and constitute legal, valid and binding obligations enforceable against the Borrower. 8.05 Litigation and Taxes. (a) Except for those matters described in the financial statements referenced in Section 8.06 of this Agreement, there is no litigation, at law or in equity, or any proceeding before any federal, state or municipal court, board or other governmental or administrative agency pending, or to the knowledge of the Borrower, threatened which is likely to involve any material judgment or liability against the Borrower or which might otherwise result in any material adverse change in the Borrower's business, assets or condition, financial or otherwise. No judgment, decree or order of any federal, state or municipal court, board or other governmental or administrative agency has been issued against the Borrower or any of its assets which has, or might have, a material adverse effect on the Borrower's business, assets or condition, financial or otherwise. (b) The Borrower has filed all tax returns which are required to be filed and has paid, or made adequate provision for the payment of, all taxes which have or may become due pursuant to such returns or pursuant to assessments received. The Borrower knows of no material additional assessments for which adequate reserves have not been established, and the Borrower has made adequate provision for all current taxes. 8.06 Financial Statements. The Borrower's most recent financial statements of the type described in Subsections (a), (b) and (c) of Section 7.03 and dated as of their respective dates, have been furnished to the Lender. Those E-31 financial statements are true and complete, have been prepared in accordance with generally accepted accounting principles, do not omit reference to any material contingent liabilities of any kind, and fairly present the financial condition of the Borrower as of the date of the financial statements. 8.07 Compliance with Contractual Obligations, Laws and Judgments. (a) The Borrower is not in default in the payment, performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any lease, indenture, mortgage, deed of trust, promissory note, agreement or undertaking to which it is a party or by which its assets are bound. (b) The Borrower has not violated any applicable statute, regulation or ordinance of the United States of America or of any state, municipality or any other subdivision, jurisdiction or agency thereof, in any respect materially and adversely affecting the Borrower's business, property, assets, operations or conditions, financial or otherwise. (c) The Borrower is not in default with respect to any judgment, order, writ, injunction, decree or demand of any court, arbitrator or governmental agency or body. 8.08 Location of Inventory. The Borrower's Inventory is located at the locations set out on Schedule 1 to the Security Agreement. 8.09 No Undisclosed Liabilities or Guaranties. The Borrower has no material liabilities, direct or contingent, except as disclosed or referred to in the financial statements referred to in Section 8.06 of this Agreement or incurred by the Borrower after such date and not prohibited by the express terms of this Agreement, nor has the Borrower guaranteed, or otherwise become responsible for, the material obligations of any Person, other than as set out on Schedule 8.09 of this Agreement or otherwise not in contravention of any of the Borrower Documents. 8.10 Title to Properties. The Borrower has good and marketable title to all of its property and assets of all character, free and clear of all mortgages, liens and encumbrances except (a) encumbrances granted to the Lender, (b) minor irregularities in title which do not materially interfere with the use and enjoyment by the Borrower of such properties and assets in the normal course of business as presently conducted, or materially impair the value thereof for such business, (c) those encumbrances described on Schedule 8.10 to this Agreement, (d) those Permitted Liens E-32 permitted in Section 7.09, and (e) any other encumbrances permitted under the express terms of the Borrower Documents. 8.11 Trademarks and Permits. The Borrower possesses adequate licenses, patents, copyrights, trademarks and trade names to conduct its businesses as now conducted. Neither the Borrower nor any of its officers, directors or employees has received notice or has knowledge of any claim that the Borrower has violated any other Person's license, patent, copyright, trademark or trade name, or that the Borrower's licenses, patents, copyrights, trademarks or trade names are currently being infringed. The Borrower has all governmental permits, certificates, consents and franchises necessary to carry on its businesses as now conducted and to own or lease and operate its properties as now owned, leased or operated. All such governmental permits, certificates, consents and franchises are valid, and in effect, and the Borrower is not in violation thereof, and none of them contains any term, provision, condition or limitation more burdensome than generally applicable to persons engaged in the same or similar business. 8.12 Disclosure. Neither this Agreement, nor any agreement, document, certificate or statement furnished to the Lender by or on behalf of the Borrower in connection with the transactions contemplated by this Agreement contains any untrue statement of any material fact or omits to state any material fact necessary to make the statements contained herein or therein not misleading. There is no fact known to the Borrower which materially and adversely affects, or in the future is likely to materially and adversely affect, the Borrower's business, operations, affairs or condition, financial or otherwise, which has not been disclosed to the Lender. SECTION IX Events of Default The occurrence of any one or more of the following shall constitute an Event of Default under this Agreement (an "Event of Default"): 9.01 Failure to Pay. If the Borrower shall fail to pay in full any installment of principal or interest on the Revolving Credit or any Draw Facility Note, or payments required by Section III and/or IV of this Agreement, within five (5) calendar days after Lender has sent written notice to the Borrower that such payment has become due and is unpaid. 9.02 [INTENTIONALLY OMITTED] E-33 9.03 Notice Required. If any Event of Default occurs under any other Loan Document or the obligor with respect to any term, obligation, covenant, agreement, condition or other provision (other than those referred to in Section 9.01 hereof) contained or referred to in this Agreement shall fail to observe, perform or comply with those provisions, and such occurrence or failure shall not have been fully corrected to Lender's reasonable satisfaction within thirty (30) calendar days after the Lender has sent written notice thereof to the Borrower. 9.04 Falsity of Representation or Warranty. If any representation or warranty or other statement of fact contained in any of the Borrower Documents or in any writing, certificate, report or statement at any time furnished the Lender by or on behalf of the Borrower or the Guarantor pursuant to or in connection with this Agreement, the Revolving Credit or the Draw Facility shall have been false or misleading in any material respect or which shall omit a material fact, whether or not made with knowledge, at the time it was made. 9.05 Judgments. If a final judgment or judgments for the payment of money in excess of the sum of One Million Dollars ($1,000,000.00) in the aggregate, or with respect to property with a value in excess of such amount, shall be rendered against the Borrower or Guarantor and such judgment or judgments shall remain unsatisfied for a period of thirty (30) consecutive days after the entry thereof and within that thirty (30) days has not been (a) stayed pending appeal, or (b) discharged. 9.06 Adverse Financial Change. If there should be any material adverse change in the financial condition of the Borrower and Guarantor as determined on an aggregate basis in the Lender's reasonable discretion, from their respective financial conditions as shown on the financial statements referred to in Section 8.06 of this Agreement, and such adverse change is not fully corrected to Lender's reasonable satisfaction within thirty (30) days after notice with respect thereto has been sent from the Lender. "Material adverse change" as used herein shall have the meaning ascribed to such term in Section 6.01(g) of this Agreement. 9.07 Other Obligations to the Lender and its Affiliates. If the Borrower or Guarantor shall fail to observe, perform or comply with the terms, obligations, covenants, agreements, conditions or other provisions of any material agreement, document or instrument other than this Agreement and the other Borrower Documents which the Lender or any of its affiliates has entered into with the Borrower or Guarantor, as applicable, and which involves Indebtedness to the Lender or any of its affiliates and such failure shall not have been fully corrected to Lender's reasonable E-34 satisfaction after notice with respect thereto has been sent from Lender. 9.08 Dissolution or Termination of Existence. If the Borrower or Guarantor or any Person affiliated with either of them, takes any action that is intended to result in the termination, dissolution or liquidation of the Borrower or Guarantor. 9.09 Solvency. (a) If the Borrower or Guarantor shall (1) have an order of relief entered in any proceeding filed by it, as the case may be, under the federal bankruptcy laws (as in effect on the date of this Agreement or as they may be amended from time to time); (2) admit its inability to pay its debts generally as they become due; (3) become insolvent in that its total assets are in the aggregate worth less than all of its liabilities or it is unable to pay its debts generally as they become due; (4) make a general assignment for the benefit of creditors; (5) file a petition, or admit (by answer, default or otherwise) the material allegations of any petition filed against it, in bankruptcy under the federal bankruptcy laws (as in effect on the date of this Agreement or as they may be amended from time to time), or under any other law for the relief of debtors, or for the discharge, arrangement or compromise of their debts; or (6) consent to the appointment of a receiver, conservator, trustee or liquidator of all or part of its assets. (b) If a petition shall have been filed against the Borrower in proceedings under the federal bankruptcy laws (as in effect on the date of this Agreement, or as they may be amended from time to time), or under any other laws for the relief of debtors, or for the discharge, arrangement or compromise of their debts, or an order shall be entered by any court of competent jurisdiction appointing a receiver, conservator, trustee or liquidator of all or part of the Borrower's assets, and such petition or order is not dismissed or stayed within sixty (60) consecutive days after entry thereof. SECTION X Remedies Upon Default Notwithstanding anything to the contrary, if any Event of Default under this Agreement occurs, the Lender, in its sole discretion, and without notice to the Borrower, may (a) terminate the Revolving Credit and/or the Draw Facility, and the Lender shall be under no further obligation to grant any further disbursements or drawings under either the Draw Facility or the Revolving Credit to the Borrower, (b) declare the entire unpaid balance of the Revolving Credit E-35 Note, the Draw Facility Notes, and all other obligations of the Borrower under this Agreement to be immediately due and payable in full, without any presentment, demand or notice of any kind, all of which are hereby waived by the Borrower. In addition, upon the occurrence of any Event of Default, and at any time thereafter, unless all Events of Default have been remedied to the full satisfaction of the Lender or waived in a writing signed by the Lender specifically providing the waiver, the Lender shall have all of the following rights and remedies and it may exercise one or more of them singularly or in conjunction with others. 10.01 Right to Offset. The Lender shall have the right to set off against, or appropriate and apply toward the payment of, the obligations of the Borrower to the Lender, pursuant to this Agreement or as evidenced by the Draw Facility Notes or the Revolving Credit Note whether such obligations shall have matured in due course or by acceleration, any and all deposit balances and other sums and indebtedness then held or owed by the Lender to or for the credit or account of the Borrower. Such offsets following an Event of Default may occur without notice to or demand upon the Borrower or any other person, all of such notices and demands being hereby waived. 10.02 Enforcement of Rights. The Lender shall have the right, to proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceedings either for specific performance of any covenant or condition contained in any of the Borrower Documents, or in aid of the exercise of any power granted in any of the Borrower Documents. 10.03 Rights Under Security Instruments. The Lender shall also have all rights and remedies granted it under any and all agreements, including without limitation, the Security Agreement, and the Guaranty Agreement, securing or intending to secure the Borrower's obligations under the Draw Facility Notes, the Revolving Credit Note, or any other indebtedness or obligation of the Borrower under the Borrower Documents. 10.04 Cumulative Remedies. All of the rights and remedies of the Lender upon occurrence of an Event of Default shall be cumulative to the greatest extent permitted by law, may be exercised successively or concurrently, from time to time, and shall be in addition to all of those rights and remedies afforded the Lender at law, or in equity, or in bankruptcy. Notwithstanding the foregoing, the Lender shall be entitled to recover from the cumulative exercise of all remedies an amount no greater than the sum of (a) the outstanding principal amount of all Draw Facility Notes and the Revolving Credit Note, (b) all accrued but unpaid interest with respect to the principal amount of the E-36 Draw Facility Notes and the Revolving Credit Note, (c) any other amounts that the Borrower is required by this Agreement to pay to the Lender (for example, and without limitation, the reimbursement of expenses and legal fees, and late charges), and (d) any costs, expenses or damages which the Lender is otherwise permitted to recover by the terms of this Agreement. Any exercise of any right or remedy shall not be deemed to be an election of that right or remedy to the exclusion of any other right or remedy. SECTION XI Fees and Expenses 11.01 Transactions Expenses. The Borrower shall pay to the Lender $5,000.00 for the Lender's attorneys' fees incurred in preparing the Borrower Documents and shall pay up to $500.00 for other out-of-pocket expenses and any and all costs and fees incurred by Lender in connection with the initial recording or filing of any documents or instruments in any public office, pursuant to or as a consequence of this Agreement, or to initially perfect or protect any security for the Draw Facility and/or the Revolving Credit. The Borrower shall also pay to the Lender upon demand all reasonable out-of-pocket expenses subsequently incurred from time to time in the administration of the Revolving Credit and the Draw Facility, including, without limitation, any out-of-pocket expenses (including, but not limited to, reasonable attorneys' fees), filing fees, recording fees or other costs incurred by the Lender if any of the Borrower Documents should be amended, extended and/or renewed from time to time. 11.02 Enforcement Expenses. If any Event of Default shall occur under this Agreement, or any default shall occur under any of the Borrower Documents or any related documents, the Borrower shall pay to the Lender, to the extent allowable by applicable law, such amounts as shall be sufficient to reimburse the Lender fully for all of its costs and expenses incurred in enforcing its rights and remedies under the Borrower Documents and any related documents, including without limitation the Lender's reasonable attorney's fees and court costs. Such amounts shall be deemed to be included in the obligations secured by the Security Agreement and the Guaranty Agreement. SECTION XII Miscellaneous Provisions 12.01 Banking Days. If any provision of this Agreement or any of the other Borrower Documents requires E-37 that the Borrower make any payment, or otherwise perform any act, on a day on which the Lender is not open for business, then that payment or action shall be deemed to be due on the first day thereafter that the Lender is open for business. 12.02 Term of the Agreement. The term of this Agreement shall commence as of the date hereof, and continue until all obligations of the Borrower under the Draw Facility and the Revolving Credit and accrued but unpaid interest thereon shall have been paid in full (regardless of the fact that Lender may have elected not to extend the Revolving Credit and/or the Draw Facility) and the Borrower shall have paid or performed all of its obligations hereunder. 12.03 No Waivers. Failure of delay by the Lender in exercising any rights shall not be deemed to be or operate as a waiver of that right, nor shall any right be exclusive of any other right referred to in this Agreement, or in any other related document, or available at law or in equity, by statute or otherwise. Any single or partial exercise of any right shall not preclude the further exercise of that right. Every right of the Lender shall continue in full force and effect until such right is specifically waived in a writing signed by the Lender. 12.04 Course of Dealing. No course of dealing between the Borrower and Lender shall operate as a waiver of any of the Lender's rights under any of the Borrower Documents. 12.05 Waivers by the Borrower. The Borrower hereby waives, to the extent permitted by applicable law, (a) all presentments, demands for performances, notices of nonperformance (except to the extent specifically required by this Agreement or any other of the Borrower Documents), protests, notices of protest and notices of dishonor in connection with the Draw Facility Notes and the Revolving Credit Note (b) any requirement of diligence or promptness on the part of the Lender in enforcement of its rights under the provisions of any of the Borrower Documents, and (c) any requirement of marshalling assets or proceeding against persons or assets in any particular order. 12.06 Severability. If any part, term or provision of the Agreement is held by any court to be unenforceable or prohibited by any law applicable to this Agreement, the rights and obligations of the parties shall be construed and enforced with that part, term or provision limited so as to make it enforceable to the greatest extent allowed by law, or, if it is totally unenforceable, as if this Agreement did not contain that particular part, term or provision. E-38 12.07 Time of the Essence. Time shall be of the essence in the performance of all of the Borrower's obligations under the Borrower Documents. 12.08 Benefit and Binding Effect. This Agreement shall incur to the benefit of the Lender, its successors and assigns, and all obligations of the Borrower shall bind its respective successors and, if and to the extent assignment is otherwise permitted by this Agreement, its assigns. 12.09 Further Assurances. The Borrower shall sign such financing statements or other documents or instruments as the Lender may request from time to time to more fully create, perfect, continue, maintain or terminate the rights and security interests intended to be granted or created pursuant to this Agreement and the other Borrower Documents. 12.10 Incorporation by References. All schedules, annexes, exhibits or other attachments to this Agreement are incorporated into this Agreement as if set out in full at the first place in this Agreement that reference is made thereto. 12.11 Entire Agreement; No Oral Modifications. This Agreement, the schedules, annexes and exhibits hereto, and the documents and instruments referred to herein constitute the entire agreement of the parties with respect to the subject matter hereof, and supersede all prior understandings with respect to the subject matter hereof. No change, modification, addition or termination of this Agreement or any of the Borrower Documents shall be enforceable unless in writing and signed by the party against whom enforcement is sought. 12.12 Headings. The headings used in this Agreement are included for ease of reference only and shall not be considered in the interpretation or construction of this Agreement. 12.13 Governing Law. This Agreement and the related documents and instruments shall be governed by and construed in accordance with the laws of the Commonwealth of Kentucky, except to the extent that the laws of any other state, province or country where the Collateral is located require that the laws of such other state, province or country shall govern the creation, perfection or enforcement of the Lender's rights and security interests in such Collateral. 12.14 Assignments. The Borrower may not assign its rights under this Agreement to any other party. Any attempted assignment shall be a default under this Agreement and shall be null and void. The Lender shall have the right and ability to sell, assign or transfer all or any part of its rights and/or obligations under this Agreement, and/or E-39 to participate its rights and obligations under this Agreement with other lenders, and/or to sell participation or participating interests in its rights and/or obligations under this Agreement (provided however, that should the Lender assign, prior to October 1, 1998, its rights or obligations hereunder, in whole or in part, to any lender unacceptable to Borrower, and should Borrower terminate its ability to seek further draws under the Revolving Credit, the Lender will reimburse one-half of the legal fees incurred by the Borrower in connection herewith). In furtherance thereof, the Lender shall have the right to provide to any Person who expresses an interest in becoming such a buyer, assignee, transferee, participant and/or purchaser, or who actually does become such a buyer, assignee, transferee, participant, and/or purchaser, such information concerning the financial, business and other affairs of the Borrower as the Lender may deem appropriate in the circumstances. The Borrower hereby authorizes all such disclosures. Provided however, anything in the foregoing to the contrary notwithstanding, that Lender shall not sell, assign or transfer any or all of its rights hereunder to, nor participate its rights and obligations hereunder with, nor provide any information concerning the financial, business or other officers of the Borrower or the Guarantor to those parties listed on Exhibit 3 attached hereto. 12.15 Multiple Counterparts. (a) This Agreement may be signed by each party upon a separate copy, and in such case one counterpart of this Agreement shall consist of enough of such copies to reflect the signature of each party. (b) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement or the terms thereof to produce or account for more than one of such counterparts. 12.16 Notices. (a) Any requirement of the Uniform Commercial Code or other applicable law of reasonable notice shall be met if such notice is given at least ten (10) business days before the time of sale, disposition or other event or thing giving rise to the requirement of notice. (b) Except as provided in Subsection (c) below, all notices or communications under this Agreement shall be in writing and shall be hand-delivered, sent by courier, or mailed to the parties addressed as follows, and any notice so addressed and (1) hand-delivered, shall be deemed to have been given when so delivered, or (2) mailed by registered or E-40 certified mail, return receipt requested, shall be deemed to have been given when mailed, or (3) delivered to a recognized shall package overnight courier service to the address of the intended recipient with shipping prepaid, shall be deemed to have been given when so delivered to such courier. (1) If to the Borrower: Technology Integration Financial Services, Inc. 1020 Petersburg Road Hebron, Kentucky 41048 Attn: Edwin S. Weinstein with a copy to: James H. Smith, III, Esq. Lindhorst & Dreidame Co., LPA 312 Walnut Street, Suite 2300 Cincinnati, Ohio 45202 (2) If to the Lender: The Fifth Third Bank of Northern Kentucky, Inc. 8100 Burlington Pike Florence, Kentucky 41042 Attn: Brian Mauntel with a copy to: R. Jeffrey Schlosser, Esq. Adams, Brooking, Stepner, Woltermann & Dusing 421 Garrard Street P.O. Box 861 Covington, KY 41012-0861 (c) The Borrower and the Lender may at any time, and from time to time, change the address or addresses to which notice shall be mailed by written notice setting forth the changed address or addresses. 12.17 Survival of Covenants. All covenants, agreements, warranties and representations made by the Borrower herein shall survive the making of each draw and/or disbursement of the Revolving Credit and the Draw Facility. 12.18 Consent to Jurisdiction and Venue. The Borrower consents to one or more actions being instituted and maintained in the Boone County, Kentucky, Circuit Court to enforce this Agreement and/or one or more of the other Borrower Documents, and waives any objection to any such action based upon lack of personal or subject matter E-41 jurisdiction or improper venue. The Borrower agrees that any process or other legal summons in connection with any such action or proceeding may be served by mailing a copy thereof by certified mail, or any substantially similar form of mail, addressed to the Borrower, as the case may be, as provided in Section 12.16 above. 12.19 Acknowledgment. The Borrower acknowledges that it has received a copy of this Agreement and each of the other Borrower Documents, as fully executed by the parties thereto. The Borrower acknowledges that it (a) HAS READ THIS AGREEMENT AND THE OTHER BORROWER DOCUMENTS OR HAS CAUSED SUCH DOCUMENTS TO BE EXAMINED BY THEIR RESPECTIVE REPRESENTATIVES OR ADVISORS; (b) is thoroughly familiar with the transactions contemplated in this Agreement and the other Borrower Documents; and (c) has had the opportunity to ask such questions or representatives of the Lender, and receive answers thereto, concerning the terms and conditions of the transactions contemplated in this Agreement and the other Borrower Documents as it deems necessary in connection with its decision to enter into this Agreement. IN WITNESS WHEREOF, the Borrower and the Lender have signed this Agreement as of the date set forth in the preamble hereto, but actually on the dates set forth below. THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC. By: Title: __________________________________ TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC. By: Title:___________________________________ COMMONWEALTH OF KENTUCKY ) )ss COUNTY OF ) The foregoing instrument was acknowledged before me this day of November, 1997 by Brian Mauntel, a vice president of The Fifth Third Bank of Northern Kentucky, E-42 Inc., a state banking corporation, on behalf of the corporation. Notary Public Commission expires: COMMONWEALTH OF KENTUCKY ) )ss COUNTY OF ) The foregoing instrument was acknowledged before me this day of November, 1997 by ____________________, _________ of Technology Integration Financial Services, Inc., a Kentucky corporation, on behalf of the corporation. Notary Public Commission expires: C:\WPDOCS\POMEROY\LOANAGR.CLE EXHIBIT 2 FINANCIAL COVENANTS None E-43 ___________________________________ Borrower's Signature EXHIBIT 3 LIST OF PROHIBITED PARTIES The Provident Bank PNC Bank E-44 ___________________________________ Borrower's Signature SCHEDULE 8.09 BORROWER'S CONTINGENT LIABILITIES E-45 ___________________________________ Borrower's Signature SCHEDULE 8.10 ENCUMBRANCES ON THE BORROWER'S PROPERTIES E-46 ___________________________________ Borrower's Signature ANNEX A FORM OF ASSIGNMENT E-47 _________________________________ Borrower's Signature ANNEX B FORM OF GUARANTY AGREEMENT E-48 _________________________________ Borrower's Signature ANNEX C FORM OF REVOLVING CREDIT NOTE E-49 _________________________________ Borrower's Signature ANNEX D FORM OF SECURITY AGREEMENT E-50 _________________________________ Borrower's Signature ANNEX E FORM OF DRAW FACILITY NOTE E-51 _________________________________ Borrower's Signature ANNEX F FORM OF OPINION OF COUNSEL E-52 _________________________________ Borrower's Signature ?? E-53 EX-10 3 INCUMBENCY AND AUTHORIZATION CERTIFICATE OF GUARANTOR The undersigned hereby certifies that he/she is Secretary of POMEROY COMPUTER RESOURCES, INC., a Delaware corporation (the "Guarantor"), and the undersigned does hereby further certify that the representations hereinafter set forth are true and correct as of the date hereof. The undersigned further certifies that the exhibits attached hereto are true and correct copies of the following: (a) Exhibit A - Articles of Incorporation of the Guarantor (b) Exhibit B - Bylaws of the Guarantor; and (c) Exhibit C - Resolution of Board of Directors of the Guarantor duly adopted on _________________ by unanimous written consent, which Resolution is now in full force and effect. The undersigned hereby certifies that ________________, ______________, has been duly authorized by action duly taken by the Board of Directors of the Guarantor, as reflected in Exhibit C hereto, to execute and deliver on behalf of the Guarantor the Guaranty, referred to in Exhibit C hereto, as well as all additional documents and instruments and to take such other action as he deems necessary and proper on behalf of the Guarantor in connection with the guaranteeing of the Loans referenced in Exhibit C hereto. IN WITNESS WHEREOF, the undersigned hereby certifies the above to be true and has hereunto set his/her signature this ____ day of ________, 1997. POMEROY COMPUTER RESOURCES, INC., a Delaware corporation By: Secretary E-54 EX-10 4 ADDENDUM 1 TO GUARANTY AGREEMENT This First Addendum ("Addendum") to that certain Payment Guaranty ("Guaranty") made by POMEROY COMPUTER RESOURCES, INC., a Delaware corporation ("Guarantor") to THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC., a Kentucky banking corporation ("Bank") dated October 31, 1997, is entered into contemporaneously with the execution of the Guaranty. This Addendum modifies, amends and supplements the Guaranty as follows: 1. The following sentences are added to the end of Numbered Paragraph 1 entitled Guaranty: "This Payment Guaranty shall not extend to any non-recourse loans made by Bank or any of its affiliates to Borrower. Obligations shall specifically include, but not be limited to, the Revolving Credit Facility, the Draw Facility (both as defined in that certain Loan Agreement dated October 31, 1997 by and between the Bank and Borrower) and any promissory notes evidencing such facilities." 2. The following sentence is added to the end of Numbered Paragraph 3 entitled Waiver of Notice: "Provided however, Bank shall provide Guarantor with written notice at the above address of the occurrence of an Event of Default under the Loan Agreement prior to any enforcement of this Guaranty as a result of such Event of Default". 3. The following paragraph is added to the Guaranty: 6. WARRANTIES AND REPRESENTATIONS: To induce the Bank to make the loans to the Borrower, the Guarantor warrants and represents to the Bank as follows: a. The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Guarantor has all necessary power and authority to carry on its business conducted on the date of this Guaranty. The Guarantor is qualified to do business as a foreign corporation in the State of Kentucky. b. No registration with or consent or approval of any governmental agency of any kind is required for the execution, delivery, performance and enforceability of this Guaranty. E-55 c. The Guarantor's execution, delivery, and performance of this Guaranty does not and will not (a) violate any existing provision of the articles of incorporation or bylaws of the Guarantor, or any law, rule, regulation, or judgment, order or decree applicable to the Guarantor, or (b) otherwise constitute a default, or result in the imposition of any lien under (1) any existing contract or other obligation binding upon the Guarantor or its respective property, with or without the passage of time or the giving of notice or both, or (2) any law, rule or regulation applicable to the Guarantor or its business, or (3) any judgment, order or decree of any court or administrative agency applicable to the Guarantor or its business. d. The execution, delivery and performance by the Guarantor of the Guaranty has been duly authorized, and the Guaranty has been duly executed and delivered and constitute legal, valid and binding obligations enforceable against the Guarantor. e. The Guarantor is not in default with respect to any judgment, order, writ, injunction, decree or demand of any court, arbitrator or governmental agency or body. 4. In the preamble paragraph, in the third line, delete the words "jointly and severally, if more than one,". 5. In Numbered Paragraph 1 entitled Guaranty, in the second line, delete the words "each" and "jointly and severally". 6. In Numbered Paragraph 5, in subparagraph (a), delete the words "heirs, executors, administrators" and the words "and if there be more than one Guarantor their obligations shall be joint and several"; delete subparagraph (g) in its entirety; in subparagraph (j), delete the word "Each" and add the words "pursuant to the terms of the Loan Agreement" after the word "proceedings"; and in subparagraph (k), delete the word "EACH". 7. Except as specifically and expressly modified, amended or supplemented hereby, the terms and conditions of the Guaranty shall be and remain in full force and effect. IN WITNESS WHEREOF, this Addendum is executed as of this 31st day of October, 1997. THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC. E-56 By:____________________________ Title:_________________________ POMEROY COMPUTER RESOURCES, INC. By:____________________________ Title:_________________________ E-57 EX-10 5 ASSIGNMENT TO: THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC. RE: Lease between _________________________, as lessee and undersigned, dated _________________, 199_, having aggregate unpaid rental of $_______________. For value received undersigned ("Assignor") hereby sells, assigns, transfers and sets over to The Fifth Third Bank of Northern Kentucky, Inc., its successors and assigns ("Assignee"), the attached above named lease ("lease"), together with all rental payments due and to become due in connection with the exercise by lessee of an option, if any, to purchase the property described in the lease. Assignor also assigns to Assignee all of Assignor's rights and remedies under the lease and any guaranty thereof, including the right to take in, in Assignor's or Assignee's name, any and all proceedings, legal, equitable or otherwise, that Assignor might otherwise take, save for this assignment. As security for all amounts due to Assignor under the lease, and all other present and future indebtedness or obligations of Assignor to Assignee of every kind and nature whatsoever set forth in a certain Loan Agreement dated October 31, 1997 by and between Assignor and Assignee (the "Loan Agreement"), Assignor hereby grants to Assignee a security interest in all property covered by and described in the lease. Title to all such property shall remain in the Assignor and is not transferred to Assignee for any purpose. Assignee shall have no obligation of Assignor as lessor under the lease. Assignor warrants that: Assignor is the owner of the property described in the lease free of all liens and encumbrances except the lease and Permitted Liens as defined in the Loan Agreement; the lease and any accompanying guaranties, waivers and/or other instruments are genuine, enforceable, the only lease executed concerning the property described in the lease and is and will continue free from defenses, set-offs and counterclaims; all signatures, names, addresses, amounts and other statements and facts contained therein are true and correct; the aggregate unpaid rentals shown above is correct; the property has been delivered to lessee under the lease on the date set forth below in satisfactory condition and has been accepted by lessee, and that Assignor will comply with all its warranties and other obligations with respect thereto; the lease transaction conforms to all applicable laws and regulations; the lease E-58 constitutes and will continue to constitute a valid reservation of unencumbered title to or first lien upon or security interest in the property covered thereby, effective against all persons; except as otherwise provided in the Loan Agreement, if filing, recordation or any other action or procedure is permitted or required by statute or regulation to perfect such reservation of title, lien or security interest, the same has been accomplished. Subject to the items and provisions of any applicable underlying agreement between Assignor and Assignee, Assignor guarantees the payment promptly when due of the amount of each and every sum payable under the lease and, except as otherwise provided in the Loan Agreement, the payment on demand of the entire unpaid balance at the date of default in the event of any default by lessee under the lease, without first requiring Assignee to proceed against lessee or any other person or any security. Assignor agrees that Assignee may audit its books and records relating to all leases and paper assigned to Assignee and may in Assignor's name endorse all remittances received, and Assignor gives express permission to Assignee to release, on terms satisfactory to Assignee, or by operation of law or otherwise, or to compromise or adjust any and all rights against and grant extensions of time of payment to lessee or any other persons obligated on the lease or on any accompanying guaranty, or agree to the substitution of a lessee, without notice to Assignor and without affecting Assignor's obligations hereunder. Assignor waives presentment and demand for payment, protest and notice of non-payment and protest as to all leases and paper heretofore, now or hereafter endorsed or assigned to Assignee and Assignor subordinates to any rights Assignee may now or hereafter have against the lessee, any rights Assignor may now or hereafter have or acquire by reason of payment to Assignee of any rental payments under the lease or otherwise. Unless otherwise agreed under the provisions of any applicable underlying agreement, any amounts retained by Assignee as a reserve or holdback shall be held by Assignee as security for the performance of Assignor's obligations under the underlying agreement and hereunder, and shall be paid to Assignor without interest, when all payments under the lease have been paid in full, provided no obligation of any kind, direct or contingent, of Assignor whether hereunder or otherwise and no other leases or paper acquired by Assignee from Assignor or from any of Assignor's subsidiary or affiliated companies be in default; but in the event of any such default, Assignee may collect any amount owing by making an appropriate charge against any reserve or holdback which otherwise would be payable to Assignor in cash. Assignor shall have no authority to, and will not, without Assignee's prior written consent, accept payments of rents or of option prices, repossess or consent to the return of property described in the lease or modify the terms thereof or of any non-compliance with any of the E-59 foregoing shall not constitute any waiver by Assignee. Assignor waives notice of acceptance hereof. To the extent any term or condition of this Assignment is materially inconsistent or materially conflicts with the terms of the Loan Agreement, the terms of the Loan Agreement shall govern. The property covered by the lease was delivered to lessee on _________________, 199_. Dated: ________________, 199_ Lessor/Assignor: TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC. By:_____________________________ Title:__________________________ E-60 EX-10 6 INCUMBENCY AND AUTHORIZATION CERTIFICATE OF BORROWER The undersigned hereby certifies that he/she is Secretary of TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC., a Kentucky corporation (the "Borrower"), and the undersigned does hereby further certify that the representations hereinafter set forth are true and correct as of the date hereof. The undersigned further certifies that the exhibits attached hereto are true and correct copies of the following: (a) Exhibit A - Articles of Incorporation of the Borrower (b) Exhibit B - Bylaws of the Borrower; and (c) Exhibit C - Resolution of Board of Directors of the Borrower duly adopted on _________________ by unanimous written consent, which Resolution is now in full force and effect. The undersigned hereby certifies that ________________, ______________, has been duly authorized by action duly taken by the Board of Directors of the Borrower, as reflected in Exhibit C hereto, to execute and deliver on behalf of the Borrower the Loan Documents, referred to in Exhibit C hereto, as well as all additional documents and instruments and to take such other action as he deems necessary and proper on behalf of the Borrower in connection with the making of the Loans referenced in Exhibit C hereto. IN WITNESS WHEREOF, the undersigned hereby certifies the above to be true and has hereunto set his/her signature this ____ day of ________, 1997. TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC., a Kentucky corporation By: Secretary E-61 EX-10 7 DRAW FACILITY NOTE Officer No. Note No. _____________ $__________ ______________________ (Effective Date) City - Florence, State - Kentucky On or before ________________ (the "Maturity Date"), the undersigned, TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC., a Kentucky corporation (the "Borrower") for value received, promises to pay to the order of THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC., 8100 Burlington Pike, Florence, Kentucky 41042 (hereinafter referred to as "Bank") the sum of _________________________________ Dollars ($__________) (hereinafter referred to as the "Borrowing") plus interest per annum at the rate set forth below. The Borrower shall have the option of having the outstanding principal under this Note bear interest under the following rates: (A) "30 Day Rate": The Thirty (30) Day LIBOR plus 100 basis points, fixed for a thirty day period. The Thirty (30) Day LIBOR shall mean the per annum rate rounded upward (if rounding is necessary) to the nearest 1/16th of 1% of which U.S. dollar deposits, of an amount equal or comparable to the Loan are afforded to the Bank by other Prime Banks in the London interbank market, selected in the Bank's discretion, at approximately 11:00 AM London time on the third Business Day prior to any applicable thirty (30) day incremental period, all as conclusively determined by the Bank. (B) "60 Day Rate": The Sixty (60) Day LIBOR plus 100 basis points, fixed for a sixty day period. The Sixty (60) Day LIBOR shall mean the per annum rate rounded upward (if rounding is necessary) to the nearest 1/16th of 1% of which U.S. dollar deposits, of an amount equal or comparable to the Loan are afforded to the Bank by other Prime Banks in the London interbank market, selected in the Bank's discretion, at approximately 11:00 AM London time on the third Business Day prior to any applicable sixty (60) day incremental period, all as conclusively determined by the Bank. (C) "90 Day Rate": The Ninety (90) Day LIBOR plus 100 basis points, fixed for a ninety day period. The Ninety (90) Day LIBOR shall mean the per annum rate rounded upward (if rounding is necessary) to the nearest 1/16th of 1% of which U.S. dollar deposits, of an amount equal or comparable E-62 to the Loan are afforded to the Bank by other Prime Banks in the London interbank market, selected in the Bank's discretion, at approximately 11:00 AM London time on the third Business Day prior to any applicable ninety (90) day incremental period, all as conclusively determined by the Bank. (D) "Prime Minus Rate": The Prime Rate minus 100 basis points. Prime Rate shall mean the rate announced by the Bank from time to time as its Prime Rate. In the event of a change in said Prime Rate, the interest rate shall be immediately changed to an interest rate which shall be less than the new Prime Rate by 100 basis points. (E) "Treasury Plus Rate": The Like Treasury Rate plus 150 basis points. The Like Treasury Rate shall be a fixed rate equal to the weekly average yield on United States Treasury Securities adjusted to a constant at maturity of a term equal to the term remaining on this Note as of the date the Treasury Plus Rate becomes effective. Interest shall be computed on a year of 360 days and charged for the actual number of days elapsed. Principal shall be due and payable in ____________ (__) installments of ___________________________________ Dollars ($________) per month with the first installment being due on the first (1st) day of each month commencing on ________________ and continuing on the first (1st) day of each month thereafter through and including the Maturity Date. Principal may be prepaid in whole or in part, without premium or penalty, at any time. Any prepaid amounts shall be applied to the amounts due in reverse order of their due date. No partial payment shall change any due date or the amount of any regular scheduled installment of principal due. Unless directed to the contrary in writing by the Borrower prior to the execution hereof, the principal outstanding under this Note shall bear interest at the Treasury Plus Rate. In the event the Borrower has elected in writing to have the principal outstanding bear interest initially at an interest rate mode other than the Treasury Plus Rate, except as provided in the immediately succeeding paragraphs, for each succeeding applicable period commencing upon the expiration of the initial applicable period, the principal shall continue to bear interest at the chosen interest rate mode for such applicable period as established on the Interest Rate Determination Date (as defined below) immediately preceding such period. E-63 In the event the Borrower has initially selected an interest rate mode other than the Treasury Plus Rate, the Borrower shall have the option to convert the interest rate to either the 30 Day Rate, the 60 Day Rate, the 90 Day Rate, the Prime Minus Rate or the Treasury Plus Rate by notifying the Bank in writing of its decision to convert the interest rate and the selected interest rate (the "Conversion Notice"). ANYTHING TO THE CONTRARY NOTWITHSTANDING, ONCE THE BORROWER HAS ELECTED TO HAVE THE PRINCIPAL BEAR INTEREST AT THE TREASURY PLUS RATE, THE INTEREST MAY NOT BE CONVERTED TO ANY OTHER INTEREST RATE MODE. Said Conversion Notice must be received by the Bank on the Interest Rate Determination Date preceding the end of the pending applicable period. Subsequent to the conversion, the principal outstanding shall bear interest at the rate selected by the Borrower for the respective period. Thereafter, the principal shall continue to bear interest at the selected interest rate mode for the respective periods, unless the Borrower again elects to select a different interest rate on the Interest Rate Determination Date preceding the end of the respective interest period. For example, if the Borrower has previously chosen the 90 Day Rate interest rate mode, at the end of the current 90-day period, the Borrower elects to convert the interest rate to the 30 Day Rate, it must deliver the Conversion Notice to the Bank on or before the Interest Rate Determination Date preceding the end of the subject 90-day period. The Borrower shall thereafter have the option to again convert the interest rate at the end of the 30-day period to either the 60 Day Rate, the Prime Minus Rate or the Treasury Plus Rate or back to the 90 Day Rate by providing the Conversion Notice to the Bank as provided above. The Borrower shall have the option to convert the interest rate on each and every Interest Rate Determination Date. ANYTHING TO THE CONTRARY NOTWITHSTANDING, ONCE THE BORROWER HAS ELECTED TO HAVE THE PRINCIPAL BEAR INTEREST AT THE TREASURY PLUS RATE, THE INTEREST MAY NOT BE CONVERTED TO ANY OTHER INTEREST RATE MODE. "Interest Rate Determination Date" shall mean the third Business Day preceding the expiration of the respective period for the then current interest rate. For example, if the interest rate is then currently the 30 Day Rate, the Interest Rate Determination Date would be the third Business Day prior to the end of the applicable 30-day period. If the interest rate is currently the Prime Minus Rate, the Interest Rate Determination Date would be the third Business Day prior to the date that the Borrower desires to convert to a different interest rate. While the selected interest rate will be determined and set on the Interest Rate Determination Date, it will not become effective until the expiration of the then current interest period, and in the case of the Prime Minus Rate, if the Borrower desires to convert from the Prime Minus Rate to another rate, the new E-64 rate would not become effective until three Business Days after the date the Bank receives the Conversion Notice. "Business Day" shall mean a day of the year, other than Saturday or Sunday, on which commercial banks located in Cincinnati, Ohio are not required or authorized to remain closed and on which The New York Stock Exchange is not closed. Interest on the outstanding principal shall be due and payable, in arrears, on the first day of each month commencing on ________________, and on the first (1st) day of each next succeeding month through and including the Maturity Date. Principal and interest payments shall be made at the Bank's address above unless otherwise designated by Bank in writing. To secure repayment of this Note and all modifications, extensions and renewals thereof, and all other Obligations (as herein defined) of the undersigned to Bank, the undersigned grants Bank a security interest (subject to all Permitted Liens as set forth in the Loan Agreement) in all of the undersigned's now owned or hereafter acquired interests in all property in which Bank is, at any time, granted a lien for any Obligation, and all property in possession of Bank including, without limitation, money, securities, instruments, documents, letters of credit, chattel paper, or other property delivered to Bank in transit, for safekeeping, or for collection or exchange for other property, and other rights in addition to such property, all rights in payment from and claims against Bank, all proceeds thereof and any other collateral granted to the Bank pursuant to that certain Security Agreement by and between the Bank and the Borrower dated October __, 1997 (the "Security Agreement") (collectively, the "Collateral"). The undersigned agrees to immediately deliver such additional property or rights thereto to Bank immediately upon receipt as additional Collateral and until delivery to hold same in trust for Bank. All documents executed in connection with this Note, including without limitation the following, further secure the Obligations: a payment guaranty of Pomeroy Computer Resources, Inc. dated October 31, 1997 (the "Guaranty"). The Obligations secured by the Collateral (herein, the "Obligations") shall include this Note and each and every liability of the undersigned jointly or severally to Bank and all affiliates of Fifth Third Bancorp however created, direct or contingent, due or to become due, whether now existing or hereafter arising, participated in whole or in part, created by trust agreement, lease, overdraft, agreement, or otherwise, in any manner by the undersigned (other than certain non-recourse financing provided to E-65 Borrower by The Fifth Third Leasing Company or any other affiliate of Bank). Except as set forth above regarding such non-recourse financing, the undersigned also grants Bank a security interest in all of the Collateral as agent for all affiliates of Fifth Third Bancorp for all Obligations of the undersigned to such affiliates. Said security interest shall not be enforced to the extent prohibited by the Truth in Lending Act as implemented by Federal Reserve Regulation Z. The undersigned certifies that the proceeds of the Loan are to be used for business purposes. This Note is a renewal of a loan previously made by the Bank to the Borrower which was previously evidenced by a certain Revolving Credit Note dated October 31, 1997. The execution of this Note shall not act as, or be interpreted to be, a novation of such loan. Events of Default: This Note, and all other Obligations of the undersigned to Bank, shall be and become immediately due and payable at the option of the Bank, without any demand or notice whatsoever, upon the occurrence of an Event of Default as defined in the Loan Agreement. Upon the occurrence of an Event of Default herein described, Bank may, at its option, without any demand or notice whatsoever, immediately declare this Note and all other Obligations of the undersigned to be fully due and payable in their aggregate amount together with accrued interest plus any applicable fees, and charges, without notice, and exercise any or all remedies provided for in the Loan Agreement, Security Agreement and/or by law. If any payment is not paid when due (whether by acceleration or otherwise) or within 10 days thereafter, the undersigned agrees to pay to Bank a late payment fee as provided for in the Loan Agreement or 5% of the payment amount, whichever is greater, with a minimum fee of $20.00. After an Event of Default, the undersigned agrees to pay to Bank a fixed charge of $25.00, or the undersigned agrees that Bank may, without notice, increase the interest rate then in effect by 6%, whichever is greater. Under no circumstances shall said interest rate be raised to a rate which shall be in excess of the maximum rate of interest allowable under the state and/or federal usury laws in force at the time of such change. ENTIRE AGREEMENT: The undersigned agrees that there are no conditions or understandings which are not expressed in this Note and the documents referred to herein. E-66 WAIVER: No failure on the part of Bank to exercise any of its rights hereunder shall be deemed a waiver of any such rights or of any default. Demand, presentment, protest, notice of dishonor, notice of protest, notice of default and all suretyship defenses are hereby waived. JURY WAIVER: THE UNDERSIGNED, AND ANY ENDORSER OR GUARANTOR HEREOF, WAIVE THE RIGHT TO A TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY. The declaration of invalidity of any provision of this Note shall not affect any part of the remainder of the provisions. This Note is supplemented by the terms and conditions of a Loan Agreement dated October 31, 1997 between the undersigned and Bank. TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC. By: _______________________ Title: Address: 1020 Petersburg Road Hebron, KY 41048 E-67 EX-10 8 REVOLVING CREDIT NOTE Officer No. _______ Note No. ________ $5,000,000.00 31 October, 1997 City of Florence, State of Kentucky On or before the Maturity Date below, TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC., a Kentucky corporation (the "Borrower") for value received promises to pay to the order of THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC., a Kentucky banking corporation, at 8100 Burlington Pike, Florence, Kentucky 41042 (hereinafter referred to as "Bank") the sum of FIVE MILLION DOLLARS ($5,000,000.00) or such portion thereof as may have been advanced hereunder (hereinafter referred to as the "Borrowing") plus interest as provided herein, less such amounts as shall have been repaid in accordance with this Note. The outstanding balance of this Note will appear on a supplemental bank record and is not necessarily the face amount of this Note. Such record shall be conclusive as to the balance due of this Note at any time, absent manifest error. The Borrower shall have the option of having the outstanding principal under this Note bear interest under the following rates: (A) "30 Day Rate": The Thirty (30) Day LIBOR plus 100 basis points, fixed for a thirty day period. The Thirty (30) Day LIBOR shall mean the per annum rate rounded upward (if rounding is necessary) to the nearest 1/16th of 1% of which U.S. dollar deposits, of an amount equal or comparable to the Loan are afforded to the Bank by other Prime Banks in the London interbank market, selected in the Bank's discretion, at approximately 11:00 AM London time on the third Business Day prior to any applicable thirty (30) day incremental period, all as conclusively determined by the Bank. (B) "60 Day Rate": The Sixty (60) Day LIBOR plus 100 basis points, fixed for a sixty day period. The Sixty (60) Day LIBOR shall mean the per annum rate rounded upward (if rounding is necessary) to the nearest 1/16th of 1% of which U.S. dollar deposits, of an amount equal or comparable to the Loan are afforded to the Bank by other Prime Banks in the London interbank market, selected in the Bank's discretion, at approximately 11:00 AM London time on the third Business Day prior to any applicable sixty (60) day incremental period, all as conclusively determined by the Bank. E-68 (C) "90 Day Rate": The Ninety (90) Day LIBOR plus 100 basis points, fixed for a ninety day period. The Ninety (90) Day LIBOR shall mean the per annum rate rounded upward (if rounding is necessary) to the nearest 1/16th of 1% of which U.S. dollar deposits, of an amount equal or comparable to the Loan are afforded to the Bank by other Prime Banks in the London interbank market, selected in the Bank's discretion, at approximately 11:00 AM London time on the third Business Day prior to any applicable ninety (90) day incremental period, all as conclusively determined by the Bank. (D) "Prime Minus Rate": The Prime Rate minus 100 basis points. Prime Rate shall mean the rate announced by the Bank from time to time as its Prime Rate. In the event of a change in said Prime Rate, the interest rate shall be immediately changed to an interest rate which shall be less than the new Prime Rate by 100 basis points. Interest shall be computed based on a year of 360 days and charged for the actual number of days elapsed. The principal outstanding under this Note shall initially bear interest at the Prime Minus Rate. Thereafter, except as provided in the immediately succeeding paragraphs, the principal shall continue to bear interest at the Prime Minus Rate. The Borrower shall have the option to convert the interest rate to either the 30 Day Rate, the 60 Day Rate or the 90 Day Rate by notifying the Bank in writing of its decision to convert the interest rate and the selected interest rate (the "Conversion Notice"). Said Conversion Notice must be received by the Bank on the applicable Interest Rate Determination Date. Subsequent to the conversion, the principal outstanding shall bear interest at the rate selected by the Borrower for the respective period. Thereafter, the principal shall continue to bear interest at the selected rate for the respective periods, unless the Borrower again elects to select a different interest rate on the Interest Rate Determination Date preceding the end of the respective interest period. For example, if at the end of a 90-day period, the Borrower elects to convert the interest rate from the 90 Day Rate to the 30 Day Rate, it must deliver the Conversion Notice to the Bank on or before the Interest Rate Determination Date preceding the end of the subject 90-day period. The Borrower shall thereafter have the option to again convert the interest rate at the end of the 30-day period to either the 60 Day Rate, back to the 90 Day Rate or the Prime Minus Rate by providing the Conversion Notice to the Bank as provided above. The Borrower shall have the option to convert the interest rate on each and every Interest Rate Determination Date. E-69 "Interest Rate Determination Date" shall mean the third Business Day preceding the expiration of the respective period for the then current interest rate. For example, if the interest rate is then currently the 30 Day Rate, the Interest Rate Determination Date would be the third Business Day prior to the end of the applicable 30-day period. If the interest rate is currently the Prime Minus Rate, the Interest Rate Determination Date would be the third Business Day prior to the date that the Borrower desires to convert to a different interest rate. While the selected interest rate will be determined and set on the Interest Rate Determination Date, it will not become effective until the expiration of the then current interest period, and in the case of the Prime Minus Rate, if the Borrower desires to convert from the Prime Minus Rate to another rate, the new rate would not become effective until three Business Days after the date the Bank receives the Conversion Notice. "Business Day" shall mean a day of the year, other than Saturday or Sunday, on which commercial banks located in Cincinnati, Ohio are not required or authorized to remain closed and on which The New York Stock Exchange is not closed. Prior to October 1, 1998 (the "Maturity Date"), Bank may lend to the Borrower such amounts as may from time to time be requested by the Borrower in accordance with the terms and conditions of that certain loan agreement entered into by and between the Borrower and the Bank dated October 31, 1997 (the "Loan Agreement") provided that the principal amount borrowed shall not at any time exceed the Borrowing and further provided that no Event of Default as defined herein shall exist. Principal shall be due and payable in accordance with Section 3.06(b) of the Loan Agreement. Interest on the outstanding principal shall be due and payable in accordance with Section 3.07 of the Loan Agreement. Principal and interest payments shall be made at the Bank's address above unless otherwise designated by Bank in writing. Principal may be prepaid in whole or in part, without premium or penalty, at any time. Any prepaid amounts shall be applied to the amounts due in reverse order of their due date. No partial payment shall change any due date or the amount of any regular scheduled installment of principal due. To secure repayment of this Note and all modifications, extensions, and renewals thereof, and all other Obligations (as herein defined) of the Borrower to Bank, the Borrower grants Bank a security interest (subject to all Permitted Liens as set forth in the Loan Agreement) in all of the Borrower's now owned or hereafter acquired interests in all property in which Bank is, at any time, granted a lien for any Obligation, and all property in possession of Bank including, without limitation, money, securities, E-70 instruments, documents, letters of credit, chattel paper, or other property delivered to Bank in transit, for safekeeping, or for collection or exchange for other property, or other rights in addition to such property, all rights to payment from and claims against Bank, all proceeds thereof and any other collateral granted to the Bank pursuant to that certain security agreement by and between Borrower and Bank dated October 31, 1997 (the "Security Agreement") (collectively, the "Collateral"). The Borrower agrees to immediately deliver such additional property or rights thereto to Bank immediately upon receipt as additional Collateral and until delivery to hold same in trust for Bank. All documents executed in connection with this Note, including without limitation the following, further secure the Obligations: a payment guaranty of Pomeroy Computer Resources, Inc., dated October 31, 1997 (the "Guaranty"). The Obligations secured by the Collateral (herein, "Obligations") shall include this Note and each and every liability of the Borrower to Bank and all affiliates of Fifth Third Bancorp however created, direct or contingent, due or to become due whether now existing or hereafter arising, participated in whole or in part, created by trust agreement, lease, overdraft, agreement or otherwise, in any manner by the Borrower (other than certain non-recourse financing provided to Borrower by The Fifth Third Leasing Company or any other affiliate of Bank). Except as set forth above regarding such non-recourse financing, the Borrower also grants Bank a security interest in all of the Collateral as agent for all affiliates of Fifth Third Bancorp for all Obligations of the Borrower to such affiliates. Said security interest shall not be enforced to the extent prohibited by the Truth in Lending Act as implemented by Federal Reserve Regulation Z. The Borrower certifies that the proceeds of this loan are to be used for business purposes. If this Note is a renewal, in whole or in part, of a previous Obligation, the acceptance by Bank of this Note shall not effectuate a payment but rather a continuation of the previous Obligation. Bank may charge and the Borrower agrees to pay a note processing fee of $100.00 on the above Effective Date. Events of Default: This Note, and all other Obligations of the Borrower to Bank, shall be and become immediately due and payable at the option of the Bank, without any demand or notice whatsoever, upon the occurrence of any Event of Default as defined in the Loan Agreement. E-71 Upon the occurrence of an Event of Default herein described Bank may, at its option cease making advances hereunder immediately, declare this Note and all other Obligations of the Borrower, to be fully due and payable in their aggregate amount together with accrued interest plus any applicable fees and charges and exercise any or all other remedies provided for in the Loan Agreement, the Security Agreement and/or by law. If any payment is not paid when due (whether by acceleration or otherwise) or within 10 days thereafter, the Borrower agrees to pay to Bank a late payment fee as provided for in any loan agreement or 5% of the payment amount, whichever is greater, with a minimum fee of $20.00. After an Event of Default, the Borrower agrees to pay to Bank a fixed charge of $25.00, or the Borrower agrees that Bank may, without notice, increase the interest rate then in effect by 6%, whichever is greater. Under no circumstances shall said interest rate be raised to a rate which shall be in excess of the maximum rate of interest allowable under the state and/or federal usury laws in force at the time of such change. ENTIRE AGREEMENT: The Borrower agrees that there are no conditions or understandings which are not expressed in this Note and the documents referred to herein. WAIVER: No failure on the part of Bank to exercise any of its rights hereunder shall be deemed a waiver of any such rights or of any default. Demand, presentment, protest, notice of dishonor, notice of protest, notice of default and all suretyship defenses are hereby waived. JURY WAIVER: THE BORROWER, AND ANY ENDORSER OR GUARANTOR HEREOF, WAIVE THE RIGHT TO A TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY. The declaration of invalidity of any provision of this Note shall not affect any part of the remainder of the provisions. This Note is supplemented by the terms and conditions of the Loan Agreement. BORROWER: TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC., a Kentucky corporation ADDRESS 1020 Petersburg Road By: _________________________ Hebron, Kentucky 41048 Title: _______________________ E-72 EX-10 9 SECURITY AGREEMENT dated as of October 31, 1997 between THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC. as the Lender and TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC. as the Borrower SECURITY AGREEMENT E-73 This Security Agreement dated as of October 31, 1997 (this "Agreement"), is entered into by and between THE FIFTH THIRD BANK OF NORTHERN KENTUCKY, INC., a state banking corporation (the "Lender"), and TECHNOLOGY INTEGRATION FINANCIAL SERVICES, INC., a Kentucky corporation (the "Borrower"). Recitals WHEREAS, the Borrower has requested that the Lender provide certain credit facilities to the Borrower; and WHEREAS, subject to certain conditions, the Lender has agreed to make a certain draw loan (the "Draw Facility") to be used in conjunction with a certain warehouse line of credit (the "Revolving Credit"); and WHEREAS, pursuant to a certain Loan Agreement of even date herewith (the "Loan Agreement"), the Borrower is required, inter alia, to provide certain additional collateral to the Lender to secure the obligations of the Borrower under the Loan Agreement. NOW, THEREFORE, the Borrower and the Lender agree as follows: 1. Definitions. Capitalized terms not otherwise defined herein shall have the meanings given them in the Loan Agreement. In addition, the following terms shall have the following meanings, and the meanings assigned to all capitalized terms used herein shall be equally applicable to both the singular and plural forms of the terms defined: "Assignment of Customer Leases and Related Documents" shall mean an assignment of Customer Leases and Related Documents from the Borrower to the Lender, in form and substance satisfactory to the Lender, and substantially in the form of the Assignment attached hereto as Exhibit A, which shall be physically attached to the lease, security agreement, instrument or chattel paper executed by each Customer creating a leasehold interest security instrument in or lien upon or retaining title to the Leased Equipment and associated equipment leased by the Customer. "Collateral" shall mean (i) all of Borrower's "Equipment", "General Intangibles", "Inventory" and "Receivables" (all as defined below); (ii) all proceeds (whether cash or non-cash) including, without limitation, proceeds of any insurance, and all products of all of Borrower's Equipment, General Intangibles, Inventory and Receivables; (iii) all of Borrower's books and records related to any of the foregoing; (iv) all of Borrower's E-74 rights, title and interest in and to all cash, bank accounts, deposits and similar sums, whether maintained with Lender, an Affiliate of Lender or any other entity; and (v) all of the foregoing, whether now owned or existing or hereafter acquired or arising, or in which Borrower now has or hereafter acquires any rights. Lender acknowledges that its security interests in certain Collateral may be subordinate to certain Permitted Liens as defined in the Loan Agreement. "Customer Lease and Related Documents" shall have the meaning given that term in the Loan Agreement, including all extensions of the term of the Customer Lease, together with all rights, powers, privileges, options and other benefits of the Borrower as lessor under the Customer Lease and Related Documents. "Customer Lease Payments" shall mean, with respect to each Assigned Lease, any and all payments, penalties, late charges and other amounts of money due or to become due under such Assigned Lease, including payments with respect thereto which might be in arrears. "Equipment" shall mean the Equipment as defined in the Loan Agreement and all of Borrower's now owned and hereafter acquired equipment and fixtures, including, without limitation, furniture, tools, furnishings, leasehold improvements, other goods, machinery, vehicles, computers and associated hardware and equipment and trade fixtures, together with any and all attachments, accessions, parts and appurtenances thereto, substitutions therefor and replacements thereof. "Event of Default" shall mean any of the events listed in Paragraph 8 of this Security Agreement. "General Intangibles" shall mean all choses in action, causes of action and all other tangible personal property of Borrower of every kind and nature (other then Receivables), now owned and hereafter acquired, including, without limitation, corporate or other business records, inventions, designs, patents, patent applications, service marks, trademarks, trademark applications, tradenames, trade secrets, goodwill, registrations, copyrights, all intellectual property used by Borrower in the operation of computers and associated hardware and other equipment, licenses, franchises, customer lists, tax refunds, tax refund claims, rights and claims against carriers and shippers and rights to indemnification. "Inventory" shall mean and include all of Borrower's now owned and hereafter acquired goods, E-75 merchandise and other personal property furnished under any contract of service or intended for sale, rental or lease, including, without limitation, all farm products, all product and sales catalogs and literature, raw materials, work in process, finished goods and materials and supplies of any kind, nature or description which are used or consumed in Borrower's business or are or might be used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise and other personal property and all documents of title or documents representing the same. "Leased Equipment" shall mean the Leased Equipment as defined in the Loan Agreement. "Receivables" shall mean and include all of Borrower's presently existing and hereafter arising or acquired accounts, receivables and all present and future rights of Borrower to payment for goods sold, rented or leased or for services rendered, including, without limitation, those which are not evidenced by instruments or chattel paper, and whether or not they have been earned by performance; proceeds of any letters of credit on which Borrower is named as beneficiary; contract rights; chattel paper; instruments; documents; insurance proceeds; and all such obligations whatsoever owing to Borrower, together with all instruments and all documents of title representing any of the foregoing, all rights in any merchandise or goods which any of the same may represent, and all right, title, security and guaranties with respect to each of the foregoing, including, without limitation, any right of stoppage in transit. "Secured Obligations" shall mean all of the obligations secured by this Agreement as set forth in Section 3 of this Agreement. Any accounting terms used in this Security Agreement which are not specifically defined shall have the meanings customarily given them in accordance with generally accepted accounting principles. All other terms contained in this Security Agreement shall, unless the context indicates otherwise, have the meanings provided for by the applicable state's version of the Uniform Commercial Code (the "Code") to the extent the same are defined therein. 2. Grant of Security Interests and Assignment. (a) As security for all Secured Obligations, the Borrower grants to the Lender a security interest in the following property whether now existing or arising or acquired after the date of this Agreement. E-76 (1) All of Borrower's right, title and interest in, to and under all of the Customer Leases and Related Documents in which it now has, or in which it might later acquire any interest as a "lessor" to Customer obligors, including all Customer Leases assigned or to be assigned pursuant to the terms and conditions of this Agreement, Section 4.06 of the Loan Agreement and one or more Assignments of Customer Leases and Related Documents; (2) All of the Borrower's right, title and interest in, to and under all Customer Lease Payments; (3) All of the Borrower's right, title and interest in and to the Leased Equipment; (4) All of the Borrower's right, title and interest in, to and under any and all warranties, guaranties, and indemnities, whether express or implied, and all similar rights which a Customer obligor may have under an agreement or instrument associated with any Customer Lease assigned to Lender against the manufacturer, vendor, supplier, engineer, contractor or maker of the Leased Equipment; (5) Any property which the Borrower receives or which the Borrower is or may hereafter become entitled to receive on account of any sale, exchange, transfer or other disposition of any or all Leased Equipment; (6) Any property which the Borrower receives or which the Borrower is or may hereafter be entitled to receive on account of any collections of or with respect to any and all Customer Leases and Related Documents assigned or to be assigned pursuant to the terms and conditions of this Agreement, Section 4.06 of the Loan Agreement and one or more Assignments of Customer Leases and Related Documents, including without limitation, any instrument, document and/or chattel paper in payment of or in substitution for any of the assigned Customer Leases and Related Documents; (7) All other Collateral; and (8) All sums which become payable under any insurance covering the Collateral, including but not limited to all Leased Equipment. (b) The Borrower grants a further security interest to the Lender in the proceeds and products of any sale, exchange, collection or other disposition of the Collateral or any part thereof. (c) From time to time, and in any event, at the time each particular Customer Lease and Related Documents is assigned to the Lender by one or more Assignments of Customer Leases and Related Documents, in connection with a draw on the Revolving Credit and/or Draw Facility and the execution of the Revolving Credit Note and/or Draw Facility Note evidencing such draw, the Borrower shall do all of the following. (1) Deliver to the Lender all originals of all agreements or documents evidencing any obligation of any Customer obligor to make lease payments under or in connection with such Customer Lease and Related Documents, E-77 as well as any and all agreements or documents in the nature of security agreements, conditional sale contracts or other title retention agreements or devices which retain, grant or otherwise create a lien or other security interest in any Leased Equipment to secure such Customer obligation; (2) Duly assign to Lender via a properly prepared and executed Assignment, which shall be physically attached to the Assigned Lease and delivered to Lender, any and all leases or other instruments which are part of or constitute any Customer Lease or otherwise obligate a Customer to make lease payments under or in connection with any Customer Lease and Related Documents, and all associated documents; (3) Deliver to Lender all financing statements as the Lender may require with respect to such Customer Lease and Related Documents and any and all Leased Equipment associated with or related thereto, together with evidence satisfactory to the Lender, in its discretion, of the proper recordation, filing or other publication of notice with respect thereto in all places which the Lender may require, in its discretion, all at the Borrower's expense; and (4) Deliver to the Lender copies of any and all applications, documents or other instruments delivered to any public official with respect to the title to any and all Leased Equipment associated with or related to such Customer Lease and Related Documents, together with evidence satisfactory to the Lender, in its discretion, that the lien of the Borrower has been duly filed and perfected. All of the foregoing documentation and evidence must be satisfactory to the Lender in its discretion, as to both form and content. (d) Furthermore and in addition thereto, the Borrower hereby grants, and acknowledges that the Lender shall have a purchase money security interest in any and all Leased Equipment that is purchased using the proceeds of the Revolving Credit and/or the Draw Facility, and such shall also be considered part of the Collateral. All moneys, securities and other properties of Borrower and the proceeds thereof now or hereafter held or received by Lender from or for the account of Borrower, including any and all deposits (general or special), account balances and credits of Borrower with Lender at any time existing, shall be deemed Collateral hereunder and held as security for the Secured Obligations and may be set-off and applied against any Secured Obligations, and Borrower further authorizes Lender's Affiliates to pay or deliver to Lender any deposits or other sums credited by or due from Lender's Affiliates to Borrower for application against any Secured Obligation, at any time upon the occurrence of any Event of Default and without further notice to Borrower (such notice being expressly waived) and without any necessity on Lender's part E-78 to resort to other security or sources of reimbursement for the Secured Obligations. The rights given to Lender hereunder are cumulative with Lender's other rights and remedies, including other rights of setoff. Lender will promptly notify Borrower of Lender's receipt of such funds for application against the Secured Obligations, but failure to do so will not affect the validity or enforceability thereof. Lender may give notice of the above grant of security interest and assignment of the aforesaid deposits and other sums, and authorization to, and make any suitable arrangements with, any such Affiliate of Lender for effectuation thereof, and Borrower hereby irrevocably appoints Lender as its attorney to collect any and all such deposits or other sums to the extent any such payment is not made to Lender by such Affiliate. 3. Obligations Secured. The security interests granted by the Borrower hereby secure the payment and performance of all of the following obligations (collectively, the "Secured Obligations"): (a) any and all indebtedness of the Borrower to the Lender evidenced by the Revolving Credit Note and/or the Draw Facility Notes, and any and all obligations contained in the Revolving Credit Note and/or the Draw Facility Notes; (b) any and all of the representations, warranties, obligations, agreements, covenants and promises of the Borrower contained in the Loan Agreement, the Revolving Credit Note, the Draw Facility Notes, this Agreement and/or the other Borrower Documents, whether or not now or hereafter evidenced by any note, instrument or other writing; and (c) any and all indebtedness, obligations and liabilities of the Borrower to the Lender, however evidenced, whether now existing or hereafter arising, direct or indirect, absolute or contingent, or acquired by the Lender, including without limitation, any and all other indebtedness, liabilities and obligations of Borrower to the Lender that exist on the date of this Agreement, or arise or are created or acquired after the date of this Agreement, regardless of whether of the same or of a different class or type as the indebtedness evidenced by or contained in the Draw Facility Notes and/or the Revolving Credit Note and/or the Guaranty Agreement and/or the other Borrower Documents, and whether or not the creation thereof was reasonably foreseeable or would be naturally contemplated by the Borrower or the Lender as the date of this Agreement; provided however, anything to the contrary notwithstanding, any non-recourse financing provided to Borrower by Lender or its affiliates shall not be construed as "Secured Obligations". The Revolving Credit and the Draw Facility are recourse financing and are specifically intended to be Secured Obligations. E-79 4. Representations and Warranties. To induce the Lender to enter into this Agreement, any and all of the representations and warranties made by the Borrower in the Loan Agreement and the other Borrower Documents are incorporated herein by reference, and the Borrower further represents, warrants and agrees as follows: (a) The Borrower has full right, power, authority and capacity to enter into and perform each Assignment of Customer Leases and Related Documents; and each Assignment of Customer Leases and Related Documents has been or will be duly entered into and delivered and constitutes or will constitute a legal, valid and binding obligation of the Borrower enforceable in accordance with its terms, all at such time as the Assignment of Customer Lease and Related Documents is executed and delivered; (b) The Borrower has good and marketable title to the Borrower's Collateral, and the Collateral is not subject to any lien, charge, pledge, encumbrance, claim or security interest other than the security interests created by this Agreement (except for Permitted Liens, the interest of the Customer obligors and the security interest created in the Customer Lease and Related Documents); (c) The books and records with respect to the Borrower's Collateral are kept at the Borrower's chief place of business in Kentucky; (d) The Borrower's chief place of business is located at 1020 Petersburg Road, Hebron, Kentucky 41048; (e) The Collateral is used and will be used for business use only; (f) The registered office of the Borrower's registered agent in Kentucky is located in Boone County, Kentucky; (g) No consent, waiver, order, license, permit or approval of any Person or franchise governmental authority is required in connection with the Borrower's execution and delivery of this Security Agreement; (h) The Borrower does not own any Collateral of a type or nature which cannot be encumbered by a security interest perfectible under Article 9 of the Uniform Commercial Code as presently enacted in the Commonwealth of Kentucky; (i) Borrower has full power and authority to enter into this Security Agreement and to grant Lender the security interest in the Collateral in accordance herewith, the grant of the security interest in the Collateral by Borrower in the manner and for the purposes contemplated herein has been duly authorized by all requisite corporate action, and this Security Agreement has been duly executed and delivered; (j) The execution, delivery and/or performance by Borrower of this Security Agreement will not (i) constitute a violation of any applicable law or a breach of any provision contained in Borrower's Articles/Certificate of Incorporation or ByLaws/Regulations or contained in any order of any court or other governmental agency or in any agreement, instrument or document to which Borrower is a party or by which Borrower of any of its assets or properties is bound or (ii) result in the creation or imposition of any lien, charge or encumbrance of any E-80 nature whatsoever upon any of Borrower's assets or properties (other than in favor of Lender hereunder); (k) the office where Borrower keeps its records concerning the Receivables and General Intangibles is at the location set forth on Exhibit B attached hereto; (l) all of Borrower's Inventory, Equipment and other tangible Collateral are at the locations set forth on Exhibit C attached hereto; (m) all other locations of Borrower's registered offices and agents and other offices and places of business during the five years prior to the date hereof are set forth on Exhibit D attached hereto; (n) all trade names, assumed names, fictitious names and other names used by Borrower during the five years prior to the date hereof set forth on Exhibit E attached hereto; (o) except as may otherwise be permitted in the Loan Agreement, Borrower has executed UCC financing statements, containing sufficient legal descriptions of the Collateral and otherwise in form and substance sufficient for filing in every governmental, municipal or other office in every jurisdiction necessary to perfect Lender's security interest in the Collateral, and Borrower hereby irrevocably authorizes Lender to file the same; and (p) Borrower has good, indefeasible and merchantable title to and ownership of the Collateral, free and clear of all liens, claims, security interests and encumbrances whatsoever, except Permitted Liens and those held by Lender. These representations and warranties shall be deemed to be remade and restated in full each time the Borrower assigns a Customer Lease and Related Documents to the Lender pursuant to an Assignment of Customer Leases and Related Documents. 5. Duration of Security Interests. The Lender, its successors and assigns, shall hold the security interests created hereby upon the terms of this Agreement, and this Agreement shall continue until the Revolving Credit Note and the Draw Facility Notes have been paid in full, the other Secured Obligations have been performed, executed, or satisfied in their entirety, and no commitment to lend or extend credit which is intended to be secured hereby remains outstanding. After payment of any part of the Secured Obligations, the Lender may, at its option, retain all or any portion of the Collateral as security for any remaining Secured Obligations and retain this Agreement as evidence of such security. The security interests granted hereunder shall not be impaired or affected by any renewals or extensions of time for payment of any of the Secured Obligations, or by release of any party liable on the Secured Obligations; by any acquisition, release or surrender of other security, collateral or guaranty; by delay in enforcement of payment of any of the Secured Obligations; or by delay in enforcement of any security. 6. Certain Notices. The Borrower shall notify the Lender of any and all changes of location of the Borrower's E-81 chief place of business and of the registered office of the Borrower's registered agent in Kentucky at least thirty (30) days prior to effecting any such change. 7. Covenants. To induce the Lender to enter into this Agreement, the Borrower agrees as follows: (a) Covenant Not to Dispose of or Impair Collateral. The Borrower shall not, except to the extent permitted in the Loan Agreement, without the prior written consent of the Lender, sell, transfer or otherwise dispose of the Collateral, or any part thereof or interest therein; provided however, that Inventory may be sold, transferred or otherwise disposed of by Borrower in the ordinary course of business and for fair market value, without the Lender's prior written consent. The Borrower shall not permit any of the Collateral to be levied upon under any legal process, nor permit anything to be done that may impair the value of the Collateral or the security intended to be provided by this Agreement. (b) Collateral to be Free from Encumbrances. The Collateral shall be and shall remain free and clear of security interest, claims, liens, encumbrances and rights of others, created by or through Borrower, except the rights of the Lender under this Agreement and for Permitted Liens. (c) Payment of Taxes. The Borrower shall pay or cause to be paid all taxes and charges, including, without limitation, all taxes imposed on or measured by its net income, if the failure to pay such taxes could result in any reduction of the amounts payable to the Lender or the imposition of any lien against any Leased Equipment, the assigned Customer Leases and Related Documents, the Customer Lease Payments or any other Collateral. The Borrower shall not be required to pay, or cause so long as it shall in good faith and by appropriate legal proceedings contest the validity of such tax or charge in any reasonable manner that will not endanger the interest of a Customer obligor in the Leased Equipment under an assigned Customer Lease or the interest of the Lender in any of the Collateral under this Agreement. (d) Insurance. The Borrower, at its own cost and expense, shall maintain insurance as required in the Loan Agreement. The Borrower shall also cause the Customer to maintain insurance for liability and property damage and against loss or damage to the Leased Equipment in amounts and coverages, and with insurers, satisfactory to the Lender, in its reasonable discretion. (e) No Customer Lease Prepayments; No Releases. Without prior written notice by Borrower to Lender, the Borrower shall not cause or permit a Customer obligor to E-82 prepay any Customer Lease Payments or waive, excuse, condone, forgive or in any manner release or discharge a Customer obligor from such obligor's obligations, covenants, conditions and agreements under an assigned Customer Lease and Related Documents that are intended to satisfy the Borrower's obligations under this Agreement or to preserve and protect the interest of the Lender in such an assigned Customer Lease and Related Documents and any Leased Equipment, including, without limitation, the obligations of Customer obligor to pay Customer Lease Payments in the manner and at the time and place specified in such Assigned Note. Without prior written notice by Borrower to Lender, the Borrower shall not enter into any agreement or take any action the result of which would be to amend, modify or terminate any assigned Customer Lease and Related Documents or any Customer obligor's obligations thereunder. Any prepayment of any Customer Lease Payments shall be promptly paid to Lender as a prepayment under Section 3.08 or 4.12 as applicable, of the Loan Agreement. (f) The Borrower's Rights Subordinate. The Borrower's rights to any Customer Lease Payments and payments under any Customer Lease and Related Documents shall be subordinate to the Lender's rights assigned under this Agreement. Upon any Event of Default, at any time the Lender is entitled to exercise its remedies under this Agreement, the Lender shall have the sole and exclusive right to exercise and enjoy the benefits, rights and privilege of the "lessor" under the assigned Customer Lease and Related Documents. To that end, at all such times and unless and until the obligations of the Borrower under this Agreement have been discharged in full, the Borrower shall not seek recovery of any amounts which are a part of the Collateral, shall not modify or terminate any assigned Customer Lease and Related Documents, shall not exercise the remedies available under the assigned Customer Lease and Related Documents against any Leased Equipment, shall not seek to enforce any security provided under the Customer Lease and Related Documents, except in cooperation with and for the benefit of the Lender. (g) Notice of Events of Default by Customers. The Borrower promptly shall notify the Lender of any event of default (as defined in an assigned Customer Lease and Related Documents), or any event that, with the giving of notice or the lapse of time or both would become an event of default, of which the Borrower has or obtains knowledge. 8. Default. The occurrence of an Event of Default under the Loan Agreement shall constitute a default under this Agreement (an "Event of Default"). 9. Loan Remedies. Upon any Event of Default, the Lender may at its option declare the Revolving Credit Note E-83 and/or any and all of the Draw Facility Notes and the other Secured Obligations to be immediately due and payable; and, in addition to that right, and in addition to exercising all other rights or remedies, the Lender may proceed to exercise with respect to the Collateral all rights, options and remedies of a secured party upon default as provided for under the Uniform Commercial Code. The rights of the Lender upon an Event of Default shall include, without limitation, any and all rights and remedies in any and all other documents, instruments, agreements and other writings between the Lender and the Borrower, all rights and remedies as provided by law, in equity or otherwise, and in addition thereto, the following: (a) The right to enter any premises where any Collateral may be located, subject to the rights of the Customer obligors, for the purpose of taking possession or removing the same. (b) The right to require the Borrower to assemble the Collateral and the books and records with respect to assigned Customer Leases and Related Documents and make them available to the Lender at a place or places to be designated by the Lender which is reasonably convenient to the Borrower and the Lender. (c) The right to require the Borrower to store any Leased Equipment and other Collateral, at the Borrower's own cost and risk, on behalf of the Lender after the Lender has taken possession of such Leased Equipment and other Collateral. Storage shall be in such manner as to prevent any deterioration of such Leased Equipment and other Collateral, and shall be for a reasonable time pending the sale or other disposition of such Leased Equipment and other Collateral. (d) The right to sell the Collateral at public or private sale in one or more lots in accordance with Uniform Commercial Code. The Lender may bid upon and purchase any or all of the Collateral at any public sale thereof, and shall be entitled to apply the unpaid portion to the Secured Obligations as a credit against the purchase price. The Lender's purchase of all or any of the Collateral shall extinguish the Borrower's rights under section 9-506 of the Uniform Commercial Code upon application of the unpaid portion of the Secured Obligations. The Lender shall be entitled to apply the proceeds of any such sale to the satisfaction of the Secured Obligations and to expenses incurred in realizing upon the Collateral in accordance with the Uniform Commercial Code. (e) The right to notify any or all of the Customer obligors under or with respect to any assigned Customer Lease and Related Documents of the Lender's E-84 interest therein and to require such Customer obligor to begin making payments directly to the Lender regardless of whether the Borrower was previously making collections on all or any part of the assigned Customer Leases and Related Documents. The Lender shall have the right to proceed against any such Customer obligor in its own name, or in the name of the Borrower (as appropriate) with or without the consent of the Borrower. The Lender may retain any such payments or collections and apply them to the satisfaction of the Secured Obligations and to expenses incurred in collection, all in accordance with the Uniform Commercial Code. (f) The right to recover the reasonable expenses of taking possession of any of the Collateral that may be reduced to possession, preparing the Collateral for sale, selling the Collateral, collecting all or any part of the Customer Lease Payments, payments of or collections on any security provided in connection with an assigned Customer Lease and Related Documents and other like expenses. (g) The right to recover all of the Lender's expenses of collection, including, without limitation, court costs and reasonable attorneys' fees and disbursements incurred in realizing upon the Collateral or enforcing or attempting to enforce any provision of this Agreement and any and all Assignments of Customer Leases and Related Documents. (h) The right to proceed by appropriate legal process at law or in equity to enforce any provision of this Agreement or in aid of the execution of any power of sale, or for foreclosure of the security interests of the Lender, or for the sale of the Collateral under the judgment or decree of any court. 10. Cumulative Remedies. The rights and remedies of the Lender shall be deemed to be cumulative, and any exercise of any right or remedy shall not be deemed to be an election of that right or remedy to the exclusion of any other right or remedy. Notwithstanding the foregoing, the Lender shall be entitled to recover by the cumulative exercise of all remedies no more than the sum of (a) the Secured Obligations at the time of exercise of remedies, plus (b) the reasonable costs, fees and expenses the Lender is otherwise entitled to recover. 11. Waivers. The Borrower acknowledges that this Agreement involves the grant of multiple security interests, and the Borrower hereby waives, to the extent permitted by applicable law, (a) any requirement of marshalling assets or proceeding against Persons or assets in any particular order, and (b) any and all notices of every kind and description which may be required to be given by any statute E-85 or rule of law and any defense of any kind which the Borrower may now or hereafter have with respect to the Collateral under this Agreement. 12. Collections from Assigned Notes. Collections with respect to Customer Lease Payments regarding each Assigned Lease shall be made to the Lockbox pursuant to Section 7.17 of the Loan Agreement. 13. The Lender as Agent. The Borrower hereby irrevocably constitutes the Lender as the Borrower's agent and attorney-in-fact at any time during any period when the Lender may exercise the remedies set forth in Section 9 of this Agreement, to (a) proceed against Customer obligors with respect to any assigned Customer Lease and Related Documents in the Borrower's name or in the Lender's name, and (b) sign and endorse all checks, drafts and other instruments in payment of Customer Lease Payments, (c) perform all such other acts with respect to Customer Lease Payments as the Lender may in its discretion deem necessary to effectuate the security intended to be granted in this Agreement, and (d) to send requests for verification of Receivables to customers or account debtors; to sign and endorse Borrower's name on any checks, notes, acceptances, money orders, drafts or other forms of payment or security in payment of Receivables or from the sale of Inventory or that may otherwise come into Lender's possession; to sign Borrower's name on any invoice or bill of lading relating to any Receivable, on drafts against customers, on schedules and assignments of Receivables, on notices of assignment, financing statements and other public records, on verifications of accounts and on notices to customers; to collect, enforce, compromise, settle and adjust all Receivables and take other actions with respect thereto as Lender determines in its reasonable discretion; to give receipts in Borrower's name and to perform such other acts in connection with the Receivables as Lender in its reasonable discretion may determine to be appropriate; to notify the post office authorities to change the address designated by Lender, which may be a post office box opened by Lender for such purpose or any other address, at Lender's discretion; to receive, open and dispose of all mail addressed to Borrower; and to do all things necessary to perfect Lender's security interest in the Collateral, to preserve and protect the Collateral and to otherwise carry out this Security Agreement; all at the cost of Borrower, and Borrower hereby ratifies and approves all acts of such attorney except as provided below. Provided Lender acts in a commercially reasonable manner, neither Lender nor the attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law. This power, being coupled with an interest, is irrevocable until the Secured Obligations have been fully satisfied and this Security Agreement terminated, whichever shall later occur. E-86 Borrower agrees to execute and deliver promptly to Lender all instruments necessary or appropriate, as determined in Lender's discretion, to further Lender's exercise of the rights and powers granted it in this Paragraph 13. 14. Books and Records. The Borrower shall maintain books and records with respect to the assigned Customer Leases and Related Documents, the Leased Equipment and other Collateral in form and manner reasonably satisfactory to the Lender, and the Lender shall have the right during business hours with reasonable notice to inspect any and all of the business properties, premises or books and records of the Borrower relating to the assigned Customer Leases and Related Documents, the Leased Equipment and other Collateral or the proceeds thereof. The Borrower further agrees from time to time to furnish such reports, data and financial statements with respect to the Collateral as the Lender may reasonably request from time to time. 15. Insurance. The Borrower hereby assigns to the Lender all sums which become payable under any insurance covering the Collateral, directs any insurer to pay all such proceeds to the Lender, and authorizes the Lender to act as the Borrower's attorney in obtaining, adjusting, settling and compromising such insurance and endorsing any drafts drawn to the Borrower pursuant to such insurance. If an Unmatured Default or an Event of Default exists at the time the Lender receives the insurance proceeds, the Lender may apply those proceeds as a prepayment under the Loan Agreement at the Lender's discretion; or if the Lender chooses, it may remit the insurance proceeds to the Borrower. If no Unmatured Default or Event of Default exists at the time the Lender receives the insurance proceeds, the Lender shall remit the insurance proceeds to the Borrower. 16. Certain Secured Obligations Regarding Collateral. (a) The Borrower shall (or use its best efforts to cause each Customer obligor to) keep and maintain the Leased Equipment in good condition and repair, and otherwise keep (or use its best efforts to cause the Customer obligor to keep) the Leased Equipment and other Collateral under adequate condition of storage to prevent its deterioration or depreciation in value. (b) The Borrower shall keep the Collateral free and clear of any and all liens other than the Permitted Liens and security interests created in favor of the Lender under this Agreement (and the interests of Borrower which is to be assigned to the Lender), and shall declare and pay any and all fees, assessments, charges and taxes allocable to the Collateral, or which might result in a lien against the Collateral if left unpaid unless the Borrower at the E-87 Borrower's own expense is contesting the validity or amount thereof in good faith by an appropriate proceeding timely instituted which shall operate to prevent the collection or satisfaction of the lien or amount so contested. If the Borrower fails to pay such amount and is not contesting the validity or amount thereof in accordance with the preceding sentence, the Lender may, but is not obligated to, pay such amount, and such payment shall be deemed conclusive evidence of the legality or validity of such amount. The Borrower shall promptly reimburse the Lender for any and all payments made by the Lender in accordance with the preceding sentence, and until reimbursement, such payments shall be part of the Secured Obligations. (c) If the Borrower fails to provide insurance pursuant to the Loan Agreement, the Lender may, but is not obligated to, pay for such insurance after first notifying the Borrower of the Lender's intent to pay it. The Borrower shall promptly reimburse the Lender for any payments made pursuant to this subparagraph, and until reimbursement, such payments shall be a part of the Secured Obligations. 17. Use and Inspection of Collateral. The Borrower shall not use the Collateral in violation of any statute or ordinance, and the Lender shall have the right, at reasonable hours, to inspect the Collateral (provided however, that Lender's right to inspect Leased Equipment shall not exceed the Borrower's right to inspect such Leased Equipment pursuant to the respective Assigned Lease). 18. Notice. (a) Any requirement of the Uniform Commercial Code or other applicable law of reasonable notice shall be met if such notice is given at least ten (10) business days before the time of sale, disposition or other event or thing giving rise to the requirement of notice. (b) All notices and other communications under this Agreement shall be given in writing and shall give or be delivered in one of the methods to the addresses as set forth in Section 12.16 of the Loan Agreement, as amended from time to time, and all such notices and communications shall be deemed to have been given or delivered as set forth in Section 12.16 of the Loan Agreement, as amended from time to time. 19. Further Assurance. The Borrower shall sign from time to time such financing statements and other documents and instruments and take such other actions as the Lender may request from time to time to more fully create, perfect, continue, maintain or terminate the security interests in the Collateral intended to be created in this Agreement. The Borrower's obligations hereunder shall include, by way E-88 of illustration and not by way of limitation, the requirement of signing and sending notices to Customer obligors of the Lenders rights hereunder. The Borrower agrees that its obligations under this Section are material aspects of the protections intended to be provided to the Lender under this Agreement and may be specifically enforced. 20. Miscellaneous. (a) Failure by the Lender to exercise any right shall not be deemed a waiver of that right, and any single or partial exercise of any right shall not preclude the further exercise of that right. Every right of the Lender shall continue in full force and effect until such right is specifically waived in a writing signed by the Lender; (b) If any part, term or provision of this Agreement is held by any court to be prohibited by any law applicable to this Agreement, the rights and obligations of the parties shall be construed and enforced with that part, term or provision enforced to the greatest extent allowed by law, or if it is totally unenforceable, as if this Agreement did not contain that particular part, term or provision; (c) The headings in this Agreement have been included for ease of reference only, and shall not be considered in the construction or interpretation of this Agreement; (d) This Agreement shall inure to the benefit of the Lender, its successors and assigns, and all obligations of the Borrower shall bind the Borrower's successors and assign; (e) To the extent allowed under the Uniform Commercial Code, this Agreement shall in all respects be governed by and construed in accordance with the laws of the Commonwealth of Kentucky; (f) This Agreement and any and all Assignments of Customer Leases and Related Documents constitute the entire agreement of the parties with respect to the subject matter hereof. No change, modification, addition or termination of this Agreement shall be enforceable unless in writing and signed by the party against whom enforcement is sought; (g) This Agreement may be signed by each party upon a separate copy, and in such cases one counterpart of this Agreement shall consist of enough of such copies to reflect the signature of each part; (h) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement or the terms thereof to produce or account for more than one such counterpart; (i) Wherever possible, each provision of this Security Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Security Agreement; (j) This Security Agreement has been delivered and accepted at and E-89 shall be deemed to have been made at Florence, Kentucky. This Security Agreement shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of Kentucky and all other laws of mandatory application; (k) AS A SPECIFICALLY BARGAINED INDUCEMENT FOR LENDER TO ENTER INTO THIS SECURITY AGREEMENT AND TO EXTEND CREDIT TO BORROWER, BORROWER AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS SECURITY AGREEMENT, ITS VALIDITY OR PERFORMANCE, AT THE SOLE OPTION OF LENDER, ITS SUCCESSORS AND ASSIGNS, AND WITHOUT LIMITATION ON THE ABILITY OF LENDER, ITS SUCCESSORS AND ASSIGNS, TO EXERCISE ALL RIGHTS AS TO THE COLLATERAL AND OTHER SECURITY FOR THE Secured Obligations OR TO INITIATE AND PROSECUTE IN ANY APPLICABLE JURISDICTION ACTIONS RELATED TO REPAYMENT OF THE Secured Obligations, SHALL BE INITIATED AND PROSECUTED AS TO ALL PARTIES AND THEIR SUCCESSORS AND ASSIGNS IN BOONE COUNTY, KENTUCKY. LENDER AND BORROWER EACH CONSENTS TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY COURT SITUATED IN BOONE COUNTY, KENTUCKY HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED MAIL DIRECTED TO BORROWER AND LENDER AT THEIR RESPECTIVE ADDRESSES AS SET FORTH IN SUBPARAGRAPH (H) BELOW OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE STATE OF KENTUCKY. BORROWER WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER, AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT; (l) AS A SPECIFICALLY BARGAINED INDUCEMENT FOR LENDER TO ENTER INTO THIS SECURITY AGREEMENT AND TO EXTEND CREDIT TO BORROWER, BORROWER AND LENDER EACH WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS SECURITY AGREEMENT AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN LENDER AND BORROWER; (m) Borrower covenants, warrants and represents to Lender that all of Borrower's representations and warranties contained in this Security Agreement are true at this time, shall survive the executions and delivery hereof and shall remain true until the Secured Obligations are fully performed, paid and satisfied, subject to such changes as may not be prohibited hereby or do not constitute Events of Default hereunder; (n) All of the Secured Obligations shall constitute one loan secured by Lender's security interest in the Collateral and by all other security interests, mortgages, liens, claims and encumbrances now and from time to time hereafter granted by Borrower to Lender. Lender may, in its sole discretion , (i) exchange, enforce, waive or release any such security or portion thereof, (ii) apply such security and direct the order or manner of sale thereof as Lender may, from time to time, determine, and (iii) settle, compromise, collect or otherwise liquidate any such security in any manner following the occurrence of any Event of Default without E-90 affecting or impairing its right to take any other further action with respect to any security or any part thereof. IN WITNESS WHEREOF, the Borrower and the Lender have executed and delivered this Agreement as of the date first set forth above. BORROWER: LENDER: TECHNOLOGY INTEGRATION FINANCIAL THE FIFTH THIRD BANK OF NORTHERN SERVICES, INC. KENTUCKY, INC. By: By: Title: Title: E-91 SECURITY AGREEMENT List of Exhibits Exhibit A - Form of Assignment Exhibit B - Address where Receivable and General Intangible records are located Exhibit C - Address where Inventory is located Exhibit D - Addresses of Prior Office and Places of Business for last 5 years Exhibit E - List of Trade Names, Assumed Names and Fictitious Names EXHIBIT A Form of Assignment EXHIBIT B Location of Receivables and General Intangibles Records 1. 1020 Petersburg Road, Hebron, Kentucky 41048 E-92 ________________________________ Borrower's Signature EXHIBIT C Location of Inventory 1. Part of Borrower's Inventory includes Leased Equipment. The initial location of the Leased Equipment will be disclosed to Lender at time of Assignment. Lender acknowledges that a portion of the Leased Equipment are mobile goods which will be moved from jurisdiction to jurisdiction, and Borrower will generally be unable to inform Lender of such movements. 2. 1020 Petersburg Road, Hebron, Kentucky 41048 ________________________________ Borrower's Signature E-93 EXHIBIT D Location of Prior Offices and Places of Business for Last 5 Years 1. 1840 Airport Exchange Boulevard Suite 240 Erlanger, Kentucky 41018 ________________________________ Borrower's Signature E-94 EXHIBIT E List of Trade Names, Assumed Names, Fictitious Names and Other Names Used in Last 5 Years 1. Pomeroy Computer Leasing, Inc. ________________________________ Borrower's Signature E-95 EX-10 10 AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT and PLAN OF REORGANIZATION made and entered into this ____ day of _______________, 1997 by, between and among POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, a South Carolina corporation ("Subsidiary"), a wholly owned subsidiary of POMEROY COMPUTER RESOURCES, INC., a Delaware corporation ("Pomeroy"), and THE COMPUTER STORE, INC., a South Carolina corporation ("CSI"), and ARTHUR M. COX ("Cox"), RONALD D. HILDRETH ("Hildreth") and JEFFREY F. HIPP ("Hipp") (Cox, Hildreth and Hipp are also hereinafter referred to collectively as the "CSI Shareholders"). W I T N E S S E T H: WHEREAS, the CSI Shareholders are the owners of 16,000 total common shares of CSI (the "CSI Shares"), said CSI Shares being one hundred percent (100%) of the total issued and outstanding shares of CSI; and WHEREAS, CSI, Subsidiary and Pomeroy desire to effect a plan of reorganization pursuant to Section 368(a)(2)(D) of the Internal Revenue Code whereby CSI shall be acquired by and merge into Subsidiary in exchange for stock of Pomeroy and other good and valuable consideration, which stock and cash shall be delivered to CSI Shareholders upon the cancellation of their CSI stock, pursuant to the terms of this Agreement; WHEREAS, the shareholders of CSI and Subsidiary and the Boards of Directors of Subsidiary, Pomeroy and CSI have adopted resolutions declaring advisable the merger of CSI into Subsidiary on the terms and conditions hereinafter set forth; WHEREAS, at or prior to the Effective Date of the merger ("Effective Date") as hereinafter defined, Subsidiary will acquire or otherwise make available from Pomeroy the number of shares of Pomeroy common stock (par value $.01 per share) necessary to complete the merger provided for herein; and NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein set forth, for other good and valuable consideration, and for the purpose of prescribing the terms and conditions of such merger, the parties hereto covenant and agree as follows: SECTION 1. MERGER 1.1 Agreement to Merge. Subject to the terms and conditions set forth herein, CSI and Subsidiary agree to effect a merger of CSI into Subsidiary with Subsidiary being E -96 the surviving corporation (the "Surviving Corporation") in accordance with the Plan of Merger attached hereto as Exhibit "A". CSI's obligation to merge into Subsidiary is expressly conditioned upon CSI's Shareholders surrendering all CSI Shares at the Closing Date pursuant to the terms, conditions and covenants set forth in this Agreement and the Plan of Merger. CERTAIN PORTIONS OF THIS AGREEMENT ARE SUBJECT TO BINDING ARBITRATION 1.2 Pomeroy Common Stock. Pomeroy will make available to Subsidiary a sufficient number of its common shares (par value of $.01 per share) ("Pomeroy Stock") to effect the merger pursuant to the Plan of Merger. SECTION 2. ELEMENTS OF MERGER TRANSACTION 2.1 Conversion of Shares. Each share of CSI common stock issued and outstanding immediately prior to the Effective Date exclusive of shares held in the treasury of CSI, which shares shall be cancelled upon the Effective Date and shall, without any action on the part of Pomeroy, Subsidiary or any holder of such shares, be converted by the merger into 1.55319 shares of Pomeroy Stock which has been determined by dividing $700,002.97 by the base period price (28.168) and dividing such result by 16,000. As used in this section, the base period price of Pomeroy Stock shall be the average of the closing prices of stock on the NASDAQ Exchange for the twenty (20) trading days immediately preceding the third day before the Effective Date. In determining the base period price of Pomeroy Stock, the closing price of Pomeroy Stock for the dates that preceded the Stock Split that was effectuated on October 7, 1997 shall be recalculated to give effect to such Stock Split. (a) At Closing, the CSI Shareholders shall deposit with Nexsen Pruet Jacobs and Pollard, LLP and Lindhorst & Dreidame Co., L.P.A. as escrow agents the number of shares of Pomeroy Stock having an aggregate value of $74,983.72 (based on the base period price set forth in Section 2.1 of this Agreement). Such shares shall be deposited by the CSI Shareholders proportionately. Such shares shall be held pursuant to the terms of an Escrow Agreement which is attached hereto as Exhibit "B". (b) Incident to the issuance of the Pomeroy shares, each CSI Shareholder shall execute such documentation containing such representations regarding the holding of Pomeroy Shares, including that each respective CSI Shareholder is able to bear the economic risk of holding the shares to be delivered hereunder for the period required by applicable Federal Securities Laws because such Pomeroy E -97 Shares will not have been registered under the Securities Act of 1933 and therefore cannot be sold unless they are subsequently registered under the Act or an exemption from registration is available. The form of the documentation to be executed by each CSI Shareholder incident to the issuance of these shares pursuant to the merger is attached hereto as Exhibit "C". 2.2 Non-Stock Consideration Transferred at the Effective Date. (a) At the Effective Date, the CSI Shareholders shall each receive cash in the amount of Forty-three and 749,814/1,000,000 Dollars ($43.749814) for each share of CSI Common Stock owned by each CSI Shareholder, totaling Six Hundred Ninety-Nine Thousand Nine Hundred Ninety-seven and 03/100 Dollars ($699,977.03) in the aggregate. (b) At Closing, the CSI Shareholders shall deposit with the escrow agents the sum of Seventy-Five Thousand Sixteen and 78/100 Dollars ($75,016.78) in the aggregate, which amount shall be deposited by the CSI Shareholders proportionately. Such funds shall be held pursuant to the terms of the Escrow Agreement attached hereto as Exhibit "B". (c) Not later than the applicable date set forth in Section 2.2(d) (the "Post Merger Date"), the CSI Shareholders and Subsidiary agree to determine any adjustment to the consideration issued incident to the merger if the book value of the shareholder equity of CSI is less than One Million Forty-two Thousand Nine Hundred Twenty-two Dollars ($1,042,922.00) as reflected in the Closing Balance Sheet referred to in Section 5.6 below. To the extent the book value of the shareholder's equity of CSI on the Closing Balance Sheet is less than One Million Forty-two Thousand Nine Hundred Twenty-two Dollars ($1,042,922.00),, the consideration issued incident to the merger shall be decreased, on a dollar for dollar basis, to the extent of such shortfall. Any net reduction in the consideration for the merger, as a result of such adjustment, if any, shall be implemented by decreasing proportionately the amount of cash and Pomeroy Stock paid to the CSI Shareholders, which amount shall first be repaid from the escrow funds in the manner set forth in the Escrow Agreement, and if such escrow funds are insufficient to repay such amount, then from the CSI Shareholders. To the extent the book value of the shareholder's equity of CSI is greater than One Million Forty-Two Thousand Nine Hundred Twenty-Two Dollars ($1,042,922.00) on the Closing Balance Sheet, the consideration issued incident to the merger shall be increased on a dollar-for-dollar basis, to the extent of E -98 such increase. Any net increase in the consideration for the merger, as a result of such adjustment, if any, shall be implemented by increasing proportionately the amount of cash and Pomeroy Stock paid to the CSI Shareholders. Any reduction or increase in the amount of Pomeroy Stock repaid by the CSI Shareholders or paid to the CSI Shareholders as set forth above shall be based on the average of the closing price of the Pomeroy Stock on the NASDAQ Exchange for the twenty (20) trading days immediately preceding the third day before an agreement is made by the parties in the manner set forth in Section 2.2(d) regarding the Closing Balance Sheet of CSI. (d) Within forty-five (45) days after the Effective Date, the CSI Shareholders will deliver to the Subsidiary a copy of the Closing Balance Sheet prepared by the CSI Shareholders for the subject period along with any supporting documentation reasonably requested by Subsidiary. Within thirty (30) days following delivery to Subsidiary of such report (the "BV Objection Period"), the Subsidiary shall have the right to object in writing to the results contained in such determination. If timely objection is not made by Subsidiary of such determination, such determination shall become final and binding for purposes of this Agreement. If timely objection is made by Subsidiary to the CSI Shareholders, and the CSI Shareholders and Subsidiary are able to resolve their differences in writing within thirty (30) days following the expiration of the BV Objection Period, then such determination as resolved shall become final and binding as it relates to this Agreement. If timely objection is made by Subsidiary to the CSI Shareholders, and CSI Shareholders and Subsidiary are unable to resolve their differences in writing within thirty (30) days following the expiration of the BV Objection Period, then all disputed matters pertaining to the report shall be submitted to and reviewed by an Arbitrator (the "Arbitrator") which shall be an independent accounting firm selected by Subsidiary and CSI Shareholders. If the Subsidiary and the CSI Shareholders are unable to agree promptly on an accounting firm to serve as the Arbitrator, each shall select, by not later than the seventy-fifth day following the BV Objection Period, an accounting firm, and each selected accounting firm shall be instructed to jointly select promptly another accounting firm, such third selected firm to serve as the Arbitrator. The Arbitrator shall consider only the disputed matters pertaining to the determination and shall act promptly and fairly to resolve all disputed matters and its decision with respect to all disputed matters shall be final and binding upon CSI Shareholders and Subsidiary. Expenses of the arbitration (including reasonable attorney and accounting fees) shall be borne by the Subsidiary unless the Arbitrator determines that the book value of the shareholders' equity as reflected on the Closing Balance Sheet made by the CSI Shareholder E -99 exceeds by $25,000 or more the Arbitrator's determination of the book value of the Shareholder's equity of CSI as of the Effective Date, in which case, the expense of the arbitration (including reasonable attorney and accounting fees) shall be borne by the CSI Shareholders. 2.3 Potential Adjustment for Consideration Transferred Incident to the Merger. (a) If during the calendar year 1997, the sum of (i) CSI's EBIT from January 1, 1997 to the Effective Date and (ii) Subsidiary's EBIT from its operation, from the Effective Date to December 31, 1997 (a) exceeds $220,000.00 , then fifty percent (50%) of such excess not to exceed $100,000.00, shall be paid fifty percent (50%) in cash and fifty percent (50%) in Pomeroy Stock to the CSI Shareholders in accordance with the procedures set forth in Section 2.1 and 2.2 of the Agreement within five (5) days after the applicable time period set forth below (unless extended as provided below due to a dispute by the CSI Shareholders) or (b) is less than $180,000, then fifty percent (50%) of such deficiency, not to exceed $100,000, shall serve as a reduction to the consideration paid for the merger, which reduction will be repaid to Subsidiary from the escrow account, fifty percent (50%) in cash and fifty percent (50%) in Pomeroy Stock according to the procedures set forth in the Escrow Agreement and if such Escrow Agreement is not sufficient to repay such amount, then from the CSI Shareholders. Any reduction or increase in the amount of Pomeroy Stock to be repaid by the CSI Shareholders or paid to the CSI Shareholders, if any, shall be based on the average of the closing price of the Pomeroy Stock on the NASDAQ Exchange for the twenty (20) trading days immediately preceding the third day before an agreement is made by the parties in the manner set forth in this Section regarding the EBIT determination. For purposes of this section, "EBIT" shall mean the earnings of CSI and Subsidiary from the operation of CSI and Subsidiary, before interest and taxes, and without incorporating any gains or losses realized on the disposition of assets other than in the ordinary course of business. For purposes of determining Subsidiary's EBIT for the period from the Effective Date to December 31, 1997, no item of income or expense shall be allocated by Pomeroy to Subsidiary unless such items are reasonably calculated to contribute to the increased profits of Subsidiary, it being the intent of the parties that Pomeroy shall exercise the utmost good faith with respect to allocation of income and expense to the Subsidiary. Incident to the determination of Subsidiary's EBIT, no compensation of any executive or other employee of Pomeroy or its affiliates shall be allocated to Subsidiary. Except as set forth above, no other E -100 administrative, overhead or any other expense of Pomeroy shall be allocated to Subsidiary. Subsidiary's EBIT will be calculated on a basis consistent with CSI's financial statement determining EBIT for the period January 1, 1997 to the Effective Date, using the same methodologies, judgments, variances, assumptions, adjustments and estimates employed by CSI in preparing such financial statements. Within sixty (60) days after December 31, 1997, Subsidiary will deliver to the CSI Shareholders a copy of the reported EBIT prepared by Subsidiary's certified public accountants for the subject period along with any supporting documentation reasonably requested by the CSI Shareholders. Within thirty (30) days following delivery to the CSI Shareholders of such report (the "EBIT Objection Period"), the CSI Shareholders shall have the right to object in writing to the results contained in such determination. If timely objection is not made by the CSI Shareholders of such determination, such determination shall become final and binding for purposes of this Agreement. If timely objection is made by CSI Shareholders to Subsidiary, and the CSI Shareholders and Subsidiary are able to resolve their differences in writing within thirty (30) days following the expiration of the EBIT Objection Period, then such determination as resolved shall become final and binding as it relates to this Agreement. If timely objection is made by CSI Shareholders to Subsidiary, and CSI Shareholders and Subsidiary are unable to resolve their differences in writing within thirty (30) days following the expiration of the EBIT Objection Period, then all disputed matters pertaining to the report shall be submitted to and reviewed by an Arbitrator (the "Arbitrator") which shall be an independent accounting firm selected by Subsidiary and CSI Shareholders. If the Subsidiary and the CSI Shareholders are unable to agree promptly on an accounting firm to serve as the Arbitrator, each shall select, by not later than the seventy-fifth day following the EBIT Objection Period, an accounting firm, and each selected accounting firm shall be instructed to jointly select promptly another accounting firm, such third selected firm to serve as the Arbitrator. The Arbitrator shall consider only the disputed matters pertaining to the determination and shall act promptly and fairly to resolve all disputed matters and its decision with respect to all disputed matters shall be final and binding upon CSI Shareholders and Subsidiary. Expenses of the arbitration (including reasonable attorney and accounting fees) shall be borne by the CSI Shareholders unless the Arbitrator determines that EBIT for calendar year 1997 exceeds by at least $25,000, the determination made by Subsidiary's accounting firm, in which case, the expense of the arbitration (including reasonable attorney and accounting fees) shall be borne by Subsidiary. E -101 The Escrow Agreement shall terminate and any remaining property contained therein shall be paid to the CSI Shareholders proportionately as set forth in the Escrow Agreement on the later of April 1, 1997 or the date upon which the EBIT determination is resolved and all adjustments hereunder, if any, have been made by the parties. SECTION 3. NON-COMPETITION AGREEMENT. 3.1 Non-Competition Agreements. As an inducement for and consideration of Subsidiary entering into this Agreement, the CSI Shareholders shall each enter into a non- competition Agreement for a period of the later of five (5) years from the Effective Date or one (1) year after the termination of such individual's employment with Subsidiary. Such Non-Competition Agreements are set forth in Exhibit "D", Exhibit "D-1" and Exhibit "D-2", attached hereto and made a part hereof. SECTION 4. EMPLOYMENT AGREEMENTS. 4.1 Employment Agreements. Upon the Effective Date, Subsidiary shall enter into an Employment Agreements with Cox, Hildreth and Hipp. Copies of said Employment Agreements are attached hereto and made a part hereof as Exhibits "E", "E-1" and "E-2". Subsidiary's obligations under said Employment Agreements shall be guaranteed by Pomeroy. Copies of said Guarantees are attached hereto and made a part hereof as Exhibits "E-3", "E-4" and "E-5". SECTION 5. REPRESENTATIONS AND WARRANTIES OF CSI AND CSI SHAREHOLDERS Except as set forth in the Disclosure Schedule attached hereto, CSI and CSI Shareholders, jointly and severally, represent, warrant and covenant to Subsidiary that the following statements are materially true as of the date hereof and shall remain materially true and correct as of the Effective Date as if made again at and as of that time: 5.1 Organization and Good Standing. CSI is a corporation duly organized, validly existing and in good standing under the laws of the State of South Carolina and is duly authorized and has full corporate power under its Articles of Incorporation, as amended, and under applicable laws, to own or lease all of its properties and to engage in the business carried on by it, and is fully qualified to do business in those states in which the nature and conduct of its present business operations requires qualification and in which the failure to be so qualified, if required, would have a materially adverse effect on the business operations and financial condition of CSI taken as a whole. Copies of CSI's Articles of Incorporation and By-Laws (certified to be correct by the Secretary of CSI) have been delivered to E -102 Subsidiary and are complete and correct as of the date hereof. The Disclosure Schedule correctly lists, with respect to CSI, each jurisdiction, if any, in which it is qualified to do business as a foreign corporation. 5.2 Capitalization. CSI has One Hundred Thousand (100,000) authorized shares of Common Stock, One Dollar ($1.00) par value, of which Sixteen Thousand (16,000) shares are outstanding; that such outstanding shares of CSI have been duly and validly authorized and issued and are fully paid and non-assessable; that such CSI Common Stock is the only class of stock or securities authorized by CSI's Articles of Incorporation and By-Laws as amended; and there are no purchase commitments, purchase agreements, subscriptions, options, warrants, contracts, other commitments and/or agreements of any kind expressed or implied, outstanding for the issuance of any additional shares of CSI common stock, the issuance of any additional shares of any other class of stock or the issuance of any type or class of security. 5.3 Ownership of CSI Common Stock. The Disclosure Schedule sets forth a complete list of the common stock of CSI and the owners thereof. The CSI Shareholders are the lawful record and beneficial owners of the number of shares of CSI common stock set opposite their names, free and clear of any liens, claims, encumbrances or restrictions of any kind. 5.4 Subsidiaries. CSI has no subsidiaries. 5.5 Authority. The execution, delivery and performance of this Agreement and the Plan of Merger, and the consummation of the transactions contemplated therein, have been duly authorized and approved by all requisite action of CSI's Board of Directors and the CSI Shareholders, and this Agreement and the Plan of Merger have been duly executed and delivered and constitute the valid and binding obligation of CSI in accordance with their respective terms. Neither the execution and delivery of this Agreement nor the Plan of Merger nor the consummation of the transactions contemplated hereby will: (i) violate, or conflict with, or require any consent under, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of CSI under any of the terms, conditions or provisions of the Articles of Incorporation or By-laws of CSI or of any note, bond, mortgage, indenture, deed of trust, license, agreement, or other instrument or obligation E -103 to which CSI, or any CSI Shareholder is a party, or by which CSI or any CSI Shareholder or any of their properties or assets may be bound or affected, or (ii) violate any order, writ, injunction or decree applicable to any CSI Shareholder or CSI or to any of their properties or assets or, to the knowledge of CSI Shareholders violate any statute, rule or regulation applicable to any CSI Shareholder or CSI or any of their properties or assets; or, (iii) except as set forth in the Disclosure Schedule, Exhibit "5.5(iii)", constitute a default or event that, with notice or lapse of time, or both, would be a default, breach, or violation of any lease, license, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust or other agreement, instrument or arrangement to which CSI is a party or by which it is bound; or, (iv) except as set forth in the Disclosure Schedule, Exhibit "5.5(iv)", constitute an event that would permit any party to terminate any agreement or to accelerate the maturity of any indebtedness or other obligation of CSI. No consent or approval by, notice to or registration with any governmental authority is required on the part of any CSI Shareholder or CSI prior or subsequent to the Closing Date in connection with the execution, delivery and performance by CSI or the CSI Shareholders of this Agreement or the consummation of any of the transactions contemplated hereby. 5.6 Closing Balance Sheet. The Closing Balance Sheet, which shall be attached hereto as Exhibit "F" on the Post- Closing Date, reflects only the assets and liabilities of CSI as of the Effective Date and does not include any assets or liabilities of any corporation or entity except CSI. As of the Effective Date, CSI did not have any liabilities or obligations of any nature (whether absolute, accrued, contingent or otherwise and whether due or to become due), including without limitation, any tax liabilities, of the nature required by generally accepted accounting principles to have been reflected or reserved against in financial statements, which are not accurately and fully reflected or reserved against in the Closing Balance Sheet; provided, however, that the Closing Balance Sheet shall not be accompanied by notes and shall not include normal year-end adjustments (if any) other than depreciation or any other accrual of a nature set forth on Exhibit "5.6", attached hereto, which are not material in the aggregate. 5.7 Year End and Interim Financials. E -104 (a) Attached to the Disclosure Schedule are the audited financial statements of CSI for the year ended December 31, 1996 and the unaudited financial statements of CSI for the year ended December 31, 1995 and the unaudited interim balance sheets as of August 31, 1997, including any and all notes thereto ("Year End and Interim Financials"). The Year End statements are in accordance with the books and records of CSI, and have been prepared in accordance with general accepted accounting principles (except that the unaudited financial statements for the year ended December 31, 1995 are not accompanied by notes and normal year-end adjustments) as applied by CSI on a consistent basis throughout the periods covered by such statements and fairly present the financial condition of CSI as of the respective dates and the results of operations of CSI for the period then ended. The Interim Financials are in accordance with the books and records of CSI and are prepared on a consistent basis throughout the period covered by such statements and fairly present the financial condition of CSI as of such date and the results of operations of CSI for the period then ended; provided, however, that the Interim Financials do not include normal year-end adjustments (if any) which are not material in the aggregate. Except as stated in the Year End and Interim Financials there have been no unusual accounting practices engaged in which have affected the amount or trend of net income of CSI, or any unusual or nonrecurring transactions, during the periods reflected in the Year End and Interim Financials. All charges, expenses and accruals of the nature required by generally accepted accounting principles to have been reflected or reserved against in financial statements relating to the operations or to any aspect of the business of CSI have been deducted in the preparation of the income and expenses statements included in the Year End and Interim Financials and are in accordance with the books and records kept by CSI. The Year End statements and the Interim Financials are referred to herein as the "Financial Statements". In determining whether a Financial Statement is correct and fairly represents the financial position at the requisite date, any understatement or omission of a liability or expense shall be offset by any understatement or omission of an asset or revenue, and vice versa. (b) Absence of Undisclosed Liability. Except as to the extent specifically reflected in the Financial Statements, and except for trade payables and liabilities arising in the ordinary course of business and expenses of CSI relating to the merger which shall be properly accrued for on the Closing Balance Sheet since the date of the Financial Statements, CSI, on the Effective Date, does not have any other liabilities of any nature, whether accrued, absolute or contingent, or otherwise, and whether due or to become due of the nature required by generally accepted E -105 accounting principles to have been reflected or reserved against in financial statements. (c) No Liabilities as Guarantor. Except as set forth in the Disclosure Schedule, CSI is not directly or indirectly obligated to guaranty or assume any debt, dividend, or other obligation of any person, corporation, association, partnership, or other entity, except endorsements made in the ordinary course of business in connection with the deposit of items for collection. (d) Absence of Material Change. Except as set forth in the Disclosure Schedule or as otherwise set forth in this Agreement or the exhibits hereto, since the date of the Interim Financials there has not been: (i) any change in the condition (financial or otherwise), properties, business, operations or prospects of CSI which is materially adverse, singly or in the aggregate; (ii) any material loss, damage or destruction in the nature of a casualty loss or otherwise, whether covered by insurance or not, adversely affecting any property or asset of CSI; (iii) an actual or any threatened strike or other labor trouble or dispute; (iv) any loss or any threatened loss of any governmental permit, license, qualification, special charter or certificate of authority held or enjoyed or formerly held or enjoyed by CSI which loss has had or upon occurrence would have an adverse effect, singly or in the aggregate, on the condition (financial or otherwise), properties, business, operations or prospects of CSI; (v) to the knowledge of the CSI Shareholders, any statute, regulation, order, ordinance or other law the adoption, amendment or rescission of which adversely affects, singly or in the aggregate, the condition (financial or otherwise), properties, business, operations or prospects of CSI; (vi) any indebtedness, liability or obligation (whether absolute, accrued, contingent or otherwise) incurred by CSI, or other transaction entered into by CSI, other than in the ordinary course of business and consistent with past practice, or any guarantee of any indebtedness, liability or obligation made by CSI; (vii) any declaration, setting aside or payment of any dividend or other distribution in respect of any capital stock or other securities of CSI; E -106 (viii) any issuance, sale, combination or reclassification of any capital stock or other securities of CSI; (ix) any issuance or grant of any option, warrant or other right in respect of any capital stock or other securities of CSI; (x) any direct or indirect redemption, purchase or other acquisition of any capital stock or other securities of CSI; (xi) any obligation, liability, lien or encumbrance paid, discharged or satisfied by CSI other than current liabilities reflected in the Interim Financials and current liabilities incurred since August 31, 1997 in the ordinary course of business; (xii) any mortgage, lien, pledge, charge or encumbrance (except for liens for current taxes not yet due and payable), created, incurred or assumed by CSI; (xiii) except in the ordinary course of business, any sale, transfer or other disposition of any tangible asset of CSI, any cancellation of any debt or claim of CSI or any disposition of any intangible properties, assets or rights of CSI; (xiv) any salary or wage increase granted or committed to be made, other than normal merit or cost-of- living increases pursuant to CSI's general prevailing practices, with respect to any officer, director, employee or agent of CSI, or any bonus (except bonuses to Cox and Hildreth in the amounts of $12,000.00 and $12,000.00 respectively, provided that such amounts are properly accrued for on the Closing Balance Sheet), incentive or deferred compensation, profit sharing, retirement, pension, group insurance, death benefit or other fringe benefit plan or trust agreement entered into or amended or any employment or consulting agreement entered into or amended or altered; (xv) any termination (whether by discharge, retirement or otherwise) of any officer, director, employee or agent of CSI or any notice to so terminate given or received by any of the foregoing; (xvi) any loan made, increased or forgiven to any officer, director, employee or agent of CSI or to any member of any of their families; (xvii) any capital expenditure, addition or improvement made or committed to be made by CSI in excess of $5,000.00 with respect to any single expenditure, E -107 addition or improvement or in excess of $10,000.00 with respect to all such expenditures, additions and improvements; (xviii) any failure on the part of CSI to operate its business in the ordinary course or to use its best efforts to preserve its business organization intact, to retain the services of its employees and to preserve its goodwill and relationships with suppliers, creditors and others having business relationships with it; (xix) any known material loss of business, termination or discontinuance of any relationship or dispute between CSI and any customer or supplier; (xx) any loss, amendment, termination or waiver of any material right of CSI other than in the ordinary course of business; (xxi) any known write-off as uncollectible of any notes or accounts receivable, or any portions thereof, in excess of $5,000.00 with respect to any single note or account or in excess of $10,000.00 with respect to all such write-offs; (xxii) any action taken or omitted to be taken by CSI which would constitute the breach, default or result in the acceleration of or cause (after lapse of time, notice or both) the breach, default or acceleration of any material right, contract, commitment or other obligation of CSI; (xxiii) any agreement or commitment by CSI to do any of the foregoing; (xxiv) any failure to maintain the books and records of CSI consistently and in the usual, regular and ordinary manner and in accordance with good business practice; (xxv) any other event or condition of any character which, singly or in the aggregate, has materially adversely affected, or any event or condition known to CSI or to any CSI Shareholder or any of CSI's officers which it is reasonable to expect will, singly or in the aggregate, materially adversely affect in the future, the condition (financial or otherwise), properties, business, operations or prospects of CSI, except for events, trends, etc., generally affecting and known to the industry as a whole. 5.8 Assets. Except as provided in Disclosure Schedule Exhibit 5.8, CSI has good and marketable title to all of its assets and properties, real, personal or otherwise, including but not limited to those assets and properties E -108 reflected in the August 31, 1997 Interim Financials, except only for assets subsequently disposed of in the ordinary course of business, free and clear of all liens, claims, security interests and encumbrances whatsoever, except (a) as specifically reflected thereon, or (b) as set forth in the Disclosure Schedule. To the best of the knowledge of the CSI Shareholders, all of CSI's tangible and other operating assets, property and equipment are in generally good operating condition and repair, free of structural or material mechanical defects and conform with all applicable laws and regulations. Without limiting the generality of the foregoing, specific representations are set forth in the following subparagraphs of this Section 5.8. 5.8.1 Receivables. Accounts Receivable of CSI as included in the Interim Financials and all Accounts Receivable of CSI created after such date up to and including the Effective Date arose from valid sales in the ordinary course of business and represent valid, collectible (as to the Accounts Receivable of CSI, net of any bad debt reserve as reflected on the Interim Financials) and existing claims. Subject to customer credits, the payment of each Account Receivable will not be subject to any known defense, counterclaim or condition (other than CSI's performance in the ordinary course of business) whatsoever. 5.8.2 Inventory. The inventory reflected in the Financial Statements were, and those reflected on the books of CSI on the date hereof, have been, and those reflected on such books on the Effective Date will have been determined and valued in accordance with generally accepted accounting principles, applied on a consistent basis as reflected in the Financial Statements and consist of items which are good and merchantable and of a quality and quantity presently usable or saleable in the ordinary course of business (except for items of obsolete and slow moving materials of below standard quality, all of which were written down to net realizable value or adequately reserved for in such Financial Statements or returned or are returnable to the manufacturer or its distributor for credit). 5.8.3 Real Property. CSI owns no real property. 5.8.4 Dealer Agreements. All of CSI's Dealer Agreements are set forth on Exhibit "F" attached hereto. 5.8.5 Trademarks, etc. CSI neither owns nor uses in its business any patents, trademarks, trade names, copyrights, service marks or service names except for common law trademark rights, if any, and registration rights, if any, under the trademark laws for the State of South Carolina in the name "The Computer Store", and except for E -109 off-the-shelf licenses of certain computer software. CSI has not infringed, misappropriated or misused or been charged, or threatened to be charged, with infringement, misappropriation or misuse of, any patent, trademark, trade name, copyright, trade secret, know-how or confidential information or data of another. 5.9 Taxes. CSI has filed and will file (for all periods ending on or prior to the Effective Date) all tax returns and other reports to governmental bodies required by law and has paid or has or will have fully reserved for all taxes due and payable as reflected on such returns or any returns that may be filed after the Effective Date which include periods on or before the Effective Date. Except as set forth on the Disclosure Schedule, Exhibit "5.9", there are no pending or proposed deficiency assessments, reassessments or claims of any governmental body for income taxes, property taxes, sale or usage taxes, social security, workers' compensation, unemployment contributions or any other taxes or contributions; and the charges, accruals and reserves reflected in the Closing Balance Sheet are and will be sufficient to pay all such taxes reflected on such returns related to the periods covered by them and any prior periods. CSI is not a consenting corporation under the provisions of Section 341(f) of the Internal Revenue Code ("Code"), nor during the past three (3) years has given or has been requested to give waivers of any statute of limitations relating to any such taxes or governmental charges. CSI is not an electing sub-chapter S corporation under the provisions of Section 1361 of the Code. 5.10 Outstanding Indebtedness. Except for liabilities incurred in the ordinary course of business and/or reflected or reserved against in the Financial Statements, and/or as provided in the Disclosure Schedule, Exhibit "5.10", CSI has no liabilities of the nature required by generally accepted accounting principles to have been reflected or reserved against in financial statements, is not indebted to any party and has not pledged or hypothecated, voluntarily or involuntarily, any of its assets. CSI is not in default in respect of any material term or conditions of any indebtedness or any liabilities (including trade payables), and there are no facts in existence on the date hereof and known by any of the CSI Shareholders which might reasonably serve as a basis, in whole or in part, for any material liabilities or obligations not disclosed in this Agreement or not adequately covered by insurance. 5.11 Obligations. Except as provided by the contracts, leases and other documents described in the Disclosure Schedule Exhibit 5.11 or in other Exhibits hereto, CSI is not a party to or bound by any written or oral (a) contract or commitment not made in the ordinary course of business, (b) lease of real property or personal property or fixtures, E -110 as lessee, (c) promissory note, loan agreement, guaranty, mortgage, pledge, security agreement, or other credit agreement, indenture, instrument, agreement or arrangement providing for or relating to extensions of credit, (d) franchise, dealership, distributorship, or other like agreement, (e) contract, agreement or other arrangement or commitment involving a payment by, or other obligation of, CSI of more than $5,000.00, or (f) contract or commitment which cannot or in reasonable probability will not be performed or terminated without penalty within 90 days from the Effective Date. CSI is not in default, and is not aware of any event which with the giving of notice and/or passage of time would constitute a default by CSI, in any material respect, under any contract, lease or other document described in the Disclosure Schedule or other Exhibit. 5.12 Labor. Except as specifically described in the Disclosure Schedule Exhibit 5.12, CSI is not a party to any oral or written: (a) employment contract which is not immediately terminable at will by the employer without contractual penalty; (b) non-qualified retirement or profit- sharing, bonus or stock option plan, group insurance contract for, or agreement with, its employees or any of them; (c) collective bargaining or other labor union contract, vacation pay or severance pay or other so-called fringe benefit agreement or arrangement; or (d) agreement with any present or former officer, director or shareholder of CSI. Furthermore, except as described in the Disclosure Schedule Exhibit 5.12, there are no material labor controversies, work stoppages, slow-downs or other significant labor troubles whatsoever pending, or to the knowledge of the CSI Shareholders threatened or proposed, against or affecting CSI, nor has CSI been charged with any unresolved unfair labor practice, nor does any CSI Shareholder have knowledge of any present union organizing activity among any employees of CSI; CSI has complied in all material respects with all laws and regulations relating to the employment of labor, including without limitation any provisions thereof relating to wages, hours, or collective bargaining, or any regulations of the Occupational Safety and Health Administration, the Environmental Protection Agency, the Equal Employment Opportunity Commission, other civil rights commissions, and similar agencies, and including the payment of social security, withholding taxes, income taxes, disability, worker's compensation, unemployment and similar taxes, and it is not liable for any arrears in wages or any taxes or penalties for failure to comply with any of the foregoing. To the extent of any claim pending at the time of Closing with respect to any of the foregoing, CSI Shareholders shall indemnify and hold CSI harmless from and against any and all liabilities arising out of such claim. The Disclosure Schedule, Exhibit "5.12" sets forth the names of any former employees of CSI that are exercising any rights under COBRA. E -111 5.13 Retirement Plans. Except as specifically described in the Disclosure Schedule Exhibit 5.13, CSI does not maintain any qualified Retirement Plans, within the meaning of Code Section 401(a). CSI has not incurred or accumulated any funding deficiency within the meaning of the Employees' Retirement Income Security Act of 1974 as amended (ERISA) or incurred any liability to Pension Benefit Guarantee Corporation in connection with any employee benefit plan established or maintained by CSI and no reportable event or prohibited transaction, as defined in ERISA, has occurred with respect to any plans of CSI. CSI is not a party to nor has ever been a party to any multiple employer pension plan and never incurred any withdrawal liability incident thereto. 5.13.1 To the best of CSI and CSI Shareholders' knowledge, all of the qualified Retirement Plans of CSI have been operated and administered in full compliance with applicable requirements of all laws, rules and regulations governing plans of this type (including, without limitation, applicable provisions of ERISA, pertaining to reporting and disclosure requirements, fiduciary responsibility and claims procedures; the Code, pertaining to disclosure and funding requirements); and CSI has filed all returns and reports as required incident thereto. 5.13.2 Except as disclosed on the Disclosure Schedule Exhibit 5.13, CSI is not and has never been a member of any controlled group of corporations (as defined in Code Section 414(b)), any group of trade or business (whether or not incorporated) which are under common control (as defined in Code Section 414(c)) or any affiliated service group (as defined in Code Section 414(m)) which include in such group a corporation or trade or business other than CSI and, as a result, CSI has no liability which could arise by reason of the operation of, termination of or withdrawal from any employee pension benefit plan in which any other employer has participated. 5.14 Welfare Plans. 5.14.1 Welfare Plans Described. The employees welfare benefit plans described in the Disclosure Schedule Exhibit 5.14 are the only employee welfare benefit plans (within the meaning of Section 3(a) of ERISA), which are maintained by CSI for the benefit of eligible employees of CSI (hereinafter collectively referred to as "Welfare Plans"), and no oral or written promises have been made to any employees or former employees of CSI as to the current or future benefits thereunder other than as set forth in the summary plan booklet describing such plan. 5.14.2 Operation. Each of the Welfare Plans has been operated and administered in full compliance with E -112 applicable requirements of all laws, rules and regulations governing plans of its type (including, without limitation, applicable provisions of: Title I of ERISA, pertaining to reporting and disclosure requirements, fiduciary responsibility and claims procedures; the Code, pertaining to disclosure and funding requirements; the Pregnancy Discrimination Act of 1978; the Age Discrimination in Employment Act, as amended; and the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, pertaining to continuation of health plan coverage). 5.14.3 Funding. Each of the Welfare Plans is adequately funded through insurance or otherwise, using reasonable actuarial assumptions, to provide the benefits contemplated thereunder. 5.14.4 Liens. No lien has attached and no person has threatened to attach a lien on any assets of any of the Welfare Plans or on any property of CSI as a result of any failure to comply with any of the provisions of any of the Welfare Plans or with any laws, rules or regulations to which any of such Welfare Plans is subject, and CSI has no knowledge that any such lien is likely to attach. 5.14.5 Claims. Except as otherwise set forth in the Disclosure Schedule Exhibit 5.14, no litigation is pending or, to the best of CSI and CSI Shareholder's knowledge, has been threatened against CSI, any of the Welfare Plans, and/or any fiduciary of such Welfare Plans claiming either violations of any laws, rules or regulations, governing any of the Welfare Plans and/or violations of any provision of the Welfare Plans, and CSI Shareholders have no knowledge of any claims or potential claims concerning any such violations. 5.15 Plans Reimbursements. CSI Shareholders shall reimburse Subsidiary for that portion of CSI's contribution and/or funding obligation and/or premium costs under the Welfare Plans which is attributable to any period up to the Closing which was due and payable but remained unpaid at the Closing. 5.16 Burdensome Obligations. Except for agreements described in the Disclosure Schedule Exhibit 5.16, CSI is not a party to any so-called "requirements" or similar type of contract limiting its freedom or latitude in the purchase of its inventory, equipment or other items. CSI is not subject to or bound by any contract or other obligation whatsoever outside of the ordinary course of business which materially adversely affects its business, properties or prospects, except as expressly disclosed in this Agreement. 5.17 Lawful Operations. To the best of CSI Shareholder's knowledge: (a) the businesses conducted and E -113 properties owned or leased by CSI conform in all material respects with all applicable ordinances, regulations and other laws; and (b) any licenses, franchises, certificates and other permits required for the conduct of such businesses and holding of such properties have been procured and are in good standing and will not be adversely affected by the consummation of the transactions hereunder in accordance with the provisions hereof. 5.18 Legal Proceedings; Claims. Except as set forth in the Disclosure Schedule Exhibit 5.18, there are no decrees or order of any regulatory agency, court or public authority affecting the operations of CSI, and CSI is not a party to any litigation or other judicial or administrative proceedings. Neither CSI nor any CSI Shareholder is a party to any litigation or other judicial, administrative or other proceeding pending or known by CSI Shareholders to be threatened which would affect CSI's or CSI Shareholders' ability to perform this Agreement or would materially adversely affect the assets or operations of CSI; and, to the best of CSI and CSI Shareholders' knowledge there are no claims in existence or threatened against CSI or any of its properties which may result in litigation. There are no known existing violations of any Federal, State, local or foreign laws or regulations which might materially adversely affect the properties, assets, business, financial condition or corporate status of CSI; and CSI is not in default with respect to any order or decree of any court or administrative regulatory agency. 5.19 Environmental Matters. 5.19.1 To the best of CSI and CSI Shareholders' knowledge, the real estate located at 810 Dutch Square Blvd., which CSI leases from Dr. Peter Schmalisch ("Real Estate"), has not been used or operated by CSI in any fashion involving producing, handling, and disposing of chemicals, toxic substances, weights and effluent materials, x-rays or other materials or devices in material violation of any laws, rules, regulations or orders, and to the best of CSI and CSI Shareholders' knowledge, CSI's occupancy and use of the Real Estate is in material compliance with applicable laws, regulations, ordinances, decrees and orders arising under or relating to health, safety, environmental laws and regulations, including without limitation the Federal Occupation & Safety Health Act, 29 U.S.C. 651, et seq., Federal Resource Conservation and Recovery Act (RCRA), 42 U.S.C. Section 6901, et seq., Federal Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et seq. The Federal Clean Air Act, 42 U.S.C. 2401, et seq., The Federal Clean Water Act, 33 U.S.C. 1251, et seq., and all state and local laws that correspond therewith or supplement such laws. E -114 5.19.2 To the best of CSI and CSI Shareholders' knowledge, there have been no complaints, citations, claims, notices, information requests, orders (including but not limited to clean up orders) or directives on environmental grounds made or delivered to, pending or served on, or anticipated by CSI or its agents, or of which CSI or its agents, are aware or should be aware (i) issued by a governmental department or agency having jurisdiction over any of the assets of CSI, real or personal, owned or leased, and affecting CSI's assets, business, operations, equipment, property, leaseholds, other facilities, or any part thereof, including but not limited to clean up orders, or (ii) issued or claimed by any persons, agencies, or organizations and affecting CSI's assets, business, operations, equipment, property, leaseholds, or other facilities or any part thereof. 5.19.3 To the best of CSI and CSI Shareholders' knowledge, there have not been, are not now and as of the Closing Date, there will be no solid waste, hazardous waste, hazardous substances, toxic substances, toxic chemicals, pollutants or contaminants, underground storage tanks, purposeful dumps, or accidental spills in, on or about any of the assets of CSI, real or personal, owned or leased, or stored on any real property owned or leased by CSI or by CSI's lessees, licensees, or invitees at the Real Estate. 5.19.4 To the best of CSI's and CSI Shareholder's knowledge, there have been no material or reportable emissions, spills, seepage, damages, releases, or discharges into or upon the air, soils or improvements located at the Real Estate, surface water or ground water, or any sewer or septic system servicing CSI's assets, of any toxic or hazardous substances, pollutants, contaminants, solid waste or hazardous waste. 5.19.5 To the best of CSI and CSI Shareholders' knowledge, CSI has obtained and will maintain all necessary approvals, permits, licenses, certificates, or satisfactory clearances for use of its assets from all governmental authorities, utility companies, or development-related entities, with respect to CSI's use of its assets and CSI's discharge of any chemicals, liquids and emissions, into the atmosphere, ground water or surface water, including but not limited to sewers or septic systems, from CSI's operations. 5.19.6 To the best of CSI and CSI Shareholders' knowledge, CSI and its business, operations, assets, equipment, property, leaseholds or other facilities are in compliance in all material respects with all applicable federal, state, and local statutes, laws, regulations and ordinances. E -115 5.19.7 To the best of CSI and CSI Shareholders' knowledge, no asbestos or asbestos containing materials are installed, used or incorporated into CSI's property, and no asbestos or asbestos containing materials have been disposed of on CSI's property. 5.19.8 To the best of CSI and CSI Shareholders' knowledge, no polychlorinated biphenyls (PCBs) are located on or in CSI's property in the form of electrical transformers, fluorescent light fixtures with ballasts, cooling oils, or in any other device or form. 5.20 Insurance. CSI maintains policies of fire, extended coverage, liability and other forms of insurance covering its business, properties and assets in amounts and against such losses and risks as are generally maintained for comparable businesses and properties, and valid policies for such insurance will be outstanding and duly in force through and on the Effective Date. Set forth in the Disclosure Schedule is a complete list of all insurance policies owned by CSI, indicating risks insured against, carrier, policy number, amount of coverage, premiums and expiration dates. 5.21 Books and Records. The books of account of CSI substantially reflect all its known material items of income and expense and all its known material assets, liabilities and accruals. The corporate minute books of CSI are substantially complete as to the records of substantially all substantial proceedings of incorporators, shareholders and directors, and there are no substantial and material minutes or records of the proceedings of any of said person not included therein. The share ledgers and share certificate books contain a complete and accurate record of all issuances and transfers of shares in CSI. 5.22 Certain Debts and Interests. Except as set forth in the Closing Balance Sheet, there are no debts of CSI owed to CSI Shareholders or to any officer or director of CSI, or any family member of the foregoing, or to any corporation, form or other entity owned or controlled by the foregoing; and none of such persons is indebted to CSI. CSI Shareholders do not directly or indirectly own any interest in any corporation, firm or enterprise engaged in a business competitive with CSI, except (i) CSI Shares or (ii) any passive investment by CSI Shareholders in the stock of any publicly held corporation which is not in excess of five percent of the issued and outstanding capital stock of such corporation. 5.23 Officers and Directors; Certain Payments. Exhibit "G" is a true and complete list showing (a) the names of all officers and directors of CSI and the directorships and officerships in CSI held by each; (b) the names and address E -116 of each financial institution in which CSI has an account, safe deposit box or investment account, the names of all persons authorized to draw thereon or to have access thereto, and the nature of such authorization; and (c) the names of all persons holding tax or other powers of attorney from CSI and a summary statement of the terms thereof. 5.24 Commissions or Brokers Fees. Neither CSI nor any CSI Shareholder has incurred any liability to any person for investment advisory fees, finder's fees or brokerage commissions with respect to the transactions contemplated by this Agreement, which liability may be asserted against CSI, Subsidiary or any affiliate of Subsidiary. 5.25 Assets Necessary to the Business. CSI owns all assets and properties (tangible and intangible) materially necessary to carry on its business and operations as presently conducted and as shown on the Year-End and Interim Financials. Such assets and properties are all of the assets and properties reasonably necessary to carry on the business and operations of CSI as presently conducted and none of the CSI Shareholders (other than through their ownership of stock in CSI) nor any member of their respective families owns or leases or has any interest in any assets or properties presently being used to carry on the business or operations of CSI. 5.26 Illegal Payments. Neither CSI nor, to the knowledge of any CSI Shareholder, any of its officers, directors, employees or agents has made or authorized any payment of funds of CSI prohibited by law and no funds of CSI have been set aside to be used for any payment prohibited by law. 5.27 Customers. The Disclosure Schedule includes a correct list of the fifteen (15) largest customers for CSI for each of the past two (2) fiscal years and the amount of business done by CSI with each such customer for each year. CSI and the CSI Shareholders have no knowledge or information, and are aware of no facts indicating that any of the customers will or intend to (a) cease doing business with CSI; or (b) materially alter the amount of business they are presently doing with CSI; or (c) not do business with Subsidiary after the Effective Date. 5.28 Suppliers. The Disclosure Schedule sets forth the names of and description of contractual arrangements (whether or not binding or in writing) with the fifteen (15) largest suppliers of CSI and any sole suppliers of significant goods or services (other than electricity, gas, telephone or water) to CSI with respect to which practical alternative sources of supply are not readily available on comparable terms and conditions. CSI and each CSI Shareholder have no knowledge or information, or are aware E -117 of no facts indicating that any of the suppliers of CSI will or intend to (a) cease doing business with CSI; or (b) materially alter the amount of business they are presently doing with CSI; or (c) not do business with Subsidiary after the Effective Date. 5.29 Product Liability. There are no product liability claims against CSI, either potential or existing, which are not covered by product liability insurance coverage with a responsible company. 5.30 Transactions with Affiliates. Except as disclosed on Disclosure Schedule Exhibit 5.30, there is no lease, sublease, contract, agreement or other arrangement of any kind whatsoever entered into by CSI with any CSI Shareholder or with any affiliate (as such term is defined in the rules and regulations of the Securities and Exchange Commission under the Securities Act of 1933, as amended) of any CSI Shareholder, except such of the foregoing which may be terminated at Closing by Subsidiary without further liability. As of the Closing, all indebtedness owed by any CSI Shareholder to CSI shall be repaid. 5.31 Disclosure. None of the representations or warranties made by CSI and CSI Shareholders herein, or made in any certificate furnished or to be furnished by them, pursuant to the requirements of this Agreement, including any disclosures made in the Disclosure Schedule, contains or will contain any untrue statement of material fact or omits or will omit any material fact, an omission of which would, in light of the circumstances in which it was made, be misleading. The CSI Shareholders have no knowledge of any factors materially and adversely affecting the future prospect of CSI's business which has not been disclosed in this Agreement and the Disclosure Schedule. SECTION 6. REPRESENTATIONS OF SUBSIDIARY Subsidiary and Pomeroy, joint and severally, represent, warrant and covenant to CSI Shareholders that the following statements are true and correct as of the date hereof and shall remain true and correct as of the Effective Date as if made again at and as of that time: 6.1 Organization. Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of South Carolina and has all the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted, and it is duly licensed, authorized and qualified to do business and in good standing in all jurisdictions in which the nature and conduct of its present business operation requires qualification and in which the failure to be so qualified, if required, would have a E -118 material adverse affect on the business operations and financial condition of Subsidiary taken as a whole or the ownership or leasing of its property require it to be so licensed, authorized or qualified. 6.2 Authority. Subsidiary has full power and authority to enter into this Agreement, the Plan of Merger and the Employment Agreements. The execution, delivery and performance of this Agreement, the Plan of Merger and the Employment Agreements, and the consummation of the transactions contemplated therein, have been duly authorized by all requisite corporate actions and constitute the valid and binding obligation of Subsidiary enforceable in accordance with their respective terms. All other agreements, instruments and documents to be executed and delivered by or on behalf of Subsidiary in connection herewith will, when executed and delivered, constitute the valid and binding obligation of Subsidiary enforceable in accordance with their respective terms. Except for required approval or consent of Pomeroy's primary lender, Star Bank, National Association, which consent shall be procured prior to Closing, no authorization, approval, consent or order of, or registration, declaration or filing with, any court, governmental body or agency or other public or private body, entity or person, is required in connection with the execution, delivery or performance of this Agreement or any other agreement, instrument or document to be delivered by or on behalf of Subsidiary in connection herewith. 6.3 No Default. Subject to obtaining the required consent and/or approval as described in Section 6.2, neither the execution or delivery nor performance of this Agreement or of any other agreements, instruments or documents to be delivered by or on behalf of Subsidiary in connection herewith does or will: (a) conflict with, violate or result in any breach of the Articles of Incorporation or By-laws of Subsidiary, or any judgment, decree, order, statute, rule or regulation applicable to Subsidiary; or (b) conflict with, violate or result in any breach of any agreement or instrument to which Subsidiary is a party or by which Subsidiary is bound, or constitute a default thereunder or give rise to a right of acceleration of an obligation of Subsidiary. 6.4 Commissions or Brokers Fees. Subsidiary has not employed any broker, agent or finder or incurred any liability for any brokerage fees, agent's commissions or finder's fees in connection with the transactions hereby. 6.5 Single Purpose Subsidiary. Prior to the Effective Date, Subsidiary will have engaged only in the transactions contemplated by this Agreement, will have no material liabilities (other than its guaranty of Pomeroy's credit facility to Star Bank, National Association) and will E -119 have incurred no obligations except in connection with its performance under the transactions provided in this Agreement. 6.6 Purchase for Investment. The CSI Common Stock to be acquired by the Subsidiary for purposes of SEC Rule 145 and cancelled pursuant to the Merger will be acquired for the Subsidiary's own account for investment purposes only and without any present intention to resell, transfer, or otherwise dispose of the shares. Subsidiary does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person, or to any third persons, with respect to any of the shares to be acquired and cancelled hereunder. Subsidiary understands that the CSI Common Stock is not registered under the 1933 Securities Act or any applicable state securities laws and that any sale, transfer or other disposition of the shares must be made only pursuant to any effective registration under applicable federal and state securities laws or an available exemption therefrom. Subsidiary and Pomeroy, collectively, have assets valued at more than $5,000,000; together with their Affiliates, have a combined net worth in excess of $5,000,000; and through their officers, directors and professional advisors have such knowledge and experience in financial, business, and investment matters that they are capable of evaluating the risks and merits of acquiring the CSI Common Stock and investing in CSI. Subsidiary and Pomeroy and their representatives have examined books, records, and documents furnished or made available to them by CSI and have been given the opportunity to ask such questions or, and receive answers from, the CSI Shareholders and the officers of CSI as Subsidiary has determined are relevant to the decision to acquire and cancel the CSI Common Stock and invest in CSI pursuant to the merger. No compensation or consideration to be paid by Subsidiary to the CSI Shareholders, CSI or their Affiliates, or any other person shall, as among the parties hereto, constitute a commission or other remuneration in connection with procuring the sale or purchase of the CSI Common Stock or the soliciting of any prospective buyer or seller for such shares. The CSI Common Stock to be acquired and cancelled hereunder was not offered to Subsidiary and Pomeroy by, and Subsidiary and Pomeroy are not otherwise aware of, any general advertising or general solicitation in connection with the sale of the CSI Common Stock or the business which is the subject hereof. SECTION 7. REPRESENTATIONS BY POMEROY 7.1 Pomeroy hereby represents and warrants to the CSI Shareholders that the following statements are true and correct as of the date hereof and shall remain true and correct as of the Effective Date as if made again at and as of that time: E -120 (a) Pomeroy is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and carry on its business as is now being conducted. Complete and corrected copies of Pomeroy's Certificate of Corporation and By-Laws, as amended, to date hereof, have been delivered to CSI Shareholders. (b) Pomeroy's authorized capital stock consists of Fifteen Million (15,000,000) shares of common stock, par value .01, of which Eleven Million Three Hundred Thirty- Seven Thousand Two Hundred Seventy-Eight (11,337,278 including 20,900 shares of Treasury Stock) shares of common stock were issued and outstanding on October 14, 1997, and Two Million (2,000,000) shares of preferred stock, none of which were issued and outstanding on October 14, 1997. A sufficient number of shares of Pomeroy Stock has been reserved with Pomeroy's transfer agent to effectuate this merger. Upon the determination of any adjustments to this Agreement, if any, that will require the issuance of additional Pomeroy Stock, Pomeroy agrees to reserve with its transfer agent at such time sufficient shares to implement such adjustments. 7.2 Corporate Authority. This Agreement has been approved by the Board of Directors of Pomeroy. The execution, delivery and performance of this Agreement by Pomeroy and the consummation of the transaction contemplated herein, have been duly authorized by all requisite corporate action and constitute the valid and binding obligation of Pomeroy enforceable in accordance with its respective terms. Neither the execution or delivery of this Agreement, nor performance hereunder, will conflict with, result in the breach of the terms, conditions, or provisions of, or constitute a default under the Certificate of Corporation or By-laws of Pomeroy or any agreement or instrument to which Pomeroy is a party or by which it is bound, except for the consent of Pomeroy's lender, Star Bank, National Association, which shall be procured prior to the Effective Date. 7.3 Financial Matters. Pomeroy has furnished the CSI Shareholders with its audited consolidated Financial Statements as of January 5, 1997 and January 5, 1996. In addition, Pomeroy has provided the CSI Shareholders with its Form 10Q filing for the period ending July 5, 1997. Since July 5, 1997, there have been no materially adverse changes in the results of operations or financial condition of Pomeroy, nor are there any demands, commitments, events of uncertainty known to Pomeroy which could affect Pomeroy's liquidity, capital resources, or results of operation as of the date hereof, or as of the Effective Date (other than E -121 those previously disclosed by Pomeroy in its periodic reports filed with the Securities and Exchange Commission) that would require management's discussion and analysis of financial conditions and results of operations ("MD&A") prepared in accordance with Item 303 of Regulation S-K promulgated by the Securities and Exchange Commission ("SEC") if such MD&A were required to be updated through the date hereof and through the Effective Date. Until such time as the CSI Shareholders shall have sold all the Pomeroy Stock received by them incident to this Agreement, Pomeroy shall use its best efforts to timely and lawfully make all periodic filings and disclosures as are required for purposes of SEC Rule 144(c). 7.4 Pomeroy will vote all of the outstanding shares of Subsidiary in favor of the merger of CSI into the Subsidiary prior to the Effective Date. 7.5 Pomeroy will provide Subsidiary with the requisite cash and the requisite Pomeroy Stock to effectuate the terms of this Agreement set forth in Section 2. SECTION 8. RELEASE BY CSI Shareholders 8.1 Each CSI Shareholder as of the Effective Date shall release and discharge CSI from all actions, claims or demands of every kind and nature which any of the CSI Shareholders have or may have against CSI, whether based upon contract or otherwise, arising before such date. Nothing contained herein shall constitute a release of any rights of the CSI Shareholders arising under this Agreement, with respect to any claims under any medical or dental plan(s) currently maintained by CSI, with respect to any of the CSI Shareholder's interests in any Retirement Plans maintained by CSI, or with respect to anything which may occur after the Effective Date. SECTION 9. INTERIM OPERATIONS 9.1 From the date hereof until the Effective Date, CSI will operate substantially as presently operated in the ordinary course of business as is consistent with such operation, will use its best efforts to preserve intact for the benefit of Subsidiary the present business organization of CSI and the relationships and good will of suppliers, customers and others having business relationships with CSI. Without limiting the generality of the foregoing, CSI will not, other than in the ordinary course of business, take any of the actions contemplated by or which would give rise to the result contemplated by Section 5.7(d) hereof, as set forth in such Section. 9.2 Access to Information. From the date hereof until the Effective Date, CSI shall make available or cause E -122 to be made available to the accountants, attorneys or other representatives of Subsidiary, for examination during normal business hours, upon reasonable request, all properties, assets, books of accounts, title papers, insurance policies, contracts, leases, commitments, records and other documents of every character relating to CSI. 9.3 Notice by Subsidiary. Subsidiary agrees that should its executive officers acquire knowledge prior to Closing, as a result of their investigation of CSI pursuant to this Agreement or otherwise, of any breach of the representations and warranties contained in Section 5 above, Subsidiary will notify the CSI Shareholders of such breach in writing prior to Closing; provided such notice shall not constitute a waiver of any rights that Subsidiary and/or Pomeroy might have under this Agreement and the CSI Shareholders shall have the opportunity to cure such breach prior to Closing. SECTION 10. SURVIVAL OF AND RELIANCE UPON REPRESENTATIONS, WARRANTIES AND AGREEMENTS; INDEMNIFICATION 10.1 Survival of Representations and Warranties. The parties acknowledge and agree that all the representations, covenants, warranties and agreements contained in this Agreement or in any agreement, instrument, exhibit, certificate, schedule or other document delivered in connection herewith, shall survive the Closing and shall be binding upon the party giving such representation, covenant, warranty or agreement and shall be fully enforceable to the extent provided for in Sections 10.4 and 10.5 hereof, at law or in equity, for the period beginning on the date of Closing and ending two (2) years thereafter, except for the representations, warranties and agreements designated and identified in Section 5.9 which shall be fully enforceable to the extent provided in Sections 10.4 and 10.5 hereof at law or in equity for the period beginning on the date of Closing and ending three (3) years thereafter and except for the representations, warranties, and agreements designated and identified in Sections 5.1, 5.2, 5.3, the first sentence of 5.5, the first sentence of 5.8, 6.1, the first two sentences of 6.2, 7.1, the first two sentences of 7.2, and the last sentence of 7.3 which shall survive the Closing and shall terminate in accordance with the statutes of limitation governing written contracts and Exhibits "D," "D-1," "D-2," "E," "E-1," "E-2," "E-3," "E-4," and "E-5" which shall terminate as provided therein. 10.2 Reliance Upon and Enforcement of Representations, Warranties and Agreements of CSI Shareholders and CSI. Each CSI Shareholder and CSI hereby agrees that, notwithstanding any right of Subsidiary to fully investigate the affairs of CSI, and notwithstanding knowledge of facts determined or E -123 determinable by Subsidiary pursuant to such investigation or right of investigation, Subsidiary has the right to rely fully upon the representations, covenants, warranties and agreements of CSI and each CSI Shareholder contained in this Agreement and upon the accuracy of any document, certificate or exhibit given or delivered to Subsidiary pursuant to the provisions of this Agreement. 10.3 Reliance Upon and Enforcement of Representations, Warranties and Agreements of Subsidiary and/or Pomeroy. Subsidiary and/or Pomeroy hereby agrees that, notwithstanding any right of CSI Shareholders to fully investigate the affairs of the Subsidiary and/or Pomeroy, and notwithstanding knowledge of facts determined or determinable by CSI Shareholders pursuant to such investigation or right of investigation, CSI Shareholders have the right to rely fully upon the representations, covenants, warranties and agreements of Subsidiary and/or Pomeroy contained in this Agreement and upon the accuracy of any document, certificate or exhibit given or delivered to CSI Shareholders pursuant to the provisions of this Agreement. 10.4 Indemnification by CSI Shareholders. Each CSI Shareholder (jointly and severally) shall indemnify Subsidiary against and hold it harmless from: (i) any and all loss, damage, liability or deficiency resulting from or arising out of any inaccuracy in or breach of any representation, warranty, covenant or obligation made or incurred by CSI or any CSI Shareholder herein or in any other agreement, instrument or document delivered by CSI and any CSI Shareholder pursuant to the terms of this Agreement; and (ii) any and all reasonable costs and expenses (including reasonable legal and accounting fees) related to any of the foregoing, subject to the provisions of Section 10.6. 10.5 A. Indemnification by Subsidiary. Subsidiary agrees to defend, indemnify and hold harmless the CSI Shareholders from, against and in respect of (a) any and all liabilities, losses, damages, deficiencies or expenses resulting from or arising out of an inaccuracy in or other breach of any representation, warranty, covenant, or obligation made or incurred by Subsidiary herein or in any other agreement, instrument or document delivered by Subsidiary pursuant to the terms of this Agreement, and (b) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses, including reasonable attorneys' fees, related to any of the foregoing. The CSI Shareholders are not required to commence litigation E -124 or take any other action against any third party prior to making a claim against Subsidiary hereunder. B. Indemnification by Pomeroy. Pomeroy agrees to defend, indemnify and hold harmless the CSI Shareholders from, against and in respect of (a) any and all liabilities, losses, damages, deficiencies or expenses resulting from any misrepresentation or breach of warranty or non-fulfillment of any agreement by Pomeroy in connection herewith or inaccuracy in or other breach of any representation, warranty, covenant or obligation made or incurred by Subsidiary and Pomeroy pursuant to Sections 2.3, 6, 7, 12.02 and 12.15 of this Agreement (including without limitation the attached exhibits, schedules and documents to which Pomeroy is a party) or as provided herein, unless waived in writing by CSI Shareholders, and (b) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses, including reasonable attorneys' fees, related to any of the foregoing. The CSI Shareholders are not required to commence litigation or take any other action against any third party prior to making a claim against Pomeroy hereunder. 10.6 Notification of and Participation in Claims. (a) No claim for indemnification shall arise until notice thereof is given to the party from whom indemnity is sought. Such notice shall be sent within ten (10) days after the party to be indemnified has received notification of such claim, but failure to notify the indemnifying party shall in no event prejudice the right of the party to be indemnified under this Agreement, unless the indemnifying party shall be prejudiced by such failure and then only to the extent of such prejudice. In the event that any legal proceeding shall be instituted or any claim or demand is asserted by any third party in respect of which CSI Shareholders on the one hand, or Subsidiary or Pomeroy, as applicable, on the other hand, may have an obligation to indemnify the other, the party asserting such right to indemnity (the "Party to be Indemnified") shall give or cause to be given to the party from whom indemnity is sought (the "Indemnifying Party") written notice thereof and the Indemnifying Party shall have the right, at its option and expense, to participate in the defense of such proceeding, claim or demand, but not to control the defense, negotiation or settlement thereof, which control shall at all times rest with the Party to be Indemnified, unless the Indemnifying Party irrevocably acknowledges in writing full and complete responsibility for and agrees to provide indemnification of the Party to be Indemnified, in which case such Indemnifying Party may assume such control through counsel of its choice and at its expense. In the event the Indemnifying Party assumes control of the defense, the Indemnifying Party shall not be responsible for the legal costs and expenses of the E -125 Party to be Indemnified in the event the Party to be Indemnified decides to join in such defense. The parties hereto agree to cooperate fully with each other in connection with the mitigation, defense, negotiation or settlement of any such third party legal proceeding, claim or demand. (b) If the Party to be Indemnified is also the party controlling the defense, negotiation or settlement of any matter, and if the Party to be Indemnified determines to compromise the matter, the Party to be Indemnified shall immediately advise the Indemnifying Party of the terms and conditions of the proposed settlement. If the Indemnifying Party agrees to accept such proposal, the Party to be Indemnified shall proceed to conclude the settlement of the matter, and the Indemnifying Party shall immediately indemnify the Party to be Indemnified pursuant to the terms of Sections 10.4 and 10.5 hereunder, subject to the limitations set forth elsewhere in this Section 10. If the Indemnifying Party does not agree within fourteen (14) days to accept the settlement (said 14-day period to begin on the first business day following the date such party receives a complete copy of the settlement proposal), the Indemnifying Party shall immediately assume control of the defense, negotiation or settlement thereof, at that Indemnifying Party's expense. Thereafter, the Party to be Indemnified shall be indemnified in the entirety for any liability arising out of the ultimate defenses, negotiation or settlement of such matter. (c) If the Indemnifying Party is the party controlling the defense, negotiation or settlement of any matter, and the Indemnifying Party determines to compromise the matter, the Indemnifying Party shall immediately advise the Party to be Indemnified of the terms and conditions of the proposed settlement and irrevocably acknowledge in writing full and complete responsibility for, and agree to provide, indemnification of the Party to be Indemnified. If the Party to be Indemnified agrees to accept such proposal, the Indemnifying Party shall proceed to conclude the settlement of the matter and immediately indemnify the Party to be Indemnified pursuant to the terms of Sections 10.4 or 10.5 hereunder. If the Party to be Indemnified does not agree within fourteen (14) days to accept the settlement (said 14-day period to begin on the first business day following the date such party receives a complete copy of the settlement proposal), the Party to be Indemnified shall immediately assume control of the defense, negotiation or settlement thereof, at the Party to be Indemnified's expense. If the final amount paid to resolve the claim is less than the amount of the original proposed settlement made by the Indemnifying Party, then the Party to be Indemnified shall receive such indemnification pursuant to Sections 10.4 or 10.5 hereof, including any and all expenses E -126 incurred by the Party to be Indemnified incurred in connection with the defense, negotiation or settlement of such matter. If the amount finally paid to resolve the claim is equal to or greater than the amount of the original proposed settlement proposed by the Indemnifying Party, then the Indemnifying Party shall provide indemnification pursuant to Sections 10.4 and 10.5 for the amount of the original settlement proposal submitted by the Indemnifying Party, and the Party to be Indemnified shall be responsible for all amounts in excess of the original settlement proposal submitted by the Indemnifying Party and all costs and expenses incurred by the Party to be Indemnified in connection with such defense, negotiation or settlement. 10.7 Provisions of General Application. With respect to any right of indemnification arising under this Agreement, the following provisions shall apply: (a) Procedures. The Party to be Indemnified and the Indemnifying Party agree to cooperate in the defense of any third party claim or action subject to this Section 10, to permit the cooperation and participation of the other parties in any such claim or action, and to promptly notify the other parties of the occurrence of any indemnified event or any material developments or amounts due respecting any indemnification event. (b) No Implications. Neither the rights of any party to indemnification from another party nor the obligations of any party to indemnify another party, under this Agreement, shall in any way imply or create, and each party specifically disclaims, any responsibility whatsoever by such party for any other party's liabilities to any other person or entity or governmental body. (c) Insurance. Prior to enforcing any claim for indemnification against the indemnifying parties under this Agreement, the indemnified parties shall administratively file in good faith with any insurers all forms and submissions required by applicable policies for the proceeds of other benefits of insurance coverage, if any, applicable to the claim or event from which such indemnification right arose. In the event that insurance proceeds are paid to the Party to be Indemnified respecting an event to which an indemnification right applies hereunder, such indemnification right shall apply only to the extent that the amount of damages indemnified against exceeds such insurance proceeds actually paid to the Party to be Indemnified; provided however, that: (a) such insurance proceeds shall not affect or be applied towards the maximum liability established in Section 10.8 and (b) collection by judicial or legal process of such insurance proceeds shall not be a condition precedent to asserting or collecting such indemnification claims under this Agreement. If the E -127 Indemnifying Party incurs indemnity costs or pays indemnity damages under this Agreement, and the Party to be Indemnified subsequently receives insurance proceeds for the same claim or event, then the Party to be Indemnified shall refund such indemnity costs or damage payments to the Indemnifying Party from such insurance proceeds to the extent that the Party to be Indemnified has received benefits from both sources (i.e., payments of indemnify damages from the Indemnifying Party and such insurance proceeds) in excess of the amount of indemnity damages incurred by or asserted against the Party to be Indemnified. (d) Mitigation. The Party to be Indemnified shall use its good faith efforts to mitigate any claim or loss by any third party hereunder and the Indemnifying Party shall be entitled to participate in and coordinate with the Party to be Indemnified such mitigation. 10.8 A. Limitations. Notwithstanding anything herein to the contrary, no claims for indemnification shall be made by Subsidiary and/or Pomeroy against the CSI Shareholders until such time as all claims hereunder, net of income tax benefit realized and/or realizable by CSI/Subsidiary and/or Pomeroy total more than Twenty Thousand Dollars ($20,000.00) in the aggregate and then indemnification shall be made only to the extent that such claim or claims exceed Twenty Thousand Dollars ($20,000.00) in the aggregate. In addition, notwithstanding anything contained herein to the contrary, the maximum aggregate liability that the CSI Shareholders may be collectively required to pay Subsidiary or Pomeroy under this Section 10, or as a result of any other provision of this Agreement as a result of any and all breaches, if any, of representations or warranties hereunder, or as a result of any and all defaults of any covenants hereunder, shall be limited to an amount equal to the total consideration paid hereunder, One Million Four Hundred Thousand Dollars ($1,400,000.00), as may be adjusted upward or downward pursuant to the provisions of Sections 2.2(c) and 2.3 of this Agreement. In addition, the maximum liability that any CSI Shareholder may be individually required to pay Subsidiary or Pomeroy under this Section 10 shall not exceed an amount equal to such CSI Shareholder's proportionate share of the total consideration paid hereunder, as may be adjusted as set forth above. B. Notwithstanding anything to the contrary in this Agreement, the maximum aggregate amount that Subsidiary and Pomeroy may be collectively required to pay to the CSI Shareholders hereunder, or as a result of any other provision of this Agreement as a result of any and all breaches, if any, of representations or warranties hereunder, or as a result of any and all defaults of any covenants hereunder, shall be limited to an amount equal to the total consideration paid hereunder, One Million Four E -128 Hundred Thousand Dollars ($1,400,000.00), as may be adjusted upward or downward pursuant to the provisions of Sections 2.2(c) and 2.3 of this Agreement. 10.9 Assignment and Accounting for Benefits. To the extent that the Indemnifying Party shall have actually paid indemnity damages to or on behalf of the Party to be Indemnified, the Party to be Indemnified shall make a non- exclusive assignment (to the extent permitted under applicable law) to the Indemnifying Party (as their interest may appear) of the remedies, rights and claims, if any, of the Party to be Indemnified against any and all third parties for the same liability, including, but not limited to, remedies, rights and claims against (i) liability insurers and other insurance companies, (ii) any other person which has indemnified the Party to be Indemnified for such liability, and (iii) account debtors for any account receivable for which the CSI Shareholders incur liability, if any, under Section 5.8.1. The parties shall cooperate reasonably in the pursuit of any such remedies, rights and claims. For purposes of Section 10.8(a) ($20,000 basket amount) and/or for purposes of indemnification hereunder, the amount of any indemnification claim shall be reduced by the effect of any income tax benefit realized and/or realizable by CSI and/or Subsidiary/Pomeroy. For purposes hereof, a marginal rate of forty percent (40%) shall be utilized. 10.10 Exclusive Remedy. Anything contained in this Agreement or the Related Agreements to the contrary notwithstanding, the indemnification rights set forth in this Section 10, all of which are subject to the terms, limitations, and restrictions of this Section 10, shall be the exclusive remedy after Closing against the CSI Shareholders and/or Subsidiary or Pomeroy for monetary damages sustained as a result of a breach of a representation, warranty, covenant, or agreement under this Agreement. Such limitations set forth in this Section 10 shall not impair the rights of any of the parties: (a) to seek non-monetary equitable relief, including (without limitation) specific performance or injunctive relief to redress any default or breach of this Agreement; or (b) to seek enforcement, collection, damages, or such non-monetary equitable relief to redress any subsequent default or breach of any employment agreement, non-competition agreement, transfer document, assumption, consent, or agreement to be delivered at Closing hereunder. In connection with the seeking of any non-monetary equitable relief, each of the parties acknowledges and agrees that the other parties hereto would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. E -129 Accordingly, each of the parties hereto agrees the other parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any competent court having jurisdiction over the parties. 10.11 Optional Method of Payment. Any CSI Shareholder shall be entitled, at his option, to pay or reimburse the Party to be Indemnified for up to fifty percent (50%) of his portion of any indemnity claim by transferring to the Party to be Indemnified shares of Pomeroy Stock retained by such CSI Shareholder at the time (if any). For purposes of this option method of payment for an indemnify claim, the value of the shares of Pomeroy Stock shall be based on the average of the closing price of the Pomeroy Stock as reported on the NASDAQ Exchange for the twenty (20) trading days immediately preceding the third day before the date of transfer of such shares. SECTION 11. CLOSING 11.1 Closing Date and Effective Date, Consummation of the transactions contemplated hereby (the "Closing") shall take place on October 17, 1997 at 5:00 p.m., at the offices of Lindhorst & Dreidame Co., L.P.A., 312 Walnut Street, Suite 2300, Cincinnati, Ohio or on such other Closing Date, at such other time and/or place as the parties may mutually agree upon. The parties shall certify, execute and acknowledge the Plan of Merger to comply with applicable laws and filing requirements. The date of such certification, execution and acknowledgment shall be the Closing Date. On the Closing Date, an executed counterpart of the Articles of Merger and the Plan of Merger shall be filed with Secretary of State of South Carolina and the merger shall become effective upon the completion of such filing. The date of such filing shall be the Effective Date. 11.2 Conditions Precedent to Subsidiary's/Pomeroy's Obligations. The obligations of Subsidiary and/or Pomeroy to perform in accordance with this Agreement and to consummate the transactions herein contemplated are subject to the satisfaction of the following conditions at or before closing: (a) The CSI Shareholders and CSI shall have complied with and performed all the agreements and covenants hereunder required to be performed by them prior to or at the Closing; (b) At the Closing Date, there shall be in effect no order or decree of any court or governmental body which E -130 (i) shall prohibit the merger, (ii) shall materially and adversely affect the right of Subsidiary to own the assets of CSI and to control the operations of CSI or (iii) prevent the Subsidiary from operating its acquired business in the normal course; (c) CSI Shareholders shall have procured any required approval and/or consents. (d) The assets of CSI taken as a whole shall not have been substantially damaged or destroyed if such damage or destruction is not adequately covered by insurance; CSI shall not have suffered any extraordinary losses. (e) Since August 31, 1997, there has been no material adverse change in the operations of CSI. (f) CSI Shareholders shall deliver to Subsidiary, at or before the Closing, the following documents, all of which shall be in form and substance reasonably acceptable to Subsidiary and its counsel: (i) A certificate or certificates for all of CSI Shares. Such certificate(s) shall be in form for transfer, duly endorsed in blank by CSI Shareholders, or with appropriate duly executed stock transfer powers attached. Such shares shall be cancelled immediately upon the Effective Date; (ii) Opinion letter of Nexsen Pruet Jacobs and Pollard, LLP, counsel for CSI and the CSI Shareholders, addressed to Subsidiary and dated the Closing Date, containing the opinions set forth on Exhibit "H"; (iii) All minute books, stock certificates and transfer books, contracts, policies of insurance, tax returns, records of every kind and nature and all other documents and writings belonging or relating to CSI and its corporate organization, business and assets; (iv) Certificates, dated as of the most recent practicable date, of the Secretary of State and Department of Revenue and Taxation of South Carolina as to the good standing of CSI; (v) The Disclosure Schedule; (vi) Copies of the Articles of Incorporation and By Laws of CSI, certified as true and correct by CSI Shareholders; (vii) Such resignations of officers and directors of CSI as Subsidiary may request; and E -131 (viii) Such other documents which Subsidiary reasonably deems necessary to effectuate this Agreement. (g) Each CSI Shareholder shall have entered into the Covenant Not to Compete Agreements set forth in Exhibits "D", "D-1" and "D-2", respectively. (h) Each CSI Shareholder shall have entered into an Employment Agreement with Subsidiary as set forth on Exhibits "E," "E-1" and "E-2," respectively. (i) Each CSI Shareholder shall have entered into an Investor's Certificate as set forth in Exhibit "C" regarding the holding of Pomeroy Shares. 11.3 Conditions Precedent to CSI Shareholders' and CSI's Obligation. The obligations of CSI Shareholders and CSI to perform in accordance with this Agreement and to consummate the transactions herein contemplated are subject to the satisfaction of the following conditions at or before the Closing: (a) The performance by Subsidiary/Pomeroy of all the agreements and covenants to be performed by Subsidiary/Pomeroy, respectively, at or before the Closing. (b) At the Closing Date there shall be in effect no order or decree of any court or governmental body which (i) shall prohibit the merger, (ii) shall materially and adversely affect the right of the CSI Shareholders to exchange the CSI Common Stock and grant to Subsidiary pursuant to the merger, the right to acquire all of the assets of CSI, or (iii) prevents the Subsidiary from operating its acquired business in the normal course. (c) Subsidiary/Pomeroy shall have procured any necessary consents, and in particular, the approval of Pomeroy's lender shall have been obtained. (d) Subsidiary shall deliver to CSI Shareholders at or before the Closing the following documents, all of which shall be in form and substance acceptable to CSI Shareholders and its counsel: (i) A certified or cashier's check for the aggregate amount to be paid to each CSI Shareholder at the Closing pursuant to Section 2.2 hereof; (ii) Stock certificates of Pomeroy Stock pursuant to Section 2.1 hereof. E -132 (iii) Certified copies of the corporate actions taken by Pomeroy and Subsidiary authorizing the execution, delivery and performance of this Agreement; (iv) A Certificate of Good Standing for Subsidiary from the Secretary of State of South Carolina dated no earlier than forty-five (45) days prior to the Closing Date; (v) A Certificate of Good Standing for Pomeroy from the Secretary of State of Delaware dated no earlier than forty-five (45) days prior to the Closing Date; (vi) Opinion letter of Lindhorst & Dreidame Co., L.P.A., counsel for Pomeroy and Subsidiary, addressed to CSI Shareholders and dated the Closing Date, containing the opinions set forth in Exhibit "I." (vii) The Escrow Agreement together with delivery to the Escrow Agents of the Pomeroy Stock and cash required thereby. (e) Subsidiary shall have entered into the Employment Agreements with the CSI Shareholders as set forth on Exhibit "E-1," "E-2" and "E-3," respectively, guaranteed by Pomeroy as set forth on Exhibits "E-4," "E-5," and "E-6." (f) A copy of the resolution of the newly constituted Board of Directors of Subsidiary, certified by a duly authorized officer of Subsidiary, authorizing the execution, delivery and performance by Subsidiary of the Employment Agreements. (g) There shall be no materially adverse event or condition effecting Pomeroy or the Pomeroy Stock. SECTION 12. GENERAL PROVISIONS 12.01 Further Documents. The Parties will, upon request at any time before or after Closing, execute, deliver and/or furnish all such documents and instruments, and do or cause to be done all such acts and things, as may be reasonably necessary to carry out the purpose and intent of this Agreement. 12.02 Publicity. All public announcements relating to this Agreement or the transaction contemplated thereby will be by Subsidiary with the consent of the CSI Shareholders which consent will not be unreasonably withheld, except for any disclosure which may be required because of Pomeroy being a publicly traded corporation on the NASDAQ. E -133 12.03 Expenses. Except for expenses related to the merger which are accrued on the Closing Balance Sheet or to the extent otherwise specifically provided herein, Subsidiary will bear and pay all of its expenses incident to the transactions contemplated by this Agreement which are incurred by Subsidiary or its representatives and CSI Shareholders shall bear and pay all of the expenses incident to the transactions contemplated by this Agreement which were incurred by CSI Shareholders or its representatives. 12.04 Notices. All notices and other communications required by this Agreement shall be in writing and shall be deemed given if delivered by hand or mailed by registered mail or certified mail, return receipt requested, to the appropriate party at the following address (or at such other address for a party as shall be specified by notice pursuant hereto): (a) If to Subsidiary, to: c/o Pomeroy Computer Resources, Inc. 1020 Petersburg Road Hebron, KY 41048 (b) If to Pomeroy, to: Pomeroy Computer Resources, Inc. 1020 Petersburg Road Hebron, KY 41048 With a copy to: James H. Smith III, Esq. Lindhorst & Dreidame Co., L.P.A. 312 Walnut Street, Suite 2300 Cincinnati, OH 45201- 4091 (c) If to CSI Shareholders, to: Arthur M. Cox 312 Stamford Bridge Road Columbia, SC 29212 Ronald D. Hildreth 225 Mariners Row Columbia, SC 29212 Jeffrey F. Hipp 4 Medina Court Columbia, SC 29223 With a copy to: G. Marcus Knight E -134 Nexsen Pruet Jacobs & Pollard, LLP 1441 Main Street, Suite 1500 P.O. Drawer 2426 Columbia, SC 29202 12.05 Binding Effect. Except as may be otherwise provided herein, this Agreement and all provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. Except as otherwise provided in this Agreement, no party shall assign its rights or obligations hereunder prior to Closing without the prior written consent of the other parties. 12.06 Headings. The headings in this Agreement are intended solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 12.07 Schedules and Exhibits. Schedules and exhibits referred to in this Agreement constitute and integral part of this Agreement as if fully rewritten herein. 12.08 Counterparts. Counterparts of this Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which constitute together one and the same document. 12.09 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of South Carolina. 12.10 Severability. If any provision of this Agreement shall be held unenforceable, invalid or void to any extent for any reason, such provision shall remain in force and effect to the maximum extent allowable, if any, and the enforceability or validity of the remaining provisions of this Agreement shall not be affected thereby. 12.11 Waivers, Remedies Accumulated. No waiver of any right or option hereunder by any Party shall operate as a waiver of any other right or option, for the same right or option with respect to any subsequent occasion for its exercise, or of any right to damages. No waiver by any Party or any breach of this Agreement or of any representation or warranty contained herein shall be held to constitute a waiver of any other breach or a continuation of the same breach. No waiver of any of the provisions of this Agreement shall be valid and enforceable unless such waiver is in writing and signed by the party granting the same. E -135 12.12 Entire Agreement. This Agreement and the agreements, instruments and other documents to be delivered hereunder constitute the entire understanding and agreement concerning the subject matter hereof. All negotiations between the Parties hereto are merged into this Agreement, and there are no representations, warranties, covenants, understanding or agreements, oral or otherwise, in relation thereto between the Parties other than those incorporated herein and to be delivered hereunder. Except as otherwise expressed or contemplated by this Agreement, nothing expressed or implied in this Agreement is intended or shall be construed so as to grant or refer on any person, firm or corporation other than the Parties hereto any rights or privileges hereunder. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the Parties hereto. 12.13 Business Records. CSI Shareholders shall be permitted to retain copies of such books and records relating to the business of CSI as related to the accounting and tax matters of the business, and have access to all original copies of records so delivered to Subsidiary at reasonable times, for any reasonable business purpose, for a period of six years after the Closing Date. 12.14 Construction of Agreement. In the event this Agreement is interpreted by any court of competent jurisdiction, no Party shall be deemed the drafter of this Agreement and such court of law shall not construe this Agreement or any provision thereof against any Party as the drafter thereof. 12.15 Release of CSI Shareholders Guarantees. At the closing or as soon thereafter as reasonably possible, Subsidiary shall procure the release of the CSI Shareholders from their guarantees, if any, of CSI's obligation to IBM Credit Corporation and Deutsche Financial Services Corporation. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement and Plan of Reorganization to be duly executed as of the day and year first above written. SUBSIDIARY: POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. By:____________________________________ E -136 Title:____________________________________ POMEROY COMPUTER RESOURCES, INC. By:____________________________________ Title:____________________________________ THE COMPUTER STORE, INC. By:____________________________________ ARTHUR M. COX President _______________________________________ ARTHUR M. COX _______________________________________ RONALD D. HILDRETH _______________________________________ JEFFREY F. HIPP E -137 EX-10 11 PLAN OF MERGER OF THE COMPUTER STORE, INC. INTO POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. OCTOBER 17, 1997 This instrument constitutes the Plan of Merger (this "Plan") for the merger (the "Merger") of THE COMPUTER STORE, INC., a South Carolina corporation ("CSI"), with and into POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation ("PCRSC"). PCRSC and CSI are sometimes hereinafter collectively referred to as the "Constituent Corporations" and singularly as a "Constituent Corporation." RECITALS A. CSI is a corporation duly organized and existing under the laws of the State of South Carolina with authorized capital of 100,000 shares of common stock ("CSI Common Stock"), of which 16,000 shares of CSI Common Stock are issued and outstanding (the "CSI Shares"). B. PCRSC is a corporation duly organized and existing under the laws of the State of South Carolina with authorized capital of 1,000 shares of common stock, of which 100 shares are issued and outstanding. PCRSC is a wholly- owned subsidiary of Pomeroy Computer Resources, Inc. ("Parent"), a corporation duly organized and existing under the laws of the State of Delaware. The common stock of Parent is hereafter referred to as "Parent Common Stock." C. This Plan shall be part of that certain definitive Agreement and Plan of Reorganization, dated October 17, 1997, by and among PCRSC, CSI and the shareholders of CSI (the "Merger Agreement"), setting forth the respective rights and obligations of such parties in connection with the adoption and implementation of this Plan. This Plan is made, executed and delivered pursuant to the Merger Agreement, and is subject to all the terms, provisions and conditions thereof. To the extent of any conflict between the terms hereof and thereof, the terms of the Merger Agreement shall be controlling. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Merger Agreement unless the context clearly requires otherwise. D. The Merger shall be implemented as provided herein upon the approval of the Board of Directors of each Constituent Corporation and Parent, and the owners of record of at least the number of the outstanding shares of each E-138 Constituent Corporation required by the state corporation law applicable to such Constituent Corporation. E. The parties intend that the transactions contemplated hereby will qualify as a forward triangular merger of CSI with and into PCRSC in a reorganization pursuant to Internal Revenue Code Sections 368(a)(1)(A) and 368(a)(2)(D). TERMS OF MERGER 1. The Merger. On and subject to the terms and conditions of the Merger Agreement, on the Effective Date (as defined in Section 2), CSI shall be merged with and into PCRSC (the "Merger"), the separate corporate existence of CSI shall thereupon cease, and PCRSC shall be the surviving corporation in the Merger (the "Surviving Corporation"). The Surviving Corporation shall, from and after the Effective Date, possess all the rights, privileges, powers and franchises of whatsoever nature and description, whether of a public or private nature, and be subject to all the restrictions, disabilities and duties of each of the Constituent Corporations; and all rights, privileges, powers and franchises of each of the Constituent Corporations, and all property, tangible and intangible, real, personal and mixed, and debts due to either of the Constituent Corporations on whatever account as well as all other things in action or belonging to each of the Constituent Corporations shall be vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interests shall be thereafter the property of the Surviving Corporation, and the title to any real estate vested by deed or otherwise in any of the Constituent Corporations shall not revert or be in any way impaired by reason of the Merger. All rights of creditors and all liens upon the property of the Constituent Corporations shall be preserved unimpaired, and all debts, liabilities and duties of the Constituent Corporations shall thenceforth attach to the Surviving Corporation, and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it. Any claim existing or action or proceeding, whether civil, criminal or administrative, pending by or against either Constituent Corporation may be prosecuted to judgment or decree as if the Merger had not taken place, or the Surviving Corporation may be substituted in such action or proceeding. The foregoing shall not limit the effects of the Merger as set forth in Section 33-11-106 of the South Carolina Business Corporations Act of 1988, as amended (the "Corporations Act"). E-139 2. Effective Date. At the time of the Closing, PCRSC shall cause Articles of Merger (the "Articles of Merger") to be duly executed and filed with the Secretary of State of the State of South Carolina as provided under the Corporations Act. The Merger shall become effective as soon as practicable after the Closing on the time and date specified in the Articles of Merger, and in no event later than four (4) days after the Closing and such time is herein referred to as the "Effective Date". 3. Parent Common Stock. Parent shall make available to PCRSC a sufficient number of shares of Parent Common Stock having such characteristics as are necessary to effect the Merger as required herein. 4. Conversion and Exchange of Shares. The manner of converting and exchanging shares of the Constituent Corporations participating in the Merger shall be as follows: Each share of CSI common stock issued and outstanding immediately prior to the Effective Date exclusive of shares held in the treasury of CSI, upon the Effective Date, shall, without any action on the part of Parent, PCRSC or any holder of such shares, be converted by the Merger into (a) 1.55319 shares of Parent Common Stock and (b) Forty-three and 749814/1,000,000 Dollars (43.749814) in cash. Each holder of a stock certificate or certificates representing outstanding shares of CSI's common stock immediately prior to the Effective Date, upon surrender of such certificate or certificates to the Surviving Corporation after the Effective Date, shall be entitled to receive a stock certificate or certificates representing the number of shares of the Parent Common Stock to which he is entitled. Until so surrendered, each such stock certificate shall, by virtue of the Merger, be deemed, for all purposes, to evidence ownership of such number of shares of the Parent Common Stock to which he is entitled. 5. Articles of Incorporation. The Articles of Incorporation of PCRSC in effect immediately prior to the Effective Date shall be and remain the Articles of Incorporation of the Surviving Corporation, until duly amended in accordance with the terms thereof and applicable state corporation law. 6. Bylaws. The Bylaws of PCRSC in effect immediately prior to the Effective Date shall be and remain the Bylaws of the Surviving Corporation, until duly amended in accordance with the terms thereof and applicable state corporation law. 7. Directors. The directors of PCRSC immediately prior to the Effective Date shall be and remain the directors of the Surviving Corporation at and as of the Effective Date until their successors shall have been duly E-140 elected and appointed and qualified in accordance with the Surviving Corporation's Articles of Incorporation and Bylaws. The directors of CSI shall cease to be directors of any Constituent Corporation immediately prior to the Effective Date. 8. Officers. The officers of PCRSC immediately prior to the Effective Date shall be and remain the officers of the Surviving Corporation at and as of the Effective Date (retaining their respective positions and terms of office) until their successors have been duly elected or appointed and qualified in accordance with the Surviving Corporation's Bylaws. The officers of CSI shall cease to be officers of any Constituent Corporation immediately prior to the Effective Date. 9. Subsequent Actions. If, at any time after the Effective Date, the Surviving Corporation shall consider or be advised that any deeds, affidavits of corporate name change, bills of sale, assignments, assurances or any other actions or things may be necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of the Constituent Corporation acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of CSI all such deeds, affidavits of corporate name change, bills of sale, assignments and assurances and to take and do, in the name and on behalf of CSI, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Plan. IN WITNESS WHEREOF, the Constituent Corporations have executed this Plan of Merger as the parties hereto to be legally binding and effective as of the ____ day of __________, 1997. CONSTITUENT CORPORATIONS THE COMPUTER STORE, INC. POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. By:_____________________________ By:_____________________________ E-141 Title:____________________________ Title:____________________________ ?? 92180-3 E-142 EX-10 12 ARTICLES OF MERGER OF DOMESTIC CORPORATIONS FOR THE MERGER OF THE COMPUTER STORE, INC. INTO POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. Pursuant to Sections 33-11-101 of the South Carolina Business Corporation Act of 1988, as amended, the undersigned domestic corporations adopt the following Articles of Merger for the purpose of merging into a single corporation: 1. Constituent Corporations. The names of the undersigned constituent corporations and the states under the laws of which each is organized are: Name of Corporation State of Incorporation The Computer Store, Inc. South Carolina Pomeroy Computer Resources of South Carolina, Inc. South Carolina 2. Statutory Merger. The laws of the state under which each corporation is organized permit such a merger. 3. Surviving Corporation. The name of the surviving corporation is Pomeroy Computer Resources of South Carolina, Inc. and it is to be governed by the laws of the State of South Carolina. 4. Plan of Merger. The filing of these Articles of Merger shall merge The Computer Store, Inc. into Pomeroy Computer Resources of South Carolina, Inc., and convert the outstanding shares of the capital stock of The Computer Store, Inc. and the outstanding shares of the capital stock of Pomeroy Computer Resources of South Carolina, Inc., all in accordance with the Plan of Merger, which was duly adopted by the respective Board of Directors and shareholders of The Computer Store, Inc. and Pomeroy Computer Resources of South Carolina, Inc., a copy of which is attached hereto as Exhibit "A" and made a part hereof (the "Plan of Merger"). 5. Adoption by Acquired Corporation. The Plan of Merger was duly approved by the shareholders of The Computer Store, Inc. on October ___, 1997, in the manner prescribed by the laws of the State of South Carolina as follows: Voting Group E-143 Number of Outstanding Shares Number of Votes Entitled to Be Cast Number of Shares Represented at the Meeting Number of Undisputed Shares Voted For Against Common* 16,000 16,000 16,000 16,000 0 * The corporation has only one class of stock entitled to vote on the merger. 6. Adoption by Surviving Corporation. The Plan of Merger was duly approved by the sole shareholder of Pomeroy Computer Resources of South Carolina, Inc. on October ___, 1997, in the manner prescribed by the laws of the State of South Carolina as follows: Voting Group Number of Outstanding Shares Number of Votes Entitled to Be Cast Number of Shares Represented at the Meeting Number of Undisputed Shares Voted For Against Common* 100 100 100 100 0 * The corporation has only one class of stock entitled to vote on the merger. 7. Authorizing Law. The Plan of Merger and the transactions contemplated therein were unanimously approved by the shareholders of both of the constituent corporations as required by Chapter 11 of the South Carolina Business Corporations Act of 1988, as amended. Since all issued and outstanding shares of stock of each constituent corporation were voted in favor of the merger, no dissenters rights are applicable. E-144 8. Effective Time. These Articles and Certificate of Merger shall be effective at 5:00 p.m. local time on the day filed with the Secretary of State of South Carolina. Date:_________________, 1997 THE COMPUTER STORE, INC. By:________________________________ Title:________________________________ POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. By:________________________________ Title:________________________________ EXHIBIT "A" PLAN OF MERGER See attached. ?? LD 92294-2 E-145 EX-10 13 POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. EMPLOYMENT AGREEMENT THIS AGREEMENT made as of this ____ day of _________, 1997, by and between POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation ("Company"), and JEFFREY F. HIPP ("Employee"). W I T N E S S E T H: WHEREAS, Employee has exchanged 1,000 shares of the common capital stock of The Computer Store, Inc., a South Carolina corporation ("CSI") pursuant to an Agreement and Plan of Reorganization ("Plan") of even date pursuant to Section 368(a)(2)(D) of the Internal Revenue Code whereby CSI was acquired by a merger into Company in exchange for certain stock of Pomeroy Computer Resources, Inc., a Delaware corporation, ("PCR"), the parent corporation of Company, and other consideration as set forth in the Plan; and WHEREAS, Employee, as inducement for and in consideration of Company entering into the Plan, has agreed to enter into and execute this Employment Agreement pursuant to Section 4 thereof; and WHEREAS, Company desires to engage the services of Employee, pursuant to the terms, conditions and provisions as hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein set forth, the parties hereby covenant and agree as follows: 1. Employment. The Company agrees to employ the Employee, and the Employee agrees to be employed by the Company, upon the following terms and conditions. 2. Term. The initial term of Employee's employment pursuant to this Agreement shall begin on the 17th day of October, 1997, and shall continue for a period of one (1) year (October 17, 1997 to October 16, 1998) unless terminated earlier pursuant to the provisions of Section 10, provided that Sections 8, 9, 10(b), 11 if applicable and 20 shall survive the termination of such employment and shall expire in accordance with the terms set forth therein. 3. Renewal Term. The term of Employee's employment shall automatically renew for additional consecutive renewal terms of one (1) year unless either party gives written notice of his/its intent not to renew the terms of the Agreement thirty (30) days prior to the expiration of the E-146 then expiring term. Employee's compensation for each renewal term shall be determined by the Board of Directors of the Company, provided, however, that Employee's commission rate for any renewal term shall not be less than the commission rate payable to him for the prior year. 4. Duties. Employee shall serve as Senior Marketing Representative of the Company. Employee shall be responsible to and report directly to the Vice President of the Company. The duties assigned to Employee shall not be inconsistent with those typically assigned to a person holding the position set forth above and Employee shall at all times have such powers and authorities as shall be reasonably required to discharge such duty in a efficient manner, together with such facilities and services as are appropriate to his position. Employee shall devote his best efforts and substantially all his time during normal business hours to the diligent, faithful and loyal discharge of the duties of his employment and towards the proper, efficient and successful conduct of the Company's affairs. Employee further agrees to refrain during the term of this Agreement from making any sales of competing services or products or from profiting from any transaction involving computer services or products for his account without the express written consent of Company. 5. Compensation. For all services rendered by the Employee under this Agreement (in addition to other monetary or other benefits referred to herein), compensation shall be paid to Employee as follows: (a) Commission: During the term of this Agreement, Employee shall be paid a commission equal to thirty-five percent (35%) of the gross profit on all Company sales of computer hardware and software and related services originated by Employee. For purposes of this section, the term "gross profit" shall mean the net sales of computer hardware, software, and other products and services by Company that are originated by Employee, less the cost of the goods and services sold. In making such gross profit determination, all gains and losses realized on the sale or other disposition of Company's assets (other than in the ordinary course of business) shall be excluded; all customers returns or rebates that are made during such period shall be subtracted along with all accounts receivable derived from such sales that are written off as bad debt in accordance with Company's accounting system. Said gross profit determination shall be determined in good faith by the Company's controller in accordance with generally accepted accounting principles. Any commission earned hereunder E-147 shall be payable to Employee within fifteen (15) days after the conclusion of the preceding month. It being the intent of the parties to implement Employee's commission compensation consistent with the prior methods of CSI in compensating Employee in the manner set forth herein. 6. Fringe Benefits. During the term of this Agreement, Employee shall be entitled to the following benefits: (a) Health Insurance - Employee shall be provided with the standard medical health and insurance coverage maintained by or for the benefit of the Company on its employees. Company and Employee shall each pay fifty percent (50%) of the cost of such coverage. (b) Retirement Plan - Employee shall participate, after meeting eligibility requirements, in any qualified retirement plans and/or welfare plans maintained by or for the benefit of the Company during the term of this Agreement. For purposes of eligibility in any qualified retirement plans, Employee shall be given credit for prior years of service with CSI. Employee shall be responsible for any and all taxes, owed, if any, on the fringe benefits provided to him pursuant to this Section 6. (c) Unpaid Leave. Employee shall be entitled each year to unpaid leave of forty (40) days per year during the term of this Agreement. Provided, however, such days shall not be taken consecutively without the written consent of Company. 7. Expenses. During the term of Employee's employment hereunder, Employee shall be entitled to receive prompt reimbursement for all other reasonable and customary expenses incurred by Employee in fulfilling Employee's duties and responsibilities hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures reasonably established by Company. 8. Non-Competition. Employee expressly acknowledges the provisions of Section 3 of the Plan relating to Employee's covenant not to compete with Company. Accordingly, such provisions of Section 3 are incorporated herein by reference to the extent as if restated in full herein. In addition to the consideration received under this Agreement, Employee acknowledges that as one of three owners of the common stock of CSI, he has received substantial consideration pursuant to such Plan and that as an inducement for, and in consideration of, Company and PCR entering into the Plan and Company entering into this E-148 Agreement, Employee has agreed to be bound by such provisions of Section 3 of the Plan. Accordingly, such provisions of Section 3 and Exhibit D-2 and the restrictions on Employee thereby imposed shall apply as stated therein. 9. Non-Disclosure and Assignment of Confidential Information. The Employee acknowledges that the Company's trade secrets and confidential and proprietary information, including without limitation: (a) unpublished information concerning the Company's: (i) research activities and plans, (ii) marketing or sales plans, (iii) pricing or pricing strategies, (iv) operational techniques, (v) customer and supplier lists, and (vi) strategic plans; (b) unpublished financial information, including unpublished information concerning revenues, profits and profit margins; (c) internal confidential manuals; and (d) any "material non-public information" as such phase is used for purposes of the Securities Exchange Act of 1934, as amended; all constitute valuable, special and unique proprietary and trade secret information of the Company. In recognition of this fact, the Employee agrees that the Employee will not disclose any such trade secrets or confidential or proprietary information (except (i) information which becomes publicly available without violation of this Employment Agreement, (ii) information which the Employee did not know and should not have known was disclosed to the Employee in violation of any other person's confidentiality obligation, and (iii) disclosure required in connection with any legal process or by governmental agency), nor shall the Employee make use of any such information for the benefit of any person, firm, operation or other entity except the Company and its subsidiaries or affiliates. The Employee's obligation to keep all of such information confidential shall be in effect during and for a period of five (5) years after the termination of his employment; provided, however, that the Employee will keep confidential and will not disclose any trade secret or similar information protected under law as intangible property (subject to the same exceptions set forth in the parenthetical clause above) for so long as such protection under law is extended. E-149 (e) For purposes of this provision, the term "Company's trade secrets" and "confidential information" shall include such information of Company's parent company, PCR, and any of their respective subsidiaries. 10. Termination. (a) The Employee's employment with the Company may be terminated at any time as follows: (i) By the Employee at his discretion, upon sixty (60) days written notice to Company; (ii) By Employee's death; (iii) By Employee's physical or mental disability which renders Employee unable to perform his duties hereunder; (iv) By the Company, for cause upon three (3) day's written notice to Employee. For purposes of this Agreement, the term "cause" shall mean termination upon: (i) the failure by Employee to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to him by the Company, which demand specifically identifies the manner in which the Company believes that he has not substantially performed his duties; (ii) the engaging by Employee in wrongful conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, including but not limited to any material misrepresentation related to the performance of his duties; (iii) the conviction of Employee of a felony or other crime involving theft or fraud, (iv) Employee's gross neglect or gross misconduct in carrying out his duties hereunder resulting, in either case, in material harm to the Company; or (v) any material breach by Employee of this Agreement. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated for cause unless and until there shall have been delivered to him a copy of a resolution of the Board of Directors of the Company or any appropriately designated committee of the Board, finding in good faith that he has engaged in the conduct set forth above in this Section 10(a)(iv) and specifying the particulars thereof in detail, and Employee shall not have cured such conduct to the reasonable satisfaction of the Board within ten (10) days of receipt of such resolution. (b) Compensation upon Termination: In the event of termination of employment, the Employee or his estate, in the event of death, shall be entitled to any commissions accrued to the date of his termination. E-150 11. Disability. In the event that Employee becomes temporarily disabled and/or totally and permanently disabled, physically or mentally, which renders him unable to perform his duties hereunder, Employee shall receive the sum of Seventy-Two Thousand Dollars ($72,000) for a period of one (1) year following the initial date of such disability (offset by any payments to the Employee received pursuant to disability benefit plans, if any, maintained by the Company.) Such payments shall be payable in twelve consecutive equal monthly installments and shall commence thirty (30) days after the determination by the physicians of such disability as set forth below. For purposes of this Agreement, Employee shall be deemed to be temporarily disabled and/or totally and permanently disabled if attested to by two qualified physicians, (one to be selected by Company and the other by Employee) competent to give opinions in the area of the disabled Employee's physical and/or mental condition. If the two physicians disagree, they shall select a third physician, whose opinion shall control. Employee shall be deemed to be temporarily disabled and/or totally and permanently disabled if he shall become disabled as a result of any medically determinable impairment of mind or body which renders it impossible for such Employee to perform satisfactorily his duties hereunder, and the qualified physician(s) referred to above certify that such disability does, in fact, exist. The opinion of the qualified physician(s) shall be given by such physician(s), in writing directed to the Company and to Employee. The physician(s) decision shall include the date that disability began, if possible, and the 12th month of such disability, if possible. The decision of such physician(s) shall be final and conclusive and the cost of such examination shall be paid by Employer. 12. Severability. In case any one (1) or more of the provisions or part of a provision contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement. In such a situation, this Agreement shall be reformed and construed as if such invalid, illegal or unenforceable provision, or part of a provision, had never been contained herein, and such provision or part shall be reformed so that it will be valid, legal and enforceable to the maximum extent possible. 13. Governing Law. This Agreement shall be governed and construed under the laws of the State of South Carolina and shall not be modified or discharged, in whole or in part, except by an agreement in writing signed by the parties. E-151 14. Notices. All notices, requests, demands and other communications relating to this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or mailed by certified or registered mail, return receipt requested, postage prepaid: If to Company, to: Pomeroy Computer Resources of South Carolina, Inc. c/o 1020 Petersburg Road Hebron, Kentucky 41048 With a copy to: James H. Smith III Lindhorst & Dreidame Co., L.P.A. 312 Walnut Street, Suite 2300 Cincinnati, Ohio 45202 If to Employee, to the Employee's residential address, as set forth in the Company's records. 15. Enforcement of Rights. The parties expressly recognize that any breach of this Agreement by either party is likely to result in irrevocable injury to the other party and agree that such other party shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach of this Agreement, or to enforce the specific performance of this Agreement by each party or to enjoin any party from activities in violation of this Agreement. Should either party engage in any activities prohibited by this Agreement, such party agrees to pay over to the other party all compensation, remuneration, monies or property of any sort received in connection with such activities. Such payment shall not impair any rights or remedies of any non-breaching party or obligations or liabilities of any breaching party pursuant to this Agreement or any applicable law. 16. Entire Agreement. This Agreement and the exhibits hereto contain the entire understanding of the parties with respect to the subject matter contained herein and may be altered, amended or superseded only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 17. Parties in Interest. (a) This Agreement is personal to each of the parties hereto. No party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto; provided, however, that nothing in this Section 16 shall preclude (i) Employee from designating a beneficiary to receive any benefit payable hereunder upon his death or disability, or E-152 (ii) executors, administrators, or legal representatives of Employee or his estate from assigning any rights hereunder to person or persons entitled thereto. Notwithstanding the foregoing, this Agreement shall be binding upon and inure to the benefit of any successor corporation of the Company. (b) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the assets of the Company or the business with respect to which the duties and responsibilities of Employee are principally related, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the assumption agreement provided for in this Section 16 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 18. Representations of Employee. Employee represents and warrants that he is not party to or bound by any agreement or contract or subject to any restrictions including without limitation any restriction imposed in connection with previous employment which prevents Employee from entering into and performing his obligations under this Agreement. 19. Counterparts. This Agreement may be executed, simultaneously in several counterparts, each of which shall be deemed an original part, which together shall constitute one and the same instrument. 20. Attorney's Fees. In the event of any dispute arising between Employee and Company, pursuant to this Agreement, the prevailing party shall be entitled to recover from the non-prevailing party, the prevailing party's reasonable attorney's fees and costs. IN WITNESS WHEREOF, this Agreement has been executed effective as of the day and year first above written. COMPANY: WITNESSES: POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. _________________________ By:______________________________ _________________________ EMPLOYEE: _________________________ _________________________________ JEFFREY F. HIPP _________________________ E-153 EX-10 14 POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. EMPLOYMENT AGREEMENT THIS AGREEMENT made as of this ____ day of _________, 1997, by and between POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation ("Company"), and RONALD D. HILDRETH ("Employee"). W I T N E S S E T H: WHEREAS, Employee has exchanged 7,500 shares of the common capital stock of The Computer Store, Inc., a South Carolina corporation ("CSI") pursuant to an Agreement and Plan of Reorganization ("Plan") of even date pursuant to Section 368(a)(2)(D) of the Internal Revenue Code whereby CSI was acquired by a merger into Company in exchange for certain stock of Pomeroy Computer Resources, Inc., a Delaware corporation, ("PCR"), the parent corporation of Company, and other consideration as set forth in the Plan; and WHEREAS, Employee, as inducement for and in consideration of Company entering into the Plan, has agreed to enter into and execute this Employment Agreement pursuant to Section 4 thereof; and WHEREAS, Company desires to engage the services of Employee, pursuant to the terms, conditions and provisions as hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein set forth, the parties hereby covenant and agree as follows: 1. Employment. The Company agrees to employ the Employee, and the Employee agrees to be employed by the Company, upon the following terms and conditions. 2. Term. The initial term of Employee's employment pursuant to this Agreement shall begin on the 17th day of October, 1997, and shall continue for a period of three (3) years (October 17, 1997 to October 16, 2000) unless terminated earlier pursuant to the provisions of Section 10, provided that Sections 8, 9, 10(b), 10(c) if applicable, 11 if applicable, and 20 shall survive the termination of such employment and shall expire in accordance with the terms set forth therein. 3. Renewal Term. The term of Employee's employment shall automatically renew for additional consecutive renewal terms of one (1) year unless either party gives written notice of his/its intent not to renew the terms of the Agreement thirty (30) days prior to the expiration of the then expiring term. Employee's base salary for each renewal E-154 term shall be determined by the Board of Directors of Company, provided, however, Employee's annual base salary for any renewal term shall not be less than the base salary in effect for the prior year. 4. Duties. Employee shall serve as Business Services Manager of the Company. Employee shall be responsible to and report directly to the Vice President of the Company. The duties assigned to Employee shall not be inconsistent with those typically assigned to a person holding the position set forth above and Employee shall at all times have such powers and authority as shall be reasonably required to discharge such duties in an efficient manner, together with such facilities and services as are appropriate to his position. Employee shall devote his best efforts and substantially all his time during normal business hours to the diligent, faithful and loyal discharge of the duties of his employment and towards the proper, efficient and successful conduct of the Company's affairs. Employee further agrees to refrain during the term of this Agreement from making any sales of competing services or products or from profiting from any transaction involving computer services or products for his account without the express written consent of Company. 5. Compensation. For all services rendered by the Employee under this Agreement (in addition to other monetary or other benefits referred to herein), compensation shall be paid to Employee as follows: (a) Base Salary: During the term of this Agreement, Employee shall be paid an annual base salary of Seventy Two Thousand Dollars ($72,000.00) per year. Said annual base salary shall be payable semi-monthly. (b) Bonus: In addition to Employee's base salary commencing on January 6, 1998 for the first full year of the initial term of this Agreement (January 6, 1998 through January 5, 1999), Employee shall be entitled to a cash bonus and an incentive stock option award in the event Employee satisfies certain economic criteria pertaining to Company's performance as set forth as follows: (i) Gross sales of Company greater than $10,000,000 but less than or equal to $12,000,000 with NPBT greater than three percent (3%) equals $5,000 cash bonus plus 300 incentive stock options of PCR Stock; or (ii) Gross sales of Company greater than $12,000,000 but less than or equal to $13,000,000 with NPBT greater than three percent (3%) equals $7,500 cash bonus plus 600 incentive stock options of PCR Stock; or E-155 (iii) Gross sales of Company greater than $13,000,000 with NPBT greater than three percent (3%) equals $10,000 cash bonus plus 1,000 incentive stock options of PCR Stock. For purposes of this section, the term "gross sales" shall mean gross sales of equipment, software and services by Company. For purposes of this section, the term "net profits before taxes" shall mean the net pre-tax profits of Company during the applicable period set forth above. In making said gross sales determination and net pre-tax profits determinations, all gains and losses realized on the sale or other disposition of Company assets not in the ordinary course of business shall be excluded. All refunds or returns which are made during such period shall be subtracted along with all accounts receivable derived from sales which are written off as bad debt during such period in accordance with Company's accounting system. Such gross sales and net pre-tax margin of Company shall be determined by the independent accountant regularly retained by Company within ninety (90) days after the end of each year in accordance with generally accepted accounting principles and the determination by the accountant shall be final, binding and conclusive upon all parties hereto. Commencing January 6, 1998, in making said determination of the applicable pre-tax margin for Company, a 1.5 MAS royalty fee on gross sales shall be paid to PCR incident to said determination. For each subsequent year, during the initial term of this Agreement the parties shall, in good faith, agree upon an MAS royalty fee to be charged hereunder based on the level of services and support being provided to the Company by PCR; provided, however, such royalty fee shall be 1.5% if the parties are unable to come to an amount for each subsequent year. Any cash bonus earned hereunder shall be payable to Employee within thirty (30) days of the determination by the accountant. Incident to the determination of Company's net profit before taxes, no compensation of any executive or other employee of PCR or its affiliates shall be allocated to Company. Except as set forth above, no other administrative, overhead or any other expense of PCR shall be allocated to Company. It being the intent of the parties that Company shall exercise the utmost good faith with respect to the implementation of this provision. (iv) Any award of an incentive stock option to acquire stock of the Company shall be the fair market value of such stock as of January 5, 1999 and shall be subject to all conditions contained in the PCR's Non- Qualified Incentive Stock Option Plan. For purposes of this Agreement, the fair market value as of the applicable date shall mean with respect to the common shares, the average E-156 between the high and low bid and asked prices for such shares on the NASDAQ Exchange on the last business day prior to the date on which the value is to be determined (or the next preceding date on which sales occurred if there were no sales on such date). (v) The parties agree that in January of 1999 and 2000 (for the remaining portion of the initial term of this Agreement) they will negotiate, in good faith, the implementation of an annual bonus and an incentive stock option award for the remaining fiscal years of this Agreement which will be predicated upon the attainment by Company of certain economic criteria established at the outset of such calendar year. Such bonus plan for the remaining term of this Agreement shall be consistent with other of PCR management personnel holding a position similar to that of Employee. 6. Fringe Benefits. During the term of this Agreement, Employee shall be entitled to the following benefits: (a) Health Insurance - Employee shall be provided with the standard medical health and insurance coverage maintained by or for the benefit of the Company on its employees. Company and Employee shall each pay fifty percent (50%) of the cost of such coverage. (b) Vacation - Employee shall be entitled each year to a vacation of two (2) weeks during which time his compensation will be paid in full. Provided, however, such weeks may not be taken consecutively without the written consent of Company. (c) Automobile Use - Company shall provide Employee with an automobile allowance of Two Hundred Fifty Dollars ($250.00) per month during the term of this Agreement. Employee shall be responsible for all maintenance and repair to such vehicle and for the insurance coverage thereof. (d) Retirement Plan - Employee shall participate, after meeting eligibility requirements, in any qualified retirement plans and/or welfare plans maintained by or for the benefit of the Company during the term of this Agreement. For purposes of eligibility in any qualified retirement plans, Employee shall be given credit for prior years of service with CSI. Employee shall be responsible for any and all taxes, owed, if any, on the fringe benefits provided to him pursuant to this Section 6. E-157 7. Expenses. During the term of Employee's employment hereunder, Employee shall be entitled to receive prompt reimbursement for all other reasonable and customary expenses incurred by Employee in fulfilling Employee's duties and responsibilities hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures reasonably established by Company. 8. Non-Competition. Employee expressly acknowledges the provisions of Section 3 of the Plan relating to Employee's covenant not to compete with Company. Accordingly, such provisions of Section 3 are incorporated herein by reference to the extent as if restated in full herein. In addition to the consideration received under this Agreement, Employee acknowledges that as one of three owners of the common stock of CSI, he has received substantial consideration pursuant to such Plan and that as an inducement for, and in consideration of, Company and PCR entering into the Plan and Company entering into this Agreement, Employee has agreed to be bound by such provisions of Section 3 of the Plan. Accordingly, such provisions of Section 3 and Exhibit D-1 and the restrictions on Employee thereby imposed shall apply as stated therein. 9. Non-Disclosure and Assignment of Confidential Information. The Employee acknowledges that the Company's trade secrets and confidential and proprietary information, including without limitation: (a) unpublished information concerning the Company's: (i) research activities and plans, (ii) marketing or sales plans, (iii) pricing or pricing strategies, (iv) operational techniques, (v) customer and supplier lists, and (vi) strategic plans; (b) unpublished financial information, including unpublished information concerning revenues, profits and profit margins; (c) internal confidential manuals; and (d) any "material non-public information" as such phase is used for purposes of the Securities Exchange Act of 1934, as amended; all constitute valuable, special and unique proprietary and trade secret information of the Company. In recognition of this fact, the Employee agrees that the Employee will not E-158 disclose any such trade secrets or confidential or proprietary information (except (i) information which becomes publicly available without violation of this Employment Agreement, (ii) information which the Employee did not know and should not have known was disclosed to the Employee in violation of any other person's confidentiality obligation, and (iii) disclosure required in connection with any legal process or by governmental agency), nor shall the Employee make use of any such information for the benefit of any person, firm, operation or other entity except the Company and its subsidiaries or affiliates. The Employee's obligation to keep all of such information confidential shall be in effect during and for a period of five (5) years after the termination of his employment; provided, however, that the Employee will keep confidential and will not disclose any trade secret or similar information protected under law as intangible property (subject to the same exceptions set forth in the parenthetical clause above) for so long as such protection under law is extended. (e) For purposes of this provision, the term "Company's trade secrets" and "confidential information" shall include such information of Company's parent company, PCR, and any of their respective subsidiaries. 10. Termination. (a) The Employee's employment with the Company may be terminated at any time as follows: (i) By the Employee at his discretion, upon sixty (60) days written notice to Company; (ii) By Employee's death; (iii) By Employee's physical or mental disability which renders Employee unable to perform his duties hereunder; (iv) By the Company, for cause upon three (3) day's written notice to Employee. For purposes of this Agreement, the term "cause" shall mean termination upon: (i) the failure by Employee to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to him by the Company, which demand specifically identifies the manner in which the Company believes that he has not substantially performed his duties; (ii) the engaging by Employee in wrongful conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, including but not limited to any material misrepresentation related to the performance of his duties; (iii) the conviction of Employee of a felony or E-159 other crime involving theft or fraud, (iv) Employee's gross neglect or gross misconduct in carrying out his duties hereunder resulting, in either case, in material harm to the Company; or (v) any material breach by Employee of this Agreement. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated for cause unless and until there shall have been delivered to him a copy of a resolution of the Board of Directors of the Company or any appropriately designated committee of the Board, finding in good faith that he has engaged in the conduct set forth above in this Section 10(a)(iv) and specifying the particulars thereof in detail, and Employee shall not have cured such conduct to the reasonable satisfaction of the Board within ten (10) days of receipt of such resolution. (v) By the Company, at its discretion, without cause, upon thirty (30) days written notice to Employee; provided that Company complies with the provisions of Section 10(c). (b) Compensation upon Termination: In the event of termination of employment, the Employee or his estate, in the event of death, shall be entitled to his annual base salary and other benefits provided hereunder to the date of his termination. In addition, Employee shall be entitled to receive any bonus accrued to the date of his termination of employment as provided in Section 5(b). (c) Severance. In the event that Company would terminate Employee's employment hereunder without cause pursuant to Section 10(a)(v), Company shall be obligated to pay Employee as severance pay, Employee's annual base salary for the remaining term, including the current renewal term, if applicable, of the Agreement (as set forth in Section 2) as due. 11. Disability. In the event that Employee becomes temporarily disabled and/or totally and permanently disabled, physically or mentally, which renders him unable to perform his duties hereunder, Employee shall receive one hundred percent (100%) of his base annual salary (in effect at the time of such disability) for a period of one (1) year following the initial date of such disability (offset by any payments to the Employee received pursuant to disability benefit plans, if any, maintained by the Company.) Such payments shall be payable in twelve consecutive equal monthly installments and shall commence thirty (30) days after the determination by the physicians of such disability as set forth below. For purposes of this Agreement, Employee shall be deemed to be temporarily disabled and/or totally and permanently disabled if attested to by two qualified physicians, (one to be selected by Company and the other by E-160 Employee) competent to give opinions in the area of the disabled Employee's physical and/or mental condition. If the two physicians disagree, they shall select a third physician, whose opinion shall control. Employee shall be deemed to be temporarily disabled and/or totally and permanently disabled if he shall become disabled as a result of any medically determinable impairment of mind or body which renders it impossible for such Employee to perform satisfactorily his duties hereunder, and the qualified physician(s) referred to above certify that such disability does, in fact, exist. The opinion of the qualified physician(s) shall be given by such physician(s), in writing directed to the Company and to Employee. The physician(s) decision shall include the date that disability began, if possible, and the 12th month of such disability, if possible. The decision of such physician(s) shall be final and conclusive and the cost of such examination shall be paid by Employer. 12. Severability. In case any one (1) or more of the provisions or part of a provision contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement. In such a situation, this Agreement shall be reformed and construed as if such invalid, illegal or unenforceable provision, or part of a provision, had never been contained herein, and such provision or part shall be reformed so that it will be valid, legal and enforceable to the maximum extent possible. 13. Governing Law. This Agreement shall be governed and construed under the laws of the State of South Carolina and shall not be modified or discharged, in whole or in part, except by an agreement in writing signed by the parties. 14. Notices. All notices, requests, demands and other communications relating to this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or mailed by certified or registered mail, return receipt requested, postage prepaid: If to Company, to: Pomeroy Computer Resources of South Carolina, Inc. c/o 1020 Petersburg Road Hebron, Kentucky 41048 With a copy to: James H. Smith III Lindhorst & Dreidame Co., L.P.A. 312 Walnut Street, Suite 2300 Cincinnati, Ohio 45202 E-161 If to Employee, to the Employee's residential address, as set forth in the Company's records. 15. Enforcement of Rights. The parties expressly recognize that any breach of this Agreement by either party is likely to result in irrevocable injury to the other party and agree that such other party shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach of this Agreement, or to enforce the specific performance of this Agreement by each party or to enjoin any party from activities in violation of this Agreement. Should either party engage in any activities prohibited by this Agreement, such party agrees to pay over to the other party all compensation, remuneration, monies or property of any sort received in connection with such activities. Such payment shall not impair any rights or remedies of any non-breaching party or obligations or liabilities of any breaching party pursuant to this Agreement or any applicable law. 16. Entire Agreement. This Agreement and the exhibits hereto contain the entire understanding of the parties with respect to the subject matter contained herein and may be altered, amended or superseded only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 17. Parties in Interest. (a) This Agreement is personal to each of the parties hereto. No party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto; provided, however, that nothing in this Section 17 shall preclude (i) Employee from designating a beneficiary to receive any benefit payable hereunder upon his death or disability, or (ii) executors, administrators, or legal representatives of Employee or his estate from assigning any rights hereunder to person or persons entitled thereto. Notwithstanding the foregoing, this Agreement shall be binding upon and inure to the benefit of any successor corporation of the Company. (b) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the assets of the Company or the business with respect to which the duties and responsibilities of Employee are principally related, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore E-162 defined and any successor to its business and/or assets as aforesaid which executes and delivers the assumption agreement provided for in this Section 17 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 18. Representations of Employee. Employee represents and warrants that he is not party to or bound by any agreement or contract or subject to any restrictions including without limitation any restriction imposed in connection with previous employment which prevents Employee from entering into and performing his obligations under this Agreement. 19. Counterparts. This Agreement may be executed, simultaneously in several counterparts, each of which shall be deemed an original part, which together shall constitute one and the same instrument. 20. Attorneys Fees. In the event of any dispute arising between Employee and Company, pursuant to this Agreement, the prevailing party shall be entitled to recover from the non-prevailing party, the prevailing party's reasonable attorney's fees and costs. IN WITNESS WHEREOF, this Agreement has been executed effective as of the day and year first above written. WITNESSES: COMPANY: POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. _________________________ By:______________________________ _________________________ EMPLOYEE: _________________________ _________________________________ RONALD D. HILDRETH _________________________ E-163 EX-10 15 POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. EMPLOYMENT AGREEMENT THIS AGREEMENT made as of this ____ day of _________, 1997, by and between POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation ("Company"), and ARTHUR M. COX ("Employee"). W I T N E S S E T H: WHEREAS, Employee has exchanged 7,500 shares of the common capital stock of The Computer Store, Inc., a South Carolina corporation ("CSI") pursuant to an Agreement and Plan of Reorganization ("Plan") of even date pursuant to Section 368(a)(2)(D) of the Internal Revenue Code whereby CSI was acquired by a merger into Company in exchange for certain stock of Pomeroy Computer Resources, Inc., a Delaware corporation, ("PCR"), the parent corporation of Company, and other consideration as set forth in the Plan; and WHEREAS, Employee, as inducement for and in consideration of Company entering into the Plan, has agreed to enter into and execute this Employment Agreement pursuant to Section 4 thereof; and WHEREAS, Company desires to engage the services of Employee, pursuant to the terms, conditions and provisions as hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein set forth, the parties hereby covenant and agree as follows: 1. Employment. The Company agrees to employ the Employee, and the Employee agrees to be employed by the Company, upon the following terms and conditions. 2. Term. The initial term of Employee's employment pursuant to this Agreement shall begin on the 17th day of October, 1997, and shall continue for a period of three (3) years (October 17, 1997 to October 16, 2000) unless terminated earlier pursuant to the provisions of Section 10, provided that Sections 8, 9, 10(b), 10(c) if applicable, 11 if applicable, and 20 shall survive the termination of such employment and shall expire in accordance with the terms set forth therein. 3. Renewal Term. The term of Employee's employment shall automatically renew for additional consecutive renewal terms of one (1) year unless either party gives written notice of his/its intent not to renew the terms of the Agreement thirty (30) days prior to the expiration of the then expiring term. Employee's base salary for each renewal E-164 term shall be determined by the Board of Directors of Company, provided, however, Employee's annual base salary for any renewal term shall not be less than the base salary in effect for the prior year. 4. Duties. Employee shall serve as General Manager of the Company. Employee shall be responsible to and report directly to the Vice President of the Company. The duties assigned to Employee shall not be inconsistent with those typically assigned to a person holding the position set forth above and Employee shall at all times have such powers and authority as shall be reasonably required to discharge such duties in an efficient manner, together with such facilities and services as are appropriate to his position. Employee shall devote his best efforts and substantially all his time during normal business hours to the diligent, faithful and loyal discharge of the duties of his employment and towards the proper, efficient and successful conduct of the Company's affairs. Employee further agrees to refrain during the term of this Agreement from making any sales of competing services or products or from profiting from any transaction involving computer services or products for his account without the express written consent of Company. 5. Compensation. For all services rendered by the Employee under this Agreement (in addition to other monetary or other benefits referred to herein), compensation shall be paid to Employee as follows: (a) Base Salary: During the term of this Agreement, Employee shall be paid an annual base salary of Seventy Two Thousand Dollars ($72,000.00) per year. Said annual base salary shall be payable semi-monthly. (b) Bonus: In addition to Employee's base salary commencing on January 6, 1998 for the first full year of the initial term of this Agreement (January 6, 1998 through January 5, 1999), Employee shall be entitled to a cash bonus and an incentive stock option award in the event Employee satisfies certain economic criteria pertaining to Company's performance as set forth as follows: (i) Gross sales of Company greater than $10,000,000 but less than or equal to $12,000,000 with NPBT greater than three percent (3%) equals $5,000 cash bonus plus 300 incentive stock options of PCR Stock; or (ii) Gross sales of Company greater than $12,000,000 but less than or equal to $13,000,000 with NPBT greater than three percent (3%) equals $7,500 cash bonus plus 600 incentive stock options of PCR Stock; or E-165 (iii) Gross sales of Company greater than $13,000,000 with NPBT greater than three percent (3%) equals $10,000 cash bonus plus 1,000 incentive stock options of PCR Stock. For purposes of this section, the term "gross sales" shall mean gross sales of equipment, software and services by Company. For purposes of this section, the term "net profits before taxes" shall mean the net pre-tax profits of Company during the applicable period set forth above. In making said gross sales determination and net pre-tax profits determinations, all gains and losses realized on the sale or other disposition of Company assets not in the ordinary course of business shall be excluded. All refunds or returns which are made during such period shall be subtracted along with all accounts receivable derived from sales which are written off as bad debt during such period in accordance with Company's accounting system. Such gross sales and net pre-tax margin of Company shall be determined by the independent accountant regularly retained by Company within ninety (90) days after the end of each year in accordance with generally accepted accounting principles and the determination by the accountant shall be final, binding and conclusive upon all parties hereto. Commencing January 6, 1998, in making said determination of the applicable pre-tax margin for Company, a 1.5 MAS royalty fee on gross sales shall be paid to PCR incident to said determination. For each subsequent year, during the initial term of this Agreement the parties shall, in good faith, agree upon an MAS royalty fee to be charged hereunder based on the level of services and support being provided to the Company by PCR; provided, however, such royalty fee shall be 1.5% if the parties are unable to come to an amount for each subsequent year. Any cash bonus earned hereunder shall be payable to Employee within thirty (30) days of the determination by the accountant. Incident to the determination of Company's net profit before taxes, no compensation of any executive or other employee of PCR or its affiliates shall be allocated to Company. Except as set forth above, no other administrative, overhead or any other expense of PCR shall be allocated to Company. It being the intent of the parties that Company shall exercise the utmost good faith with respect to the implementation of this provision. (iv) Any award of an incentive stock option to acquire stock of the Company shall be the fair market value of such stock as of January 5, 1999 and shall be subject to all conditions contained in the PCR's Non- Qualified Incentive Stock Option Plan. For purposes of this Agreement, the fair market value as of the applicable date shall mean with respect to the common shares, the average E-165 between the high and low bid and asked prices for such shares on the NASDAQ Exchange on the last business day prior to the date on which the value is to be determined (or the next preceding date on which sales occurred if there were no sales on such date). (v) The parties agree that in January of 1999 and 2000 (for the remaining portion of the initial term of this Agreement) they will negotiate, in good faith, the implementation of an annual bonus and an incentive stock option award for the remaining fiscal years of this Agreement which will be predicated upon the attainment by Company of certain economic criteria established at the outset of such calendar year. Such bonus plan for the remaining term of this Agreement shall be consistent with other of PCR management personnel holding a position similar to that of Employee. 6. Fringe Benefits. During the term of this Agreement, Employee shall be entitled to the following benefits: (a) Health Insurance - Employee shall be provided with the standard medical health and insurance coverage maintained by or for the benefit of the Company on its employees. Company and Employee shall each pay fifty percent (50%) of the cost of such coverage. (b) Vacation - Employee shall be entitled each year to a vacation of two (2) weeks during which time his compensation will be paid in full. Provided, however, such weeks may not be taken consecutively without the written consent of Company. (c) Automobile Use - Company shall provide Employee with an automobile allowance of Two Hundred Fifty Dollars ($250.00) per month during the term of this Agreement. Employee shall be responsible for all maintenance and repair to such vehicle and for the insurance coverage thereof. (d) Retirement Plan - Employee shall participate, after meeting eligibility requirements, in any qualified retirement plans and/or welfare plans maintained by or for the benefit of the Company during the term of this Agreement. For purposes of eligibility in any qualified retirement plans, Employee shall be given credit for prior years of service with CSI. Employee shall be responsible for any and all taxes, owed, if any, on the fringe benefits provided to him pursuant to this Section 6. E-166 7. Expenses. During the term of Employee's employment hereunder, Employee shall be entitled to receive prompt reimbursement for all other reasonable and customary expenses incurred by Employee in fulfilling Employee's duties and responsibilities hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures reasonably established by Company. 8. Non-Competition. Employee expressly acknowledges the provisions of Section 3 of the Plan relating to Employee's covenant not to compete with Company. Accordingly, such provisions of Section 3 are incorporated herein by reference to the extent as if restated in full herein. In addition to the consideration received under this Agreement, Employee acknowledges that as one of three owners of the common stock of CSI, he has received substantial consideration pursuant to such Plan and that as an inducement for, and in consideration of, Company and PCR entering into the Plan and Company entering into this Agreement, Employee has agreed to be bound by such provisions of Section 3 of the Plan. Accordingly, such provisions of Section 3 and Exhibit D and the restrictions on Employee thereby imposed shall apply as stated therein. 9. Non-Disclosure and Assignment of Confidential Information. The Employee acknowledges that the Company's trade secrets and confidential and proprietary information, including without limitation: (a) unpublished information concerning the Company's: (i) research activities and plans, (ii) marketing or sales plans, (iii) pricing or pricing strategies, (iv) operational techniques, (v) customer and supplier lists, and (vi) strategic plans; (b) unpublished financial information, including unpublished information concerning revenues, profits and profit margins; (c) internal confidential manuals; and (d) any "material non-public information" as such phase is used for purposes of the Securities Exchange Act of 1934, as amended; all constitute valuable, special and unique proprietary and trade secret information of the Company. In recognition of this fact, the Employee agrees that the Employee will not E-167 disclose any such trade secrets or confidential or proprietary information (except (i) information which becomes publicly available without violation of this Employment Agreement, (ii) information which the Employee did not know and should not have known was disclosed to the Employee in violation of any other person's confidentiality obligation, and (iii) disclosure required in connection with any legal process or by governmental agency), nor shall the Employee make use of any such information for the benefit of any person, firm, operation or other entity except the Company and its subsidiaries or affiliates. The Employee's obligation to keep all of such information confidential shall be in effect during and for a period of five (5) years after the termination of his employment; provided, however, that the Employee will keep confidential and will not disclose any trade secret or similar information protected under law as intangible property (subject to the same exceptions set forth in the parenthetical clause above) for so long as such protection under law is extended. (e) For purposes of this provision, the term "Company's trade secrets" and "confidential information" shall include such information of Company's parent company, PCR, and any of their respective subsidiaries. 10. Termination. (a) The Employee's employment with the Company may be terminated at any time as follows: (i) By the Employee at his discretion, upon sixty (60) days written notice to Company; (ii) By Employee's death; (iii) By Employee's physical or mental disability which renders Employee unable to perform his duties hereunder; (iv) By the Company, for cause upon three (3) day's written notice to Employee. For purposes of this Agreement, the term "cause" shall mean termination upon: (i) the failure by Employee to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to him by the Company, which demand specifically identifies the manner in which the Company believes that he has not substantially performed his duties; (ii) the engaging by Employee in wrongful conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, including but not limited to any material misrepresentation related to the performance of his duties; (iii) the conviction of Employee of a felony or E-168 other crime involving theft or fraud, (iv) Employee's gross neglect or gross misconduct in carrying out his duties hereunder resulting, in either case, in material harm to the Company; or (v) any material breach by Employee of this Agreement. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated for cause unless and until there shall have been delivered to him a copy of a resolution of the Board of Directors of the Company or any appropriately designated committee of the Board, finding in good faith that he has engaged in the conduct set forth above in this Section 10(a)(iv) and specifying the particulars thereof in detail, and Employee shall not have cured such conduct to the reasonable satisfaction of the Board within ten (10) days of receipt of such resolution. (v) By the Company, at its discretion, without cause, upon thirty (30) days written notice to Employee; provided that Company complies with the provisions of Section 10(c). (b) Compensation upon Termination: In the event of termination of employment, the Employee or his estate, in the event of death, shall be entitled to his annual base salary and other benefits provided hereunder to the date of his termination. In addition, Employee shall be entitled to receive any bonus accrued to the date of his termination of employment as provided in Section 5(b). (c) Severance. In the event that Company would terminate Employee's employment hereunder without cause pursuant to Section 10(a)(v), Company shall be obligated to pay Employee as severance pay, Employee's annual base salary for the remaining term, including the current renewal term, if applicable, of the Agreement (as set forth in Section 2) as due. 11. Disability. In the event that Employee becomes temporarily disabled and/or totally and permanently disabled, physically or mentally, which renders him unable to perform his duties hereunder, Employee shall receive one hundred percent (100%) of his base annual salary (in effect at the time of such disability) for a period of one (1) year following the initial date of such disability (offset by any payments to the Employee received pursuant to disability benefit plans, if any, maintained by the Company.) Such payments shall be payable in twelve consecutive equal monthly installments and shall commence thirty (30) days after the determination by the physicians of such disability as set forth below. For purposes of this Agreement, Employee shall be deemed to be temporarily disabled and/or totally and permanently disabled if attested to by two qualified physicians, (one to be selected by Company and the other by E-169 Employee) competent to give opinions in the area of the disabled Employee's physical and/or mental condition. If the two physicians disagree, they shall select a third physician, whose opinion shall control. Employee shall be deemed to be temporarily disabled and/or totally and permanently disabled if he shall become disabled as a result of any medically determinable impairment of mind or body which renders it impossible for such Employee to perform satisfactorily his duties hereunder, and the qualified physician(s) referred to above certify that such disability does, in fact, exist. The opinion of the qualified physician(s) shall be given by such physician(s), in writing directed to the Company and to Employee. The physician(s) decision shall include the date that disability began, if possible, and the 12th month of such disability, if possible. The decision of such physician(s) shall be final and conclusive and the cost of such examination shall be paid by Employer. 12. Severability. In case any one (1) or more of the provisions or part of a provision contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement. In such a situation, this Agreement shall be reformed and construed as if such invalid, illegal or unenforceable provision, or part of a provision, had never been contained herein, and such provision or part shall be reformed so that it will be valid, legal and enforceable to the maximum extent possible. 13. Governing Law. This Agreement shall be governed and construed under the laws of the State of South Carolina and shall not be modified or discharged, in whole or in part, except by an agreement in writing signed by the parties. 14. Notices. All notices, requests, demands and other communications relating to this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or mailed by certified or registered mail, return receipt requested, postage prepaid: If to Company, to: Pomeroy Computer Resources of South Carolina, Inc. c/o 1020 Petersburg Road Hebron, Kentucky 41048 With a copy to: James H. Smith III Lindhorst & Dreidame Co., L.P.A. 312 Walnut Street, Suite 2300 Cincinnati, Ohio 45202 E-170 If to Employee, to the Employee's residential address, as set forth in the Company's records. 15. Enforcement of Rights. The parties expressly recognize that any breach of this Agreement by either party is likely to result in irrevocable injury to the other party and agree that such other party shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach of this Agreement, or to enforce the specific performance of this Agreement by each party or to enjoin any party from activities in violation of this Agreement. Should either party engage in any activities prohibited by this Agreement, such party agrees to pay over to the other party all compensation, remuneration, monies or property of any sort received in connection with such activities. Such payment shall not impair any rights or remedies of any non-breaching party or obligations or liabilities of any breaching party pursuant to this Agreement or any applicable law. 16. Entire Agreement. This Agreement and the exhibits hereto contain the entire understanding of the parties with respect to the subject matter contained herein and may be altered, amended or superseded only by an agreement in writing, signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. 17. Parties in Interest. (a) This Agreement is personal to each of the parties hereto. No party may assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto; provided, however, that nothing in this Section 17 shall preclude (i) Employee from designating a beneficiary to receive any benefit payable hereunder upon his death or disability, or (ii) executors, administrators, or legal representatives of Employee or his estate from assigning any rights hereunder to person or persons entitled thereto. Notwithstanding the foregoing, this Agreement shall be binding upon and inure to the benefit of any successor corporation of the Company. (b) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the assets of the Company or the business with respect to which the duties and responsibilities of Employee are principally related, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Company would have been required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore E-171 defined and any successor to its business and/or assets as aforesaid which executes and delivers the assumption agreement provided for in this Section 17 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 18. Representations of Employee. Employee represents and warrants that he is not party to or bound by any agreement or contract or subject to any restrictions including without limitation any restriction imposed in connection with previous employment which prevents Employee from entering into and performing his obligations under this Agreement. 19. Counterparts. This Agreement may be executed, simultaneously in several counterparts, each of which shall be deemed an original part, which together shall constitute one and the same instrument. 20. Attorney's Fees. In the event of any dispute arising between Employee and Company, pursuant to this Agreement, the prevailing party shall be entitled to recover from the non-prevailing party, the prevailing party's reasonable attorney's fees and costs. IN WITNESS WHEREOF, this Agreement has been executed effective as of the day and year first above written. COMPANY: WITNESSES: POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. _________________________ By:______________________________ _________________________ EMPLOYEE: _________________________ _________________________________ ARTHUR M. COX _________________________ E-172 EX-10 16 GUARANTY OF EMPLOYMENT AGREEMENT As an inducement for, and in consideration of, ARTHUR M. COX (the "Employee") entering into and executing an Employment Agreement (the "Employment Agreement") of even date with POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation, (the "Employer"), POMEROY COMPUTER RESOURCES, INC., a Delaware corporation (the "Guarantor") agrees and does hereby unconditionally guaranty to Employee, the faithful and full performance, and satisfaction, of each and every obligation (including, but not limited to, the agreements, covenants, representations and warranties) (the "Obligations") of Employer under the Employment Agreement; and Guarantor agrees that if Employer shall fail to pay or perform, or otherwise fail to satisfy any Obligation, the Guarantor shall forthwith pay, perform or otherwise satisfy and/or cause Employer to pay, perform or otherwise satisfy such Obligation, including all reasonable expenses that may be incurred by Employee in the enforcement of such Obligation and/or Guarantor's agreement of Guaranty herein. The Guarantor hereby agrees that its guaranty shall not be discharged except by the full and complete payment, performance and satisfaction of each and every Obligation of Employer. Without limiting the generality of the foregoing, the Obligations and the rights of the Employee to enforce the same by proceedings, whether by action at law, suit in equity or otherwise, shall not be in anyway affected by: (a) any insolvency, bankruptcy, liquidation, reorganization, readjustment, composition, dissolution or other similar proceeding involving or affecting Employer; and (b) any change in the stock ownership of Employer. The Employee may deal with Employer in the same manner and as freely as if this Guaranty did not exist and shall be entitled, among other things, to amend the Employment Agreement or grant Employer such extension or extensions of time to perform any act or acts as may be deemed advisable to the Employee at any time and from time to time, without terminating, affecting or impairing the validity of this Guaranty or the obligations of the Guarantor hereunder. The Employee may proceed to protect and enforce any and all of his rights under this Guarantee by suit in equity, action at law, or by other appropriate proceedings, whether for the specific performance of any covenants or agreements contained in the Employment Agreement, this Guaranty or otherwise, or to take any action authorized or permitted under applicable law, and shall be entitled to require and enforce the performance of all acts and things required to be performed hereunder by the Guarantor. Each and every remedy of the Employee shall, to the extent permitted by law, be cumulative and shall be in addition to any other remedy given hereunder or under the Employment Agreement as now or hereafter existing at law or in equity. E-173 No waiver or release shall be deemed to have been made by the Employee of any of his rights hereunder unless the same shall be in writing and signed by the Employee; any such waiver shall be a waiver or release only with respect to the specific matter involved and shall in no way impair the rights of Employee or affect the Obligations of Guarantor to Employee in any other respect at any other time. Employee shall provide Guarantor with written notice of any and all nonperformance (whether by omission and/or commission) of Employer of its Obligations prior to any enforcement of this Guaranty. This Guaranty, or any provisions hereof, shall not be waived, altered, modified, amended, supplemented or terminated in any manner whatsoever except by a written instrument signed by the Employee and the Guarantor. This Guaranty shall be binding upon the Guarantor, its successors and assigns and shall inure to the benefit of Employee, his heirs and assigns. This Guaranty shall be governed by, and construed in accordance with, the laws of the State of South Carolina. If any term or provision of this Guaranty or the application thereof to any circumstance, shall, to any extent, be invalid or unenforceable, the remainder of this Guaranty, or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Guaranty shall be valid and enforceable to the fullest extent permitted by law. All notices and other communications to be made or given pursuant to this Guaranty shall be made or given in the manner provided in the Employment Agreement. IN WITNESS WHEREOF, the Guarantor has executed this Guaranty this ____ day of ________________, 1997. WITNESSES: POMEROY COMPUTER RESOURCES, INC. _________________________ By: _________________________________ _________________________ Its: ________________________________ STATE OF ________________ ) ) SS: COUNTY OF ______________ ) BE IT REMEMBERED, that on this ____ day of _______, 1997, before me, the undersigned, a Notary Public in and for said County, personally appeared ______________, the E-174 ____________ of Pomeroy Computer Resources, Inc., who acknowledged that he executed the foregoing instrument for the purposes therein contained. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my notarial seal on the day and year last above written. _____________________________________ NOTARY PUBLIC E-175 EX-10 17 GUARANTY OF EMPLOYMENT AGREEMENT As an inducement for, and in consideration of, RONALD D. HILDRETH (the "Employee") entering into and executing an Employment Agreement (the "Employment Agreement") of even date with POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation, (the "Employer"), POMEROY COMPUTER RESOURCES, INC., a Delaware corporation (the "Guarantor") agrees and does hereby unconditionally guaranty to Employee, the faithful and full performance, and satisfaction, of each and every obligation (including, but not limited to, the agreements, covenants, representations and warranties) (the "Obligations") of Employer under the Employment Agreement; and Guarantor agrees that if Employer shall fail to pay or perform, or otherwise fail to satisfy any Obligation, the Guarantor shall forthwith pay, perform or otherwise satisfy and/or cause Employer to pay, perform or otherwise satisfy such Obligation, including all reasonable expenses that may be incurred by Employee in the enforcement of such Obligation and/or Guarantor's agreement of Guaranty herein. The Guarantor hereby agrees that its guaranty shall not be discharged except by the full and complete payment, performance and satisfaction of each and every Obligation of Employer. Without limiting the generality of the foregoing, the Obligations and the rights of the Employee to enforce the same by proceedings, whether by action at law, suit in equity or otherwise, shall not be in anyway affected by: (a) any insolvency, bankruptcy, liquidation, reorganization, readjustment, composition, dissolution or other similar proceeding involving or affecting Employer; and (b) any change in the stock ownership of Employer. The Employee may deal with Employer in the same manner and as freely as if this Guaranty did not exist and shall be entitled, among other things, to amend the Employment Agreement or grant Employer such extension or extensions of time to perform any act or acts as may be deemed advisable to the Employee at any time and from time to time, without terminating, affecting or impairing the validity of this Guaranty or the obligations of the Guarantor hereunder. The Employee may proceed to protect and enforce any and all of his rights under this Guarantee by suit in equity, action at law, or by other appropriate proceedings, whether for the specific performance of any covenants or agreements contained in the Employment Agreement, this Guaranty or otherwise, or to take any action authorized or permitted under applicable law, and shall be entitled to require and enforce the performance of all acts and things required to be performed hereunder by the Guarantor. Each and every remedy of the Employee shall, to the extent permitted by law, be cumulative and shall be in addition to any other remedy given hereunder or under the Employment Agreement as now or hereafter existing at law or in equity. E-176 No waiver or release shall be deemed to have been made by the Employee of any of his rights hereunder unless the same shall be in writing and signed by the Employee; any such waiver shall be a waiver or release only with respect to the specific matter involved and shall in no way impair the rights of Employee or affect the Obligations of Guarantor to Employee in any other respect at any other time. Employee shall provide Guarantor with written notice of any and all nonperformance (whether by omission and/or commission) of Employer of its Obligations prior to any enforcement of this Guaranty. This Guaranty, or any provisions hereof, shall not be waived, altered, modified, amended, supplemented or terminated in any manner whatsoever except by a written instrument signed by the Employee and the Guarantor. This Guaranty shall be binding upon the Guarantor, its successors and assigns and shall inure to the benefit of Employee, his heirs and assigns. This Guaranty shall be governed by, and construed in accordance with, the laws of the State of South Carolina. If any term or provision of this Guaranty or the application thereof to any circumstance, shall, to any extent, be invalid or unenforceable, the remainder of this Guaranty, or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Guaranty shall be valid and enforceable to the fullest extent permitted by law. All notices and other communications to be made or given pursuant to this Guaranty shall be made or given in the manner provided in the Employment Agreement. IN WITNESS WHEREOF, the Guarantor has executed this Guaranty this ____ day of ________________, 1997. WITNESSES: POMEROY COMPUTER RESOURCES, INC. _________________________ By: _________________________________ _________________________ Its: ________________________________ STATE OF ________________ ) ) SS: COUNTY OF ______________ ) BE IT REMEMBERED, that on this ____ day of _______, 1997, before me, the undersigned, a Notary Public in and for said County, personally appeared ______________, the E-177 ____________ of Pomeroy Computer Resources, Inc., who acknowledged that he executed the foregoing instrument for the purposes therein contained. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my notarial seal on the day and year last above written. _____________________________________ NOTARY PUBLIC E-178 EX-10 18 GUARANTY OF EMPLOYMENT AGREEMENT As an inducement for, and in consideration of, JEFFREY F. HIPP (the "Employee") entering into and executing an Employment Agreement (the "Employment Agreement") of even date with POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation, (the "Employer"), POMEROY COMPUTER RESOURCES, INC., a Delaware corporation (the "Guarantor") agrees and does hereby unconditionally guaranty to Employee, the faithful and full performance, and satisfaction, of each and every obligation (including, but not limited to, the agreements, covenants, representations and warranties) (the "Obligations") of Employer under the Employment Agreement; and Guarantor agrees that if Employer shall fail to pay or perform, or otherwise fail to satisfy any Obligation, the Guarantor shall forthwith pay, perform or otherwise satisfy and/or cause Employer to pay, perform or otherwise satisfy such Obligation, including all reasonable expenses that may be incurred by Employee in the enforcement of such Obligation and/or Guarantor's agreement of Guaranty herein. The Guarantor hereby agrees that its guaranty shall not be discharged except by the full and complete payment, performance and satisfaction of each and every Obligation of Employer. Without limiting the generality of the foregoing, the Obligations and the rights of the Employee to enforce the same by proceedings, whether by action at law, suit in equity or otherwise, shall not be in anyway affected by: (a) any insolvency, bankruptcy, liquidation, reorganization, readjustment, composition, dissolution or other similar proceeding involving or affecting Employer; and (b) any change in the stock ownership of Employer. The Employee may deal with Employer in the same manner and as freely as if this Guaranty did not exist and shall be entitled, among other things, to amend the Employment Agreement or grant Employer such extension or extensions of time to perform any act or acts as may be deemed advisable to the Employee at any time and from time to time, without terminating, affecting or impairing the validity of this Guaranty or the obligations of the Guarantor hereunder. The Employee may proceed to protect and enforce any and all of his rights under this Guarantee by suit in equity, action at law, or by other appropriate proceedings, whether for the specific performance of any covenants or agreements contained in the Employment Agreement, this Guaranty or otherwise, or to take any action authorized or permitted under applicable law, and shall be entitled to require and enforce the performance of all acts and things required to be performed hereunder by the Guarantor. Each and every remedy of the Employee shall, to the extent permitted by law, be cumulative and shall be in addition to any other remedy given hereunder or under the Employment Agreement as now or hereafter existing at law or in equity. E-179 No waiver or release shall be deemed to have been made by the Employee of any of his rights hereunder unless the same shall be in writing and signed by the Employee; any such waiver shall be a waiver or release only with respect to the specific matter involved and shall in no way impair the rights of Employee or affect the Obligations of Guarantor to Employee in any other respect at any other time. Employee shall provide Guarantor with written notice of any and all nonperformance (whether by omission and/or commission) of Employer of its Obligations prior to any enforcement of this Guaranty. This Guaranty, or any provisions hereof, shall not be waived, altered, modified, amended, supplemented or terminated in any manner whatsoever except by a written instrument signed by the Employee and the Guarantor. This Guaranty shall be binding upon the Guarantor, its successors and assigns and shall inure to the benefit of Employee, his heirs and assigns. This Guaranty shall be governed by, and construed in accordance with, the laws of the State of South Carolina. If any term or provision of this Guaranty or the application thereof to any circumstance, shall, to any extent, be invalid or unenforceable, the remainder of this Guaranty, or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Guaranty shall be valid and enforceable to the fullest extent permitted by law. All notices and other communications to be made or given pursuant to this Guaranty shall be made or given in the manner provided in the Employment Agreement. IN WITNESS WHEREOF, the Guarantor has executed this Guaranty this ____ day of ________________, 1997. WITNESSES: POMEROY COMPUTER RESOURCES, INC. _________________________ By: _________________________________ _________________________ Its: ________________________________ STATE OF ________________ ) ) SS: COUNTY OF ______________ ) BE IT REMEMBERED, that on this ____ day of _______, 1997, before me, the undersigned, a Notary Public in and for said County, personally appeared ______________, the E-180 ____________ of Pomeroy Computer Resources, Inc., who acknowledged that he executed the foregoing instrument for the purposes therein contained. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my notarial seal on the day and year last above written. _____________________________________ NOTARY PUBLIC E-181 EX-10 19 AGREEMENT This Agreement made and entered into this ____ day of ____________, 1997, by and between ARTHUR M. COX (hereinafter referred to as "Owner") and POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation (hereinafter referred to as "Pomeroy"). W I T N E S S E T H : WHEREAS, simultaneously with the execution of this Agreement, Pomeroy entered into an Agreement and Plan of Reorganization ("Merger Agreement") with THE COMPUTER STORE, INC., a South Carolina corporation ("CSI"), Owner, RONALD D. HILDRETH and JEFFREY F. HIPP for the merger of CSI with and into Pomeroy; and WHEREAS, immediately prior to the Effective Date (as defined in the Merger Agreement) Owner owned forty-six and 88/100 percent (46.88%) of the outstanding stock of CSI; and WHEREAS, Pomeroy would not have entered into the Merger Agreement with CSI without the consent of Owner to enter into this covenant not to compete agreement; and WHEREAS, pursuant to Sections 3 and 11.2(g) of said Merger Agreement, Owner agreed to enter into this Agreement; NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained and in consideration of the execution and closing of the Merger Agreement, the parties hereto agree as follows: 1. As an inducement for Pomeroy to enter into the Merger Agreement with CSI (46.88% of the stock of which is owned by Owner), Owner covenants and agrees that for a period equal to the later of (i) five (5) years from the Effective Date as defined in the Merger Agreement or (ii) one (1) year after the termination of Owner's employment with Pomeroy under an Employment Agreement executed by and between the Owner and Pomeroy of even date herewith, Owner neither by himself nor with any other person, corporation or entity, directly or indirectly, by stock or other ownership, investment, management, employment or otherwise, or in any relationship whatsoever: (a) Solicit, divert or take away, or attempt to solicit, divert or take away, any of the business, clients, customers or patronage of Pomeroy, its Parent Corporation (as defined in Paragraph 4 of this Agreement) or any subsidiary thereof relating to the Business of Pomeroy, as defined below; or E-182 (b) Attempt to seek or cause any clients or customers of Pomeroy, its Parent Corporation or any of their subsidiaries to refrain from continuing their patronage of the Business of Pomeroy; or (c) Engage in the Business of Pomeroy in any state in which Pomeroy, its Parent Corporation or any their subsidiaries have an office during the term of Owner's employment by Pomeroy. A list of the states in which Pomeroy, its Parent Corporation, and any of their subsidiaries currently transact business is attached hereto as Exhibit A; (d) Knowingly employ or engage, or attempt to employ or engage, in any capacity, any person in the employ of Pomeroy, or its Parent Corporation or any of their subsidiaries. (e) Nothing in this Agreement shall prohibit Owner from owning or purchasing less than five percent (5%) of the outstanding stock of any publicly traded company whose stock is traded on a nationally or regionally recognized stock exchange or is quoted on NASDAQ or the OTC Bulletin Board or from taking any action described in items 1(b) - (d) above for the benefit of or on behalf of Pomeroy, its Parent Corporation, or any of their subsidiaries. For purposes of this Section, the "Business of Pomeroy" shall mean any person, corporation, partnership or other legal entity engaged, directly or indirectly, through subsidiaries or affiliates, in the following line of business: (i) Distributing of computer hardware, software, peripheral devices, and related products and services to other entities or persons engaged in any manner in the business of the distribution, sale, resale or servicing, whether at the wholesale or retail level, or leasing or renting, of personal computer hardware, software, peripheral devices or related products; (ii) Sale or servicing, whether at the wholesale or retail level, or leasing or renting, of personal computer hardware, software, peripheral devices or related products; and (iii) Sale or servicing of microcomputer products and computer integration products, peripheral devices and related products and the sale of microcomputer products and computer integration and networking services. E-183 Owner has carefully read all the terms and conditions of this Paragraph 1 and has given careful consideration to the covenants and restrictions imposed upon Owner herein, and agrees that the same are necessary for the reasonable and proper protection of the business of CSI acquired by Pomeroy and have been separately bargained for and agrees that Pomeroy has been induced to enter into the Merger Agreement and pay the consideration described in Paragraph 2 by the representation of Owner that he will abide by and be bound by each of the covenants and restrictions herein; and Owner agrees that Pomeroy will suffer irreparable injury in the event of a breach by Owner, and Owner agrees that Pomeroy is entitled to injunctive relief in the event of any breach of any covenant or restriction contained herein in addition to all other remedies provided by law or equity. Owner hereby acknowledges that each and every one of said covenants and restrictions is reasonable with respect to the subject matter, the line of business, the length of time and geographic area embraced therein, and agrees that irrespective of when or in what manner this agreement may be terminated, said covenants and restrictions shall be operative during the full period or periods hereinbefore mentioned and throughout the area hereinbefore described. The parties acknowledge that this Agreement, which Agreement is ancillary to the main thrust of the Merger Agreement, is being entered into to protect a legitimate business interest of Pomeroy including, but not limited to, (i) trade secrets; (ii) valuable confidential business or professional information that otherwise does not qualify as trade secrets; (iii) substantial relationships with specific prospective or existing customers or clients; (iv) client or customer good will associated with an ongoing business by way of trade name, trademark, or service mark, a specific geographic location, or a specific marketing or trade area; and (v) extraordinary or specialized training. In the event that any provision or portion of this Paragraph 1 shall for any reason be held invalid or unenforceable, it is agreed that the same shall not affect the validity or enforceability of any other provision of Paragraph 1 of this Agreement, but the remaining provisions of Paragraph 1 of this Agreement shall continue in force and effect; and that if such invalidity or unenforceability is due to the reasonableness of the line of business, time or geographical area covered by certain covenants and restrictions contained in Paragraph 1, said covenants and restrictions shall nevertheless be effective for such line of business, period of time and for such area as may be determined by arbitration or by a Court of competent jurisdiction to be reasonable. E-184 2. The consideration for Owner's covenant not to compete shall be One Dollar ($1.00) and other valuable consideration, including consideration paid by the Pomeroy to Owner pursuant to the Merger Agreement. 3. The terms and conditions of this Agreement shall be binding upon the Owner and Pomeroy, and their respective successors, heirs and assigns, including, but not limited to the Parent Corporation, in the event Pomeroy is merged or liquidated into the Parent Corporation during the term of this Agreement. 4. The term "Parent Corporation," as such term is used herein, means Pomeroy Computer Resources, Inc., a Delaware corporation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. OWNER: __________________________________ ARTHUR M. COX POMEROY: POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. By:________________________________ E-185 EXHIBIT A STATES IN WHICH POMEROY AND/OR ITS PARENT CORPORATION AND/OR SUBSIDIARIES TRANSACT BUSINESS 1. Alabama 2. Florida 3. Indiana 4. Iowa 5. Kentucky 6. North Carolina 7. Ohio 8. South Carolina 9. Tennessee 10. West Virginia ?? E-186 EX-10 20 AGREEMENT This Agreement made and entered into this ____ day of ____________, 1997, by and between RONALD D. HILDRETH (hereinafter referred to as "Owner") and POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation (hereinafter referred to as "Pomeroy"). W I T N E S S E T H : WHEREAS, simultaneously with the execution of this Agreement, Pomeroy entered into an Agreement and Plan of Reorganization ("Merger Agreement") with THE COMPUTER STORE, INC., a South Carolina corporation ("CSI"), Owner, ARTHUR M. COX and JEFFREY F. HIPP for the merger of CSI with and into Pomeroy; and WHEREAS, immediately prior to the Effective Date (as defined in the Merger Agreement) Owner owned forty-six and 88/100 percent (46.88%) of the outstanding stock of CSI; and WHEREAS, Pomeroy would not have entered into the Merger Agreement with CSI without the consent of Owner to enter into this covenant not to compete agreement; and WHEREAS, pursuant to Sections 3 and 11.2(g) of said Merger Agreement, Owner agreed to enter into this Agreement; NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained and in consideration of the execution and closing of the Merger Agreement, the parties hereto agree as follows: 1. As an inducement for Pomeroy to enter into the Merger Agreement with CSI (46.88% of the stock of which is owned by Owner), Owner covenants and agrees that for a period equal to the later of (i) five (5) years from the Effective Date as defined in the Merger Agreement or (ii) one (1) year after the termination of Owner's employment with Pomeroy under an Employment Agreement executed by and between the Owner and Pomeroy of even date herewith, Owner neither by himself nor with any other person, corporation or entity, directly or indirectly, by stock or other ownership, investment, management, employment or otherwise, or in any relationship whatsoever: (a) Solicit, divert or take away, or attempt to solicit, divert or take away, any of the business, clients, customers or patronage of Pomeroy, its Parent Corporation (as defined in Paragraph 4 of this Agreement) or any subsidiary thereof relating to the Business of Pomeroy, as defined below; or E-187 (b) Attempt to seek or cause any clients or customers of Pomeroy, its Parent Corporation or any of their subsidiaries to refrain from continuing their patronage of the Business of Pomeroy; or (c) Engage in the Business of Pomeroy in any state in which Pomeroy, its Parent Corporation or any of their subsidiaries have an office during the term of Owner's employment by Pomeroy. A list of the states in which Pomeroy, its Parent Corporation, and any of their subsidiaries currently transact business is attached hereto as Exhibit A; (d) Knowingly employ or engage, or attempt to employ or engage, in any capacity, any person in the employ of Pomeroy, or its Parent Corporation or any of their subsidiaries. (e) Nothing in this Agreement shall prohibit Owner from owning or purchasing less than five percent (5%) of the outstanding stock of any publicly traded company whose stock is traded on a nationally or regionally recognized stock exchange or is quoted on NASDAQ or the OTC Bulletin Board or from taking any action described in items 1(b) - (d) above for the benefit of or on behalf of Pomeroy, its Parent Corporation, or any of their subsidiaries. For purposes of this Section, the "Business of Pomeroy" shall mean any person, corporation, partnership or other legal entity engaged, directly or indirectly, through subsidiaries or affiliates, in the following line of business: (i) Distributing of computer hardware, software, peripheral devices, and related products and services to other entities or persons engaged in any manner in the business of the distribution, sale, resale or servicing, whether at the wholesale or retail level, or leasing or renting, of personal computer hardware, software, peripheral devices or related products; (ii) Sale or servicing, whether at the wholesale or retail level, or leasing or renting, of personal computer hardware, software, peripheral devices or related products; and (iii) Sale or servicing of microcomputer products and computer integration products, peripheral devices and related products and the sale of microcomputer products and computer integration and networking services. E-188 Owner has carefully read all the terms and conditions of this Paragraph 1 and has given careful consideration to the covenants and restrictions imposed upon Owner herein, and agrees that the same are necessary for the reasonable and proper protection of the business of CSI acquired by Pomeroy and have been separately bargained for and agrees that Pomeroy has been induced to enter into the Merger Agreement and pay the consideration described in Paragraph 2 by the representation of Owner that he will abide by and be bound by each of the covenants and restrictions herein; and Owner agrees that Pomeroy will suffer irreparable injury in the event of a breach by Owner, and Owner agrees that Pomeroy is entitled to injunctive relief in the event of any breach of any covenant or restriction contained herein in addition to all other remedies provided by law or equity. Owner hereby acknowledges that each and every one of said covenants and restrictions is reasonable with respect to the subject matter, the line of business, the length of time and geographic area embraced therein, and agrees that irrespective of when or in what manner this agreement may be terminated, said covenants and restrictions shall be operative during the full period or periods hereinbefore mentioned and throughout the area hereinbefore described. The parties acknowledge that this Agreement, which Agreement is ancillary to the main thrust of the Merger Agreement, is being entered into to protect a legitimate business interest of Pomeroy including, but not limited to, (i) trade secrets; (ii) valuable confidential business or professional information that otherwise does not qualify as trade secrets; (iii) substantial relationships with specific prospective or existing customers or clients; (iv) client or customer good will associated with an ongoing business by way of trade name, trademark, or service mark, a specific geographic location, or a specific marketing or trade area; and (v) extraordinary or specialized training. In the event that any provision or portion of this Paragraph 1 shall for any reason be held invalid or unenforceable, it is agreed that the same shall not affect the validity or enforceability of any other provision of Paragraph 1 of this Agreement, but the remaining provisions of Paragraph 1 of this Agreement shall continue in force and effect; and that if such invalidity or unenforceability is due to the reasonableness of the line of business, time or geographical area covered by certain covenants and restrictions contained in Paragraph 1, said covenants and restrictions shall nevertheless be effective for such line of business, period of time and for such area as may be determined by arbitration or by a Court of competent jurisdiction to be reasonable. 2. The consideration for Owner's covenant not to compete shall be One Dollar ($1.00) and other valuable E-189 consideration, including consideration paid by the Pomeroy to Owner pursuant to the Merger Agreement. 3. The terms and conditions of this Agreement shall be binding upon the Owner and Pomeroy, and their respective successors, heirs and assigns, including but not limited to the Parent Corporation, in the event Pomeroy is merged or liquidated into the Parent Corporation during the term of this Agreement. 4. The term "Parent Corporation," as such term is used herein, means Pomeroy Computer Resources, Inc., a Delaware corporation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. OWNER: __________________________________ RONALD D. HILDRETH POMEROY: POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. By:________________________________ E-190 EXHIBIT A STATES IN WHICH POMEROY AND/OR ITS PARENT CORPORATION AND/OR SUBSIDIARIES TRANSACT BUSINESS 1. Alabama 2. Florida 3. Indiana 4. Iowa 5. Kentucky 6. North Carolina 7. Ohio 8. South Carolina 9. Tennessee 10. West Virginia ?? E-191 EX-10 21 AGREEMENT This Agreement made and entered into this ____ day of ____________, 1997, by and between JEFFREY F. HIPP (hereinafter referred to as "Owner") and POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation (hereinafter referred to as "Pomeroy"). W I T N E S S E T H : WHEREAS, simultaneously with the execution of this Agreement, Pomeroy entered into an Agreement and Plan of Reorganization ("Merger Agreement") with THE COMPUTER STORE, INC., a South Carolina corporation ("CSI"), Owner, ARTHUR M. COX and RONALD D. HILDRETH for the merger of CSI with and into Pomeroy; and WHEREAS, immediately prior to the Effective Date (as defined in the Merger Agreement) Owner owned six and 25/100 percent (6.25%) of the outstanding stock of CSI; and WHEREAS, Pomeroy would not have entered into the Merger Agreement with CSI without the consent of Owner to enter into this covenant not to compete agreement; and WHEREAS, pursuant to Sections 3 and 11.2(g) of said Merger Agreement, Owner agreed to enter into this Agreement; NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained and in consideration of the execution and closing of the Merger Agreement, the parties hereto agree as follows: 1. As an inducement for Pomeroy to enter into the Merger Agreement with CSI (6.25% of the stock of which is owned by Owner), Owner covenants and agrees that for a period equal to the later of (i) five (5) years from the Effective Date as defined in the Merger Agreement or (ii) one (1) year after the termination of Owner's employment with Pomeroy under an Employment Agreement executed by and between the Owner and Pomeroy of even date herewith, Owner neither by himself nor with any other person, corporation or entity, directly or indirectly, by stock or other ownership, investment, management, employment or otherwise, or in any relationship whatsoever: (a) Solicit, divert or take away, or attempt to solicit, divert or take away, any of the business, clients, customers or patronage of Pomeroy, its Parent Corporation (as defined in Paragraph 4 of this Agreement) or any subsidiary thereof relating to the Business of Pomeroy, as defined below; or E-192 (b) Attempt to seek or cause any clients or customers of Pomeroy, its Parent Corporation or any any of their subsidiaries to refrain from continuing their patronage of the Business of Pomeroy; or (c) Engage in the Business of Pomeroy in any state in which Pomeroy, its Parent Corporation or any of their subsidiaries have an office during the term of Owner's employment by Pomeroy. A list of the states in which Pomeroy, its Parent Corporation, and any of their subsidiaries currently transact business is attached hereto as Exhibit A; (d) Knowingly employ or engage, or attempt to employ or engage, in any capacity, any person in the employ of Pomeroy, or its Parent Corporation or any of their subsidiaries. (e) Nothing in this Agreement shall prohibit Owner from owning or purchasing less than five percent (5%) of the outstanding stock of any publicly traded company whose stock is traded on a nationally or regionally recognized stock exchange or is quoted on NASDAQ or the OTC Bulletin Board or from taking any action described in items 1(b) - (d) above for the benefit of or on behalf of Pomeroy, its Parent Corporation, or any of their subsidiaries. For purposes of this Section, the "Business of Pomeroy" shall mean any person, corporation, partnership or other legal entity engaged, directly or indirectly, through subsidiaries or affiliates, in the following line of business: (i) Distributing of computer hardware, software, peripheral devices, and related products and services to other entities or persons engaged in any manner in the business of the distribution, sale, resale or servicing, whether at the wholesale or retail level, or leasing or renting, of personal computer hardware, software, peripheral devices or related products; (ii) Sale or servicing, whether at the wholesale or retail level, or leasing or renting, of personal computer hardware, software, peripheral devices or related products; and (iii) Sale or servicing of microcomputer products and computer integration products, peripheral devices and related products and the sale of microcomputer products and computer integration and networking services. E-193 Owner has carefully read all the terms and conditions of this Paragraph 1 and has given careful consideration to the covenants and restrictions imposed upon Owner herein, and agrees that the same are necessary for the reasonable and proper protection of the business of CSI acquired by Pomeroy and have been separately bargained for and agrees that Pomeroy has been induced to enter into the Merger Agreement and pay the consideration described in Paragraph 2 by the representation of Owner that he will abide by and be bound by each of the covenants and restrictions herein; and Owner agrees that Pomeroy will suffer irreparable injury in the event of a breach by Owner, and Owner agrees that Pomeroy is entitled to injunctive relief in the event of any breach of any covenant or restriction contained herein in addition to all other remedies provided by law or equity. Owner hereby acknowledges that each and every one of said covenants and restrictions is reasonable with respect to the subject matter, the line of business, the length of time and geographic area embraced therein, and agrees that irrespective of when or in what manner this agreement may be terminated, said covenants and restrictions shall be operative during the full period or periods hereinbefore mentioned and throughout the area hereinbefore described. The parties acknowledge that this Agreement, which Agreement is ancillary to the main thrust of the Merger Agreement, is being entered into to protect a legitimate business interest of Pomeroy including, but not limited to, (i) trade secrets; (ii) valuable confidential business or professional information that otherwise does not qualify as trade secrets; (iii) substantial relationships with specific prospective or existing customers or clients; (iv) client or customer good will associated with an ongoing business by way of trade name, trademark, or service mark, a specific geographic location, or a specific marketing or trade area; and (v) extraordinary or specialized training. In the event that any provision or portion of this Paragraph 1 shall for any reason be held invalid or unenforceable, it is agreed that the same shall not affect the validity or enforceability of any other provision of Paragraph 1 of this Agreement, but the remaining provisions of Paragraph 1 of this Agreement shall continue in force and effect; and that if such invalidity or unenforceability is due to the reasonableness of the line of business, time or geographical area covered by certain covenants and restrictions contained in Paragraph 1, said covenants and restrictions shall nevertheless be effective for such line of business, period of time and for such area as may be determined by arbitration or by a Court of competent jurisdiction to be reasonable. E-194 2. The consideration for Owner's covenant not to compete shall be One Dollar ($1.00) and other valuable consideration, including consideration paid by the Pomeroy to Owner pursuant to the Merger Agreement. 3. The terms and conditions of this Agreement shall be binding upon the Owner and Pomeroy, and their respective successors, heirs and assigns, including, but not limited to the Parent Corporation, in the event Pomeroy is merged or liquidated into the Parent Corporation during the term of this Agreement. 4. The term "Parent Corporation," as such term is used herein, means Pomeroy Computer Resources, Inc., a Delaware corporation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. OWNER: __________________________________ JEFFREY F. HIPP POMEROY: POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. By:________________________________ E-195 EXHIBIT A STATES IN WHICH POMEROY AND/OR ITS PARENT CORPORATION AND/OR SUBSIDIARIES TRANSACT BUSINESS 1. Alabama 2. Florida 3. Indiana 4. Iowa 5. Kentucky 6. North Carolina 7. Ohio 8. South Carolina 9. Tennessee 10. West Virginia ?? E-196 EX-10 22 INVESTOR'S CERTIFICATE The undersigned, JEFFREY F. HIPP ("Investor"), intends to acquire __________________ (_______) shares of the common stock, par value $.01 (the "Securities") of POMEROY COMPUTER RESOURCES INC., a Delaware corporation (the "Company"), pursuant to the terms and conditions of an Agreement and Plan of Reorganization entered into between the Company's subsidiary, POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation (the "Subsidiary"), and Investor dated the ____ day of ________________, 1997. The Securities will be acquired by Investor from the Subsidiary upon the closing of the transactions contemplated by the Agreement and Plan of Reorganization. In order to induce the Company and Subsidiary to close the transactions contemplated by the Agreement and Plan of Reorganization and to induce the Subsidiary to issue the Securities, Investor hereby certifies to the Company and Subsidiary as follows: 1. Investor's full name and business address are as follows: Name: Business Address: JEFFREY F. HIPP 810 Dutch Square Boulevard Columbia, South Carolina 29210 2. Investor is purchasing the Securities in his own name and for his own account and no other person (other than the Escrow Agents under the Escrow Agreement) has any interest in or right with respect to the Securities (other than the unperfected security interest to secure certain contribution obligations among Investor and certain other individual parties to the Agreement and Plan of Reorganization), nor has he agreed to give any person such interest or right in the future. 3. Investor is acquiring the Securities for investment purposes and not with a view to or for sale in connection with any distribution of the Securities. He recognizes that the Securities have not been registered under the Securities Act of 1933, as amended (the "Act"), or qualified under the securities laws of the State of South Carolina or any other state, and that any disposition of the Securities is subject to restrictions imposed by federal and state law, and that the certificates representing the Securities will bear a restrictive legend to that effect. Investor also recognizes that he cannot transfer or dispose of the Securities absent E-197 registration and qualification or an available exemption from registration and qualification. Investor represents that he is familiar with the provisions of Rule 144 of the Rules and Regulations of the Securities and Exchange Commission and that he understands that the Securities are "Restricted Securities" as such term is defined in said Rule 144. The Investor understands that the South Carolina Division of Securities has made no finding or determination relating to the fairness for investment of the Securities offered by the Company and that no such recommendation or endorsement will be made. 4. Investor has not seen nor received any advertisement or general solicitation with respect to the sale of the Securities. 5. Investor represents that by reason of his business and/or financial experience, he is capable of evaluating the merits and risks of this investment in the shares of the Company and protecting his own interest in connection with the investment. Investor represents that he has elected not to use a Purchaser Representative (as such term is defined in S.E.C. Regulation 230.501) in connection with evaluating the merits and risks of this investment. 6. Investor acknowledges that during the course of the negotiation of the Agreement and Plan of Reorganization, and before completing the acquisition of the Securities, he has been provided with financial and other written information about the Company. Investor has read the Agreement and Plan of Reorganization, reviewed it with counsel and been given the opportunity by the Company to obtain any information and ask any questions concerning the Company, the Subsidiary, the Securities and his investment that he has felt necessary, and to the extent that he has availed himself of that opportunity, has received satisfactory information and answers. If Investor has requested any additional information that the Company possessed or could acquire without unreasonable effort or expense and that was necessary to verify the accuracy of the financial and other written information furnished to him by the Company, that additional information was provided to him and was satisfactory. In reaching the decision to vote his stock in the Computer Store, Inc. to merge the Computer Store, Inc. into the Subsidiary, and to receive as partial consideration therefor the Securities, Investor has carefully evaluated Investor's financial resources and investment position and the risks associated with this investment, and Investor acknowledges that he is able to bear the economic risks of this investment. By electing to make this investment, Investor realizes that he may lose his entire investment. Investor fully acknowledges that his financial condition is E-198 such that he is not under any present necessity or constraint to dispose of the Securities to satisfy any existing or contemplated debt or undertaking. 7. Investor understands that the Company will instruct its transfer agent and registrar not to transfer all or any portion of the Securities to any other person, firm or entity, or to perform any registration unless the transfer is pursuant to a registration statement which is effective under the Act or an available exemption from the registration requirements of the Act. Investor hereby agrees that the following legend shall be placed on the face or back of all certificates representing the Securities: "The shares of stock represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or under any applicable state securities laws, and may not be offered or resold unless registered under the Act, and any applicable state securities law, or unless, in the opinion of counsel for the Investor, an exemption from registration is available, the availability of which must be established to the satisfaction of the Company." IN WITNESS WHEREOF, the undersigned has executed this Investor's Certificate this ____ day of ____________________, 1997. ________________________________ JEFFREY F. HIPP Taxpayer Social Security No.: ________________________________ ?? E-199 EX-10 23 INVESTOR'S CERTIFICATE The undersigned, RONALD D. HILDRETH ("Investor"), intends to acquire __________________ (_______) shares of the common stock, par value $.01 (the "Securities") of POMEROY COMPUTER RESOURCES INC., a Delaware corporation (the "Company"), pursuant to the terms and conditions of an Agreement and Plan of Reorganization entered into between the Company's subsidiary, POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation (the "Subsidiary"), and Investor dated the ____ day of ________________, 1997. The Securities will be acquired by Investor from the Subsidiary upon the closing of the transactions contemplated by the Agreement and Plan of Reorganization. In order to induce the Company and Subsidiary to close the transactions contemplated by the Agreement and Plan of Reorganization and to induce the Subsidiary to issue the Securities, Investor hereby certifies to the Company and Subsidiary as follows: 1. Investor's full name and business address are as follows: Name: Business Address: RONALD D. HILDRETH 810 Dutch Square Boulevard Columbia, South Carolina 29210 2. Investor is purchasing the Securities in his own name and for his own account and no other person (other than the Escrow Agents under the Escrow Agreement) has any interest in or right with respect to the Securities (other than the unperfected security interest to secure certain contribution obligations among Investor and certain other individual parties to the Agreement and Plan of Reorganization), nor has he agreed to give any person such interest or right in the future. 3. Investor is acquiring the Securities for investment purposes and not with a view to or for sale in connection with any distribution of the Securities. He recognizes that the Securities have not been registered under the Securities Act of 1933, as amended (the "Act"), or qualified under the securities laws of the State of South Carolina or any other state, and that any disposition of the Securities is subject to restrictions imposed by federal and state law, and that the certificates representing the Securities will bear a restrictive legend to that effect. Investor also recognizes that he cannot transfer or dispose of the Securities absent E-200 registration and qualification or an available exemption from registration and qualification. Investor represents that he is familiar with the provisions of Rule 144 of the Rules and Regulations of the Securities and Exchange Commission and that he understands that the Securities are "Restricted Securities" as such term is defined in said Rule 144. The Investor understands that the South Carolina Division of Securities has made no finding or determination relating to the fairness for investment of the Securities offered by the Company and that no such recommendation or endorsement will be made. 4. Investor has not seen nor received any advertisement or general solicitation with respect to the sale of the Securities. 5. Investor represents that by reason of his business and/or financial experience, he is capable of evaluating the merits and risks of this investment in the shares of the Company and protecting his own interest in connection with the investment. Investor represents that he has elected not to use a Purchaser Representative (as such term is defined in S.E.C. Regulation 230.501) in connection with evaluating the merits and risks of this investment. 6. Investor acknowledges that during the course of the negotiation of the Agreement and Plan of Reorganization, and before completing the acquisition of the Securities, he has been provided with financial and other written information about the Company. Investor has read the Agreement and Plan of Reorganization, reviewed it with counsel and been given the opportunity by the Company to obtain any information and ask any questions concerning the Company, the Subsidiary, the Securities and his investment that he has felt necessary, and to the extent that he has availed himself of that opportunity, has received satisfactory information and answers. If Investor has requested any additional information that the Company possessed or could acquire without unreasonable effort or expense and that was necessary to verify the accuracy of the financial and other written information furnished to him by the Company, that additional information was provided to him and was satisfactory. In reaching the decision to vote his stock in the Computer Store, Inc. to merge the Computer Store, Inc. into the Subsidiary, and to receive as partial consideration therefor the Securities, Investor has carefully evaluated Investor's financial resources and investment position and the risks associated with this investment, and Investor acknowledges that he is able to bear the economic risks of this investment. By electing to make this investment, Investor realizes that he may lose his entire investment. Investor fully acknowledges that his financial condition is E-201 such that he is not under any present necessity or constraint to dispose of the Securities to satisfy any existing or contemplated debt or undertaking. 7. Investor understands that the Company will instruct its transfer agent and registrar not to transfer all or any portion of the Securities to any other person, firm or entity, or to perform any registration unless the transfer is pursuant to a registration statement which is effective under the Act or an available exemption from the registration requirements of the Act. Investor hereby agrees that the following legend shall be placed on the face or back of all certificates representing the Securities: "The shares of stock represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or under any applicable state securities laws, and may not be offered or resold unless registered under the Act, and any applicable state securities law, or unless, in the opinion of counsel for the Investor, an exemption from registration is available, the availability of which must be established to the satisfaction of the Company." IN WITNESS WHEREOF, the undersigned has executed this Investor's Certificate this ____ day of ____________________, 1997. ________________________________ RONALD D. HILDRETH Taxpayer Social Security No.: ________________________________ ?? E-202 EX-10 24 INVESTOR'S CERTIFICATE The undersigned, ARTHUR M. COX ("Investor"), intends to acquire __________________ (_______) shares of the common stock, par value $.01 (the "Securities") of POMEROY COMPUTER RESOURCES INC., a Delaware corporation (the "Company"), pursuant to the terms and conditions of an Agreement and Plan of Reorganization entered into between the Company's subsidiary, POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation (the "Subsidiary"), and Investor dated the ______ day of ________________, 1997. The Securities will be acquired by Investor from the Subsidiary upon the closing of the transactions contemplated by the Agreement and Plan of Reorganization. In order to induce the Company and Subsidiary to close the transactions contemplated by the Agreement and Plan of Reorganization and to induce the Subsidiary to issue the Securities, Investor hereby certifies to the Company and Subsidiary as follows: 1. Investor's full name and business address are as follows: Name: Business Address: ARTHUR M. COX 810 Dutch Square Boulevard Columbia, South Carolina 29210 2. Investor is purchasing the Securities in his own name and for his own account and no other person (other than the Escrow Agents under the Escrow Agreement) has any interest in or right with respect to the Securities (other than the unperfected security interest to secure certain contribution obligations among Investor and certain other individual parties to the Agreement and Plan of Reorganization), nor has he agreed to give any person such interest or right in the future. 3. Investor is acquiring the Securities for investment purposes and not with a view to or for sale in connection with any distribution of the Securities. He recognizes that the Securities have not been registered under the Securities Act of 1933, as amended (the "Act"), or qualified under the securities laws of the State of South Carolina or any other state, and that any disposition of the Securities is subject to restrictions imposed by federal and state law, and that the certificates representing the Securities will bear a restrictive legend to that effect. Investor also recognizes that he cannot transfer or dispose of the Securities absent E-203 registration and qualification or an available exemption from registration and qualification. Investor represents that he is familiar with the provisions of Rule 144 of the Rules and Regulations of the Securities and Exchange Commission and that he understands that the Securities are "Restricted Securities" as such term is defined in said Rule 144. The Investor understands that the South Carolina Division of Securities has made no finding or determination relating to the fairness for investment of the Securities offered by the Company and that no such recommendation or endorsement will be made. 4. Investor has not seen nor received any advertisement or general solicitation with respect to the sale of the Securities. 5. Investor represents that by reason of his business and/or financial experience, he is capable of evaluating the merits and risks of this investment in the shares of the Company and protecting his own interest in connection with the investment. Investor represents that he has elected not to use a Purchaser Representative (as such term is defined in S.E.C. Regulation 230.501) in connection with evaluating the merits and risks of this investment. 6. Investor acknowledges that during the course of the negotiation of the Agreement and Plan of Reorganization, and before completing the acquisition of the Securities, he has been provided with financial and other written information about the Company. Investor has read the Agreement and Plan of Reorganization, reviewed it with counsel and been given the opportunity by the Company to obtain any information and ask any questions concerning the Company, the Subsidiary, the Securities and his investment that he has felt necessary, and to the extent that he has availed himself of that opportunity, has received satisfactory information and answers. If Investor has requested any additional information that the Company possessed or could acquire without unreasonable effort or expense and that was necessary to verify the accuracy of the financial and other written information furnished to him by the Company, that additional information was provided to him and was satisfactory. In reaching the decision to vote his stock in the Computer Store, Inc. to merge the Computer Store, Inc. into the Subsidiary, and to receive as partial consideration therefor the Securities, Investor has carefully evaluated Investor's financial resources and investment position and the risks associated with this investment, and Investor acknowledges that he is able to bear the economic risks of this investment. By electing to make this investment, Investor realizes that he may lose his entire investment. Investor fully acknowledges that his financial condition is E-204 such that he is not under any present necessity or constraint to dispose of the Securities to satisfy any existing or contemplated debt or undertaking. 7. Investor understands that the Company will instruct its transfer agent and registrar not to transfer all or any portion of the Securities to any other person, firm or entity, or to perform any registration unless the transfer is pursuant to a registration statement which is effective under the Act or an available exemption from the registration requirements of the Act. Investor hereby agrees that the following legend shall be placed on the face or back of all certificates representing the Securities: "The shares of stock represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or under any applicable state securities laws, and may not be offered or resold unless registered under the Act, and any applicable state securities law, or unless, in the opinion of counsel for the Investor, an exemption from registration is available, the availability of which must be established to the satisfaction of the Company." IN WITNESS WHEREOF, the undersigned has executed this Investor's Certificate this ____ day of ____________________, 1997. ________________________________ ARTHUR M. COX Taxpayer Social Security No.: ________________________________ ?? E-205 EX-10 25 ESCROW AGREEMENT POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC., a South Carolina corporation (the "Pomeroy"), and ARTHUR M. COX, RONALD D. HILDRETH, and JEFFREY F. HIPP (the "CSI Shareholders") and NEXSEN PRUET JACOBS & POLLARD, LLP and LINDHORST & DREIDAME CO., L.P.A. (the "Escrow Agents"), hereby agree as follows, this _____ day of October, 1997. SECTION 1 - RECITALS 1.1 Pomeroy and CSI Shareholders have entered into an Agreement and Plan of Reorganization dated the 17th day of October, 1997, (the "Merger Agreement") providing for the merger of The Computer Store, Inc., a South Carolina corporation, ("CSI") with and into Pomeroy. 1.2 Section 2.1(a) of the Merger Agreement provides that the CSI Shareholders shall deposit with the Escrow Agents the number of shares of stock of Pomeroy Computer Resources, Inc., a Delaware corporation and the parent corporation of Pomeroy, having an aggregate value of Seventy-Four Thousand Nine Hundred Eighty-Three Dollars and 22/100 ($74,983.22) (such stock hereinafter referred to as PCR Stock), and Section 2.2(b) of the Merger Agreement provides that the CSI Shareholders shall deposit with the Escrow Agents the sum of Seventy-Five Thousand Sixteen Dollars and 78/100 ($75,016.78) in the aggregate, which PCR Stock and cash shall be deposited by the CSI Shareholders proportionately. 1.3 The Merger Agreement provides that there may be certain adjustments made to the consideration incident to the merger, as such adjustments are set forth and described in the Merger Agreement. Any net reduction in the consideration for the merger, as a result of such adjustment(s), shall be implemented by decreasing proportionately the amount of cash and PCR Stock paid to the CSI Shareholders, which amount will be repaid to Pomeroy first from the Escrow Fund, as defined in Paragraph 2.1, in the manner set forth in this Escrow Agreement. In addition, the CSI Shareholders have provided Pomeroy and Pomeroy Computer Resources, Inc. ("PCR") with certain indemnification rights under the Merger Agreement. Incident thereto, the Merger Agreement provides that the Escrow Agents shall distribute cash and PCR Stock from the Escrow Fund to Pomeroy or PCR in an amount equal to any costs or expenses incurred by Pomeroy or PCR resulting from any inaccuracy in or breach of any representation, warranty, covenant or obligation made or incurred by CSI or the CSI Shareholders, subject to the terms of the Merger Agreement relating to the indemnification rights and obligations of the parties to the Merger Agreement. E-206 CERTAIN PORTIONS OF THIS AGREEMENT ARE SUBJECT TO BINDING ARBITRATION SECTION 2 - ESCROW FUND 2.1 The Escrow Agents shall hold the PCR Stock and the cash which is delivered to the Escrow Agents by the CSI Shareholders. The PCR Stock and cash received by the Escrow Agents are sometimes referred to herein collectively as the "Escrow Fund." The Escrow Agents shall invest the cash in an interest-bearing account with Star Bank, National Association. SECTION 3 - TERM OF ESCROW, RELEASE OF ESCROW FUNDS, INTEREST AND PROCEEDS THEREON 3.1 The Escrow Agents will hold the Escrow Funds in their possession until the later of April 1, 1998 or the EBIT determination, as such adjustment is set forth and described in the Merger Agreement, is finalized by the CSI Shareholders and Pomeroy. If, as a result of any adjustments or indemnification claims resulting from any inaccuracy in or breach of any representation, warranty, covenant or obligation made or incurred by CSI or the CSI Shareholders, subject to the terms and limitations of the Merger Agreement relating to the indemnification rights and obligations of the parties to the Merger Agreement, there is a net reduction in the consideration for the merger, which has been agreed upon in writing by the parties or for which there is a report of an arbitrator or an order of a court, then the Escrow Agents shall deliver to Pomeroy a payment equal to the amount owed Pomeroy as a result of such adjustment or indemnification payable 50% from the cash and 50% from the PCR Stock held in the Escrow Fund. For purposes of determining the amount of PCR Stock to be delivered to Pomeroy, the value of the PCR Stock shall be based on the average of the closing price of the PCR Stock on the NASDAQ exchange for the twenty (20) trading days immediately preceding the third day before an agreement is made by the parties to the Merger Agreement in the manner set forth and described in such Merger Agreement. 3.2 In the event there is no such net reduction in the consideration paid for the merger or in the event that there is cash and PCR Stock remaining after the payment from the Escrow Fund for any such net reduction or pursuant to any indemnification rights, then the Escrow Agents shall deliver the remaining cash (with any interest thereon) and remaining PCR Stock held in the Escrow Fund to the CSI Shareholders in proportion to their percentage of ownership in CSI that they held as set forth in the Merger Agreement, immediately prior to the effective date of the Merger Agreement. 3.3 Until released from the escrow pursuant to this Agreement, the PCR Stock held as part of the Escrow E-207 Fund shall remain registered in the name of the individual CSI Shareholders, and each CSI Shareholder shall be entitled to all incidents of ownership in the number of shares of PCR Stock transferred by each CSI Shareholder, respectively, including but not limited to the right to vote the PCR Stock and to receive all dividends and other distributions thereon, subject however, to the provisions of this Agreement and the Merger Agreement. 3.4 All disbursements from the Escrow Fund to Pomeroy for any adjustments to the consideration of the merger or for any claims under any indemnification rights must be payable to the extent possible approximately 50% from the cash held in the Escrow Fund and approximately 50% from the PCR Stock held in the Escrow Fund. Any disbursement made to Pomeroy of the PCR Stock shall be rounded down to the nearest whole share and any cash distributed shall be rounded up accordingly. 3.5 Notwithstanding the above provisions, the Escrow Agents shall not release any cash or PCR Stock from the Escrow Fund without first giving written notice to Pomeroy and the CSI Shareholders. If no objection is made by Pomeroy and the CSI Shareholders within 10 days from the date that the written notice is delivered to the CSI Shareholders and to Pomeroy, then the Escrow Agents may release the cash and PCR Stock pursuant to the terms of this Escrow Agreement. If a timely objection is made in writing by the CSI Shareholders or by Pomeroy, the Escrow Agents shall not release any cash or PCR Stock until such time that the Escrow Agents are informed in writing signed by the CSI Shareholders and Pomeroy that the Escrow Agents are to release the Escrow Fund or a portion thereof. In the event the parties are unable to reach an agreement within 10 days after the objection, the matter shall be arbitrated in the manner set forth in Section 4.7. SECTION 4 - ESCROW AGENTS 4.1 The Escrow Agents shall be reimbursed for all expenses, disbursements and advances incurred or made by them in the performance of their duties hereunder. The CSI Shareholders shall be responsible for the expenses, disbursements and advances incurred by Nexsen Pruet Jacobs & Pollard, LLP and Subsidiary shall be responsible for the expenses, disbursements and advances incurred by Lindhorst & Dreidame Co., LPA. 4.2 The Escrow Agents may resign and be discharged from their duties hereunder at any time by giving 10 days prior written notice of such resignation to CSI Shareholders and Pomeroy specifying the date which such resignation shall take effect. Upon such notice, successor Escrow Agents shall be appointed by the mutual consent of the CSI E-208 Shareholders and Pomeroy. CSI Shareholders and Pomeroy, jointly, shall have the right at any time upon their mutual consent to substitute new Escrow Agents by giving notice thereof to the Escrow Agents then acting. 4.3 The Escrow Agents undertake to perform such duties only as are specifically set forth herein and may conclusively rely, and shall be protected in acting or refraining from acting, on any written notice, instrument or signature believed by them to be genuine and to have been signed or presented by the proper party or parties duly authorized to do so. The Escrow Agents shall have no responsibility for the contents of any writing contemplated herein and may rely without any liability upon the contents thereof. 4.4 The Escrow Agents shall not be liable for any action taken or omitted by them in good faith and believed by them to be authorized hereby or within the rights and powers conferred upon them hereunder, nor for any action taken or mistake of fact or error of judgment or for any acts or omissions of any kind unless caused by their willful misconduct or gross negligence. The Escrow Agents may consult with legal counsel selected by them and shall not be liable for any action taken or omitted by them in good faith in accordance with the advice of such counsel. 4.5 Each party hereto agrees to indemnify the Escrow Agents and hold them harmless against any all liabilities incurred by them hereunder as a consequence of such party's action, and the parties agree jointly to indemnify the Escrow Agents and hold them harmless against any and all liabilities incurred by them hereunder that are not a consequence of any party's action, except for liabilities incurred by the Escrow Agents resulting from their own willful misconduct or gross negligence. 4.6 Escrow Agents shall not be responsible for the identity, authority or rights of any person executing or delivering, or purporting to execute or deliver, this Escrow Agreement, or any document or security deposited hereunder, or any endorsement thereon or assignment thereof, or for the sufficiency, genuineness or validity of or title to any document or security deposited with it hereunder, or any assignment thereof. 4.7 In the event of any disagreement between Pomeroy and the CSI Shareholders regarding the Escrow Agents' actions or obligations hereunder or in the event of a disagreement between the Escrow Agents, the Escrow Agents shall, subject to the provisions of the Merger Agreement, submit the question to an arbitrator to be appointed by the American Arbitration Association for arbitration in accordance with its rules, whose determination shall be conclusive and binding to all parties to this Agreement. E-209 4.8 The parties to this Agreement acknowledge that CSI has been and that the CSI Shareholders may hereafter be represented by Nexsen Pruet Jacobs & Pollard, LLP and Pomeroy has been and continues to be represented by Lindhorst & Dreidame Co., L.P.A. and that such legal entities and their respective individual attorneys may continue to serve as legal counsel for the respective parties to this Agreement. 4.9 Any action to be taken by the Escrow Agents hereunder shall be done jointly. SECTION 5 - MISCELLANEOUS 5.1 Nothing in this Escrow Agreement shall be deemed to enlarge or diminish the rights and obligations of CSI Shareholders and Pomeroy as set forth in the Merger Agreement. 5.2 This Escrow Agreement shall be construed by and governed in accordance with the laws of the State of South Carolina. 5.3 Notices. All notices and other communications required by this Agreement shall be in writing and shall be deemed given if delivered by hand or mailed by registered mail or certified mail, return receipt requested to the appropriate party at the following address (or at such other address for a party as shall be specified by notice pursuant to hereto): (a) If to Pomeroy, to: Pomeroy Computer Resources of South Carolina, Inc. c/o Pomeroy Computer Resources, Inc. 1020 Petersburg Road Hebron, KY 41048 (b) If to CSI Shareholders, to: Arthur M. Cox 312 Stamford Bridge Road Columbia, SC 29212 Ronald D. Hildreth 225 Mariners Row Columbia, SC 29212 Jeffrey F. Hipp 4 Medina Court Columbia, SC 29223 E-210 (c) If to Escrow Agents, to: Lindhorst & Dreidame Co., L.P.A. 312 Walnut Street, Suite 2300 Cincinnati, Ohio 45202 Attention: James H. Smith III Nexsen Pruet Jacobs & Pollard, LLP 1441 Main Street, Suite 1500 P.O. Drawer 2426 Columbia, SC 29202 Attention: G. Marcus Knight WITNESSES: POMEROY: POMEROY COMPUTER RESOURCES OF SOUTH CAROLINA, INC. _________________________ By: _________________________________ _________________________ CSI SHAREHOLDERS: _________________________ ________________________________ ARTHUR M. COX _________________________ _________________________ ________________________________ RONALD D. HILDRETH _________________________ _________________________ _________________________________ JEFFREY F. HIPP _________________________ E-211 ESCROW AGENTS: NEXSEN PRUET JACOBS & POLLARD, LLP _________________________ By: _________________________________ G. MARCUS KNIGHT, Partner _________________________ LINDHORST & DREIDAME CO., L.P.A. _________________________ By: __________________________________ JAMES H. SMITH III, Treasurer _________________________ ?? LD 92320-2 E-212 EX-10 26 (513) 345-5767 October 17, 1997 The Computer Store, Inc. Mr. Arthur M. Cox Mr. Ronald D. Hildreth Mr. Jeffrey F. Hipp G. Marcus Knight, Esq. Nexsen Pruet Jacobs & Pollard, LLP 1441 Main Street, Suite 1500 Columbia, South Carolina 29202 RE: Agreement and Plan of Reorganization Between Pomeroy Computer Resources of South Carolina, Inc. and The Computer Store, Inc. Dear Mr. Cox, Mr. Hildreth and Mr. Hipp: We have acted as counsel to Pomeroy Computer Resources, Inc. and Pomeroy Computer Resources of South Carolina, Inc. in connection with the execution and delivery of the Agreement and Plan of Reorganization (the "Merger Agreement") dated as of October 17, 1997 by, between and among Pomeroy Computer Resources of South Carolina, Inc., Pomeroy Computer Resources, Inc., The Computer Store, Inc., Arthur M. Cox, Ronald D. Hildreth and Jeffrey F. Hipp. This opinion is given to you pursuant to Section 11.3(d)(vi) of the Merger Agreement. The terms defined in the Merger Agreement and not otherwise defined herein shall have the meaning given those terms in the Merger Agreement. We have examined such certificates of public officials, corporate documents and records and other certificates, opinions and instruments and have made such other investigations as we have deemed necessary in connection with the opinions set forth herein. Except for the signing by Pomeroy Computer Resources, Inc. of the Guarantees of Employment Agreements and the Merger Agreement and except for the signing by Pomeroy Computer Resources of South Carolina, Inc. of the Merger Agreement and other documents referred to therein, we have assumed the genuineness of all signatures on, the legal capacity of all signing parties to and the authenticity of, all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as certified or photostatic copies. E-213 We have not made an independent review of the laws of any state or jurisdiction other than Delaware, Ohio, South Carolina and the United States. Accordingly, we express no opinion as to the laws of any state or jurisdiction other than the United States and the States of Delaware, Ohio and South Carolina. The opinions hereinafter expressed are qualified to the extent that (i) the enforceability of any provisions in the documents, or any rights granted to you pursuant to the documents, are subject to and may be affected by applicable state and/or federal bankruptcy, insolvency, fraudulent conveyance, reorganization or moratorium laws, or similar laws affecting the rights of creditors or debtors generally, (ii) the enforceability thereof may be limited by the application of general principles of equity and matters of public policy, (iii) any provisions requiring payment of attorneys' fees may not be enforceable, and (iv) no opinion is expressed as to enforceability of (a) self-help provisions, (b) waiver of Constitutional rights, (c) provisions related to warrants of attorney to confess judgment, and (d) provisions related to waiver of remedies (or to the delay or omission of enforcement thereof), disclaimers, liability limitation with respect to third parties, liquidated damages or the creation of remedies not available under state law. Further, we are not opining on the legality of any interest or charges under any applicable usury laws. Based upon and subject to the foregoing, we are of the opinion that: (i) Pomeroy Computer Resources, Inc. is a corporation duly organized and validly existing under the laws of the State of Delaware; (ii) Pomeroy Computer Resources of South Carolina, Inc. is a corporation duly organized and validly existing under the laws of the State of South Carolina; (iii) The Merger Agreement and other documents relating thereto, or arising by reason of such Merger Agreement, to which Pomeroy Computer Resources of South Carolina, Inc. is a party, and/or to which Pomeroy Computer Resources, is a party, have been approved, executed and delivered pursuant to proper corporate authority and are the legal, valid and binding obligation of Pomeroy Computer Resources of South Carolina, Inc. and/or Pomeroy Computer Resources, Inc., as applicable, enforceable in accordance with their terms. E-214 (iv) All other documentation to be executed by Pomeroy Computer Resources of South Carolina, Inc. required to effectuate the merger of CSI into Pomeroy Computer Resources of South Carolina, Inc. contemplated by the Merger Agreement and delivered pursuant thereto have been properly executed and are valid and enforceable in accordance with their terms. (v) The Employment Agreements executed by Pomeroy Computer Resources of South Carolina, Inc. with Mr. Arthur M. Cox, Mr. Ronald D. Hildreth and Mr. Jeffrey F. Hipp, respectively, and the Guarantees of such Employment Agreements executed by Pomeroy Computer Resources, Inc. have been approved, executed and delivered pursuant to proper corporate authority and are the legal, valid and binding obligation of such respective party enforceable in accordance with their terms. This opinion is rendered solely for your reliance in connection with the execution, delivery, and performance of the Merger Agreement and other documents relating thereto. It may not be relied upon by any other person or for any other purpose without the prior written consent of this firm. Very truly yours, LINDHORST & DREIDAME James H. Smith III JHS/cae ?? The Computer Store, Inc. Mr. Arthur M. Cox Mr. Ronald D. Hildreth Mr. Jeffrey F. Hipp Mark Knight, Esq. October 17, 1997 E-215 EX-11 27 Pomeroy Computer Resources, Inc. Exhibit 11 - Computation of Earnings Per (in thousands, except per share amounts Fiscal Years 1995 1996 1997 BASIC Weighted average common shares outstanding 5,660 7,834 11,052 ======== ======== ======== Net income $ 4,367 $ 6,232 $16,313 ======== ======== ======== Net income per common share $ 0.77 $ 0.80 $ 1.48 ======== ======== ======== DILUTED Weighted average common shares outstanding 5,660 7,834 11,052 Dilutive effect of stock options outstanding during the period 332 272 315 Contingent shares 25 - - ________ ________ ________ Total common and common equivalent shares 6,007 8,106 11,367 ======== ======== ======== Net income $ 4,367 $ 6,232 $16,313 ======== ======== ======== Net income per common share $ 0.73 $ 0.77 $ 1.44 ======== ======== ======== E-216 EX-21 28 EXHIBIT 21 Subsidiaries of Pomeroy Computer Resources, Inc. Subsidiary State of Incorporation __________ ______________________ Xenas Communications Corp. Ohio The subsidiary does business under the name Envision. Technology Integration Kentucky Financial Services, Inc. f/k/a Pomeroy Computer Leasing Company, Inc. The subsidiary does business under the name Technology Integration Financial Services, Inc. Pomeroy Computer Resources of South Carolina South Carolina, Inc, E-217 EX-27 29
5 1000 12-MOS JAN-05-1998 JAN-05-1998 380 0 99,707 578 39,160 140,063 17,316 6,770 167,264 77,035 0 0 0 114 0 167,264 491,448 491,448 410,063 410,063 0 0 974 25,820 9,507 0 0 0 0 16,313 1.48 1.44
EX-27 30
5 These Schedules contain restated financial information extracted from the Consolidated Balance Sheets as of January 5, 1996 and 1997, and the Consolidated statements of Income for the twelve months ended January 5, 1996 and 1997. 1000 12-MOS 12-MOS JAN-05-1996 JAN-05-1997 JAN-05-1996 JAN-05-1997 596 6,809 0 0 34,320 68,094 411 509 18,987 23,426 54,390 99,068 6,559 13,076 1,968 3,864 63,985 121,380 44,051 71,865 0 0 0 0 0 0 26 65 0 0 63,985 121,380 230,710 336,358 230,710 336,358 197,174 281,753 197,174 281,753 0 0 0 0 1,999 2,170 7,350 10,528 2,983 4,296 0 0 0 0 0 0 0 0 4,367 6,232 0.77 0.80 0.73 0.77
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