<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MLC HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
11150 SUNSET HILLS ROAD
SUITE 110
RESTON, VIRGINIA 20190-5321
(703) 834-5710
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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<S> <C> <C>
DELAWARE 6172 54-1817218
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
PHILLIP G. NORTON
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
MLC HOLDINGS, INC.
11150 SUNSET HILLS ROAD
SUITE 110
RESTON, VIRGINIA 20190-5321
(703) 834-5710
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
BENTON BURROUGHS, JR., ESQ. FRANK M. CONNER, III, ESQ.
ROBERT B. WEBB, III, ESQ. JONATHAN H. TALCOTT, ESQ.
HAZEL & THOMAS, P.C. ALSTON & BIRD
3110 FAIRVIEW PARK DRIVE 601 PENNSYLVANIA AVENUE, N.W.
SUITE 1400 SUITE 250, NORTH BUILDING
FALLS CHURCH, VIRGINIA 22042 WASHINGTON, D.C. 20004
(703) 641-4200 (202) 508-3300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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<CAPTION>
CALCULATION OF REGISTRATION FEE
======================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value............ 1,150,000 $ 9.00 $ 10,350,000 $3,569
======================================================================================================
</TABLE>
(1) Includes 150,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to rule 457(a).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER , 1996
PROSPECTUS
1,000,000 SHARES
MLC HOLDINGS, INC.
COMMON STOCK
------------------------
All of the shares of common stock, $0.01 par value per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by MLC Holdings, Inc.
(together with its subsidiaries, the "Company"). It is currently estimated that
the price of the Common Stock to be sold in the Offering will be between $7.00
and $9.00 per share.
Prior to the Offering, there has been no public market for the Common
Stock. See "Underwriting" for information relating to the factors considered in
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol "MLCH."
SEE "RISK FACTORS" ON PAGES 8 THROUGH 17 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................................ $ $ $
Total(3)................................. $ $ $
==================================================================================================
</TABLE>
(1) See "Underwriting" for information regarding indemnification of the
Underwriters.
(2) Before deducting expenses payable by the Company estimated to be $ .
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase from the Company up to 150,000
additional shares of Common Stock solely to cover over-allotments, if any.
To the extent that the option is exercised, the Underwriters will offer the
additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made against
payment therefor at the offices of Friedman, Billings, Ramsey & Co., Inc.,
Arlington, Virginia, the representative of the several Underwriters (the
"Representative"), or in book entry form, through the book entry facilities of
the Depository Trust Company on or about , 1996.
------------------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this Prospectus is , 1996.
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all exhibits
and schedules thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement. For further information with respect to the
Company and the Common Stock, reference is hereby made to such Registration
Statement. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. Copies of the Registration Statement can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at 500 West Madison Street, Room
1400, Chicago, Illinois 60606, and at 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, Washington, D.C. 20549,
at prescribed rates. The Commission also maintains a web site on the World Wide
Web that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission,
including the Company, and the address is http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by the Company's independent auditors as well as quarterly reports for
the first three fiscal quarters of each fiscal year containing unaudited
consolidated condensed financial statements. The Company also intends to provide
annual financial statements to each person to whom a copy of this Prospectus has
been delivered, upon the request of such person.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No action has been or will be taken in any jurisdiction by the Company or
by any Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons outside
the United States into whose possession this Prospectus comes are required by
the Company and the Underwriters to inform themselves about and to observe any
restriction as to the offering of the Common Stock and the distribution of this
Prospectus.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Prospective
purchasers of the shares of Common Stock offered hereby should carefully
consider the factors set forth under "Risk Factors." This Prospectus gives
effect to the reorganization of the Company, pursuant to which MLC Group, Inc.,
a Virginia corporation ("MLC Group"), became, effective September 1, 1996, a
wholly-owned subsidiary of MLC Holdings, Inc. ("MLC Holdings"), a newly formed
Delaware corporation. All references to the "Company" shall be deemed to include
and refer to MLC Holdings and its subsidiaries, including MLC Group.
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective purchasers of the shares of Common Stock offered hereby are
cautioned that such statements are only predictions and that actual events or
results may differ materially. In evaluating such statements, prospective
purchasers of the shares of Common Stock should specifically consider the
various factors identified in this Prospectus, including the matters set forth
under "Risk Factors," which would cause actual results to differ materially from
those indicated by such forward-looking statements.
THE COMPANY
The Company specializes in leasing and financing information technology
assets and providing asset management services to middle market commercial
customers, select Fortune 1000 firms, federal, state and local governments and
vendors. The assets leased by the Company include personal computers, client
server systems, networks, mid-range and mainframe computer equipment,
telecommunications equipment and software.
The ten largest commercial customers of the Company by purchase price of
the equipment leased by the Company, for fiscal year 1996, are, in alphabetical
order: America Online, Inc.; Bakery and Confectionary Union and Industry
International Health Benefits and Pension Fund; Cable & Wireless, Inc.; Corning
Incorporated; Long Island Lighting Company; Lutheran Brotherhood; MCI
Telecommunications Corporation; Nationwide Mutual Insurance Company; Progressive
Casualty Insurance Company; and Strawbridge & Clothier. The three largest
government customers, based upon purchase price of the equipment leased by the
Company for fiscal year 1996, are, in alphabetical order: the City of Raleigh,
North Carolina; the State of Missouri; and the United States Department of
Transportation. None of the above customers constituted more than 10% of the
Company's revenues for fiscal year 1996.
The Company also leases and finances equipment, software and services
through relationships with vendors, equipment manufacturers and systems
integrators. These vendor clients represent a variety of high technology
industries and include, among others, in alphabetical order: Cisco Systems,
Inc.; EMC Corporation; Systems & Computer Technology Corporation; and Sterling
Software, Inc. The Company has also provided financing for other vendors'
customers for transactions ranging in size from $50,000 to $21.0 million based
upon the purchase price of the assets.
The Company seeks to differentiate itself from its competitors by offering
its customers asset management services and asset trading capabilities, which
may be customized to meet the client's desires. The Company believes that its
ability and willingness to personalize its relationships and customize its
services to meet the specific financial and managerial needs of each customer
enable it to compete effectively against larger equipment leasing and finance
companies. The Company further believes that, by providing asset management
services and asset trading capabilities as well as other services to its
customers, it has a competitive advantage over smaller competitors which lack
the resources and expertise to provide such services. The Company's asset
trading activity involves the purchase and resale of previously owned
information technology equipment. By offering asset trading capabilities, the
Company is able to develop and maintain knowledge of current market trends and
values which enables the Company to predict more
3
<PAGE> 5
accurately residual values when pricing leasing transactions, dispose
efficiently of off-lease equipment and offer customers a way to dispose of or
acquire previously owned information technology equipment.
The Company's management team is led by Phillip G. Norton, Chairman, Chief
Executive Officer and President, and Bruce M. Bowen, a director, the Chief
Financial Officer and Executive Vice President, each of whom has extensive
experience in the leasing and finance industries, and who have worked together
for three different companies over the past 20 years. Mr. Norton began his
business career in 1970 with Memorex Corporation, and started his leasing career
in 1975 as National Sales Manager of Federal Leasing, Inc. Mr. Norton founded
Systems Leasing Corporation in 1978, which grew to approximately $75 million in
assets by the time it was sold to PacifiCorp Capital, Inc. in 1986. Mr. Norton
served as President of PacifiCorp Capital, Inc. through 1990, ultimately
managing approximately 225 employees and approximately $700 million in assets.
Mr. Bowen began his leasing career in 1975 with Federal Leasing, Inc. where he
worked until 1978. In 1982, Mr. Bowen joined Mr. Norton at Systems Leasing
Corporation as Director of Finance and later became a Senior Vice President of
PacifiCorp Capital, Inc., the successor to Systems Leasing Corporation. In 1990,
Mr. Bowen left PacifiCorp Capital, Inc. and founded the Company.
The extensive experience of the Company's management in leasing and
financing information technology equipment has enabled the Company to manage its
residual portfolio to achieve superior returns. Since the Company's organization
in November, 1990 through March 31, 1996, on matured leases, the Company has
realized a return of 139% of the amount originally recorded as residual values
for its equipment. As part of its underwriting and risk management efforts, the
Company's management seeks to structure lease transactions so that they can be
financed or sold to third parties on a nonrecourse basis, even if the Company
ultimately retains an equity interest in the lease. The Company's underwriting
approach has resulted in no credit losses in its leasing operations since its
organization. The Company believes that its historical approach to estimating
residuals, pricing and underwriting leases and managing relationships among
vendors, customers and financial partners provides a foundation for the Company
to grow and profitably deploy new capital.
Completion of the Offering will substantially increase the Company's equity
base, enabling the Company to service a larger volume of business. The proceeds
of the Offering will also enable the Company to: (i) reduce its borrowing costs
by decreasing the amounts outstanding and negotiating for lower interest rates
and fees on its line-of-credit borrowings; (ii) reduce its reliance on joint
ventures for certain transactions; and (iii) implement a securitization program
for its lease receivables.
The Company was founded in November, 1990. The Company has 39 full-time
employees and eight part-time employees and operates through ten offices. The
Company's principal executive offices are located at 11150 Sunset Hills Road,
Suite 110, Reston, Virginia 20190-5321, and its telephone number is (703)
834-5710.
STRATEGY
Based on industry trends and the Company's historical results, the Company
will continue to implement and improve upon a three-pronged strategy designed to
increase its customer base by: (i) providing continued superior customer service
while marketing to middle market and select Fortune 1000 end-users of
information technology equipment and assets; (ii) purchasing companies in key
regional markets with pre-existing customer bases; and (iii) further developing
vendor leasing programs. Through its marketing strategy, the Company emphasizes
cross selling to the different groups of clients and attempts to reach the
maximum number of potential end-users.
End-User Marketing Focus. The Company's target customers include middle
market and select Fortune 1000 firms which are significant users of information
technology and telecommunications equipment and assets and which may need other
services provided by the Company, such as asset management. By targeting a
potential customer base that is broader than just the Fortune 1000 companies,
the Company believes that there is less competition from the larger equipment
finance companies, as their marketing forces are typically more focused on
Fortune 1000 customers. The Company markets through its principal executive
offices and nine regional offices.
4
<PAGE> 6
Acquisition of Related Companies. The Company believes that significant
opportunities to expand its target customer base in key regional markets can be
realized through the acquisition of strategically selected companies in related
lines of business. The Company's acquisition strategy will focus on acquiring
new customers in the top 50 regional markets in the country. The Company
believes that it can successfully acquire companies and maintain and expand
customer relationships by providing acquired companies with a lower cost of
capital, additional cross-selling opportunities and financial structuring
expertise. In addition, the Company can provide the owners of privately-held
companies with an opportunity to realize their company's value. The Company
believes that decentralized marketing and centralized operations, along with
operating synergies, will make it successful in lowering the operational costs
while expanding the customer base of each firm it acquires.
Increasing Focus on Vendors. Over the last several years, major
manufacturers of information technology and telecommunications equipment have
moved away from providing financing to end-user customers through captive
finance organizations and have increasingly outsourced this equipment financing
function to independent leasing companies. From the perspective of the large
end-user of information technology and telecommunications equipment, outsourcing
equipment financing can simplify and centralize the financing of multiple
products from different vendors, particularly as most captive finance
organizations will service only their manufacturer's products. Through its
participation in vendor marketing programs, the Company leverages its marketing
efforts by utilizing the sales force of the vendor. The vendor's sales
organization provides the Company access to an extensive and diversified
end-user customer base while saving the Company the cost of establishing these
independent customer relationships. The Company uses its relationships with
these vendors and end-users to create new customer relationships to which other
products and services of the Company can be marketed directly.
5
<PAGE> 7
THE OFFERING
Common Stock Offered by the
Company.................. 1,000,000 shares
Common Stock to be
Outstanding After the
Offering................. 5,000,000 shares
Use of Proceeds............ The Company intends to use the proceeds of the
Offering: (i) to repay approximately $275,000 of
outstanding indebtedness currently owed to two
stockholders of the Company; (ii) to reduce the
then outstanding balance of the Company's
$2,000,000 revolving loan facility, with
NationsBank, N.A. (the "NationsBank Facility"),
which had an outstanding balance of $1,350,000 as
of June 30, 1996; (iii) to reduce the then
outstanding balance of the Company's $5,000,000
revolving term loan facility, with First Union
National Bank of Virginia (the "First Union
Facility"), which had no outstanding balance as
of June 30, 1996; and (iv) for general corporate
purposes, including purchases of equipment for
lease or re-sale, acquisitions of existing
portfolio equipment and related leases and
acquisitions of related businesses or new joint
ventures. See "Use of Proceeds," "Business --
Strategy," "-- Financing" and "Certain
Transactions."
Proposed Nasdaq National
Market Symbol............ MLCH
------------------------
Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option and excludes 400,000 shares
of Common Stock reserved for issuance under various stock plans or employment
agreements of the Company, of which options for 380,000 shares will have been
granted upon closing of the Offering. See "Management -- Compensation
Arrangements and Employment Arrangements," "Description of Capital Stock" and
"Underwriting." In addition, unless otherwise indicated and except as set forth
in the Consolidated Financial Statements, all information in this Prospectus has
been adjusted to give effect to the reorganization of the Company, pursuant to
which MLC Group became a wholly-owned subsidiary of MLC Holdings, effective
September 1, 1996.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data set forth below should be read in
conjunction with the Consolidated Financial Statements of the Company, and
related notes thereto, the information included under "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition," included elsewhere herein. The consolidated
financial data, as of and for, the quarters ended June 30, 1995 and June 30,
1996, have not been audited, but in the opinion of management of the Company all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation have been included. The results of operations for the quarter ended
June 30, 1996 are not necessarily indicative of the results of operations that
may be expected for the entire year. See "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Business."
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------------------- ----------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Total revenues..................... $ 27,613 $ 40,819 $ 42,800 $ 3,775 $ 12,896
Total costs and expenses........... 27,233 40,207 40,309 3,134 12,097
--------- --------- --------- --------- ---------
Earnings before provision for
income taxes..................... 380 612 2,491 641 799
Provision for income taxes......... 59 198 881 227 284
--------- --------- --------- --------- ---------
Net earnings....................... $ 321 $ 414 $ 1,610 $ 414 $ 515
======== ======== ======== ======== ========
Net earnings per common share...... $ 0.08 $ 0.10 $ 0.40 $ 0.10 $ 0.13
======== ======== ======== ======== ========
Shares used in computing per common
share amounts.................... 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF JUNE 30,
----------------------------------- ----------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in leases............... $ 10,310 $ 13,998 $ 26,493 $ 14,728 $ 22,611
Total assets....................... 13,238 17,481 29,836 17,975 27,521
Recourse notes payable............. 2,144 1,815 1,285 1,419 1,485
Nonrecourse notes payable.......... 8,116 10,162 18,351 11,255 16,564
Retained earnings.................. 801 1,214 2,825 1,628 3,340
Stockholders' equity............... 851 1,264 2,875 1,678 3,390
</TABLE>
7
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to other information in this Prospectus, the
following risk factors should be considered carefully by potential purchasers in
evaluating an investment in the Common Stock offered hereby. Except for
historical information contained herein, the discussion in this Prospectus
contains forward-looking statements that involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations and intentions.
The cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include those discussed below, as well as those discussed elsewhere herein.
DEPENDENCE ON CREDITWORTHY CUSTOMERS
The Company has focused its marketing and sales efforts on leasing and
financing equipment with creditworthy customers generally limited to (i) middle
market companies, (ii) select Fortune 1000 companies, (iii) customers
established through vendors and (iv) federal, state and local government units.
Historically, the credit quality of the Company's customers, and the Company's
credit loss experience, have enabled the Company to raise sufficient amounts of
debt and equity capital to fund its equipment purchases. In the event the actual
or perceived credit quality of the Company's customer base materially decreases,
or the Company has a material increase in its credit loss experience, the
Company may find it difficult to continue to obtain the capital it requires,
resulting in a material adverse effect on its business, financial condition and
results of operations. See "Risk Factors -- Dependence on Availability of
Financing." Furthermore, a material increase in the Company's delinquency and
default experience would, alone, have a material adverse effect on its business,
financial condition and results of operations.
DEPENDENCE ON MAJOR RELATIONSHIPS
As of June 30, 1996, the Company's portfolio consisted of leases with 109
customers. During fiscal year 1996, the Company originated commercial leasing
transactions with 66 customers, ten of which accounted for approximately 65% of
the aggregate purchase price of equipment leased by the Company to those 66
customers. In the event any of the Company's major customers ceases to lease
additional equipment or materially reduces the amount of equipment it leases
from the Company, this cessation or reduction would have a material adverse
effect upon the Company's business, financial condition and results of
operations. See "Business -- Leasing and Sales Activities." For fiscal year
1996, the Company did not have any revenue sources which alone accounted for
more than 10% of the Company's revenues except for the Company's relationship
with GATX Capital Corporation ("GATX"), as discussed below.
In addition to its dependence on a limited number of substantial customers,
the Company also obtains a significant source of its equity financing for
transactions and, for fiscal year 1996, its revenue, through two joint venture
arrangements: (i) MLC/GATX Limited Partnership I, a Colorado limited
partnership, which is used for financing mainframe and peripheral computer
equipment; and (ii) MLC/CLC LLC, a Virginia limited liability company, which is
used for financing personal computers and client server equipment.
The partners in MLC/GATX Limited Partnership I are: the Company, with a
9.5% limited partnership interest; GATX, with an 89.5% limited partnership
interest; and MLC/GATX Leasing Corporation, a Colorado corporation, which is
equally owned by the Company and GATX and which is a general partner with a 1%
general partnership interest. During fiscal year 1996, revenue recognized from
sales to MLC/GATX Limited Partnership I was $13.1 million or 31% of the
Company's total revenues. The Company's investment in MLC/GATX Limited
Partnership I accounted for by the use of the cost method was $394,000, as of
June 30, 1996.
The members of MLC/CLC LLC are the Company, with a 5% membership interest,
and Cargill Leasing Corporation, a Delaware corporation, with a 95% membership
interest. MLC Group serves as the manager for MLC/CLC LLC. For fiscal year 1996,
revenue recognized from the sales to MLC/CLC LLC was $1.3 million or 3% of the
Company's total revenues. The Company's investment in MLC/CLC LLC
8
<PAGE> 10
accounted for by the use of the cost method was $52,149, as of June 30, 1996.
The loss or dissolution of either of these joint venture arrangements, and in
particular, the MLC/GATX Limited Partnership I, would have a material adverse
effect upon the Company's ability to finance lease transactions and thus on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence on Availability of Financing."
ASSET OWNERSHIP RISK
The Company has historically emphasized fair market value ("FMV") leases,
i.e., operating and direct finance leases, where the Company will own the leased
asset at the expiration of the lease term and will sell or re-lease the asset at
that time at market rates either to the existing lessee or to another party. In
general, under a FMV lease, which typically has a term of 24 to 36 months, the
present value of the monthly lease payments will pay back approximately 80% to
95% of the purchase price of the equipment, whereas the present value of the
monthly lease payments under a sales type agreement will pay back more than the
Company's entire investment in the equipment. As a result, under a FMV lease,
the Company assumes the risk of not recovering its entire investment in the
equipment (residual risk) through the releasing and re-marketing process.
Operating leases require the Company to re-lease or re-sell the equipment in its
portfolio in a timely manner upon termination of the lease in order to minimize
off-lease time and recover its original investment in the equipment.
Numerous factors, many of which are beyond the control of the Company, may
have an impact on the Company's ability to re-lease or re-sell equipment on a
timely basis. Among the factors are general market conditions, regulatory
changes, variations in the supply or cost of comparable equipment and
technological improvements that lead to the risk of technological obsolescence.
In particular, the computer and telecommunications industries have been
characterized by significant and rapid technological advances. The equipment
owned and leased by the Company is subject to rapid technological obsolescence,
which is typical of information technology and telecommunications equipment.
Furthermore, decreases in the manufacturer's pricing for equipment may adversely
affect the market value of such equipment under lease. Changes in values or
systems and components may require the Company to liquidate its inventory of
certain products at significant markdowns and write down the residual value of
its leased assets, which may result in substantial losses. Further, the value of
a particular used piece of equipment may vary greatly depending upon its
condition and the degree to which any custom configuration of the equipment must
be altered before reuse.
At the inception of each FMV lease, the Company has historically estimated
a residual value for the leased equipment based on the terms of the related
lease and which will permit the transaction to be financed or sold by means of
external, generally nonrecourse, sources. This estimate is approved by the
Company's investment committee, which acts by a signature process instead of
conducting formal meetings. While the Company's experience generally has
resulted in aggregate residual values for equipment being in excess of the
initial estimated residual values for such equipment, a decrease in the market
value of such equipment at a rate greater than the rate expected by the Company,
whether due to rapid technological obsolescence or other factors, would
adversely affect the residual values of such equipment. Consequently, there can
be no assurance that the Company's estimated residual value for equipment will
be realized.
If the Company's estimated residual values are reduced or not achieved in
the future, its business, financial condition and results of operation could be
materially adversely affected. As of June 30, 1996, the total net unrealized
residual value of the Company's leased equipment was approximately $2.8 million.
Similarly, if the Company is unable to re-lease or re-sell equipment on
favorable terms, its business, financial condition and results of operations
could be materially adversely affected. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition -- Revenue Recognition
and Lease Accounting."
The Company also engages in the short-term trading of equipment in the
aftermarket. To the extent the Company purchases equipment without having a firm
commitment for its re-lease or re-sale or if a firm commitment for re-lease or
re-sale were to exist but not be consummated for whatever reason, the Company
would be subject to all the risks of ownership of the equipment as described
above. See "Business -- Industry Overview."
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DEPENDENCE ON AVAILABILITY OF FINANCING
The business in which the Company is engaged is a capital intensive
business. The Company's business involves both the leasing and the financing of
assets. The leasing business is characterized by ownership of the assets
residing with the Company or its assigns. The financing business is
characterized by the beneficial ownership of assets residing with the asset user
or customer. All of the below described types of financing are important to the
conduct of the Company's leasing and financing business.
The typical lease transaction requires both nonrecourse debt and an equity
investment by the Company at the time the equipment is purchased. The typical
financing transaction is dependent upon the nonrecourse financing described
below. The Company's equity investment generally ranges between 5% and 20% of
the equipment cost (but sometimes ranges as high as 35%). The balance of the
equipment cost, or the nonrecourse debt portion, is typically financed with a
lender on a nonrecourse basis to the Company. The Company's equity investment
must come from: (i) equity investments from third parties (including MLC/GATX
Limited Partnership I and MLC/CLC LLC); (ii) internally generated funds; (iii)
the net proceeds of the sale of the Company's securities; or (iv) recourse
borrowings. Accordingly, the Company's ability to successfully execute its
business strategy and to sustain its growth is dependent largely on its ability
to obtain financing.
Information relating to the sources of such financing for equipment
acquisitions is as follows:
Nonrecourse Financing. The credit standing of the Company's customers
allows the Company to finance most of its leasing or financing transactions on a
nonrecourse basis. Under a nonrecourse loan, the Company borrows an amount equal
to the committed lease payments under the financed lease, discounted at a fixed
interest rate. The lender is entitled to receive the payments under the financed
lease in repayment of the loan, and takes a security interest in the related
equipment. The Company retains ownership of such equipment, subject to the
lender's security interest. Interest rates under this type of financing are
negotiated on a transaction-by-transaction basis and reflect the financial
condition of the lessee, the term of the lease and the amount of the loan. As of
June 30, 1996, the Company had aggregate outstanding nonrecourse borrowings of
approximately $16.6 million.
The Company's objective is to enter into leasing or financing transactions
with creditworthy customers whose credit standing will permit the Company to
finance such leases with banks or other financial institutions on a nonrecourse
basis to the Company. The Company's customers which do not have a credit rating
of Baa or better generally are creditworthy non-rated companies that may be
publicly or privately owned. The Company has had success in meeting this
objective in the past, but there is no assurance that banks or other financial
institutions will be willing or able to continue to finance the Company's lease
transactions on a nonrecourse basis, that the Company will continue to be able
to attract customers that meet the credit standards for nonrecourse financing
required by the Company's financing sources or that those standards will not
change in the future.
The Company also originates tax-exempt state and local lease transactions
in which the interest income is exempted from federal income taxes, and to some
degree, certain state income taxes. The Company assigns its tax-exempt leases to
institutional investors, banks and investment banks which can utilize tax-free
income, and has a number of such entities which regularly purchase the
transactions. The Company also originates financings involving various agencies
of the U.S. Government. In addition to the usual risks associated with
commercial transactions, these financings may be subject to numerous termination
provisions (see "Risk Factors -- Government Termination Risk") and may also
contain risks associated with a vendor's inability to meet contractual
obligations to provide specified goods or services as specified on an ongoing
basis. Historically, there have been a limited number of financial institutions
which have provided financing for these contracts, and although the Company
maintains favorable relationships with a few, there can be no assurance that the
Company will be able to replace these relationships or find other lenders in the
event existing relationships are terminated.
Access to nonrecourse financing is also important to the Company's lease
sales revenue and fee income. The Company enters into many transactions
involving government leases which it immediately assigns and
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sells, on a nonrecourse basis to third parties and records any gain or loss from
the transaction as lease revenue. Unavailability of persons willing to acquire
such government leases on such a nonrecourse basis could materially adversely
affect the Company's ability to consummate such sales transactions and thus have
a material adverse effect upon the Company's business, financial condition and
results of operations. See "Business -- Financing."
Equity Joint Ventures. Through MLC/GATX Limited Partnership I and MLC/CLC
LLC, the Company has formal joint venture arrangements with two institutional
investors which provide the equity investment financing for certain of the
Company's transactions. These joint venture arrangements enable the Company to
invest in a significantly greater portfolio of business than the Company's
limited capital base would otherwise allow. See "Risk Factors -- Dependence on
Major Relationships."
For fiscal year 1996, approximately 31% of the Company's total revenue was
attributable to sales of lease transactions to MLC/GATX Limited Partnership I.
Transactions involving the use or placement of equity from these joint ventures
require the consent of the relevant joint venture partner, and if financing from
those sources were to be withheld or were to become unavailable, it would limit
the amount of equity available to the Company and have a material adverse effect
upon the Company's business, financial condition and results of operations. See
"Business -- Financing."
Equity Capital and Internal Financing. Occasionally the Company finances
leases and related equipment internally, rather than with financing provided by
lenders. These internal lease financings typically occur in cases where the
financed amounts are not sufficiently large to be attractive to lenders or where
the credit rating of the lessee is not acceptable to lenders. The Company also
temporarily finances selected leases internally, generally for less than 90
days, until permanent outside nonrecourse financing is obtained. The Company
believes that the net proceeds from the Offering will substantially increase the
Company's ability to finance lease transactions, either internally or with
recourse borrowings.
If the Company significantly increases its leasing and financing volumes as
a result of new vendor relationships or substantially increases the size of its
leasing portfolio or if other unforeseen developments occur, the Company may
require the proceeds of additional equity financings within the next 12 to 18
months. Additional equity may also be necessary in order for the Company to have
a sufficient equity position to meet debt-to-equity ratios required by its
recourse lenders in the future. There can be no assurances that the Company will
be able to generate operating cash flow or raise additional equity at that time
or at any time in the future or that the Company will be able to raise such
equity on terms which do not cause significant dilution to its stockholders. See
"Business -- Financing."
Recourse Financing. The Company relies on recourse borrowing in the form
of revolving lines of credit, under the NationsBank Facility and the First Union
Facility, for working capital to acquire equipment to be resold in its trading
operation and to acquire equipment for leases, and to a lesser extent, for
long-term financing of leases. As of June 30, 1996, the Company had aggregate
outstanding recourse borrowings of approximately $1.5 million of which
approximately $1.4 million was borrowed under the NationsBank Facility and
$135,165 was borrowed pursuant to long term recourse notes payable. In addition,
the Company recently established a third line of credit for borrowings of $2
million with NationsBanc Leasing Corporation, an affiliate of NationsBank, N.A.
(the "NationsBanc Leasing Facility"). Availability under the revolving lines of
credit may be limited by the asset value of equipment purchased by the Company
and may be further limited by certain covenants and terms and conditions of the
facilities. In the event that Company is unable to sell the equipment or unable
to finance the equipment on a permanent basis within a certain period of time,
the availability of credit under the lines could be diminished or eliminated.
Furthermore, in the event that receivables collateralizing the line are
uncollectible, the Company would be responsible for repayment of the lines of
credit. Accordingly, such a default could have a material adverse effect on the
business, financial condition and results of operations of the Company,
particularly if the then fair market value of the equipment is insufficient to
satisfy the obligations due to the bank.
The First Union Facility expires on October 31, 1996. Currently, the
Company is in the process of negotiating a renewal of the facility. The
NationsBank Facility expires on December 1, 1996 and the NationsBanc Leasing
Facility expires January 31, 1997. There can be no assurance that the Company
will be
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able to renew, extend or replace these credit facilities and a failure to renew,
extend or replace any of these facilities would have a material adverse effect
upon the Company's business, financial condition and results of operations.
With respect to the long-term recourse notes to finance certain leases, the
availability of such recourse borrowing is dependent on both the
creditworthiness of the customer, as described above under "Risk
Factors -- Dependence on Availability of Financing -- Nonrecourse Financing,"
and the creditworthiness of the Company, including the Company's ability to meet
certain debt-to-equity ratios often required by recourse lenders. The Company's
ability to increase the amount of its recourse debt has been limited by its
capital position and the personal guarantees and collateral provided by its
stockholders. The Company has not experienced difficulty since its organization
in obtaining additional recourse debt, when necessary, and it expects that the
increase in its stockholders' equity resulting from the sale of the Common Stock
in the Offering will make available to it, as necessary, substantial additional
recourse borrowing. However, no assurances can be given that the Company will
not experience such difficulty in obtaining recourse debt in the future, either
because lenders change their credit standards for providing such financing or
because the Company increases its recourse borrowing to a level where it cannot
meet such debt-to-equity ratio requirements or other financial covenants. The
unavailability of such recourse financing would have a material adverse effect
on the ability of the Company to finance lease transactions and, thus, have a
material adverse effect upon the Company's business, financial condition and
results of operations. See "Business -- Financing."
COMPETITION
The Company faces substantial competition in connection with the purchase,
sale and lease of new and used computer systems, computer peripheral equipment,
upgrades and parts. Among its competitors are numerous national and regional
companies selling, leasing and financing the same or equivalent products. Many
of these competitors are well established, have substantially greater financial,
marketing, technical and sales support than the Company and have established
reputations for success in the purchase, sale and lease of computer-related
products. In addition, many computer manufacturers may sell or lease directly to
the Company's customers, and the Company's continued ability to compete
effectively may be affected by the policies of such manufacturers. The Company
also faces competition from other financial service firms such as investment
banking firms which underwrite municipal bonds to finance large municipal
acquisitions, national finance companies which finance equipment in the
governmental and commercial sectors, banks which finance local customers and
also engage in lease transactions to obtain favorable tax benefits, as well as
other financial intermediaries similar to the Company which may focus
specifically on geography, asset-type or customer profiles. There can be no
assurance that the Company will be able to compete successfully or that it will
maintain profitability in the future. See "Business -- Competition."
POTENTIAL ACQUISITIONS
As part of its long-term business strategy, the Company intends to pursue
acquisitions of other companies. Future acquisitions may result in potentially
dilutive issuances of equity securities, the incurrence of additional debt and
the amortization of expenses related to goodwill and other intangible assets,
all of which could have a material adverse effect on the Company's business,
financial condition and results of operations. Future acquisitions would involve
numerous additional risks, including: difficulties in the assimilation of the
operations, services, products and personnel of the acquired company; the
diversion of management's attention from other business concerns; entering
markets in which the Company has little or no direct prior experience; and the
potential loss of key employees of the acquired company. The Company currently
has no agreements or understandings with regard to any acquisitions. See
"Business -- Strategy."
DEPENDENCE ON CURRENT MANAGEMENT
The operations and future success of the Company are dependent upon the
efforts, abilities and relationships of the Company's Chairman, Chief Executive
Officer and President, Phillip G. Norton, and its founder, Chief Financial
Officer and Executive Vice President, Bruce M. Bowen, who also serves as a
director
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of the Company, and its Secretary and Treasurer, Kleyton L. Parkhurst. The loss
of any of these key management officers would materially adversely affect the
business, financial condition and results of operations of the Company. Each of
these officers has entered into an employment agreement with the Company. The
Company maintains key-man life insurance on Mr. Norton in the form of two
separate policies, one with the Prudential Life Insurance Company and the second
with TransAmerica Life Co., each in the amount of $5,000,000 and on Mr. Bowen
with CNA Insurance Company in the amount of $1,000,000. See
"Management -- Compensation Arrangements and Employment Agreements."
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon completion of the Offering, one of the Company's current principal
stockholders, Phillip G. Norton, Chairman, Chief Executive Officer and President
of the Company, will directly and indirectly control approximately 56.2% of the
Company's outstanding Common Stock as a result of the following transactions.
Patrick J. Norton, Jr. and Kevin M. Norton, brothers of Phillip G. Norton, have
entered into an irrevocable proxy and stock rights agreement (the "Irrevocable
Proxy and Stock Rights Agreement") whereby they agree (i) to grant a perpetual
irrevocable proxy granting Phillip G. Norton the right to vote their stock of
the Company and (ii) to grant Phillip G. Norton (or his assigns) the first right
to purchase their shares of Common Stock in the event such brother determines to
sell or transfer such shares of Common Stock. J.A.P. Investment Group L.P., a
Virginia limited partnership, which is a family limited partnership, 100%
beneficially owned by the wife and children of Phillip G. Norton has also
executed the Irrevocable Proxy and Stock Rights Agreement (i) to grant a
perpetual irrevocable proxy granting Phillip G. Norton the right to vote its
stock of the Company but (ii) not granting Phillip G. Norton the first right to
purchase its shares of Common Stock in the event the partnership determines to
sell or transfer such shares of Common Stock. Finally, Phillip G. Norton also
has the option to acquire an additional 130,000 shares of Common Stock of which
options to acquire 32,500 shares of Common Stock are immediately exercisable
upon completion of the Offering. "Management -- Executive Compensation and Other
Information" and "Principal Stockholders."
Similarly, upon completion of the Offering, another of the Company's
current principal stockholders, Bruce M. Bowen, a director, the Chief Financial
Officer and Executive Vice President of the Company, will directly and
indirectly control approximately 15.3% of the Company's outstanding Common
Stock. Mr. Bowen's holdings include 160,000 shares held by Bowen Holdings,
L.L.C., a Virginia limited liability company, whose members are Mr. Bowen and
his three minor children, Daniel Bowen, Sarah Bowen and Margaret Bowen. Mr.
Bowen has the option to acquire an additional 15,000 shares of Common Stock
pursuant to options of which options to acquire 3,750 of Common Stock are
immediately exercisable upon completion of the Offering. See
"Management -- Executive Compensation and Other Information" and "Principal
Stockholders."
Because of their ownership positions, Messrs. Norton and Bowen will have a
substantial influence on the election of all of the Company's directors, and,
therefore, substantial control of the direction of the affairs of the Company.
Mr. Norton, acting alone, or in concert with Mr. Bowen, will effectively control
the election of a majority of the members of the Company's Board of Directors
and will effectively be able to determine all corporate actions, including
amendments to the Company's charter documents, or take other actions which could
adversely affect minority stockholders. In addition, the Company's stockholders
do not have the right to cumulative voting in the election of directors, the
absence of which has the effect of making it unlikely that the public
stockholders will be able to cause any director to be elected to the Company's
Board of Directors, other than those supported by Mr. Norton, individually, or,
if Mr. Norton's ownership position should decrease, those supported by Messrs.
Norton and Bowen. See "Description of Capital Stock."
GOVERNMENT TERMINATION RISK
Virtually all of the Company's lease volume with government customers is
pursuant to leases which are "subject to appropriation," or, with respect to
federal government leases, "also subject to termination for convenience or the
risk of non-renewal at the end of each fiscal year." A lease which is subject to
termination for convenience may also be terminated by the government at any time
prior to expiration of the fiscal year on various grounds in which event, while
the Company or its assignee through the contractor may submit a claim
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for losses, if any, associated therewith, the timing and amount of a settlement
upon such a claim can be uncertain. In addition, most federal government leases
are written over several fiscal years and give the government the option not to
renew at the end of each fiscal year for any reason, even if funds have been
appropriated. In the case of a lease which is "subject to appropriation," the
obligation of the lessor is subject to and contingent upon appropriation of
funding for that lease in future fiscal years and if such funding is not
appropriated, then the governmental lessee has no obligation to continue the
lease. The Company has historically sought and been able to pass these
appropriation, non-renewal and termination for convenience risks to financial
institutions by financing such leases on a "nonrecourse" basis; however, there
can be no assurance that the Company will be able to obtain such financing in
the future. A material increase in either industry-wide termination experience
or in the Company's termination due to non-appropriation, non-renewal or
termination for convenience experience would make it more difficult for the
Company to obtain nonrecourse financing for similar "subject to appropriation"
governmental leases in the future and would have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE UPON AVAILABILITY OF EQUIPMENT
A substantial portion of the Company's sales and lease revenues are derived
from equipment which the Company obtains in the computer "aftermarket." As a
supplier of used International Business Machines Corporation ("IBM") and
IBM-compatible computer equipment and other equipment, the Company must
constantly identify sources for products at costs which permit the Company to
re-sell or re-lease such equipment on a competitive and profitable basis. The
Company believes that it has developed a network of product suppliers which will
assure availability of computer equipment desired by customers. Technological
advances and shifts in customer preferences may, however, require the Company to
offer additional or different products and could render a portion of the
Company's inventory and lease portfolio unmarketable or marketable only at lower
prices or rates. From time-to-time, the Company and its competitors have
experienced shortages in the availability of certain products. The occurrence of
these shortages in the future would have a material adverse effect on the
Company's business, financial condition and results of operations. As of June
30, 1996, the Company's inventory of information technology equipment was
$67,267, and the highest inventory level at the end of any quarter during fiscal
year 1996 was $531,732 on June 30, 1995. See "Business -- Competition."
MANAGEMENT OF GROWTH
In order to support the anticipated growth of its business, the Company has
added new personnel in 1995 and 1996 and expects to add additional personnel in
1997. The Company is absorbing, and will continue to absorb in the future, the
effects of additional personnel costs and the implementation of new systems
necessary to manage such growth. The Company's future operating results will
depend on its ability to attract, hire and retain skilled employees and on the
ability of its officers and key employees to continue to implement and improve
its operational and financial control systems and to train and manage its
employees. If the Company is unable to manage growth effectively, or attract and
retain the personnel it requires, the Company's business, financial condition
and results of operations would be materially adversely affected.
RISK OF CHANGES IN TAX LAWS
The Company's leasing activities generate significant depreciation
allowances that provide the Company with substantial tax deductions on an
ongoing basis. Many of the Company's lessees currently enjoy favorable tax
treatment by entering into operating leases. In addition, parties financing
certain leases to state and local governments enjoy favorable tax treatment
based upon their interest income not being subject to certain income taxes. Any
change to current tax laws that makes existing operating lease financing or
municipal lease financing less attractive could materially adversely affect the
Company's business, financial condition and results of operations.
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RISK OF CHANGES IN ACCOUNTING PRACTICES
Many of the Company's lessees currently enjoy favorable accounting
treatment of operating leases. Any change to current accounting principles that
make operating lease financing less attractive could materially adversely affect
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" for a discussion of the impact of a recently promulgated financial
accounting staff bulletin.
INTEREST RATE RISK
During the marketing and bid process for new lease transactions, the
Company typically provides a proposal to the customer based upon market
conditions at the time of the proposal. While the proposal in many instances
will provide the Company with the ability to reprice its bid under certain
conditions, in general terms, between the time the proposal is issued by the
Company and the time the lease transaction is ultimately financed by the
Company, the Company is exposed to interest rate risk to the extent interest
rates increase.
In addition, prior to obtaining long-term financing for its leases and the
related equipment, the Company sometimes finances the purchase of those assets
through lines of credit which bear interest at variable rates. See "Risk
Factors -- Dependence on Availability of Financing -- Recourse Financing" and
"Business -- Financing." The Company is exposed to interest rate risk on leases
financed through the NationsBank Facility, the First Union Facility and the
NationsBanc Leasing Facility to the extent interest rates increase between the
time the leases are initially financed and the time they are permanently
financed.
ANTI-TAKEOVER CONSIDERATIONS
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that could have the effect of making it more difficult for a party to
acquire, or of discouraging a party from attempting to acquire, control of the
Company without approval of the Company's Board of Directors.
Under the Company's Certificate of Incorporation, the Board of Directors
has authority to issue up to 2,000,000 shares of $.01 par value preferred stock
of the Company, in one or more series, having such rights and privileges,
including, without limitation, voting rights, as the Board of Directors may
determine in its sole discretion. No consent of the holders of shares of Common
Stock is required to authorize the issuance of any class of preferred stock of
the Company. The rights of the holders of shares of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. While the Company has no present
intention to issue shares of preferred stock, such issuance could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company. See "Description of Capital Stock."
The Company's Certificate of Incorporation and Bylaws further provide for
the Company's Board of Directors to be divided into three classes, with
directors in each class elected for three-year staggered terms, except for the
initial directors. This classification of the Board of Directors could make it
more difficult for a third party to acquire control of the Company, because it
would require more than one annual meeting of the stockholders to elect a
majority of the Board of Directors.
The Company is a Delaware corporation and is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law ("DGCL"). In
general, Section 203 prevents an "interested stockholder" (defined generally as
a person owning 15% or more of the Company's outstanding voting stock) from
engaging in a "business combination" with the Company for three years following
the date that the person became an interested stockholder unless the business
combination is approved in a prescribed manner. This statute could make it more
difficult for a third party to acquire control of the Company. See "Description
of Capital Stock -- Certain Provisions of Delaware Law."
ABSENCE OF PRIOR PUBLIC MARKET FOR STOCK
The Common Stock has not been previously traded on an established market;
thus, there exists a degree of uncertainty as to the volume and the price at
which sustained market trading will occur.
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The initial public offering price of the Common Stock has been determined
by negotiations among the Company and the Representative and may not reflect the
market price of the Common Stock after the Offering. See "Underwriting" for a
discussion of factors considered in determining the initial public offering
price. The assumed initial public offering price of $8.00 per share is
substantially in excess of the pro forma net book value of $0.85 per share,
derived from the Company's June 30, 1996 balance sheet. See "Dilution" and
"Underwriting."
The market price of the Common Stock, like that of the securities of other
equipment leasing and financing companies, may be highly volatile. In the
future, there may be significant volatility in the market price of the Common
Stock due to factors that may or may not relate to the Company's performance.
For example, the market price may be significantly affected by the following,
and other factors: actual or anticipated financial results of the Company; the
market price of stocks of other capital equipment leasing and financing
companies; fluctuations and trends in prevailing money market interest rates;
announcements from vendors of the Company's leased equipment regarding new
products or technological innovations; equipment price changes; changes in
government regulations; accounting principles or tax laws applicable to the
Company; the operating results or financial condition of the company's vendors
or principal customers; or acquisitions affecting the Company's vendors or
principal customers.
ABSENCE OF DIVIDENDS
The Company has never paid a cash dividend to stockholders and does not
anticipate paying dividends on the Common Stock in the foreseeable future, as
the Company's Board of Directors intends to retain the Company's earnings for
use in the business. In addition, the First Union Facility includes a covenant
which prohibits the Company from paying any dividends. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
An investor in the Common Stock will experience immediate and substantial
dilution. As of June 30, 1996, the Company had a net book value of approximately
$3.4 million or $0.85 per share of Common Stock, based upon 4,000,000 shares of
Common Stock outstanding. After giving effect to the sale of the Common Stock in
the Offering at an assumed initial public offering price of $8.00 per share, and
after deducting the underwriting discount and commissions and estimated expenses
of the Offering, the Company's pro forma net book value would have been
approximately $9.9 million or $1.98 per share of Common Stock, as of June 30,
1996, based on 5,000,000 shares of Common Stock outstanding. The result will be
an immediate increase in net book value of $1.13 share of Common Stock to
existing stockholders and an immediate dilution to new investors of $6.02 per
share of Common Stock (representing a 75% dilution from the assumed initial
public offering price per share). As a result, new investors will bear most of
the risk of loss since their shares are being purchased at a cost substantially
above the price that existing stockholders acquired their shares. See
"Dilution."
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's future quarterly operating results may fluctuate. In the
event the Company's revenues or earnings for any quarter are less than the level
expected by securities analysts or the market in general, such shortfall could
have an immediate and significant adverse impact on the market price of the
Common Stock. Any such adverse impact could be greater if any such shortfall
occurs near the time of any material decrease in any widely followed stock index
or in the market price of the stock of one or more public equipment leasing and
financing companies or major customers of the Company.
The Company's quarterly results of operations are susceptible to
fluctuations for a number of reasons, including, without limitation, any
reduction of expected residual values related to the equipment the Company
leases, timing of specific transactions and other factors. Quarterly operating
results could also fluctuate as a result of the sale by the Company of equipment
in its lease portfolio, at the expiration of a lease term or prior to such
expiration, to the lessee or to a third party. Such sales of equipment may have
the effect of increasing revenues and net income during the quarter in which the
sale occurs, and reducing revenues and net income
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otherwise expected in subsequent quarters. See "Risk Factors -- Asset Ownership
Risk" and "Management's Discussion and Analysis of Results of Operations and
Financial Condition."
Given the possibility of such fluctuations, the Company believes that
comparisons of the results of its operations for one quarter should not be
relied upon as an indication of future performance.
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET PRICE OF COMMON
STOCK
Upon the completion of the Offering, 5,000,000 shares of Common Stock
(including the 1,000,000 shares sold in the Offering ) will be outstanding. Of
this amount, 1,000,000 shares of Common Stock will be freely tradable without
restriction. The remaining 4,000,000 shares of Common Stock will be subject to a
lock-up agreement described below. Under the lock-up agreements, each of the
Company's directors and officers, including Messrs. Norton and Bowen, has agreed
not to sell, without the prior written consent of the Underwriters, any shares
owned by such person, directly or indirectly, within the 360-day period after
the date of this Prospectus. While at the end of such 360-day period, the
4,000,000 shares subject to such lock-up agreement will no longer be subject to
such agreement, such shares will be required to be sold pursuant to provisions
of Rule 144 under the Securities Act. Sales of any such shares after such
periods could adversely affect the market price of the Common Stock. See
"Description of Capital Stock -- Shares Eligible for Future Sale" and
"Underwriting."
17
<PAGE> 19
THE COMPANY
The Company is a recently formed Delaware corporation which, pursuant to a
reorganization effected September 1, 1996, serves as the holding company for MLC
Group and other subsidiaries. The Company holds no other assets and engages in
no other business other than serving as the parent holding company for MLC Group
and MLC Capital, Inc. MLC/GATX Leasing Corporation is a 50% owned subsidiary of
MLC Group.
MLC Group, a Virginia corporation, founded in 1990 and originally named
Municipal Leasing Corporation, currently conducts all business activity of the
Company. MLC Capital, Inc., is an NASD-registered broker-dealer and as of the
date of this Prospectus has conducted no business transactions. MLC Group
obtains a significant source of its equity financing for transactions through
two joint venture arrangements: (i) MLC/GATX Limited Partnership I; and (ii)
MLC/CLC LLC. The Company has a 9.5% limited partnership ownership interest in
MLC/GATX Limited Partnership I and owns 50% of the stock of MLC/GATX Leasing
Corporation, which serves as general partner of MLC/GATX Limited Partnership I
with a 1% general partnership interest. The Company has a 5% membership interest
in MLC/CLC LLC and serves as its manager. See "Risk Factors -- Dependence on
Major Relationships" and "Business -- Financing."
The Company's principal executive offices are located at 11150 Sunset Hills
Road, Suite 110, Reston, Virginia 20190-5321 and its telephone number at such
address is (703) 834-5710. The Company operates through 10 offices, including
its principal executive offices and seven regional sales offices which are
located in the following metropolitan areas: Philadelphia, Pennsylvania; Dallas,
Texas; Stamford, Connecticut; Sacramento, California; Raleigh, North Carolina;
Atlanta, Georgia; San Diego, California. In addition the Company also has
arrangements with two independent contractors who work primarily for the Company
in Columbus and Cincinnati, Ohio.
The Company currently employs 39 full-time employees and eight part-time
employees, of which 27 of such employees work at the Company's principal
executive offices and the remaining 20 work at the various regional offices of
the Company.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered hereby are estimated to be approximately $6.5 million after
deducting the Underwriter's discount and commissions and estimated expenses of
the Offering payable by the Company ($7.6 million if the Underwriters' over-
allotment option is exercised in full for an additional 150,000 shares).
The net proceeds of the Offering will be used as follows: (i) approximately
$275,000 will be used to repay outstanding indebtedness currently owed to two
stockholders of the Company; (ii) approximately $1.4 million will be used to
retire outstanding indebtedness on the NationsBank Facility and the First Union
Facility; and (iii) the balance will be used for general corporate purposes.
Such general corporate purposes include purchases of equipment for lease or
re-sale, acquisitions of existing portfolio equipment and related leases and
acquisitions of related businesses or new joint ventures. The Company does not
have any agreements or understandings with respect to any acquisitions of
existing portfolio equipment and related leases and acquisitions of related
businesses or new joint ventures at the present time. Further, the Company
cannot currently predict the amount of its short-term debt, if any, that it will
repay with such proceeds, and in any event, expects that it may reborrow all or
a portion of any such amount within 90 days after it has been repaid to
repurchase equipment for lease or sale.
The indebtedness to be retired with the proceeds of the Offering consists
of: (i) approximately $275,000 outstanding pursuant to two separate demand
notes, one of which is held by Bruce M. Bowen, in the amount of $175,000, and
the other of which is held by William J. Slaton, in the amount of $100,000, each
dated March 1, 1995, and each accruing interest at the rate of 10% per annum and
due in full on March 3, 1998; (ii) approximately $1.4 million outstanding, as of
June 30, 1996, under the NationsBank Facility, a $2 million revolving loan
facility, bearing interest at prime plus 1% and expiring December 1, 1996; and
(iii) the amount
18
<PAGE> 20
outstanding, if any, under the First Union Facility, a $5 million revolving term
loan facility, with advances bearing interest at LIBOR plus 275 basis points and
expiring October 31, 1996, which had no outstanding balance, as of June 30,
1996.
Pending such uses, the Company expects to invest the net proceeds in United
States government agency secured investments or other short-term investment
grade securities.
DIVIDEND POLICY
The Company has never paid a cash dividend to stockholders and the current
policy of the Company's Board of Directors is to retain the earnings of the
Company for use in the business. In addition, the First Union Facility prohibits
the Company from paying any dividends. Therefore, the payment of cash dividends
on the Common Stock is unlikely in the foreseeable future. Any future
determination concerning the payment of dividends will depend upon the
elimination of these restrictions and the absence of similar restrictions in
other agreements to which the Company is a party, the Company's financial
condition, the Company's results of operations and any other factors deemed
relevant by the Board of Directors.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 on an actual basis and on an adjusted basis giving effect to (i) the
sale of 1,000,000 shares of Common Stock offered by the Company at an assumed
initial public offering price of $8.00 per share of Common Stock (the mid-point
of the price range set forth on the cover page of this Prospectus) after
deducting underwriting discounts and commissions and estimated expenses of the
Offering and (ii) the repayment by the Company of certain indebtedness. See "Use
of Proceeds" and "Certain Transactions."
<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonrecourse notes payable............................................... $16,564 $16,564
Recourse notes payable.................................................. 1,485 135
Loans from stockholders................................................. 275 --
------- -------
Total......................................................... 18,324 16,699
Stockholders' equity:
Preferred stock, $0.01 par value -- 2,000,000 shares authorized;
none issued or outstanding........................................ -- --
Common stock, $0.01 par value -- 10,000,000 shares authorized;
4,000,000 shares issued and outstanding (actual), 5,000,000
shares; issued and outstanding (as adjusted)(1)................... 40 50
Additional paid-in capital......................................... 10 6,500
Retained earnings.................................................. 3,340 3,340
------- -------
Total stockholders' equity.................................... 3,390 9,890
------- -------
Total capitalization.......................................... $21,714 $26,589
======= =======
</TABLE>
- ------------------
(1) Excludes a total of 400,000 shares of Common Stock reserved for issuance
under various employment agreements and certain stock option plans of the
Company as follows: (i) 30,000 shares of Common Stock reserved for issuance
upon exercise of options granted to nonemployee directors under the 1996
Outside Director Stock Plan with an exercise price equal to the initial
public offering price and 45,000 shares of Common Stock reserved for
issuance under future options to be granted under the 1996 Outside Director
Stock Plan at an exercise price equal to the market price at the time of
grant; (ii) 100,000 shares of Common Stock reserved for issuance upon
exercise of options granted Kleyton L. Parkhurst under an employment
agreement with an exercise price equal to $6.40 per share of Common Stock;
(iii) 15,000 shares of Common Stock issuable upon exercise of options
granted Bruce M. Bowen under an employment agreement with an exercise price
equal to the initial public offering price; (iv) 130,000 shares of Common
Stock reserved for issuance upon exercise of options granted to Phillip
Norton under an employment agreement with an exercise price equal to the
initial public offering price; (v) 60,000 shares of Common Stock issuable
upon exercise of options granted other employees under the 1996 Incentive
Stock Option Plan with an exercise price equal to the initial public
offering price; and (vi) 20,000 additional shares of Common Stock reserved
for issuance under the 1996 Stock Incentive Plan. See
"Management -- Compensation Arrangements and Employment Agreements" and
"-- 1996 Stock Incentive Plan" and "Underwriting."
20
<PAGE> 22
DILUTION
The net book value of the Company, as of June 30, 1996, was approximately
$3.4 million or $0.85 per share of Common Stock. Net book value represents the
amount of the Company's stockholder's equity.
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the Offering
and the pro forma net book value per share of Common Stock immediately after
completion of the Offering. After giving effect to the sale of the Common Stock
at an estimated initial public offering price of $8.00 per share of Common Stock
(the mid-point of the price range set forth on the cover page of this
Prospectus) and after deduction of the underwriting discount and commissions and
estimated expenses of the Offering, the adjusted pro forma net book value, as of
June 30, 1996, would have been approximately $9.9 million or $1.98 per share of
Common Stock. This represents an immediate increase in net book value of $1.13
per share to existing stockholders and an immediate dilution of $6.02 per share
to new investors purchasing the Common Stock. The following table illustrates
the pro forma per share dilution, as of June 30, 1996:
<TABLE>
<S> <C> <C>
Estimated initial public offering price per share(1).................. $8.00
Net book value per share at June 30, 1996........................ $0.85
Increase per share in pro forma net book value attributable to
new investors................................................... 1.13
-----
Pro forma net book value per share after the Offering(2).............. 1.98
-----
Dilution per share to new investors................................... $6.02
=====
</TABLE>
- ---------------
(1) Before deducting estimated underwriting discounts and commissions and
estimated expenses of the Offering payable by the Company.
(2) Excludes 400,000 shares of Common Stock reserved for issuance upon the
exercise of options granted or to be granted or reserved for future grant
pursuant to employment agreements and the 1996 Stock Incentive Plan. See
"Management -- Executive Compensation and Other Information."
The following table sets forth, on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
existing stockholders for shares of Common Stock held prior to the Offering and
paid by the new investors for shares of Common Stock purchases in the Offering,
based upon the estimated initial public offering price of $8.00 per share of
Common Stock (the mid-point of the price range set forth on the cover page of
this Prospectus) before deduction of the underwriting discount and estimated
expenses of the Offering:
<TABLE>
<CAPTION>
SHARES OWNED
AFTER THE OFFERING TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 4,000,000 80.00% $ 49,592 0.62% $0.01
New investors.................... 1,000,000 20.00 8,000,000 99.38 8.00
--------- ------- ---------- -------
Total.................. 5,000,000 100.00% $8,049,592 100.00%
======== ====== ========= ======
</TABLE>
21
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements of the Company and
related notes thereto and "Management's Discussion and Analysis of Results of
Operations and Financial Condition," included elsewhere herein. The consolidated
financial data as of and for the quarters ended June 30, 1995 and June 30, 1996,
have not been audited, but in the opinion of management of the Company all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation have been included. The results of operations for the quarter ended
June 30, 1996 are not necessarily indicative of the results of operations that
may be expected for the entire year. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition" and "Business."
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED MARCH 31, JUNE 30,
------------------------------------------ --------------------
STATEMENTS OF EARNINGS 1992(1) 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Sales.............................. $ 6,183 $ 24,357 $ 24,677 $ 36,898 $ 34,842 $ 2,091 $ 10,412
Lease revenues..................... 377 1,219 1,577 2,968 5,900 968 1,791
Net margin on sales-type leases.... -- 193 380 277 86 75 --
Fee and other income............... 47 694 979 676 1,972 641 693
--------- --------- --------- --------- --------- --------- ---------
Total revenues................ 6,607 26,463 27,613 40,819 42,800 3,775 12,896
--------- --------- --------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales...................... 5,635 22,750 23,155 34,353 31,202 1,454 9,894
Direct lease costs................. -- 140 344 841 2,863 286 781
Professional and other fees........ 388 770 595 633 687 49 128
Salaries and benefits.............. 313 1,403 1,734 2,631 2,962 846 665
General and administrative
expenses......................... 185 526 994 759 1,018 191 259
Interest and financing costs....... 43 251 411 990 1,577 308 370
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses...... 6,564 25,840 27,233 40,207 40,309 3,134 12,097
--------- --------- --------- --------- --------- --------- ---------
EARNINGS BEFORE PROVISION FOR
INCOME TAXES......................... 43 623 380 612 2,491 641 799
PROVISION FOR INCOME TAXES............. -- 185 59 198 881 227 284
--------- --------- --------- --------- --------- --------- ---------
NET EARNINGS........................... $ 43 $ 438 $ 321 $ 414 $ 1,610 $ 414 $ 515
========= ========= ========= ========= ========= ========= =========
NET EARNINGS PER COMMON SHARE.......... $ 0.02 $ 0.11 $ 0.08 $ 0.10 $ 0.40 $ 0.10 $ 0.13
========= ========= ========= ========= ========= ========= =========
SHARES USED IN COMPUTING PER COMMON
SHARE AMOUNTS........................ 1,800,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000
</TABLE>
- ---------------
(1) Includes financial results for the period November 8, 1990 (organization) to
March 31, 1992
22
<PAGE> 24
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF JUNE 30,
--------------------------------------------- -----------------
BALANCE SHEETS 1992 1993 1994 1995 1996 1995 1996
------ ------ ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents............... $ 834 $ 106 $ 929 $ 253 $ 358 $ 355 $ 446
Accounts receivable..................... 162 465 964 2,138 1,273 1,087 1,962
Notes receivable........................ -- 34 87 37 92 2 1,046
Inventories............................. 138 456 231 138 86 532 67
Net investment in direct financing and
sales-type leases -- net.............. 1,302 2,577 10,146 12,124 16,273 12,129 14,372
Investment in operating lease
equipment -- net...................... -- 2,104 164 1,874 10,220 2,599 8,239
Other assets............................ -- 40 334 548 1,178 935 1,046
All other assets........................ 55 82 383 369 356 336 343
------ ------ ------- ------- ------- ------- -------
TOTAL ASSETS................................ $2,491 $5,864 $13,238 $17,481 $29,836 $17,975 $27,521
====== ====== ======= ======= ======= ======= =======
LIABILITIES:
Accounts payable -- equipment........... $ 441 $2,107 $ 1,091 $ 3,014 $ 4,973 $ 1,425 $ 3,392
Accounts payable -- trade............... 136 113 466 395 605 963 303
Salaries and commissions payable........ 125 122 131 118 62 200 131
Recourse notes payable.................. 828 634 2,144 1,815 1,285 1,419 1,485
Nonrecourse notes payable............... 600 1,917 8,116 10,162 18,351 11,255 16,564
All other liabilities................... 317 441 439 713 1,685 1,035 2,256
------ ------ ------- ------- ------- ------- -------
Total liabilities.................. 2,447 5,334 12,387 16,217 26,961 16,297 24,131
------ ------ ------- ------- ------- ------- -------
TOTAL STOCKHOLDERS' EQUITY.................. 44 530 851 1,264 2,875 1,678 3,390
------ ------ ------- ------- ------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................... $2,491 $5,864 $13,238 $17,481 $29,836 $17,975 $27,521
====== ====== ======= ======= ======= ======= =======
</TABLE>
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis of results of operations and
financial condition of the Company should be read in conjunction with the
Consolidated Financial Statements and the related Notes thereto included
elsewhere in this Prospectus.
REVENUE RECOGNITION AND LEASE ACCOUNTING
The Company's principal line of business is the leasing, financing and sale
of equipment. The manner in which these lease finance transactions are
characterized and reported for accounting purposes has a major impact upon the
Company's reported revenue, net earnings and the resulting financial measures.
Lease accounting methods significant to the Company's business are discussed
below.
The Company classifies its lease transactions, as required by the Statement
of Financial Accounting Standards No. 13, Accounting for Leases ("FASB No. 13")
as: (i) direct financing; (ii) sales-type; or (iii) operating leases. Revenues
and expenses between accounting periods for each lease term will vary depending
upon the lease classification.
For financial statement purposes, the Company includes revenue from all
three classifications in lease revenues, and costs related to these leases in
direct lease costs.
Direct Financing and Sales-Type Leases. Direct financing and sales-type
leases transfer substantially all benefits and risks of equipment ownership to
the customer. A lease is a direct financing or sales-type lease if the
creditworthiness of the customer and the collectibility of lease payments are
reasonably certain and it meets one of the following criteria: (i) the lease
transfers ownership of the equipment to the customer by the end of the lease
term; (ii) the lease contains a bargain purchase option; (iii) the lease term at
inception is at least 75% of the estimated economic life of the leased
equipment; or (iv) the present value of the minimum lease payments is at least
90% of the fair market value of the leased equipment at inception of the lease.
Direct finance leases are recorded as investment in direct finance leases
upon acceptance of the equipment by the customer. At the inception of the lease,
unearned lease income is recorded which represents the amount by which the gross
lease payments receivable plus the estimated residual value of the equipment
exceeds the equipment cost. Unearned lease income is recognized, using the
interest method, as lease revenue over the lease term.
Sales-type leases include a dealer profit (or loss) which is recorded by
the lessor at the inception of the lease. The dealer's profit (or loss)
represents the difference, at the inception of the lease, between the fair value
of the leased property and its cost or carrying amount. The equipment subject to
such leases may be obtained in the secondary marketplace, but most frequently is
the result of releasing the Company's own portfolio. This profit (or loss) which
is recognized at lease inception, is included in net margin on sales-type
leases. Interest earned on the present value of the lease payments and residual
value is recognized over the lease term using the interest method and is
included as part of the Company's lease revenue.
Operating Leases. All leases that do not meet the criteria to be
classified as direct financing or sales-type leases are accounted for as
operating leases. Rental amounts are accrued evenly over the lease term and are
recognized as lease revenue. The Company's cost of the leased equipment is
recorded on the balance sheet as investment in operating lease equipment and is
depreciated on a straight-line basis over the lease term to the Company's
estimate of residual value. Revenue, depreciation expense and resultant profit
for operating leases are recorded evenly over the life of the lease.
As a result of these three classifications of lease for accounting
purposes, the revenues resulting from the "mix" of lease classifications during
an accounting period will affect the profit margin percentage for such period
with such profit margin percentage generally increasing as revenues from direct
financing and sales-type leases increase. Should a lease be financed, the
interest expense declines over the term of the financing as the principal is
reduced.
24
<PAGE> 26
Residual Values. Residual values represent the Company's estimated value
of the equipment at the end of the initial lease term. The residual values for
direct financing and sales-type leases are recorded in investment in direct
financing and sales-type leases, on a net present value basis. The residual
values for operating leases are included in the leased equipment's net book
value and are recorded in investment in operating lease equipment. The estimated
residual values will vary, both in amount and as a percentage of the original
equipment cost, and are recorded in investment in operating lease equipment,
depending upon several factors, including the equipment type, manufacturer's
discount, market conditions and the term of the lease.
The Company evaluates residual values on an ongoing basis and records any
required changes in accordance with FASB No. 13. Residual values are affected by
equipment supply and demand and by new product announcements and price changes
by manufacturers. In accordance with generally accepted accounting principles,
residual values can only be adjusted downward.
The Company seeks to realize the estimated residual value at lease
termination through: (i) renewal or extension of the original lease; (ii) sale
of the equipment either to the lessee or the secondary market; or (iii) lease of
the equipment to a new user. The difference between the proceeds of a sale and
the remaining estimated residual value is recorded as a gain or loss in lease
revenues when title is transferred to the lessee, or, if the equipment is sold
on the secondary market, in sales revenues and cost of sales when title is
transferred to the buyer. The proceeds from any subsequent lease are accounted
for as lease revenues at the time such transaction is entered into.
Initial Direct Costs. Initial direct costs related to the origination of
sales-type, direct finance or operating leases, are capitalized and recorded as
part of the investment in direct financing and sales-type leases, net or as
operating lease equipment, net and are amortized over the lease term.
Sales. Sales revenue is recognized by the Company at the time title to the
equipment passes to the customer.
Other Sources of Revenue. Fee and other income results from (i) income
events that occur after the initial sale of a financial asset such as
escrow/prepayment income, (ii) remarketing fees, (iii) brokerage fees earned for
the placement of financing transactions and (iv) interest and other
miscellaneous income. These revenues are included in fee and other income on the
Company's statement of earnings.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1996
COMPARED TO THE QUARTER ENDED JUNE 30, 1995
Revenue. Total revenues increased 241.6% from $3.8 million in the fiscal
year first quarter ended June 30, 1995 to $12.9 million in the fiscal year first
quarter ended June 30, 1996 principally as a result of an increase in the leased
equipment sales from $0 to $6.2 million. This increase was due to an increased
volume in personal computer equipment leases and the establishment of one of the
Company's joint ventures which purchased approximately $4.8 million of leased
equipment during the quarter. Excluding leased equipment sales, other revenues
increased by 76.5%, including equipment sale revenue which increased 99.8% from
$2.1 million to $4.2 million. Lease revenue was up 85% for the quarter from
$968,074 to $1.8 million. This increase was primarily attributable to the
increase in the Company's leasing activity and lease portfolio. Other revenues
increased 8.1% from $640,630 to $692,468 and in the first quarter of the fiscal
year 1997 includes $75,000 from a gain related to the settlement of a note
payable at less than its recorded value.
Expenses. Total expenses increased from $3.1 million to $12.1 million as a
result of increased costs related to the higher volumes of leased equipment
sales and equipment sales. The cost of leased equipment sales increased from $0
to $6.2 million and the cost of equipment sales increased from $1.5 million to
$3.6 million. Direct lease related expenses increased as a result of higher
lease activity and the growth of the Company's lease assets which increased from
$14.7 million to $22.6 million, or 53.5%. Depreciation related to the operating
lease equipment portfolio increased from $217,854 to $491,394, or 125.6%.
Non-transaction related expenses (general and administrative, salaries and
benefits, business and travel, professional and other fees) decreased from $1.1
million to $1 million or 3.1%.
25
<PAGE> 27
Interest and financing costs increased from $308,118 to $370,238 or 20.2%
due to higher levels of recourse and nonrecourse debt.
Net Earnings. Net earnings increased from $413,376 to $515,199 for an
increase of 24.6% for the period.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED MARCH 31, 1996
REVENUES
Total revenues increased $13.2 million or 47.8%, from $27.6 million in
fiscal year 1994 to $40.8 million in fiscal year 1995. In fiscal year 1996,
total revenues increased $2 million, or 4.9% from fiscal year 1995, to $42.8
million. Lease revenue increased $1.4 million, or 88.2%, from $1.6 million in
fiscal year 1994 to $3 million in fiscal year 1995, and $2.9 million, or 98.8%,
to $5.9 million in fiscal year 1996, as a result of the increase of operating
leases and direct financing leases originated or acquired by the Company during
the periods. Sales revenue increased 49.5% from $24.7 million in fiscal year
1994 to $36.9 million in fiscal year 1995 as a result of a 43.1% increase in
equipment sales from $18.8 million to $26.9 million and a 69.5% increase in
leased equipment sales from $5.9 million to $10 million. Sales revenues declined
5.6% in fiscal year 1996 to $34.8 million as a result of a 31.2% decline in
equipment sales to $18.5 million partially offset by a 63.9% increase in leased
equipment sales to $16.3 million. The decline in sales revenues in fiscal year
1996 is attributable to the Company's focus on higher margin transactions rather
than on volume.
Net margin on sales-type leases revenue decreased $103,758, or 27.3%, from
$380,446 in fiscal year 1994 to $276,688 in fiscal year 1995, and $191,098, or
69.1%, to $85,590 in fiscal year 1996 as a result of a decrease in the
origination of leases qualifying as sales-type leases.
Fee and Other Income. Fee and other income totaled $979,451 in fiscal year
1994 which consisted of several significant transactions including $298,500 from
a fee relating to the brokerage of a municipal lease transaction and $155,000
from the settlement of a dispute. Fee and other income decreased $302,714, or
30.9%, from $979,451 in fiscal year 1994 to $676,737 in fiscal year 1995 and
increased $1.3 million, or 191.7% to $2 million in fiscal year 1996. Fees earned
in fiscal year 1996 included $440,570 from the financing of federal lease
transactions and $327,627 from the brokerage of various municipal leases of
lottery equipment. The Company expects that fee and other income will vary
considerably due to the uncertainty of completion and the timing of specific
transactions. See "-- Fluctuations in Quarterly Operating Results."
EXPENSES
Cost of Sales. Cost of sales increased $11.2 million or 48.4% from $23.2
million in fiscal year 1994 to $34.4 million in fiscal year 1995, and decreased
$3.2 million or 9.2% to $31.2 million in fiscal year 1996. The increase in
fiscal year 1995 and the decrease in fiscal year 1996 relate directly to the
volume of sales in each of those years.
Depreciation and Operating Leases. Depreciation increased $398,576, or
295.4%, from $134,943 in fiscal year 1994 to $533,519 in fiscal year 1995, and
$1.5 million, or 286%, to $2.1 million in fiscal year 1996. The increase in
depreciation for both years is due to the increased level of operating leases
originated and acquired by the Company and increases in the Company's operating
lease assets over the three year period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $698,764, or 21.1%, from $3.3 million in
fiscal year 1994 to $4 million in fiscal year 1995, and increased $645,295, or
16%, to $4.7 million in fiscal year 1996. The increases during the three year
period are due primarily to increased level of business and selling activity.
Interest Expense. Interest and other financing expenses increased
$578,921, or 140.7%, from $411,392 in fiscal year 1994 to $990,313 in fiscal
year 1995, and increased $586,049 or 59.2%, to $1.6 million in fiscal year 1996.
The increase in interest expense during the periods resulted from the Company's
increased level of leasing and business activity, including an increase in
recourse and nonrecourse debt from $10.3 million in
26
<PAGE> 28
fiscal year 1994 to $12 million in fiscal year 1995 to $19.6 million in fiscal
year 1996. The weighted average interest rate for the Company's nonrecourse debt
outstanding as of March 31, 1996 was 7.8%
Income Taxes. The provision for taxes was 15.6%, 32.4% and 35.4% of
earnings before income taxes for the fiscal years 1994, 1995 and 1996,
respectively. The lower rate in fiscal year 1994 is attributable to a higher
percentage of nontaxable items and lower percentage of nondeductible items in
relation to earnings before taxes for that year.
Net Earnings. On a consolidated basis, net earnings and net earnings per
share increased in each of the fiscal years 1994, 1995 and 1996. Net earnings
increased $93,022, or 29%, from $320,533 in fiscal year 1994 to $413,555 in
fiscal year 1995. From fiscal year 1995 to fiscal year 1996, net earnings
increased $1.2 million, or 288.9%, to $1.6 million. The increases result from
the fluctuation in revenues and expenses discussed in the above paragraphs.
Management of Interest Rate Expense. The Company manages interest rate
expense by pricing its transactions based upon the market rates at the time of
the transaction. Most transactions are funded with matching term debt thereby
locking in the interest costs to match the cash flows from the lease over its
term.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly results of operations are susceptible to
fluctuations for a number of reasons, including, without limitation, differences
between estimated residual values and actual amounts realized related to the
equipment the Company leases. Quarterly operating results could also fluctuate
as a result of the sale by the Company of equipment in its lease portfolio prior
to the expiration of the lease term to the lessee or to a third party. Such
sales of leased equipment prior to the expiration of the lease term may have the
effect of increasing revenues and net earnings during the quarter in which the
sale occurs, and reducing revenues and net earnings otherwise expected in
subsequent quarters.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations. The Company generated cash flow from operating
activities of $6.4 million for fiscal year 1996. Cash flow from operations in
fiscal year 1996 was higher than net earnings of $1.6 million, primarily as a
result of non-cash expenses, such as depreciation and amortization of $2.1
million, increase in accounts payable of $2.2 million, increase in accrued
expenses of $547,093 and was offset by gain on sale of operating lease equipment
of $323,422, payments from leases directly to lenders of $884,389 and other
sources and uses of cash from operations totaling $1.1 million. In addition,
cash flow used for investing activities primarily related to leases was $30.2
million. Financing activities produced $24 million for fiscal year 1996. The net
result of all of the above activities was an increase in cash of $104,606 for
fiscal year 1996.
Cash Flow from Borrowings. To date, the financing necessary to support the
Company's leasing and financing activities has been provided principally from
nonrecourse borrowings, and to a lesser extent, recourse borrowings. The Company
anticipates that future leasing and financing activities will be financed in a
similar manner, as well as from the net proceeds of the Offering and cash flow
from operations.
Historically, the Company has obtained recourse and nonrecourse borrowings
from money center banks, regional banks, insurance companies, finance companies
and financial intermediaries.
In order to take advantage of the most favorable long-term financing
arrangements available to it, the Company often finances equipment purchases and
the related leases on an interim basis with short-term, recourse debt, and
accumulates such leases until it has a portfolio large enough (generally at
least $1.0 million, based on the aggregate balance of periodic lease payments
under such leases) to warrant obtaining long-term financing for such leases
either through nonrecourse borrowings or a sales transactions. Such interim
financing is usually obtained through secured, "warehouse" lines of credit,
which generally have a term of one year. The Company's maximum available credit
under such lines of credit totaled $7.0 million as of June 30, 1996. A brief
description of each line of credit presently in place as of June 30, 1996
follows: (i) the NationsBank Facility is a $2.0 million revolving facility with
NationsBank, N.A. ($1.4 million was outstanding as of June 30, 1996), expiring
December 1, 1996. Borrowings under the NationsBank Facility bear interest at the
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bank's prime rate plus 1%; and (ii) the First Union Facility is a $5,000,000
revolving facility provided by First Union National Bank of Virginia (no amounts
were outstanding as of June 30, 1996), with borrowing available through October
31, 1996, and repayments due 90 days after borrowing. Borrowings under the First
Union Facility bear interest at LIBOR plus 275 basis points.
Borrowings under the above-described lines of credit are generally secured
by lease receivables and the underlying equipment financed under the facility.
At June 30, 1996, the aggregate outstanding balance under these lines of credit
was $1.4 million. The agreements for the lines of credit contain covenants
regarding leverage (a maximum debt to net worth ratio of 6.5 to 1.0 and a
minimum consolidated tangible net worth of $1,500,000 as well as interest
coverage, minimum net worth and profitability and a limitation on the payment of
dividends). At June 30, 1996, the Company had a recourse liabilities to equity
ratio of 2.2 to 1.0
In July, 1996, the Company entered into the NationsBanc Leasing Facility,
under which NationsBanc Leasing Corporation may lend up to $2.0 million in
various notes of terms of up to 60 months. The facility, but not transactions
financed thereunder, expires January 31, 1997. Borrowings under the facility
bear interest at a fixed or floating basis, at the Company's option at the time
of each borrowing, as follows: fixed, where the underlying lessee is investment
grade, at U.S. Treasury Notes plus 250 basis points; fixed, where the underlying
lessee is below investment grade, at U.S. Treasury Notes plus 295 basis points;
floating, at the bank's prime rate plus 1%.
The Company has borrowed $275,000 from two stockholders at a rate of 10%
per annum. The loans are repayable at any time without premium or penalty and
are due in full on or before March 1, 1998. It is anticipated that these
borrowings will be paid off with a portion of the proceeds of the Offering.
The Company obtains long-term, nonrecourse financing for individual
significant lease transactions at the time it purchases the related equipment.
The Company borrowed an aggregate of $5.1 million under such arrangements during
the quarter ended June 30, 1996. An aggregate of $16.6 million remained
outstanding under all such arrangements as of June 30, 1996.
Payments under the Company's borrowings and the maturities of its long-term
borrowings are typically structured to match the payments due under the leases
securing the borrowings.
The Company's nonrecourse debt financing activities typically provide a
significant portion of the purchase price of the equipment purchased by the
Company for lease to its customers. The balance of the purchase price (the
Company's equity investment in equipment), is financed from a variety of
sources. See "Business -- Financing." Although the Company believes that the
credit quality of its lessees will continue to allow it to obtain such debt
financing, no assurances can be given that such financing will be available at
acceptable terms or at all.
ADEQUACY OF CAPITAL RESOURCES
The Company's current lines of credit, if renewed or replaced, and its
expected access to the public and private debt securities markets (including
financings for its equity investment in leases) and its estimated cash flow from
operations are anticipated to provide adequate capital to fund the Company's
operations, including acquisitions and financings under its relationships with
vendors, for at least the next 12 months. Although no assurances can be given,
the Company expects to be able to renew or replace its existing short-term lines
of credit and to continue to have access to the public and private securities
markets, both for debt and for equity financings.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of," in March 1995, and SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," in June 1996. These
standards will be effective for the Company beginning in fiscal year 1997 and
are not expected to have a significant impact on the Company's financial
statements.
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BUSINESS
GENERAL
The Company specializes in leasing and financing information technology
assets and providing asset management services to middle market commercial
customers, select Fortune 1000 firms, federal, state and local governments and
vendors. The assets leased by the Company include personal computers, client
server systems, networks, mid-range and mainframe computer equipment,
telecommunications equipment and software.
The ten largest commercial customers of the Company by purchase price of
the equipment leased by the Company, for fiscal year 1996, are, in alphabetical
order: America Online, Inc.; Bakery and Confectionary Union and Industry
International Health Benefits and Pension Fund; Cable & Wireless, Inc.; Corning
Incorporated; Long Island Lighting Company; Lutheran Brotherhood; MCI
Telecommunications Corporation; Nationwide Mutual Insurance Company; Progressive
Casualty Insurance Company; and Strawbridge & Clothier. The three largest
government customers, based upon purchase price of the equipment leased by the
Company for fiscal year 1996, are, in alphabetical order: the City of Raleigh,
North Carolina; the State of Missouri; and the United States Department of
Transportation. None of the above customers constituted more than 10% of the
Company's revenues for fiscal year 1996.
The Company also leases and finances equipment, software and services
through relationships with vendors, equipment manufacturers and systems
integrators. These vendor clients represent a variety of high technology
industries and include, among others, in alphabetical order: Cisco Systems,
Inc.; EMC Corporation; Systems & Computer Technology Corporation; and Sterling
Software, Inc. The Company has also provided financing for other vendors'
customers for transactions ranging in size from $50,000 to $21.0 million based
upon the purchase price of the assets.
The Company seeks to differentiate itself from its competitors by offering
its customers asset management services and asset trading capabilities, which
may be customized to meet the client's desires. The Company believes that its
ability and willingness to personalize its relationships and customize its
services to meet the specific financial and managerial needs of each customer
enable it to compete effectively against larger equipment leasing and finance
companies. The Company further believes that, by providing asset management
services and asset trading capabilities as well as other services to its
customers, it has a competitive advantage over smaller competitors which lack
the resources and expertise to provide such services. The Company's asset
trading activity involves the purchase and resale of previously owned
information technology equipment. By offering asset trading capabilities, the
Company is able to develop and maintain knowledge of current market trends and
values which enables the Company to predict more accurately residual values when
pricing leasing transactions, dispose efficiently of off-lease equipment and
offer customers a way to dispose of or acquire previously owned information
technology equipment.
The Company's management team is led by Phillip G. Norton, Chairman, Chief
Executive Officer and President, and Bruce M. Bowen, a director, the Chief
Financial Officer and Executive Vice President, each of whom has extensive
experience in the leasing and finance industries, and who have worked together
for three different companies over the past 20 years. Mr. Norton began his
business career in 1970 with Memorex Corporation, and started his leasing career
in 1975 as National Sales Manager of Federal Leasing, Inc. Mr. Norton founded
Systems Leasing Corporation in 1978, which grew to approximately $75 million in
assets by the time it was sold to PacifiCorp Capital, Inc. in 1986. Mr. Norton
served as President of PacifiCorp Capital, Inc. through 1990, ultimately
managing approximately 225 employees and approximately $700 million in assets.
Mr. Bowen began his leasing career in 1975 with Federal Leasing, Inc. where he
worked until 1978. In 1982, Mr. Bowen joined Mr. Norton at Systems Leasing
Corporation as Director of Finance and later became a Senior Vice President of
PacifiCorp Capital, Inc., the successor to Systems Leasing Corporation. In 1990,
Mr. Bowen left PacifiCorp Capital, Inc. and founded the Company.
The extensive experience of the Company's management in leasing and
financing information technology and equipment has enabled the Company to manage
its residual portfolio to achieve superior returns. Since the Company's
organization in November, 1990 through March 31, 1996, on matured leases, the
Company
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has realized a return of 139% of the amount originally recorded as residual
values for its equipment. As part of its underwriting and risk management
efforts, the Company's management seeks to structure lease transactions so that
they can be financed or sold to third parties on a nonrecourse basis, even if
the Company ultimately retains an equity interest in the lease. The Company's
underwriting approach has resulted in no credit losses in its leasing operations
since its organization. The Company believes that its historical approach to
estimating residuals, pricing and underwriting leases and managing relationships
among vendors, customers and financial partners provides a foundation for the
Company to grow and profitably deploy new capital.
Completion of the Offering will substantially increase the Company's equity
base, enabling the Company to service a larger volume of business. The proceeds
of the Offering will also enable the Company to: (i) reduce its borrowing costs
by decreasing the amounts outstanding and negotiating for lower interest rates
and fees on its line-of-credit borrowings; (ii) reduce its reliance on joint
ventures for certain transactions; and (iii) implement a securitization program
for its lease receivables.
The Company was founded in November, 1990. The Company has 39 full-time
employees and eight part-time employees and operates through ten offices. The
Company's principal executive offices are located at 11150 Sunset Hills Road,
Suite 110, Reston, Virginia 20190-5321, and its telephone number is (703)
834-5710.
INDUSTRY OVERVIEW
The Company believes that its market is undergoing rapid changes and
expansion which present significant opportunities for growth. The primary
structural changes in the market are the result of customer end-user, technology
and vendor marketing trends.
Customer End-Users -- Commercial. The equipment leasing industry in the
United States is a significant factor in financing capital expenditures of
businesses. According to research by the Equipment Leasing Association of
America ("ELA"), using United States Department of Commerce data, approximately
$160.7 billion of the $571 billion spent on productive assets in 1995 was
financed by means of leasing. The ELA estimates that 80% of all U.S. businesses
use leasing or financing to acquire capital assets.
Leasing enables a company to obtain the equipment it needs, while
preserving cash flow and receiving favorable accounting and tax treatment.
Leasing, particularly through operating leases, also provides a lessee with
greater flexibility than ownership in the event it outgrows the equipment or
requires upgrades of its equipment to higher performance levels. As more
customers become aware of the economic benefits of leasing, they often turn to
independent leasing companies. Independent lessors, such as the Company, offer
tailored financing and can deliver financing for mixed systems from different
vendors.
Management believes the fastest growing market segment of the leasing
industry is information technology leasing. These assets include computers,
telecommunication equipment, software, integration services and client server
equipment. According to the ELA, computers and telecommunications equipment
accounted for 26% of the assets leased in 1995.
Customer End-Users -- Government. According to G2 Research, Inc., in 1994,
of $328.6 billion in total information technology spending, $27.3 billion was
spent by the federal government and $34.5 billion was spent by state and local
governments, with the remainder spent by commercial customers. G2 Research, Inc.
further estimated that this market segment will maintain a 10% growth rate
through the year 2000 as governments convert to client server systems.
As reported by G2 Research, Inc., state and local governments spent over
$34 billion on information services and systems in 1994. The Company believes
that state and local governments have realized that information technology can
provide tremendous gains in productivity and a decrease in overall costs.
However, state and local governments are increasingly limited by budgetary
constraints in their efforts to acquire goods and services; therefore, leasing
is more favorable since it allows the immediate use of the asset while the cost
is incurred over the asset's useful life. Moreover, leasing may facilitate the
timely acquisition of equipment when compared to the lengthy process and many
levels of approval necessary for bond referendums. An additional
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obstacle facing state and local governments in the upcoming years is the shift
in program responsibility from the federal government to the state and local
governments. The Company believes that this shift will require more information
technology investment by state and local governments.
Technology Trends. A major trend toward using client server networks in
corporate applications began in the late 1980s. This trend was driven by the
proliferation of personal computers as personal computers changed from
stand-alone units which accommodated one or two specialized functions to a
multi-application unit and the development of networking applications that
distribute computer power to the desktop. Client server computing provides an
alternative to the highly centralized, mainframe and mini-computer systems that
connect multiple terminals to a central processor and which were the mainstay of
the computing world until this decade. The transition from the mainframe to the
personal computer has enabled smaller corporations to utilize more extensively
information technology and telecommunications equipment in the operation of
their businesses. In addition, as technology increasingly changes, companies are
more frequently acquiring and upgrading information technology and
telecommunications equipment.
The transition from the mainframe to the more complicated client server
applications has also placed a premium on the efficient planning, tracking,
procurement and disposal of each unit. The Gartner Group estimates that the
average cost of a corporate customer acquiring, maintaining, supporting and
disposing of the desktop asset is approximately $41,000 over a five-year period
as compared to the average capital cost of each unit of $2,500. The above
changes have increased the need for the specialized asset management services
such as those provided by the Company because the procurement and management
functions of many end-users are oriented to the acquisition of a high-priced,
centralized unit and not to the management of numerous small-ticket items in
multiple locations.
Vendor Distribution and Marketing. As hardware manufacturers face
increasing competition, many manufacturers have outsourced their distribution
channels to other companies rather than rely solely on their own sales force.
This has led many vendors to develop re-seller relationship with financiers such
as the Company, and the Company intends to enter into or acquire value added
re-seller relationships with selected vendors.
The opening up of the distribution channels has forced vendors to support
used equipment and sell parts and refurbishment services to end-users and third
party lessors such as the Company. This has created a more fluid and sustainable
secondary market for certain equipment, which allows the Company to trade the
equipment, make equity investments and compete more effectively with the vendor
or vendor's captive financing companies.
STRATEGY
Based on industry trends and the Company's historical results, the Company
will continue to implement and improve upon a three-pronged strategy designed to
increase its customer base by: (i) providing continued superior customer service
while marketing to middle market and select Fortune 1000 end-users of
information technology equipment and assets; (ii) purchasing companies in key
regional markets with pre-existing customer bases; and (iii) further developing
vendor leasing programs. Through its marketing strategy, the Company emphasizes
cross selling to the different groups of clients and attempts to reach the
maximum number of potential end-users.
End-User Marketing Focus. The Company's target customers include middle
market and select Fortune 1000 firms which are significant users of information
technology and telecommunications equipment and assets and which may need other
services provided by the Company, such as asset management. By targeting a
potential customer base that is broader than just the Fortune 1000 companies,
the Company believes that there is less competition from the larger equipment
finance companies, as their marketing forces are typically more focused on
Fortune 1000 customers. The Company markets through its principal executive
offices and nine regional offices.
Acquisition of Related Companies. The Company believes that significant
opportunities to expand its target customer base in key regional markets can be
realized through the acquisition of strategically selected
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companies in related lines of business. The Company's acquisition strategy will
focus on acquiring new customers in the top 50 regional markets in the country.
The Company believes that it can successfully acquire companies and maintain and
expand customer relationships by providing acquired companies with a lower cost
of capital, additional cross-selling opportunities and financial structuring
expertise. In addition, the Company can provide the owners of privately-held
companies with an opportunity to realize their company's value. The Company
believes that decentralized marketing and centralized operations, along with
other operating synergies, will make it successful in lowering the operational
costs while expanding the customer base of each firm it acquires.
Increasing Focus on Vendors. Over the last several years, major
manufacturers of information technology and telecommunications equipment have
moved away from providing financing to end-user customers through captive
finance organizations and have increasingly outsourced this equipment financing
function to independent leasing companies. From the perspective of the large
end-user of information technology and telecommunications equipment, outsourcing
equipment financing can simplify and centralize the financing of multiple
products from different vendors, particularly as most captive finance
organizations will service only their manufacturer's products. Through its
participation in vendor marketing programs, the Company leverages its marketing
efforts by utilizing the sales force of the vendor. The vendor's sales
organization provides the Company access to an extensive and diversified
end-user customer base while saving the Company the cost of establishing these
independent customer relationships. The Company uses its relationships with
these vendors and end-users to create new customer relationship to which other
products and services of the Company can be marketed directly.
LEASING, FINANCING AND SALES ACTIVITIES
The Company is in the business of leasing and financing equipment and
assets. Although the majority of the transactions are leases, the use of the
phrase "lease," "leases," "leasing" or "financing" may refer to transactions
involving: equipment leases; conditional sales contracts; installments purchase
contracts; software and services contracts; municipal and federal government
contracts; notes; operating leases; customer agreements; direct financial
leases; receivables; factoring; tax exempt leases; true leases; leases with
option to purchase; leases to purchase; vendor agreements; sales-type leases;
leveraged leases; computer leases; capital leases; private label agreements;
financing agreements; or energy management contracts.
Business Development. The Company conducts its business development
efforts through its marketing staff of both employees and independent
representatives which includes 25 individuals located in nine regional offices
and the Company's principal executive offices. The Company believes that one of
its major strengths is its professional and dedicated sales organization and
back office organization which gives it the ability to customize its programs to
meet its customers' specific objectives.
Products and Services. The information technology and communications
equipment that the Company presently purchases for lease or re-sale includes:
(i) personal computers; (ii) laser printers; (iii) telecommunication
controllers; (iv) tape and disk products; (v) file servers; (vi) mainframe
computers; and (vii) mid-range computers. The software and services financed by
the Company include off-the-shelf products and applications, database products,
utilities and specific application products.
The manufacturers and vendors of the above assets include IBM, EMC
Corporation, Hewlett-Packard Company, Toshiba, Cisco Systems, Inc., Digital
Equipment Corporation, Gateway 2000, Inc., Compaq Computer Corporation,
Microsoft Corporation, Amdahl Corporation, Dell Computer Corporation, Hitachi
Data Systems Corporation, Sterling Software, Inc. and Systems & Computer
Technology Corporation.
The services and support provided by the Company include: (i) custom lease
and financing payment streams and structures; (ii) asset sales and trade-ins;
(iii) upgrade and add-on leasing and financing; (iv) renewal and re-marketing;
(v) personalized invoicing; and (vi) asset management and reporting.
Lease Terms and Conditions. Substantially all of the Company's lease
transactions are net leases with a specified non-cancelable lease term. These
noncancelable leases have a "hell-or-high-water" provision which requires the
lessee to make all lease payments regardless of any lessee dissatisfaction with
its equipment. A net
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lease requires the lessee to make the full lease payment and pay any other
expenses associated with the use of equipment, such as maintenance, casualty and
liability insurance, sales or use taxes and personal property taxes.
Re-marketing. In anticipation of the expiration of the initial term of a
lease, the Company initiates the re-marketing process for the related equipment.
The Company's goal is to maximize revenues by: (i) re-marketing the equipment in
place either by (a) re-leasing it to the initial lessee, (b) renting on a
month-to-month basis or (c) selling it to the initial lessee; (ii) selling or
leasing the equipment to a different customer; or (iii) selling the equipment to
equipment brokers or dealers. The results of the re-marketing process
significantly impact the degree of profitability of a lease transaction.
Procedures and obligations of the Company and its vendors with respect to
re-marketing are defined through the Company's equipment purchase and
re-marketing agreements with vendors. To assist the Company in its re-marketing
efforts, the Company sometimes provides incentives to vendors and their sales
personnel through payment of a re-marketing fee and a sharing of residual
profits where appropriate.
The re-marketing process is intended to enable the Company to recover its
equity investment in the re-marketed equipment (i.e., the purchase price of the
equipment, less the debt obtained to finance the purchase of such equipment) and
enables the Company to receive additional proceeds.
PROCESS CONTROL AND ADMINISTRATIVE SYSTEMS
The Company has developed and maintains an administration system and
controls, featuring a series of checks and balances. The Company's system helps
protect against entering into lease transactions that may have undesirable
economics or unacceptable levels of risk, without impeding the flow of business
activity or preventing its sales organization from being creative and responsive
to the needs of vendors and customers.
Due in part to the Company's strategy of focusing on a few equipment
categories, the Company generally has extensive product knowledge, historical
re-marketing information and experience. This knowledge assists the Company in
setting and adjusting, on a timely basis, the residual values it assumes on each
lease financing. Prior to the Company entering into any lease agreement, each
transaction is evaluated based on the Company's pre-determined standards in each
of the following areas:
Residual Value. Residual value guidelines for the equipment leased by the
Company are established and reviewed by the Company's investment committee,
which also approves the residual value recorded for specific transactions. The
investment committee typically acts by a signature process instead of conducting
formal meetings. The investment committee also must approve the pricing,
including residual values, for all transactions involving $100,000 or more in
product value. The investment committee is composed of the Chief Executive
Officer, the Chief Financial Officer and the Treasurer of the Company.
Structure Review. Every transaction is reviewed by the Director of
Contracts and the Treasurer of the Company in an effort to ensure that the
transaction meets the minimum profit expectations of the Company and that the
risks associated with any unusual aspects of the lease have been determined and
factored into the economic analysis.
Documentation Review. Once the Company commits to a lease transaction, its
contract administrators initiate a process of systematically preparing and
gathering relevant lease information and lease documentation. The contract
administrators are also responsible for monitoring the documentation through the
Company's home office documentation and review process. Every transaction into
which the Company enters is reviewed by the Director of Contracts of the Company
and if necessary, the Company's outside attorneys to identify any proposed lease
modifications or other contractual provisions that may introduce risks in a
transaction which the Company has not anticipated.
Credit Review. Every transaction into which the Company enters is reviewed
by the Treasurer of the Company to determine whether the lease payment stream
can be financed on a nonrecourse basis, or must be financed through partial or
total recourse borrowing, and that the financial condition of the lessee meets
the Company's credit standards.
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FINANCING
The business in which the Company is engaged is a capital intensive
business. The Company's business involves both the leasing and the financing of
assets. The leasing business is characterized by ownership of the assets
residing with the Company or its assigns. The financing business is
characterized by the beneficial ownership of assets residing with the asset user
or customer. All of the below described types of financing are important to the
conduct of the Company's leasing and financing business.
The typical lease transaction requires both nonrecourse debt and an equity
investment by the Company at the time the equipment is purchased. The typical
financing transaction is dependent upon the nonrecourse financing described
below. The Company's equity investment generally ranges between 5% and 20% of
the equipment cost (but sometimes ranges as high as 35%). The balance of the
equipment cost, or the nonrecourse debt portion, is typically financed with a
lender on a nonrecourse basis to the Company. The Company's equity investment
must come from: (i) equity investments from third parties (including MLC/GATX
Limited Partnership I and MLC/CLC LLC); (ii) internally generated funds; (iii)
the net proceeds of the sale of its securities; or (iv) recourse borrowings.
Accordingly, the Company's ability to successfully execute its business strategy
and to sustain its growth is dependent, in part, on its ability to obtain these
sources of financing for both senior debt and equity investment.
Information relating to the sources of such financing for equipment
acquisitions are as follows:
Nonrecourse Financing. The credit standing of the Company's customers
allows the Company to finance most of its leasing or financing transactions on a
nonrecourse basis. Under a nonrecourse loan, the Company borrows an amount equal
to the committed lease payments under the financed lease, discounted at a fixed
interest rate. The lender is entitled to receive the payments under the financed
lease in repayment of the loan, and takes a security interest in the related
equipment. The Company retains ownership of such equipment, subject to the
lender's security interest. Interest rates under this type of financing are
negotiated on a transaction-by-transaction basis and reflect the financial
condition of the lessee, the term of the lease and the amount of the loan. As of
June 30, 1996, the Company had aggregate outstanding nonrecourse borrowings of
approximately $16.6 million.
The Company's objective is to enter into leasing or financing transactions
with creditworthy customers whose credit standing will permit the Company to
finance such leases with banks or other financial institutions on a nonrecourse
basis to the Company. The Company's customers which do not have a credit rating
of Baa or better generally are creditworthy non-rated companies that may be
publicly or privately owned. The Company has had success in meeting this
objective in the past, but there is no assurance that banks or other financial
institutions will be willing or able to continue to finance the Company's lease
transactions on a nonrecourse basis, that the Company will continue to be able
to attract customers that meet the credit standards for nonrecourse financing
required by the Company's financing sources or that those standards will not
change in the future.
The Company is not liable for the repayment of nonrecourse loans unless the
Company breaches certain limited representations and warranties in the loan
agreements. The lender assumes the credit risk of each such lease, and its only
recourse, upon a default under a lease, is against the lessee and the equipment
which is being leased thereunder.
The Company's personnel in charge of the financing function are responsible
for maintaining a diversified list of qualified nonrecourse debt sources so that
the financing of transactions is not impaired by a lack of competitively-priced
nonrecourse debt. The Company receives nonrecourse financing from many different
sources, offering various terms and conditions. These debt sources include
regional commercial banks, money-center banks, finance companies, insurance
companies and financial intermediaries.
The Company also originates tax-exempt state and local lease transactions
in which the interest income is exempted from federal income taxes, and to some
degree, certain state income taxes. The Company assigns its tax-exempt leases to
institutional investors, banks and investment banks which can utilize tax-free
income, and has a number of such entities which regularly purchase the
transactions.
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Access to nonrecourse financing is also important to the Company's lease
sales revenue and fee income. The Company enters into many transactions
involving government leases which it immediately assigns, syndicates or sells,
on a nonrecourse basis to third parties and books any gain from the transaction
as sales or fee income.
The Company plans to utilize the public debt securities market in the
future to provide a portion of the nonrecourse debt it requires. The Company
believes that its utilization of the public debt securities markets is likely to
reduce the Company's effective interest cost for its nonrecourse debt and to
provide for a more efficient financing arrangement, than is presently provided
by its existing financing arrangements, to fund its nonrecourse borrowing
requirements. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition -- Liquidity and Capital Resources."
Equity Joint Ventures. Through MLC/GATX Limited Partnership I and MLC/CLC
LLC, the Company has formal joint venture arrangements with two institutional
investors which provide the equity investment financing for certain of the
Company's transaction. These joint venture arrangements enable the Company to
invest in a significantly greater portfolio of business than the Company's
limited capital base would otherwise allow. See "Risk Factors -- Dependence on
Major Relationships."
For fiscal year 1996, approximately 31% of the Company's total revenue was
attributable to sales of lease transactions to MLC/GATX Limited Partnership I.
Transactions involving the use or placement of equity from these joint ventures
require the consent of the relevant joint venture partner, and if financing from
those sources were to be withheld or were to become unavailable, it would limit
the amount of equity available to the Company and have a material adverse effect
upon the Company's business, financial condition and results of operations.
Equity Capital and Internal Financing. Occasionally the Company finances
leases and related equipment internally, rather than with financing provided by
lenders. These internal lease financing typically occur in cases where the
financed amounts are not sufficiently large to be attractive to lenders or where
the credit rating of the lessee is not acceptable to lenders. The Company also
temporarily finances selected leases internally, generally for less than 90
days, until permanent outside nonrecourse financing is obtained. The Company
believes that the net proceeds from the Offering will substantially increase the
Company's ability to finance lease transactions, either internally or with
recourse borrowings.
Recourse Financing. The Company relies on recourse borrowing in the form
of revolving lines of credit, under the NationsBank Facility and the First Union
Facility, for working capital to acquire equipment to be resold in its trading
operation and to acquire equipment for leases and, to a lesser extent, the
Company uses recourse financing for long term financing of leases. As of June
30, 1996, the Company had aggregate outstanding recourse borrowings of
approximately $1.5 million of which approximately $1.4 million was borrowed
under the NationsBank Facility and $135,165 was borrowed pursuant to long term
recourse notes payable. In addition, the Company recently established a third
line of credit, NationsBanc Leasing Facility, for borrowings up to $2 million.
Availability under the revolving lines of credit may be limited by the asset
value of equipment purchased by the Company and may be further limited by
certain covenants and terms and conditions of the facilities. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources."
The debt under the First Union Facility bears interest at a rate of LIBOR
plus two and three-quarters percent and, the NationsBank Facility bears interest
at a floating rate of one percent above the NationsBank, N.A. "Prime Rate."
Borrowings under the NationsBanc Leasing Facility bear interest at a fixed or
floating basis, at the Company's option, at the time of each borrowing, as
follows: fixed, at U.S. Treasury Notes plus 250 basis points where the
underlying lessee is investment grade; fixed, at U.S. Treasury Notes plus 295
basis points, or where the underlying lessee is below investment grade; or
floating, at the NationsBank, N.A. "Prime Rate" plus 1%.
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<PAGE> 37
DEFAULT AND LOSS EXPERIENCE
From the organization of the Company in 1990 through June 30, 1996, the
Company has not taken any write-offs due to credit losses with respect to lease
transactions financed by the Company.
PROPERTIES
The Company's principal executive offices are located in leased space of
4,517 square feet at 11150 Sunset Hills Road, Suite 110, Reston, Virginia
20190-5321. The Company also leases office space for its regional offices in
Philadelphia, Pennsylvania; Dallas, Texas; Stamford, Connecticut; Sacramento,
California; Raleigh, North Carolina; Atlanta, Georgia; and San Diego,
California. As of March 31, 1996, the aggregate monthly rent under all of the
Company's office leases was approximately $12,000. The Company has an aggregate
of approximately 9,147 square feet of office space under lease with an average
remaining lease term of two years.
COMPETITION
The Company competes in the information technology and telecommunications
equipment leasing and financing market with bank-affiliated lessors, captive
lessors and other independent leasing or financing companies. The Company's
product and market focus often limits direct competition with many of these
types of companies. Bank affiliated lessors typically do not directly compete in
the operating lease segment of the leasing industry. Captive leasing companies,
such as IBM Credit Corporation, typically finance only their parent company's
products. The Company competes directly with various independent leasing
companies, such as El Camino Resources, Ltd., Comdisco, Inc., Leasing Solutions,
Inc. and General Electric Capital Corporation. Many of the Company's competitors
have substantially greater resources and capital and longer operating histories.
The Company believes it competes on the basis of price, responsiveness to
customer needs, flexibility in structuring lease transactions, relationships
with its vendors and knowledge of its vendors' products. The Company has found
it most effective to compete on the basis of providing a high level of customer
service and by structuring custom relationships with vendors and lease
transactions that meet the needs of its vendors and customers. Other important
elements that affect the Company's competitiveness are the high degree of
knowledge and competence of its key employees, specifically relating to
information technology and telecommunications equipment and operating lease
financing. Many of the Company's competitors are well established and have
substantially greater financial, marketing, technical and sales support than the
Company. See "Risk Factors -- Competition."
EMPLOYEES
As of June 30, 1996, the Company had 39 full time employees and eight part
time employees. Of these, 27 worked in the Company's principal executive offices
and the remaining 20 worked in the various regional offices of the Company.
Regional offices are generally staffed with one or more account representatives
who have daily contact with lessees and vendors.
The Company has assigned its employees to the following functional areas,
with the number of employees in each area indicated in parenthesis:
administrative (1); sales and marketing (22); buy/sell (6); accounting (7);
executive (2); finance (3); and operations (6).
LITIGATION
The Company is not involved in any legal proceedings, and is not aware of
any pending or threatened legal proceedings that would have a material adverse
effect upon the Company's business, financial condition or results of
operations.
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<PAGE> 38
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Board of Directors of the Company is divided into three classes: (i)
Class I (initial term ending after 1997 annual stockholders meeting); (ii) Class
II (initial term ending after 1998 annual stockholders meeting); and (iii) Class
III (initial term ending after 1999 annual stockholders meeting). After his or
her initial term, each director serves for a term ending after the third annual
meeting following the annual meeting at which such director is elected and until
his or her successor is elected. The following table sets forth the name, age
and position with the Company of each person who is an executive officer,
director or significant employee.
<TABLE>
<CAPTION>
NAME AGE POSITION CLASS
- ------------------------------------------------ --- ------------------------------------ -----
<S> <C> <C> <C>
Phillip G. Norton............................... 52 Chairman of the Board, Chief III
Executive Officer and President
Bruce M. Bowen.................................. 44 Director, Chief Financial Officer III
and Executive Vice President
Jonathan J. Ledecky............................. 37 Future Director I
Terrence O'Donnell.............................. 52 Future Director II
Carl J. Rickersten.............................. 36 Future Director II
Kleyton L. Parkhurst............................ 33 Secretary and Treasurer
Barbara J. Simmonds............................. 36 Vice President and Controller
Kevin M. Norton................................. 40 Vice President of Brokerage
Operations
William J. Slaton............................... 48 Vice President of Marketing
Thomas K. McNamara.............................. 52 Vice President
</TABLE>
Each individual named as a Future Director in the foregoing table has been
elected as a Director of the Company effective upon the completion of the
Offering and has consented to be named as such herein.
The name and business experience during the past five years of each
director and executive officer of the Company are described below.
Phillip G. Norton joined the Company in 1993 and has served since then as
its Chairman of the Board and Chief Executive Officer. Mr. Norton has also
served as President of the Company since September 1, 1996. From 1990 through
1993, Mr. Norton was a consultant and private investor. Prior to 1990, Mr.
Norton was President and Chief Executive Officer of PacifiCorp Capital, Inc.
(formerly Systems Leasing Corporation), a wholly owned indirect subsidiary of
PacifiCorp, Inc., an information technology leasing company and an SEC reporting
entity. Mr. Norton started his leasing career as the National Sales Manager at
Federal Leasing, Inc. Mr. Norton is a 1966 graduate of the U.S Naval Academy.
Phillip G. Norton and Kevin M. Norton are brothers.
Bruce M. Bowen founded the Company in 1990 and served as its President
until September 1, 1996. Since September 1, 1996, Mr. Bowen has served as a
director, the Chief Financial Officer and Executive Vice President of the
Company. Mr. Bowen has been a director of the Company since it was formed. Prior
to founding the Company, from 1986 through 1990, Mr. Bowen was Senior Vice
President of PacifiCorp Capital, Inc. Prior to his tenure at PacifiCorp Capital
Inc., Mr. Bowen was with Systems Leasing Corporation and Federal Leasing, Inc.,
where his leasing career started in 1975. Mr. Bowen is a past President of the
Association of Government Leasing and Finance and currently serves as
Vice-Chairman for the State and Local Public Enterprise Committee of the
Information Technology Association of America. Mr. Bowen is a 1973 graduate of
the University of Maryland and in 1978 received a Masters of Business
Administration from the University of Maryland.
Jonathan J. Ledecky will join the Company's Board of Directors upon the
completion of the Offering. Mr. Ledecky is the founder of U.S. Office Products
Company, a Nasdaq National Market company and has
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<PAGE> 39
served as Chairman and Chief Executive Officer of U.S. Office Products Company
since its organization in October of 1994. Prior to founding U.S. Office
Products Company, Mr. Ledecky served as the President of The Legacy Fund, Inc.
from 1989 through 1994 and as President and Chief Executive Officer of Legacy
Dealer Capital, Inc., a wholly owned subsidiary of Steelcase Inc., and the
nation's largest manufacturer of office furniture products from 1991 through
1994. Prior to his tenure at The Legacy Fund, Inc., Mr. Ledecky was a partner at
Adler and Company and a Senior Vice President at Allied Capital Corporation, a
publicly traded investment management company. Mr. Ledecky is a 1979 graduate of
Harvard College, and in 1983, received a Masters of Business Administration from
Harvard Graduate School of Business Administration.
Terrence O'Donnell will join the Company's Board of Directors upon the
completion of the Offering. Mr. O'Donnell is a partner with the law firm of
Williams & Connolly in Washington, D.C. Mr. O'Donnell has practiced law with
Williams & Connolly since 1977, with the exception of the period from 1989
through 1992 when he served as general counsel to the U.S. Department of
Defense. Prior to commencing his law practice, Mr. O'Donnell served as Special
Assistant to President Ford from 1974 through 1976 and as Deputy Special
Assistant to President Nixon from 1972 through 1974. Mr. O'Donnell presently
also serves as a director of IGI, Inc., a Nasdaq National Market company. Mr.
O'Donnell is a 1966 graduate of the U.S. Air Force Academy, and in 1971,
received a Juris Doctor from Georgetown University Law Center.
Carl J. Rickersten will join the Company's Board of Directors upon the
completion of the Offering. Mr. Rickersten is a partner in Thayer Capital
Partners, a $364 million institutional private equity fund based in Washington,
D.C. Mr. Rickersten has been with Thayer Capital Partners since September 1994.
Prior to his tenure at Thayer Capital Partners, Mr. Rickersten acted as a
private financial consultant from 1993 through 1994 and was a partner of Hancock
Park Associates, an institutional investment advisor, from 1989 through 1993.
Prior to that, Mr. Rickersten was associated with Brentwood Associates from 1987
through 1989 and was a Financial Analyst with Morgan Stanley & Co., Incorporated
from 1983 through 1985. Mr. Rickersten is a 1983 graduate of Stanford University
and, in 1987, received a Masters of Business Administration from Harvard
Graduate School of Business Administration.
Kleyton L. Parkhurst joined the Company in 1991 as Director of Finance and,
since September 1, 1996, has served as Secretary and Treasurer of the Company.
Mr. Parkhurst is responsible for all of the Company's financing activities,
credit review procedures and manages the Company's bank facilities. Mr.
Parkhurst has syndication expertise in commercial nonrecourse debt, federal
government leases, state and local taxable and tax-exempt leases, and computer
lease equity placements. From 1988 through 1991, Mr. Parkhurst was an Assistant
Vice President of PacifiCorp Capital, Inc. Mr. Parkhurst is a 1985 graduate of
Middlebury College.
Barbara J. Simmonds, a certified public accountant, joined the Company in
1992, has served since then as Controller and, since September 1, 1996, has
served as a vice president of the Company. From 1982 through 1990, Ms. Simmonds
was an Assistant Controller for PacifiCorp Capital, Inc. Ms. Simmonds is a 1982
graduate of the University of Virginia.
Kevin M. Norton joined the Company in 1991 and has served since then as
Vice President of Brokerage Operations. Mr. Norton is responsible for all of the
Company's equipment brokerage activities. He has a wide variety of equipment
experience including mainframes and peripheral equipment. Prior to joining the
Company, he was employed in a similar capacity with PacifiCorp Capital, Inc. Mr.
Norton is a 1979 graduate of the University of North Carolina. Kevin M. Norton
and Phillip G. Norton are brothers.
William J. Slaton joined the Company in 1991 and has served since then as
Vice President of Marketing. His primary responsibility is the management of the
Company's marketing of its public sector finance products. From 1986 through
1991 and from 1980 through 1986, Mr. Slaton held various marketing positions,
specializing in technology financing for local and state government agencies,
with PacifiCorp Capital, Inc. and Systems Leasing Corporation. From 1969 through
1977, Mr. Slaton held various marketing positions with IBM, also, focusing on
state and local government customers in Texas and California. Mr. Slaton is a
1969 graduate of the University of Texas at Austin.
Thomas K. McNamara joined the Company in 1994 upon the acquisition by the
Company of the business assets of Pilot Associates and serves as Vice President
and Regional Manager of the Pilot Associates division.
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<PAGE> 40
In 1989, Mr. McNamara co-founded and was responsible for sales at Pilot
Associates. Prior to founding Pilot Associates, Mr. McNamara served as Sales
Representative with Memorex Corporation from 1974 through 1989. Mr. McNamara was
also previously with Computer Communication, Inc., from 1970 through 1974 and
with Philco Ford, Inc. from 1966 through 1970. Mr. McNamara is a 1966 graduate
of the Philco Technical Institute.
COMMITTEES AND MEETINGS
Audit Committee. Upon closing of the Offering, the Board of Directors will
establish an audit committee (the "Audit Committee"). The Audit Committee will
be responsible for making recommendations to the Board concerning the engagement
of independent public accountants, monitoring and reviewing the quality and
activities of the Company's internal and external audit functions and monitoring
the adequacy of the Company's operating and internal controls as reported by
management and the external or internal auditors. The members of the Audit
Committee are anticipated to be Terrence O'Donnell, Jonathan J. Ledecky and Carl
J. Rickersten.
Compensation Committee. Upon closing of the Offering, the Board of
Directors will establish a compensation committee (the "Compensation
Committee"). The Compensation Committee will be responsible for reviewing the
salaries, benefits and other compensation, excluding stock based compensation,
of Mr. Norton and Mr. Bowen and will make recommendations to the Board based on
its review. The members of the Compensation Committee are anticipated to be
Terrence O'Donnell, Jonathan J. Ledecky and Carl J. Rickersten. Mr. Norton and
Mr. Bowen, as directors, will not vote on any matters affecting their personal
compensation. Mr. Bowen and Mr. Norton will be responsible for reviewing and
establishing salaries, benefits and other compensation for other directors and
all other employees.
Stock Incentive Committee. Upon the closing of the Offering, the Board of
Directors will establish a stock incentive committee (the "Stock Incentive
Committee"). The Stock Incentive Committee will be authorized to issue stock,
stock option and "phantom stock" or stock appreciation rights ("SARS") based
compensation grants under the Company's 1996 Stock Incentive Plan. See
"Management -- Executive Compensation and Other Arrangements -- 1996 Stock
Incentive Plan." The initial members of the Stock Incentive Committee will be
Phillip G. Norton and Bruce M. Bowen. Except for options granted to Mr. Norton
and Mr. Bowen under the employment agreements described in this Prospectus, and
grants that are approved by a majority of the disinterested members of the Board
of Directors, no member of the Stock Incentive Committee is eligible to receive
grants under the Stock Incentive Plan.
DIRECTOR COMPENSATION
Directors do not currently receive any compensation nor other services as
members of the Board of Directors. The outside directors will receive $500 for
each board meeting which they attend and $500 for each committee meeting which
they attend. All directors will be reimbursed for their out-of-pocket expenses
incurred to attend board or committee meetings. The Company has adopted the 1996
Outside Director Stock Option Plan, which provides for the award and exercise of
certain options to nonemployee directors on a formula basis based upon length of
service. Immediately prior to closing the Offering, under the 1996 Outside
Director Stock Option Plan, the Company will grant options to its nonemployee
directors to purchase an aggregate of 30,000 shares of Common Stock at an
exercise price equal to the initial public offering price, 50% of which may be
exercised after the first year of service and the remaining 50% of which may be
exercised after the second year of service, provided they continue to serve as
directors. The 1996 Outside Director Stock Option Plan also provides for the
grant of options for shares to each nonemployee director (15,000 annually in the
aggregate) on the second, third and fourth anniversary of service, at an
exercise price equal to the market price as of the date of grant, with each
option being exercisable as to 50% of the shares on the first anniversary of
grant and the remaining 50% of the shares on the second anniversary of grant.
See "Management -- Executive Compensation and Other Information -- 1996 Stock
Incentive Plan" for a description of option grants to nonemployee directors.
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<PAGE> 41
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table. The following table provides certain summary
information concerning the compensation earned, for services rendered in all
capacities to the Company, by the Company's Chief Executive Officer and certain
other executive officers (together with the Chief Executive Officer, the "Named
Executive Officers") of the Company for the fiscal year ended March 31, 1996.
Certain columns have been omitted from this summary compensation table as they
are not applicable.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------
OTHER
BONUS/ ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMMISSION COMPENSATION COMPENSATION
- ---------------------------------------- ---- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Phillip G. Norton....................... 1996 $ 984 $ -- $ -- $120,000
Chairman, Chief Executive 1995 376 -- -- --
Officer and President 1994 -- -- 5,497 --
Bruce M. Bowen.......................... 1996 120,000 40,000 13,206 1,000
Director, Chief Financial Officer and 1995 120,000 16,000 11,500 1,000
Executive Vice President 1994 120,000 25,000 11,500 250
Kevin M. Norton......................... 1996 -- 347,023 3,087 --
Vice President of 1995 -- 348,944 1,068 --
Brokerage Operations 1994 -- 227,993 1,368 --
Kleyton L. Parkhurst.................... 1996 -- 169,352 1,356 --
Secretary and Treasurer 1995 -- 237,153 1,500 --
1994 -- 189,505 1,137 --
Thomas K. McNamara...................... 1996 42,000 98,257 3,234 --
Vice President 1995 42,000 335,699 1,500 --
1994 -- -- -- --
</TABLE>
Compensation Arrangements and Employment Agreements. The Company has
entered into employment agreements with Phillip G. Norton, Bruce M. Bowen,
Kleyton L. Parkhurst and William J. Slaton, each effective as of September 1,
1996. Each employment agreement provides for an initial term of three years, and
is subject to an automatic one-year renewal at the expiration thereof unless the
Company or the employee provides notice of an intention not to renew at least
three months prior to expiration. Under each employment agreement, the employee
will receive, commencing with the first day of the first calendar month after
closing the Offering, an annual base salary ($200,000 in the case of Phillip G.
Norton; $150,000 in the case of Bruce M. Bowen and $120,000 in the case of
Kleyton L. Parkhurst and William J. Slaton) and will be eligible for commissions
or performance bonuses. The performance bonus for Phillip G. Norton for each
fiscal year will be equal to 5% of the increase in the Company's net income
before taxes over net income before taxes for the preceding fiscal year, not to
exceed $150,000 for any fiscal year. The performance bonus for Bruce M. Bowen
for each fiscal year will be equal to 5% of the increase in the Company's net
income before taxes over net income before taxes for the preceding fiscal year,
not to exceed $100,000 for any fiscal year. The performance bonus for Kleyton L.
Parkhurst and William J. Slaton will be paid based upon performance criteria
established by Phillip G. Norton and Bruce M. Bowen, not to exceed $80,000 each
per fiscal year. Pending closing of the Offering, Messrs. Norton, Bowen,
Parkhurst and Slaton will continue to be compensated based on current
arrangements. Thomas K. McNamara is compensated pursuant to the Company's
commission program which is generally based on the profitability of business
produced.
Under the employment agreements, each will receive certain other benefits
including medical, insurance, death and long term disability benefits, 401(k),
and reimbursement of employment related expenses. Mr. Bowen's country club dues
are paid by the Company. The employment agreements of Messrs. Norton, Bowen and
Slaton contain a covenant not to compete on the part of each, whereby in the
event of a voluntary termination of employment, upon expiration of the term of
the agreement or upon the termination of employment by the Company for cause,
each will be subject to restrictions upon acquiring, consulting with or
otherwise engaging in or assisting in the providing of capital needs for
competing business activities or entities
40
<PAGE> 42
within the United States for a period of one year after the date of such
termination or expiration of the term of the employment agreement.
Under his employment agreement, Phillip G. Norton was granted options to
acquire 130,000 shares of Common Stock at a price per share equal to the initial
public offering price. These options have a ten year term, and will be
exercisable and vest 25% immediately upon completion of the Offering, and the
balance in 25% increments over three years beginning on the first anniversary of
the closing date of the Offering, subject to acceleration upon certain
conditions. The Company also pays a $120,000 annual guarantee fee payable in
$10,000 monthly payments to Patricia A. Norton, wife of Phillip G. Norton, in
consideration of providing certain guarantees and collateral for the NationsBank
Facility. See "Certain Transactions -- Guarantee Fees."
Under his employment agreement, Bruce M. Bowen was granted options to
acquire 15,000 shares of Common Stock at a price equal to the initial public
offering price. These options have a ten year term, and will be exercisable and
vest 25% immediately upon completion of the Offering, and the balance in 25%
increments over three years beginning on the first anniversary of the closing
date of the Offering, subject to acceleration upon certain conditions.
Under his employment agreement, Kleyton L. Parkhurst was granted options to
acquire 100,000 shares of Common Stock at a price per share equal to $6.40 per
share. These options have a ten year term, and will be exercisable and vest 25%
immediately upon completion of the Offering, and the balance in 25% increments
over three years beginning on the first anniversary of the closing date of the
Offering, subject to acceleration upon certain conditions.
The Company maintains key-man life insurance on Mr. Norton in the amount of
$10 million and on Mr. Bowen in the amount of $1 million. The Company maintains
key-man life insurance on Mr. Norton in the form of two separate policies, one
with the Prudential Life Insurance Company and the second with TransAmerica Life
Co., each in the amount of $5 million and on Mr. Bowen with CNA Insurance
Company in the amount of $1 million.
1996 Stock Incentive Plan. The Company has established a stock incentive
program (the "Stock Incentive Plan") to provide an opportunity for directors,
executive officers, independent contractors, key employees, and other employees
of the Company to participate in the ownership of the Company. The Stock
Incentive Plan provides for the award to eligible directors, employees, and
independent contractors of the Company, of a broad variety of stock-based
compensation alternatives such as incentive stock options for employees under
the 1996 Incentive Stock Option Plan, formula length of service based
nonqualified options to nonemployee directors under the 1996 Outside Director
Stock Plan, and nonqualified stock options under the 1996 Nonqualified Stock
Option Plan, as well as other restrictive stock and performance based stock
awards and programs which may be established by the Board of Directors.
Currently, the Company has reserved a total of 400,000 shares of Common Stock
for issuance upon exercise of options under: (i) the employment agreements with
Messrs. Norton, Bowen and Parkhurst (under which options for an aggregate of
245,000 shares have been granted); (ii) the 1996 Outside Director Stock Plan
(under which options for an aggregate of 75,000 shares of Common Stock are
reserved for grant under a formula plan based upon length of service and for
which 30,000 shares of Common Stock will be granted upon completion of the
Offering); (iii) the 1996 Incentive Stock Option Plan (under which options for
an aggregate of 60,000 shares will be granted immediately upon completion of the
Offering); (iv) the 1996 Nonqualified Stock Option Plan (under which no options
have been granted); and (v) 20,000 additional shares of Common Stock reserved
for issuance under the 1996 Stock Incentive Plan.
The Stock Incentive Plan is to be administered by the Stock Incentive
Committee, which will be authorized to select from among the eligible
participants the individuals to whom options, restricted stock purchase rights
and performance awards are to be granted and to determine the number of shares
to be subject thereto and the terms and conditions thereof. The Stock Incentive
Committee will also be authorized to adopt, amend and rescind the rules relating
to the administration of the Stock Incentive Plan. Except for grants that are
approved by a majority of the Company's Board of Directors, no member of the
Stock Incentive Committee will be eligible to participate future in grants of
options in the Stock Incentive Plan.
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<PAGE> 43
Incentive stock options issued under the 1996 Incentive Stock Option Plan
will be designed to comply with the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and will be subject to restrictions contained in
the Code, including a requirement that exercise prices be equal to at least 100%
of fair market value of the shares of Common Stock on the grant date and a
ten-year restriction on the option term. The incentive stock options may be
subsequently modified to disqualify them from treatment as incentive stock
options. Under the Stock Incentive Plan and the Code, non-employee directors are
not permitted to receive incentive stock options. The Company intends, upon
closing of the Offering, to grant options totaling 60,000 shares of Common Stock
to employees other than those receiving options under employment agreements or
nonqualified stock options as described above. Each of the foregoing incentive
stock option grants will be at the initial public offering price and will be
exercisable in 20% increments over five years beginning on the first anniversary
of the closing date of the Offering, subject to continued employment and subject
to acceleration upon certain conditions.
Nonqualified stock options issued under the 1996 Stock Incentive Plan, may
be granted to directors, officers, independent contractors and employees and
will provide for the right to purchase shares of Common Stock at a specified
price which may be less than fair market value on the date of grant, and usually
will become exercisable in installments after the grant date. Nonqualified stock
options may be granted for any reasonable term.
Under the 1996 Outside Director Stock Option Plan, each of the three
nonemployee directors will be granted options, immediately upon the completion
of the Offering to purchase an aggregate of 30,000 shares of Common Stock, 50%
of which may be exercised after the first year of service and the remaining 50%
of which may be exercised after the second year of service provided they
continue to serve as directors. The 1996 Outside Director Stock Option Plan also
provides for the grant of options for shares to each nonemployee director
(15,000 annually in the aggregate) on the second, third and fourth anniversary
of service, at an exercise price equal to the market price as of the date of
grant, with each option being exercisable as to 50% of the shares on the first
anniversary of grant and the remaining 50% of the shares as the second
anniversary of grant. Options for 15,000 shares becoming exercisable after the
second, third and fourth anniversaries of grants.
Compensation Committee Interlocks and Insider Participation. For the year
ended March 31, 1996, all decisions regarding executive compensation were made
by Mr. Bowen as President. None of the executive officers of the Company
currently serves on the Compensation Committee of another entity or any other
committee of the board of directors of another entity performing similar
functions. For a description of transactions between the Company and Mr. Bowen,
see "Certain Transactions."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Indemnification Agreements. Prior to the completion of the Offering, the
Company will enter into separate but identical indemnification agreements (the
"Indemnification Agreements") with each director and executive officer of the
Company and expects to enter into Indemnification Agreements with persons who
become directors or executive officers in the future. The Indemnification
Agreements provide that the Company will indemnify the director or officer (the
"Indemnitee") against any expenses or liabilities incurred by the Indemnitee in
connection with any proceeding in which such Indemnitee may be involved as a
party or otherwise, by reason of the fact that such Indemnitee is or was a
director or officer of the Company or by reason of any action taken by or
omitted to be taken by such Indemnitee while acting as an officer or director of
the Company, provided that such indemnity shall only apply if (i) the Indemnitee
was acting in good faith and in a manner the Indemnitee reasonably believed to
be in the best interests of the Company and, with respect to any criminal
action, had no reasonable cause to believe the Indemnitee's conduct was
unlawful, (ii) the claim was not made to recover profits made by such Indemnitee
in violation of Section 16(b) of the Securities Exchange Act of 1934, as
amended, or any successor statute, (iii) the claim was not initiated by the
Indemnitee, (iv) the claim was not covered by applicable insurance, or (v) the
claim was not for an act or omission of a director of the Company from which a
director may not be relieved of liability under Section 102(b)(7) of the DGCL.
Each Indemnitee will undertake to repay the Company for any costs or
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<PAGE> 44
expenses paid by the Company if it shall ultimately be determined that such
Indemnitee is not entitled to indemnification under the Indemnification
Agreements.
Provisions of Certificate of Incorporation. As allowed by the DGCL, the
Company's Certificate of Incorporation provides for the limitation of the
liability of the directors of the Company for monetary damages to the fullest
extent permissible under Delaware law. This is intended to limit the personal
liability of a director to monetary damages incurred in an action brought by or
in the right of the Company for breach of a director's duties to the Company or
its stockholders: (i) for acts or omissions that involve intentional misconduct
or a knowing and culpable violation of law; (ii) for any breach of the
director's duty of loyalty to the Company or its stockholders; (iii) for any
transaction from which a director has derived an improper personal benefit; and
(iv) as expressly imposed by statute, for approval of certain improper
distributions to stockholders or the wasting of Company assets.
Bylaws. The Company's Bylaws also permit the Company to indemnify its
officers and directors to the fullest extent permitted by law.
Directors and Officers Insurance. The Company has obtained directors and
officers liability and company reimbursement insurance pursuant to a policy in
effect (the "D&O Policy") with the Lexington Insurance Company, a wholly owned
subsidiary of the American International Group. Pursuant to the D&O Policy,
Lexington will pay, on behalf of directors and officers of the Company, certain
losses ("Losses") incurred as a result of a wrongful act (a "Wrongful Act") by
such persons, for which they are not indemnified by the Company. In addition,
Lexington will reimburse the Company for Losses over $100,000 incurred as a
result of the Company's indemnification of an officer or director in connection
with a Wrongful Act. The D&O Policy provides that Lexington's aggregate
liability to the Company with respect to a single policy year shall not exceed
$1.0 million and is subject to customary exclusions.
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CERTAIN TRANSACTIONS
GUARANTEES OF NATIONSBANK FACILITY
The NationsBank Facility is presently guaranteed by all of the stockholders
of the Company and their respective spouses. In addition, this line is secured
by a pledge of approximately $1.5 million of cash collateral pledged by Phillip
G. Norton and his spouse Patricia A. Norton. See "Business -- Financing." Upon
closing of the Offering, the Company intends to apply proceeds of the Offering
towards repayment of the line. See "Use of Proceeds." The Company anticipates
that after the closing of the Offering, the Company will pursue new or modified
warehouse lines of credit and the NationsBank Facility will be either terminated
or renegotiated in such a manner as to remove all stockholders personal
guarantees and release all stockholders assets pledged as collateral for the
NationsBank Facility.
GUARANTEES OF FIRST UNION FACILITY
The First Union Facility is presently guaranteed by Phillip G. Norton,
Patricia A. Norton, Bruce M. Bowen, Elizabeth D. Bowen, William J. Slaton, Kevin
M. Norton and Patrick J. Norton, each of whom is a beneficial owner of Common
Stock. In addition, this line is secured by cash and securities having a value
of approximately $1,200,000, pledged as collateral by Patricia A. Norton, as
trustee for the Phillip G. Norton Jr. Trust, the Andrew L. Norton Trust and the
Jeremiah O. Norton Trust. See "Business -- Financing." Upon closing of the
Offering, the Company intends to apply proceeds of the Offering towards
repayment of the line. See "Use of Proceeds." The Company anticipates that after
closing of the Offering, the Company will pursue new or modified warehouse lines
of credit and the First Union Facility will be either terminated or renegotiated
in such a manner as to remove all personal guarantees by stockholders and
release all assets pledged by stockholders as collateral for the First Union
Facility.
GUARANTEES OF NATIONSBANC LEASING FACILITY
The NationsBanc Leasing Facility is presently guaranteed by Phillip G.
Norton and Bruce M. Bowen. See "Business -- Financing." The Company anticipates
that after closing of the Offering, the Company will pursue new or modified
warehouse lines of credit and the NationsBanc Leasing Facility will be either
terminated or renegotiated in such a manner as to remove all stockholder
personal guarantees and release all stockholder assets pledged as collateral for
the NationsBanc Leasing Facility.
STOCKHOLDER LOANS
The Company currently has a total of $275,000 in outstanding borrowings
from stockholders; $175,000 from Bruce M. Bowen and $100,000 from William J.
Slaton. Each of these loans is evidenced by a promissory note dated March 1,
1995, bearing interest at the rate of 10% per annum, and are due March 1, 1998.
The Company paid $17,500 and $10,000 to Messrs. Bowen and Slaton, respectively,
in interest for fiscal year 1996, and will pay interest monthly until these
loans are repaid. The Company intends to repay these loans with a portion of the
proceeds of the Offering.
NEW ENERGY LEASING CORPORATION OBLIGATIONS
The Company is a party to an agreement entered into in 1994 with New Energy
Leasing Corporation ("New Energy"), of which Bruce M. Bowen is a 45%
stockholder. Under that arrangement, the Company has sold leases to New Energy
under which the Company remains obligated to manage the lease and to provide
remarketing or asset disposition services upon expiration or other termination
of the lease. The Company recognized revenue for such transactions of
approximately $1.9 million and $1.3 million, for the years ended March 31, 1995
and 1996, respectively, and the basis of the equipment sold was approximately
$1.3 million and $1.6 million, respectively. At June 30, 1996, the Company owed
$31,337 to New Energy, had a $16,352 note receivable and a $57,380 equity
investment resulting from transactions with New Energy. New Energy is entitled
to the first $75,000 of proceeds from any remarketing or sale of the assets,
with the Company being entitled to 90% of any proceeds above that amount. This
agreement and the lease transactions to which it
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<PAGE> 46
relates are slated to expire in 1999. The Company will not enter into any
further lease sale transactions with New Energy.
GUARANTEE FEES
From April 1, 1995 through June 30, 1996, the Company paid a total of
$150,000 of guarantee fees, $10,000 per month, to Patricia A. Norton, the spouse
of Phillip G. Norton, as consideration for her providing personal guarantees and
pledging personal assets for the NationsBank Facility. Payment of these
guarantee fees will continue until the release of Patricia A. Norton's guarantee
and collateral, which is anticipated to occur shortly after the closing of the
Offering.
ADVANCES TO STOCKHOLDERS
The Company has, in the past, provided non-interest bearing advances
against anticipated commissions to certain stockholder employees, Kevin M.
Norton and Patrick J. Norton. These advances are repayable from commissions
earned by the stockholder employees on successful sales or financing
arrangements obtained on behalf of the Company. These advances totaled $77,759
as of June 30, 1996 and $76,349, $14,353 and $33,275 as of the end of fiscal
year 1996, 1995 and 1994, respectively. The aggregate amount of these advances
equals $49,275, $61,583 and $139,500 for fiscal years 1994, 1995 and 1996,
respectively. Advances of $26,000, $80,505 and $82,612 were repaid for fiscal
years 1994, 1995 and 1996, respectively. For Patrick J. Norton, the only advance
was $3,204 in May, 1995 which was repaid in June, 1995. All other advances were
paid to Kevin M. Norton.
LOANS TO STOCKHOLDERS
In 1994, the Company loaned $40,000 to Kevin M. Norton, a stockholder of
the Company, pursuant to a promissory note dated February 15, 1994 bearing
interest at 8% per annum and due July 31, 1995. Kevin M. Norton paid interest of
$2,048 and $382 during fiscal years 1995 and 1996, respectively and made
principal repayments of $25,505 and $14,495 during fiscal years 1995 and 1996,
respectively. The Company's $40,000 loan to Kevin M. Norton was repaid in full
during fiscal year 1996.
In 1995, the Company loaned $18,500 to Kevin M. Norton pursuant to a
promissory note dated February 1, 1995 bearing no interest and due on demand.
The Company's loan to Kevin M. Norton had a balance of $18,500 as of the end of
fiscal year 1996.
In 1995, the Company loaned $74,115 to William J. Slaton, a stockholder of
the Company, pursuant to a promissory note dated January 5, 1995 bearing no
interest and due on demand. Mr. Slaton repaid this note in full in 1995.
In 1995, the Company loaned $54,000 to Patrick J. Norton, a stockholder of
the Company, pursuant to a promissory note dated November 17, 1995, bearing
interest at 8% per annum. Patrick J. Norton paid interest of $1,608 and made
principal repayments of $8,392 during fiscal year 1996. The Company's loan to
Patrick J. Norton had a balance of $45,608 as of the end of fiscal year 1996.
INDEMNIFICATION AGREEMENTS
Prior to the completion of the Offering, the Company will enter into
separate but identical indemnification agreements (the "Indemnification
Agreements") with each director and execute officer of the Company and expects
to enter into Indemnification Agreements with persons who become directors or
executive officers in the future. The Indemnification Agreements provide that
the Company will indemnify the director or officer (the "Indemnitee") against
any expenses or liabilities in connection with any proceeding in which such
Indemnitee may be involved as a party or otherwise, by reason of the fact that
such Indemnitee is or was a director or officer of the Corporation or by reason
of any action taken by or omitted to betaken by such Indemnitee while acting as
an officer or director of the Corporation, provided that such indemnity shall
only apply if (i) the Indemnitee was acting in good faith and in a manner the
Indemnitee reasonably believed to be in the best interests of the Corporation,
and, with respect to any criminal action, had no reasonable cause to
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<PAGE> 47
believe the Indemnitee's conduct was unlawful, (ii) the claim was not made to
recover profits made by such Indemnitee in violation of Section 16(b) of the
Securities Exchange Act of 1934, as amended, or any successor statute, (iii) the
claim was not initiated by the Indemnitee, or (iv) the claim was not covered by
applicable insurance, or (v) the claim was not for an act or omission of a
director of the Company from which a director may not be relieved of liability
under Section 103(b)(7) of the DGCL. Each Indemnitee has undertaken to repay the
Company for any costs or expenses paid by the Company if it shall ultimately be
determined that such Indemnitee is not entitled to indemnification under the
Indemnification Agreements. For more information on director and officer
liability see "Management -- Limitation of Liability and Indemnification."
FUTURE TRANSACTIONS
Certain of the transactions described above may be on terms more favorable
to officers, directors and principal stockholders than they could obtain in a
transaction with an unaffiliated party. The Company intends to adopt a policy
requiring that all material transactions between the Company and its officers,
directors or other affiliates must (i) be approved by a majority of the
disinterested members of the Board of Directors of the Company, and (ii) be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties.
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<PAGE> 48
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of June 30, 1996,
regarding the beneficial ownership of the Common Stock, and the sale by the
Company of the shares of Common Stock offered hereby, with respect to (i) each
director of the Company, (ii) each person who is known by the Company to own
beneficially 5% or more of the Common Stock, (iii) each of the named executive
officers and (iv) all directors and executive officers of the Company as a
group. The table also sets forth the number and percentage of the outstanding
shares projected to be beneficially owned by each of such stockholders after
adjustment for the Offering, assuming the sale in the Offering of 1,000,000
shares of Common Stock by the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING(2)
---------------------- ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Phillip G. Norton(3).......................... 2,825,500 70.0% 2,825,500 56.2%
1019 Basil Road
McLean, Virginia 22101
Bruce M. and Elizabeth D. Bowen(4)............ 763,750 19.1 763,750 15.3
10895 Lake Windermere Drive
Great Falls, Virginia 22066
William J. Slaton............................. 400,000 10.0 400,000 8.0
1850 Maple Glen
Sacramento, California 95864
Kevin M. Norton(5)............................ 376,500 9.4 376,500 7.5
5920 Royal Palm
Plano, Texas 75093
Patrick J. Norton(5).......................... 376,500 9.4 376,500 7.5
705 Brookfield Road
Raleigh, North Carolina 27615
Kleyton L. Parkhurst(6)....................... 72,000 1.8 72,000 1.4
605 Abbott Lane
Falls Church, Virginia 22046
All directors and executive officers as a
group (8 individuals)....................... 4,061,250 100.0% 4,061,250 80.7%
</TABLE>
- ---------------
(1) Unless otherwise indicated and subject to community property laws where
applicable, each of the stockholders named in this table has sole voting and
investment power with respect to the shares shown as beneficially owned by
such stockholder. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the date
of this Prospectus upon exercise of options and warrants. Each beneficial
owner's percentage ownership is determined by assuming options that are held
by such person (but not those held by any other person) and that are
exercisable within sixty days from the date of this Prospectus have been
exercised.
(2) Assumes no exercise of the Underwriters' over-allotment option and gives no
effect to any purchases that may be made in the Offering.
(3) Includes 2,040,000 shares held by J.A.P. Investment Group, L.P., a Virginia
limited partnership, of which J.A.P., Inc., a Virginia corporation, is the
sole general partner, and Patricia A. Norton, trustee for the benefit of
Phillip G. Norton, Jr., u/a dated as of July 20, 1983, Patricia A. Norton,
trustee for the benefit of Andrew L. Norton u/a dated as of July 20, 1983,
Patricia A. Norton, trustee for the benefit of Jeremiah O. Norton u/a dated
as of July 20, 1983, and Patricia A. Norton are the limited partners.
Patricia A. Norton, spouse of Phillip G. Norton, is the sole stockholder,
director and President of J.A.P., Inc. Phillip G. Norton holds sole voting
rights as to all of the shares of Common Stock and as to all shares of
voting stock acquired in the future held by J.A.P. Investment Group, L.P.,
Kevin M. Norton and Patrick J. Norton, Jr. under the Irrevocable Proxy and
Stock Rights Agreement. See "-- Irrevocable
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Proxy and Stock Rights Agreement." Also includes 32,500 shares of Common
Stock that Phillip G. Norton has rights to acquire pursuant to options,
which vest upon completion of the Offering and which are immediately
exercisable upon completion of the Offering and excludes 97,500 options to
acquire shares of Common Stock which are not vested and not immediately
exercisable. See "-- Irrevocable Proxy and Stock Rights Agreement" and
"Management -- Executive Compensation and Other Arrangements -- Compensation
Arrangements and Employment Agreements."
(4) Includes 600,000 shares held by Bruce M. And Elizabeth D. Bowen, as tenants
by the entirety, and includes 160,000 shares held by Bowen Holdings L.C., a
Virginia limited liability company composed of Bruce M. Bowen and three
minor children, Daniel Bowen, Sarah Bowen and Margaret Bowen, of whom Bruce
M. Bowen is legal guardian and for which Bruce M. Bowen serves as manager.
Also includes 3,750 shares of Common Stock that Bruce M. Bowen has rights to
acquire pursuant to options which vest upon completion of the Offering and
which are immediately exercisable upon completion of the Offering and
excludes 11,250 options to acquire Common Stock which are not vested and not
immediately exercisable. See "Management -- Executive Compensation and Other
Arrangements -- Compensation Arrangements and Employment Agreements."
(5) Phillip G. Norton holds sole voting rights as to all of the foregoing shares
of Common Stock under an Irrevocable Proxy and Stock Rights Agreement. See
"-- Irrevocable Proxy and Stock Rights Agreement."
(6) Includes 25,000 shares of Common Stock that Kleyton L. Parkhurst has option
rights to acquire, which vest upon completion of the Offering and which are
immediately exercisable upon completion of the Offering and excludes 75,000
options to acquire Common Stock which are not vested and not immediately
exercisable. See "Management -- Executive Compensation and Other
Arrangements -- Compensation Arrangements and Employment Agreements."
IRREVOCABLE PROXY AND STOCK RIGHTS AGREEMENT
Phillip G. Norton and J.A.P. Investments Group, L.P., Kevin M. Norton and
Patrick J. Norton have entered into an agreement entitled "Irrevocable Proxy and
Stock Rights Agreement" pursuant to the terms of which (i) each of J.A.P.
Investments, L.P., Kevin M. Norton and Patrick J. Norton have granted Phillip G.
Norton an irrevocable proxy to vote their shares of Common Stock, which proxy
terminates only upon the death or mental incapacity of Phillip G. Norton or upon
the sale or transfer to a third party of the shares of Common Stock and (ii)
Kevin M. Norton or Patrick J. Norton have granted Phillip G. Norton a first
right to buy their shares of Common Stock in the event they desire to sell or
transfer any shares of Common Stock to a third party. The foregoing first right
to buy is at 85% of the market value for a period of three years from the date
of closing of the Offering and at 95% of the market value thereafter. Phillip G.
Norton may assign his first right to buy to a third party, and if exercised, the
terms of the Irrevocable Proxy and Stock Rights Agreement provide for a deferred
purchase money note to finance the purchase. Any shares of Common Stock which
Kevin M. Norton or Patrick J. Norton offers to Phillip G. Norton and which are
subsequently sold or transferred to a third party after Phillip G. Norton's
nonexercise of his first right to buy, will no longer be subject to the
Irrevocable Proxy and Stock Rights Agreement.
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<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company is
qualified in its entirety by reference to applicable provisions of Delaware law
and the Certificate of Incorporation and the Bylaws of the Company, which are
exhibits to the Registration Statement on file with the Commission.
COMMON STOCK
The Company's Certificate of Incorporation authorizes the issuance of up to
10,000,000 shares of Common Stock. Each holder of Common Stock on the applicable
record date is entitled to receive such dividends as may be declared by the
Board of Directors out of funds legally available therefore and in the event of
dissolution, to share pro rata in any distribution of the Company's assets after
payment or providing for the payments of the Company's liabilities. Each holder
of Common Stock is entitled to one vote for each share held of record on the
applicable record date on all matters presented to a vote of the stockholders.
Holders of Common Stock have no preemptive rights to purchase or subscribe for
any stock or other securities, and there are no conversion rights or redemption
or sinking fund provisions with respect to the Common Stock. All outstanding
shares of Common Stock and the shares of Common Stock issued pursuant to the
Offering will be, when issued, fully paid and non-assessable.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors of the
Company to issue up to 2,000,000 shares of $.01 par value preferred stock of the
Company (the "Preferred Stock"), in one or more series, having such rights and
preferences including, without limitation, voting rights, as the Board of
Directors may determine, in its sole discretion. No consent of the holders of
Common Stock is required to authorize the issuance of any class of Preferred
Stock. The rights of the holders of the Preferred Stock may be senior to the
holders of the Common Stock. The Board of Directors currently has no plans to
issue any class of Preferred Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of Delaware law and the Company's Certificate of
Incorporation and Bylaws could make more difficult the acquisition of the
Company by means of a tender offer, proxy contest or otherwise, and the removal
of incumbent officers and directors.
There has been a recent trend towards the accumulation of substantial stock
positions in public companies by third parties as a prelude to proposing a
takeover or a restructuring or sale of all or part of a company or other similar
extraordinary corporate action. Such actions are often undertaken by the third
party without advance notice to or consultation with management of the company.
In many cases, the purchaser seeks representation on the company's board of
directors in order to increase the likelihood that its proposal will be
implemented by the company. If the company resists the efforts of the purchaser
to obtain representation on the company's board, the purchaser may commence a
proxy contest to have the purchaser or its nominees elected to the board in
place of certain directors, or the entire board.
The Board of Directors of the Company believes that an imminent threat of
removal of the Company's management severely curtails its ability to negotiate
effectively with such purchasers. Under such a threat, management is deprived of
the time and information necessary to evaluate the takeover proposal, to study
alternative proposals and to help ensure that the best price is obtained in any
transaction which may ultimately be undertaken. Takeovers or changes in
management of the Company which may be proposed and effected without prior
consultation and negotiation with the Company's management would not be
necessarily detrimental to the Company and its stockholders. However, the Board
feels that the benefits of seeking to protect its ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to take over or restructure
the Company outweigh the disadvantages of discouraging such proposals.
The provisions of the Certificate of Incorporation and Bylaws described
herein would make more difficult or discourage a proxy contest or the assumption
of control by a holder of a substantial block of the Company's
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<PAGE> 51
Common Stock or the removal of the incumbent Board, and thus could have the
effect of perpetuating the incumbent management. At the same time, the
provisions would help ensure that the Board, if confronted by a surprise
proposal from a third party who has recently acquired a block of the Company's
voting stock, will have sufficient time to review the proposal and appropriate
alternatives to the proposal and to seek a premium price for the stockholders.
These provisions are thus intended to encourage persons seeking to acquire
control of the Company to initiate such an acquisition through arms-length
negotiations with the Company's management and Board of Directors. The
provisions are permitted under Delaware law and are consistent with the rules of
the Nasdaq National Market.
These provisions are not in response to any efforts of which the Company is
aware to accumulate the Company's voting stock or to obtain control of the
Company. The Board of Directors does not presently contemplate recommending to
the stockholders for their approval any further measures which would affect the
ability of third parties to change control of the Company.
The following discussion is a general summary of material provisions of the
Company's Certificate of Incorporation and Bylaws, as currently in effect, and
certain other regulatory provisions, which may be deemed to have an
"anti-takeover" effect. The following description of certain of these provisions
is necessarily general and, with respect to provisions contained in the
Company's Certificate of Incorporation and Bylaws, as currently in effect,
reference should be made in each case to the document in question, each of which
is part of the Registration Statement filed with the Commission. See "Available
Information."
Directors. Certain provisions of the Certificate of Incorporation and
Bylaws will impede changes in majority control of the Board of Directors. The
Company's Certificate of Incorporation provides that the Board of Directors of
the Company are divided into three classes, with directors in each class elected
for three-year staggered terms except for the initial directors. This
classification of the Board of Directors could make it more difficult for a
third party to acquire control of the Company, because it would require more
than one annual meeting of stockholders to elect a majority of the directors.
The Company's Bylaws provide that any vacancy occurring in the Board of
Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term by a majority
vote of the directors then in office. The number of directors constituting the
Board will initially be five.
Restrictions on Call of Special Meetings. The Bylaws provide that a
special meeting of stockholders may be called only by the Board of Directors,
the Chairman of the Board, the President, or the Executive Vice President, and
for the transaction of any proper business. Holders of Common Stock, in their
capacity as stockholders, are not authorized to call a special meeting.
Absence of Cumulative Voting. The Certificate of Incorporation does not
provide for cumulative voting rights in the election of directors.
Authorization of Preferred Stock. The Certificate of Incorporation
authorizes 2,000,000 shares of Preferred Stock. The Company is authorized to
issue Preferred Stock from time to time in one or more series subject to
applicable provisions of law, and the Board of Directors is authorized to fix
the designations, powers, preferences and rights of such share, including voting
rights and conversion rights. In the event of a proposed merger, tender offer or
other attempt to gain control of the Company that the Board of Directors does
not approve, it might be possible for the Board of Directors to authorize the
issuance of a series of Preferred Stock with rights and preferences that would
impede the completion of such a transaction. An effect of the possible issuance
of Preferred Stock, therefore, may be to deter a future takeover attempt. The
Board of Directors has no present plans or understandings for the issuance of
any Preferred Stock, and does not intend to issue any Preferred Stock except on
terms which the Board deems to be in the best interests of the Company and its
stockholders.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Certificate of Incorporation requires the approval by a majority vote of the
Company's Board of Directors and also by a majority vote of the outstanding
shares of the Company's stock entitled to vote thereon.
The Bylaws may be amended by a majority vote of the Board of Directors or
the affirmative vote of a majority of the outstanding shares of the Company's
stock entitled to vote thereon.
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Delaware Anti-Takeover Statute. Generally, Section 203 of the DGCL
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of the outstanding voting stock of a Delaware corporation, such as the
Company) from engaging in a "business combination" with such corporation for
three years following the date that the person became an interested stockholder.
However, the takeover can be completed if (i) the buyer, while acquiring the 15%
interest, acquires at least 85% of the Company's outstanding stock (the 85%
requirement excludes shares held by directors who are also officers and certain
shares held under employee stock plans), or (ii) the takeover is approved by the
target corporation's board of directors and two-thirds of the shares of
outstanding stock of the Company (excluding shares held by the bidder). Section
203 could make it more difficult for a third party to acquire control of the
Company. Section 203 does not apply to Delaware corporations which do not have a
class of voting stock listed on a national exchange, authorized for quotation on
an inter-dealer quotation system of a registered national securities association
or held of record by more than 2,000 stockholders. The Company may exempt itself
from the requirements of the statute by adopting an amendment to its Certificate
of Incorporation or Bylaws electing not to be governed by this provision. At the
present time, the Board of Directors does not intend to propose any such
amendment.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this Offering, the Company will have issued and
outstanding 5,000,000 shares of Common Stock. Of these shares, the 1,000,000
shares sold in the Offering will be freely tradable without restriction under
the Securities Act, unless such shares are held by "affiliates" of the Company,
as that term is defined in Rule 144 under the Securities Act. The remaining
4,000,000 shares of Common Stock outstanding upon completion of the Offering
will be "restricted securities" as that term is defined in Rule 144 ("Restricted
Shares"). Restricted Shares may be sold in the public market only if registered
or if the sale transaction qualifies for an exemption from registration, such as
that provided by Rule 144 under the Securities Act, which is summarized below.
Sales of Restricted Shares in the public market, or the availability of such
shares for sale, could adversely affect the market price of the Common Stock.
All officers, directors and current stockholders of the Company have
entered into contractual "lock-up" agreements providing that they will not
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of the shares of Common Stock, any options or warrants to acquire shares
of Common Stock or any securities exercisable for or convertible into the
Company's Common Stock owned by them or acquired in the Offering for a period of
360 days from the date of this Prospectus, without the prior written consent of
the Underwriters. As a result of these contractual restrictions, shares subject
to lock-up agreements will not be saleable until such agreements expire or are
waived by the Underwriters. All of the Restricted Shares will be available for
sale in the public market 360 days after the date of this Prospectus, subject to
the provisions of Rule 144.
In general, unless an exemption applies, under Rule 144 as currently in
effect, a person (or persons whose shares are aggregated) who has beneficially
owned Restricted Shares for at least two years (including the holding period of
any prior owner except an affiliate) would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i)
one percent of the then outstanding shares of Common Stock or (ii) the average
weekly trading volume in the Common Stock in the Nasdaq National Market during
the four calendar weeks preceding the filing of the date on which notice of such
sale is filed. In addition, under Rule 144(k), a person who is not an affiliate
and has not been an affiliate for at least three months prior to the sale and
who has beneficially owned Restricted Shares for at least three years may sell
such shares without compliance with the foregoing requirements. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company.
Prior to the Offering, there has been no public market for the Common Stock
of the Company and no predictions can be made as to the effect, if any, that
future sales of shares of Common Stock will have on the market price of the
Common Stock prevailing from time to time. Nevertheless, sales of significant
numbers of shares of the Common Stock in the public market could adversely
affect the market price of the Common Stock and could impair the Company's
future ability to raise capital through an offering of its equity securities.
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Transfer Agent and Registrar. The transfer agent and registrar of the
common stock is American Stock Transfer and Trust Company.
Reports to Stockholders. The Company will furnish each stockholder with
annual reports containing financial statements audited by independent
accountants and quarterly reports for the first three quarters of each year
containing unaudited financial statements.
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<PAGE> 54
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters") through their Representative, have
severally agreed to purchase from the Company the following respective number of
shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc................................
----------------
Total...................................................... 1,000,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of the Common Stock offered hereby
if any of such shares of Common Stock are purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
securities dealers at such price less a concession not in excess of $
per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After
the Offering, the initial public offering price, concession, allowance and
reallowance may be changed by the Representative.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 150,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 1,000,000 and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 1,000,000 shares of Common Stock are being offered.
Prior to the Offering, there has been no public trading market for the
Common Stock. The Common Stock has been approved for listing on the Nasdaq
National Market; however, there can be no assurance that an active trading
market for the Common Stock will develop after the Offering, or if developed,
that such a market will be sustained. See "Risk Factors -- Absence of Prior
Public Market for Stock."
The initial public offering price for the Common Stock has been determined
by negotiations between the Company and the Representative. Among the factors
considered in determining the initial public offering price were prevailing
market conditions, revenue and earnings of the Company, estimates of the
business potential and prospects of the Company, the present state of the
Company's business operations, an assessment of the Company's management and the
consideration of the above factors in relation to the market valuation of
certain publicly traded companies in comparable lines of business.
The executive officers, directors and all current stockholders of the
Company have agreed that they will not offer, sell, contract to sell, or grant
an option to purchase, loan, pledge or otherwise dispose of any shares of the
Common Stock, options or warrants to acquire shares of Common Stock or any
securities exercisable for or convertible into Common Stock owned by them or
acquired in the Offering, in the open market or otherwise, for a period of 360
days from the date of this Prospectus, without the prior written consent of the
Underwriters. The Company has agreed not to offer, sell or issue any shares of
Common Stock, options or
53
<PAGE> 55
warrants to acquire Common Stock or securities exercisable for or convertible
into shares of Common Stock for a period of 360 days after the date of this
Prospectus, without the prior written consent of the Underwriters, except that
the Company may issue securities pursuant to the Company's stock option plans.
See "Management -- Executive Compensation and Other Information".
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Company has agreed to indemnify the Underwriters and controlling
persons, if any, against certain losses, claims, damages or liabilities
including liabilities under the Securities Act or will contribute to payments
that the Underwriters or any such controlling persons may be required to make in
respect thereof.
The Representative intends to make a market in the Common Stock on
completion of the Offering, as permitted by applicable laws and regulations. The
Representative, however, is not obligated to make a market in such shares, and
any such market making may be discontinued at any time at the sole discretion of
the Representative.
LEGAL MATTERS
The legality of the Common Stock being offered hereby has been passed upon
for the Company by Hazel & Thomas, P.C., Falls Church, Virginia, counsel to the
Company. Certain legal matters will be passed upon for the Underwriters by
Alston & Bird, Washington, D.C., counsel to the Underwriters.
EXPERTS
The consolidated financial statements of the Company as of March 31, 1995
and 1996 and for each of the three years in the period ended March 31, 1996
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and has been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
54
<PAGE> 56
MLC HOLDINGS, INC., AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors................................................... F-2
Consolidated Balance Sheets as of March 31, 1995 and 1996, and June 30, 1996
(unaudited) ................................................................... F-3
Consolidated Statements of Earnings for the Years Ended March 31, 1994, 1995 and
1996, and for the Quarters Ended June 30, 1995 and 1996 (unaudited)............ F-4
Consolidated Statements of Stockholder's Equity for the Years Ended March 31,
1994, 1995 and 1996, and for the Quarter Ended June 30, 1996 (unaudited)....... F-5
Consolidated Statements of Cash Flows for the Years Ended March 31, 1994, 1995
and 1996, and for the Quarters Ended June 30, 1995 and 1996 (unaudited)........ F-6
Notes to Consolidated Financial Statements....................................... F-7
</TABLE>
F-1
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
MLC Holdings, Inc.
Reston, Virginia
We have audited the accompanying consolidated balance sheets of MLC Holdings,
Inc. and subsidiaries as of March 31, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1996. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of MLC Holdings, Inc. and subsidiaries
as of March 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended March 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Washington, D.C.
September 1, 1996
F-2
<PAGE> 58
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF MARCH 31,
-------------------------- AS OF
1995 1996 JUNE 30, 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 253,475 $ 357,881 $ 445,981
Accounts receivable................................... 2,137,829 1,272,707 1,962,353
Notes receivable...................................... 36,769 91,857 1,045,902
Employee advances..................................... 14,353 76,349 77,759
Inventories........................................... 137,765 86,280 67,267
Refundable income taxes............................... 48,946 -- --
Investment in direct financing and sales-type
leases -- net....................................... 12,123,754 16,273,218 14,371,589
Investment in operating lease equipment -- net........ 1,874,354 10,219,826 8,238,558
Property and equipment -- net......................... 152,235 280,468 265,599
Deferred taxes........................................ 154,000 -- --
Other assets.......................................... 548,192 1,177,629 1,046,412
----------- ----------- -----------
TOTAL ASSETS.......................................... $17,481,672 $29,836,215 $27,521,420
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable -- equipment.................... $ 3,014,447 $ 4,972,979 $ 3,392,173
Accounts payable -- trade........................ 395,385 604,650 303,454
Salaries and commissions payable................. 117,706 61,910 131,091
Accrued expenses and other liabilities........... 388,222 935,315 1,271,825
Income taxes payable............................. -- 6,332 218,808
Recourse notes payable........................... 1,814,855 1,284,742 1,485,165
Nonrecourse notes payable........................ 10,161,758 18,351,579 16,563,997
Loans from stockholders.......................... 325,000 275,000 275,000
Deferred taxes................................... -- 469,000 490,000
----------- ----------- -----------
Total liabilities........................... 16,217,373 26,961,507 24,131,513
COMMITMENTS AND CONTINGENCIES......................... -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -- 2,000,000
shares authorized; none issued or
outstanding.................................... -- -- --
Common stock, $.01 par value -- 10,000,000 shares
authorized; 4,000,000 shares issued and
outstanding.................................... 40,000 40,000 40,000
Additional paid-in capital....................... 9,592 9,592 9,592
Retained earnings................................ 1,214,707 2,825,116 3,340,315
----------- ----------- -----------
Total stockholders' equity.................. 1,264,299 2,874,708 3,389,907
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $17,481,672 $29,836,215 $27,521,420
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 59
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, QUARTER ENDED JUNE 30,
----------------------------------------- -------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales................................ $24,676,478 $36,897,774 $34,841,823 $2,090,708 $10,412,026
Lease revenues....................... 1,577,008 2,967,450 5,900,349 968,074 1,791,458
Net margin on sales-type leases...... 380,446 276,688 85,590 75,174 --
Fee and other income................. 979,451 676,737 1,972,439 640,630 692,468
----------- ----------- ----------- ---------- -----------
Total revenues(1).................. 27,613,383 40,818,649 42,800,201 3,774,586 12,895,952
----------- ----------- ----------- ---------- -----------
COSTS AND EXPENSES:
Cost of sales........................ 23,154,569 34,353,344 31,202,228 1,453,788 9,894,315
Direct lease costs................... 344,326 841,345 2,862,815 285,979 780,788
Professional and other fees.......... 595,028 632,369 687,276 49,069 127,785
Salaries and benefits................ 1,733,988 2,630,660 2,962,177 845,784 665,078
General and administrative
expenses........................... 994,312 759,063 1,017,934 191,472 258,549
Interest and financing costs......... 411,392 990,313 1,576,362 308,118 370,238
----------- ----------- ----------- ---------- -----------
Total costs and expenses(2)........ 27,233,615 40,207,094 40,308,792 3,134,210 12,096,753
----------- ----------- ----------- ---------- -----------
EARNINGS BEFORE PROVISION FOR INCOME
TAXES................................ 379,768 611,555 2,491,409 640,376 799,199
PROVISION FOR INCOME TAXES............. 59,235 198,000 881,000 227,000 284,000
----------- ----------- ----------- ---------- -----------
NET EARNINGS........................... $ 320,533 $ 413,555 $ 1,610,409 $ 413,376 $ 515,199
=========== =========== =========== ========== ===========
NET EARNINGS PER COMMON SHARE.......... $ 0.08 $ 0.10 $ 0.40 $ 0.10 $ 0.13
=========== =========== =========== ========== ===========
</TABLE>
- ---------------
(1) Includes amounts from related parties of $1,901,192 and $15,758,510 for the
fiscal years ended March 31, 1995 and 1996 and $5,693,653 for the quarter
ended June 30, 1996 (unaudited).
(2) Includes amounts to related parties of $1,619,830 and $14,881,141 for the
fiscal years ended March 31, 1995 and 1996, and $5,668,742 for the quarter
ended June 30, 1996 (unaudited).
See notes to consolidated financial statements.
F-4
<PAGE> 60
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1994, 1995, AND 1996 AND THE
QUARTER ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ---------------------- PAID-IN RETAINED
SHARES PER VALUE SHARES PAR VALUE CAPITAL EARNINGS TOTAL
--------- --------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1993...... -- $ -- 4,000,000 $40,000 $9,592 $ 480,619 $ 530,211
Net earnings............ -- -- -- -- -- 320,533 320,533
--------- ------- --------- ------- ------- ---------- ----------
Balance, March 31, 1994..... -- -- 4,000,000 40,000 9,592 801,152 850,744
Net earnings............ -- -- -- -- -- 413,555 413,555
--------- ------- --------- ------- ------- ---------- ----------
Balance, March 31, 1995..... -- -- 4,000,000 40,000 9,592 1,214,707 1,264,229
Net earnings............ -- -- -- -- -- 1,610,409 1,610,409
--------- ------- --------- ------- ------- ---------- ----------
Balance, March 31, 1996..... -- -- 4,000,000 40,000 9,592 2,825,116 2,874,708
Net earnings
(unaudited).......... -- -- -- -- -- 515,199 515,199
--------- ------- --------- ------- ------- ---------- ----------
Balance, June 30, 1996
(unaudited)............... -- $ -- 4,000,000 $40,000 $9,592 $3,340,315 $3,389,907
========= ======= ========= ======= ======= ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 61
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, QUARTER ENDED JUNE 30,
------------------------------------------- --------------------------
1994 1995 1996 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................. $ 320,533 $ 413,555 $ 1,610,409 $ 413,376 $ 515,199
Adjustments to reconcile net earnings to net
cash provided by (used in) operating
activities:
Depreciation and amortization............ 164,068 580,088 2,136,217 231,528 528,544
(Gain)/loss on sale of operating lease
equipment.............................. (108,017) (48,235) (323,422) 545 17,180
Payments from lessees directly to
lenders................................ (38,034) (217,375) (884,389) (101,826) (388,623)
Loss on disposal of property and
equipment.............................. -- 974 4,489 -- --
Deferred taxes........................... (180,000) 26,000 623,000 -- 21,000
Changes in:
Accounts receivable.................... (499,122) (1,173,898) 865,122 1,051,148 (689,646)
Notes receivable....................... (53,417) 50,150 (55,088) 34,611 (954,045)
Employee advances...................... (23,275) 18,922 (61,996) (6,819) (1,410)
Inventories............................ 225,346 93,140 51,485 (393,967) 19,013
Refundable income taxes................ (13,204) (35,742) -- 48,946 --
Other assets........................... (135,413) (50,335) (299,866) (365,797) 38,284
Accounts payable -- equipment.......... (1,015,293) 1,922,938 1,958,532 (1,589,146) (1,580,806)
Accounts payable -- trade.............. 353,153 (71,001) 209,265 567,266 (301,196)
Salaries and commissions payable....... 8,753 (12,845) (55,796) 82,340 69,181
Accrued expenses and other
liabilities.......................... 56,454 198,766 547,093 190,611 336,510
Income taxes payable................... (57,810) -- 55,278 131,380 212,476
----------- ------------ ------------ ----------- -----------
Net cash provided by (used in)
operating activities............... (995,278) 1,695,102 6,380,333 294,196 (2,158,339)
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of operating lease
equipment.................................. 4,062,511 73,072 1,383,677 13,173 850,099
Purchase of operating lease equipment........ (2,149,299) (2,268,792) (13,919,193) (957,744) (3,653,553)
Increase in investment in direct financing
and sales-type leases...................... (5,118,266) (9,766,564) (17,169,201) (1,047,711) 27,844
Proceeds from sale of property and
equipment.................................. -- 1,588 9,049 -- --
Purchases of property and equipment.......... (114,843) (43,451) (207,150) (21,219) (6,240)
Decrease (increase) in other assets.......... (158,808) (164,020) (329,571) (21,526) 92,934
----------- ------------ ------------ ----------- -----------
Net cash used in investing
activities......................... (3,478,705) (12,168,167) (30,232,389) (2,035,027) (2,688,916)
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings:
Nonrecourse................................ 3,675,084 10,217,530 25,678,168 2,369,762 5,051,925
Recourse................................... -- 184,359 67,103 -- --
Repayments:
Nonrecourse................................ -- (348,373) (1,144,023) (131,816) (316,991)
Recourse................................... -- (44,972) (62,688) (17,525) (16,541)
Proceeds of loans from stockholders.......... -- 75,000 -- -- --
Repayments of notes payable.................. (90,000) -- -- -- --
Repayments of loans from stockholder......... -- -- (50,000) -- --
Proceeds (repayments) from lines of credit... 1,711,000 (285,532) (532,098) (378,270) 216,962
----------- ------------ ------------ ----------- -----------
Net cash provided by financing
activities......................... 5,296,084 9,798,012 23,956,462 1,842,151 4,935,355
----------- ------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 822,101 (675,053) 104,606 101,320 88,100
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD....................................... 106,427 928,528 253,475 253,475 357,881
----------- ------------ ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $ 928,528 $ 253,475 $ 357,881 $ 354,795 $ 445,981
=========== ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid................................ $ 77,931 $ 161,667 $ 183,220 $ 58,614 $ 46,242
=========== ============ ============ =========== ===========
Income taxes paid............................ $ 310,249 $ 219,573 $ 202,864 $ 4,466 $ 50,523
=========== ============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 62
MLC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996, 1995, AND 1994 AND
THE QUARTERS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- Effective September 1, 1996, MLC Holdings, Inc.,
(incorporated August 27, 1996), became the holding company for MLC Group, Inc.,
and MLC Capital, Inc. (MLC Holdings, Inc. together with its subsidiaries
collectively, "MLC" or "the Company"). The accompanying consolidated financial
statements include the accounts of the wholly-owned subsidiary companies at
historical amounts as if the combination had occurred on March 31, 1993, in a
manner similar to a pooling of interests. MLC was formed on November 8, 1990,
and is a dealer of information technology equipment, and a finance and leasing
company serving federal, state, and local governments, as well as commercial
customers. The Company specializes in financing information technology,
equipment, software, and services. MLC also maintains an active presence in the
secondary market for computer hardware.
All significant intercompany balances and transactions have been
eliminated.
Revenue Recognition -- MLC sells information technology equipment to its
customers and recognizes revenue from equipment sales at the time equipment is
accepted by the customer. MLC is the lessor in a number of its transactions and
these are accounted for in accordance with Financial Accounting Standards No.
13, "Accounting for Leases." Each lease is classified as either a direct
financing lease, sales-type lease, or operating lease, as appropriate. Under the
direct financing and sales-type lease methods, MLC records the net investment in
leases, which consists of the sum of the minimum lease payments, initial direct
costs, and unguaranteed residual value (gross investment) less the unearned
income. The difference between the gross investment and the cost of the leased
equipment for direct finance leases is recorded as unearned income at the
inception of the lease. The unearned income is amortized over the life of the
lease using the interest method. Under sales-type leases the difference between
the fair value and cost of the leased property (net margins) is recorded as
revenue at the inception of the lease.
Lease revenues consist of rentals due under operating leases and
amortization of unearned income on direct financing and sales-type leases.
Equipment under operating leases is recorded at cost and depreciated on a
straight-line basis over the lease term to the Company's estimate of residual
value.
The Company assigns all rights, title, and interests in a number of its
leases to third party financial institutions without recourse. These assignments
are accounted for as sales since MLC has completed its obligations at the
assignment date and the Company retains no ownership interest in the equipment
under lease.
Cash and Cash Equivalents -- Cash and cash equivalents include short-term
repurchase agreements with an original maturity of three months or less.
Inventories -- Inventories are stated at the lower of cost (specific
identification basis) or market.
Property and Equipment -- Property and equipment are stated at cost, net of
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets, which range from three to five years.
Income Taxes -- Deferred income taxes are provided for in accordance with
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under this method, deferred income tax liabilities and assets are based on the
difference between financial statement and tax bases of assets and liabilities,
using tax rates currently in effect.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-7
<PAGE> 63
MLC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
New Accounting Pronouncements -- The Financial Accounting Standards Boards
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," in March 1995, and SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," in June 1996. These standards will be effective for the Company
beginning in fiscal year 1997 and are not expected to have a significant impact
on the Company's financial statements.
Interim Financial Statements (Unaudited) -- In the opinion of management,
the accompanying unaudited financial statements contain all adjustments
(consisting on of various normal accruals) necessary to present fairly the
Company's financial position, results of earnings and cash flows. The results of
earnings for the quarter ended June 30, 1996 are not necessarily indicative of
the results of earnings to be expected for the full year.
Reclassifications -- Certain items have been reclassified in the March 31,
1994 and 1995 financial statements to conform to the March 31, 1996
presentation.
2. INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES
The Company's investment in direct financing and sales-type leases consists
of the following components:
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF
-------------------------- JUNE 30,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Minimum lease payments........................ $13,674,866 $18,212,328 $15,972,246
Estimated unguaranteed residual value......... 154,710 347,811 317,846
Initial direct costs, net of amortization of
$217,476 and $590,058, at March 31, 1995 and
1996, and $806,268 (unaudited) at June 30,
1996........................................ 203,397 1,538,756 1,545,561
Less: Unearned lease income................... (1,909,219) (3,825,677) (3,464,064)
----------- ----------- -----------
Investment in direct financing and sales-type
leases -- net............................... $12,123,754 $16,273,218 $14,371,589
=========== =========== ===========
</TABLE>
Future scheduled minimum lease rental payments, as of March 31, 1996, are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
-------------------------------------------------------------
<S> <C>
1997.................................................. $ 6,953,688
1998.................................................. 5,055,287
1999.................................................. 3,394,892
2000.................................................. 1,785,775
2001 and thereafter................................... 1,022,686
-----------
Total............................................ $18,212,328
===========
</TABLE>
The Company's net investment in direct financing and sales-type leases is
collateral for nonrecourse and recourse equipment notes (see Note 6).
F-8
<PAGE> 64
MLC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SALES-TYPE LEASES
The detail for the sales-type leases consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, QUARTER ENDED JUNE 30,
--------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross minimum lease
payments................ $ 3,550,942 $ 3,451,993 $ 559,256 $ 440,600 $ --
Estimated unguaranteed
residual value.......... -- 3,296 -- -- --
Gross cost of sales....... (2,598,056) (2,628,983) (375,287) (292,515)
Unearned lease income..... (572,440) (549,618) (98,379) (72,911) --
----------- ----------- --------- --------- -------
Net margin................ $ 380,446 $ 276,688 $ 85,590 $ 75,174 $ --
=========== =========== ========= ========= =======
</TABLE>
4. INVESTMENT IN OPERATING LEASE EQUIPMENT
Investment in operating leases represents primarily equipment leased for
two to three years. The components of the net investment in operating lease
equipment, are as follows:
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF
------------------------- JUNE 30,
1995 1996 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cost of equipment under operating
lease................................ $2,398,725 $11,411,105 $ 9,000,073
Initial direct costs................... 7,019 54,217 524,427
Accumulated depreciation and
amortization......................... (531,390) (1,245,496) (1,285,942)
---------- ----------- -----------
Investment in operating
leases -- net................... $1,874,354 $10,219,826 $ 8,238,558
========== =========== ===========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------
1995 1996
-------- ---------
<S> <C> <C>
Furniture and equipment................................ $182,192 $ 241,859
Capitalized software................................... 35,399 158,666
Leasehold improvements................................. 14,613 14,613
-------- ---------
232,204 415,138
Accumulated depreciation............................... (79,969) (134,670)
-------- ---------
$152,235 $ 280,468
======== =========
</TABLE>
F-9
<PAGE> 65
MLC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. RECOURSE AND NONRECOURSE NOTES PAYABLE
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF
-------------------------- JUNE 30,
1995 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C>
Revolving line of credit with a maximum
balance of $250,000, bearing interest at the
prime rate (8.25% at March 31, 1996) plus
1.5% payable on demand, secured by equipment
purchases................................... $ 175,000 $ 175,000 $ --
Revolving line of credit with a maximum
balance of $2,000,000, bearing interest at
the prime rate (8.25% at March 31, 1996)
plus 1%, and personally guaranteed by an
employee/stockholder........................ 983,778 592,000 1,350,000
Revolving line of credit with a maximum
balance of $5,000,000, bearing interest at
the LIBOR rate (5.5% at March 31, 1996) plus
2.75%, secured by the Company's assets and
personal guarantees from
employees/stockholders...................... -- 360,000 --
Revolving line of credit with a maximum
balance of $3,000,000, bearing interest at
the prime rate plus 1.5%.................... 479,446 -- --
Recourse equipment notes with varying interest
rates ranging from 7.5% to 8.53%, and 8.17%
to 8.53%, respectively, secured by related
investments in leases....................... 139,387 141,373 124,831
Noncollateralized recourse note bearing
interest at 8.05%........................... 37,244 16,369 10,334
----------- ----------- -----------
$ 1,814,855 $ 1,284,742 $ 1,485,165
========== ========== ==========
Nonrecourse equipment notes with varying
interest rates ranging from 6.25% to 14.39%,
and 5.85% to 14.39%, secured by related
investments in leases....................... $10,161,758 $18,351,579 $16,563,997
========== ========== ==========
</TABLE>
Principal and interest payments on the recourse and nonrecourse notes
payable are generally due monthly in amounts that are approximately equal to the
total payments due from the lessee under the leases that collateralize the notes
payable. Under recourse financing, in the event of a default by a lessee, the
lender has recourse against the lessee, the equipment servicing as collateral,
and the borrower. Under nonrecourse financing, in the event of a default by a
lessee, the lender generally only has recourse against the lessee, and the
equipment serving as collateral, but not against the borrower.
Borrowings under the $2,000,000 and $5,000,000 lines of credit above
contain covenants regarding maximum recourse debt to worth ratio, minimum
consolidated tangible net worth, fixed charge coverage ratio and prohibit the
payment of dividends.
Unaudited -- The lender of the $175,000 payable shown above was in
receivership by the Federal Deposit Insurance Corporation ("FDIC"). The FDIC
sold the note to a third party and during the quarter ended June 30, 1996, the
Company negotiated to settle the amount due of $175,000 plus accrued interest of
$69,000 for $169,000. The gain of $75,000 is included in fee and other income in
the accompanying consolidated statement of earnings for the quarter ended June
30, 1996.
F-10
<PAGE> 66
MLC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. RECOURSE AND NONRECOURSE NOTES PAYABLE -- (CONTINUED)
Recourse and nonrecourse notes payable, as of March 31, 1996, mature as
follows:
<TABLE>
<CAPTION>
NONRECOURSE RECOURSE
NOTES PAYABLE NOTES PAYABLE
------------- -------------
<S> <C> <C>
1997............................................... $ 7,024,397 $ 1,209,704
1998............................................... 5,900,895 33,889
1999............................................... 3,594,811 14,983
2000............................................... 1,296,557 16,160
2001............................................... 534,919 10,006
------------ -----------
$ 18,351,579 $ 1,284,742
============ ===========
</TABLE>
7. RELATED PARTY TRANSACTIONS
Loans From Stockholders/Officers:
<TABLE>
<CAPTION>
AS OF MARCH 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Note payable to stockholder bearing interest at 10%,
maturing March 1, 1998................................ $175,000 $175,000
Note payable to stockholder bearing interest at 10%,
maturing March 1, 1998................................ $150,000 $100,000
-------- --------
$325,000 $275,000
======== ========
</TABLE>
Other:
MLC provided advances to employees/stockholders aggregating a total of
$49,275, $61,583, and $139,500, for the years ended March 31, 1994, 1995,
and 1996, respectively. Such balances are to be repaid, plus interest, from
commissions earned by the employees/stockholders on successful sales or
financing arrangements obtained on behalf of the Company. Repayments on
these advances have been made as follows:
- Advances of $26,000, $80,505, and $82,612 were repaid for the
years ended March 31, 1994, 1995, and 1996, respectively. No interest
was charged on these advances.
- During the year ended March 31, 1996, an employee/stockholder
repaid the entire amount due the Company under a promissory note with a
maximum amount of $40,000 (loaned in 1994) bearing interest at a rate of
8%. In addition, the Company loaned a stockholder $54,000 pursuant to a
promissory note bearing interest at a rate of 8%. Under the terms of the
note interest and principal of $1,608 and $8,392, respectively, were
paid to the Company during the year ended March 31, 1996.
During the years ended March 31, 1995 and 1996, MLC sold leased
equipment to a company in which an employee/stockholder has a 45%
ownership interest. Revenue recognized from the sale was $1,855,010 and
$1,300,448 respectively, and the basis of the equipment sold was
$1,619,830 and $1,271,729 respectively. At March 31, 1996, accrued
expenses and other liabilities include $26,575 due to the related
company, notes receivable include $17,511 due from the company and other
assets include $73,421 which represents MLC's investment in lease deals
with the company.
During the year ended March 31, 1996, MLC paid a stockholder
$120,000 in exchange for the pledge of personal assets made to secure
one of the Company's revolving line-of-credit agreements.
F-11
<PAGE> 67
MLC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTY TRANSACTIONS -- (CONTINUED)
During the year ended March 31, 1994, the Company sold its 49%
interest in MLC Federal. Subsequent to the sale, accounts receivable of
$281,709 from MLC Federal were determined to be uncollectible. The
related bad debt expense is included in general and administrative
expenses in the accompanying statement of earnings for the year ended
March 31, 1994.
During the year ended March 31, 1996, the Company sold leased
equipment to MLC/GATX Limited Partnership I (the "Partnership"), which
amounted to 31% of the Company's revenues. The Company has a 9.5%
limited partnership interest in the Partnership and owns a 50% interest
in the corporation that owns a 1% general partnership interest in the
Partnership. Revenue recognized from the sales was $13,079,433, and the
basis of the equipment sold was $12,273,527. Other assets include
$188,073 due from and $209,961 due to the Partnership for the years
ended March 31, 1995 and 1996, respectively. The Company's investment
balance in the Partnership, accounted for using the cost method,
included in other assets is $197,572 and $380,757 at March 31, 1995 and
1996, respectively. In addition, the Company received $2,711, $46,182,
and $122,111 for the years ended March 31, 1994, 1995, and 1996,
respectively, for accounting and administrative services provided to the
Partnership.
During the year ended March 31, 1996, the Company sold leased
equipment to MLC/CLC LLC, in which the Company has a 5% ownership
interest. Revenue recognized from the sales was $1,256,518, and the
basis of the equipment sold was $1,335,885. Other assets includes an
investment of $14,254 accounted for using the cost method.
8. COMMITMENTS AND CONTINGENCIES
MLC leases office space and a telephone system for the conduct of its
business. As of March 31, 1996, the future minimum lease payments are due as
follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
------------------------------------------------------------------
<S> <C>
1997....................................................... $ 99,065
1998....................................................... 89,454
1999....................................................... 45,056
--------
$233,575
========
</TABLE>
As of March 31, 1996, the Company has guaranteed $172,565 of the residual
value for equipment owned by another entity.
F-12
<PAGE> 68
MLC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
A reconciliation of income tax computed at the statutory Federal rate to
the provision for income tax included in the consolidated statements of earnings
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------- QUARTER ENDED
1994 1995 1996 JUNE 30, 1996
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C> <C>
Statutory Federal income tax rate........ 34% 34% 34% 34%
========= ======== ======== ========
Income tax expense computed at the
statutory Federal rate................. $129,121 $207,929 $847,079 $ 272,000
State income tax expense (benefit), net
of Federal tax expense................. 3,797 6,115 24,643 32,000
Nontaxable interest income............... (73,683) (95,000) (79,342) (30,000)
Nondeductible expenses................... -- 78,956 88,620 10,000
--------- -------- -------- --------
Provision for income taxes............... $ 59,235 $198,000 $881,000 $ 284,000
========= ======== ======== ========
Effective tax rate....................... 15.6% 32.4% 35.4% 35.5%
========= ======== ======== ========
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------- QUARTER ENDED
1994 1995 1996 JUNE 30, 1996
--------- -------- -------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C> <C>
Current:
Federal.................... $ 198,766 $154,000 $231,000 $ 201,000
State...................... 40,469 18,000 27,000 62,000
--------- -------- -------- -------------
239,235 172,000 258,000 263,000
--------- -------- -------- -------------
Deferred:
Federal.................... (170,000) 17,000 557,000 15,000
State...................... (10,000) 9,000 66,000 6,000
--------- -------- -------- -------------
(180,000) 26,000 623,000 21,000
--------- -------- -------- -------------
$ 59,235 $198,000 $881,000 $ 284,000
========= ======== ======== ==========
</TABLE>
The components of the deferred tax expense (benefit) resulting from net
temporary differences are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Alternative minimum tax.................... $(229,000) $ 158,000 $ 200,000
Lease revenue recognition.................. 49,000 (132,000) (823,000)
---------- ------- --------
Total................................. $(180,000) $ 26,000 $ 623,000
========== ======= ========
</TABLE>
F-13
<PAGE> 69
MLC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effects of items
comprising the Company's deferred taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1994 1995 1996
-------- --------- -----------
<S> <C> <C> <C>
Alternative minimum tax................... $230,000 $ 388,000 $ 619,000
Lease revenue recognition................. (50,000) (234,000) (1,088,000)
-------- --------- -----------
Net deferred asset (liability)............ $180,000 $ 154,000 $ (469,000)
======== ========= ===========
</TABLE>
10. NONCASH INVESTING AND FINANCING ACTIVITIES
The Company recognized a reduction in recourse and nonrecourse notes
payable (Note 6) associated with its deferred finance and operating lease
activities from payments made directly by customers to the third-party lenders
amounting to $1,608,023, $6,150,983, and $4,796,306 for the years ended March
31, 1994, 1995, and 1996, respectively. In addition, the Company realized a
reduction in recourse and nonrecourse notes payable from the sale of the
associated assets and liabilities amounting to $819,518, $1,855,010, and
$11,550,446, for the years ended March 31, 1994, 1995, and 1996, respectively.
During the year ended March 31, 1994, the assets and liabilities of another
leasing company were acquired for nominal consideration. This transaction led to
an increase in net investment in direct financing and sales type leases, and in
nonrecourse debt of approximately $4.8 million.
11. PROFIT SHARING PLAN
The Company provides its employees with a contributory 401(k) profit
sharing plan which was adopted during the year ended March 31, 1995. All
employees age 21 and older become eligible to participate in the plan as of the
first day of the month after which a minimum of 20 hours of service per week,
during a consecutive six-month period has been completed. Full vesting occurs
after the fourth consecutive year of plan participation. Employer contribution
percentages are to be determined by the Company and are discretionary each year.
The Company's expense for the plan was $3,925, and $46,307, for the years
ended March 31, 1995 and 1996, respectively.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of the Company's
financial instruments is in accordance with the provisions of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. The valuation methods
used by the Company are set forth below.
The accuracy and usefulness of the fair value information disclosed herein
is limited by the following factors:
- These estimates are subjective in nature and involved uncertainties
and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
- These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holding of a
particular financial asset.
F-14
<PAGE> 70
MLC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
- SFAS No. 107 excludes from its disclosure requirements lease
contracts and various significant assets and liabilities that are not
considered to be financial instruments.
Because of these and other limitations, the aggregate fair value amounts
presented in the following table do not represent the underlying value of the
Company.
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996 AS OF JUNE 30, 1996
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS:
Cash......................... $ 357,881 $ 357,881 $ 445,981 $ 445,981
LIABILITIES:
Nonrecourse notes payable.... $18,351,579 $18,406,230 $16,563,997 $16,592,093
Recourse notes payable....... 1,284,742 1,286,120 $ 1,485,165 $ 1,485,803
</TABLE>
The following methods and assumptions were used by the Company in computing
the estimated fair value in the above table:
Cash -- The carrying amounts of these financial instruments
approximated their fair value.
Recourse and Nonrecourse Notes Payable -- The fair value of recourse
and nonrecourse debt is based on the borrowing rates currently available to
the Company for debt with similar terms and average maturities.
13. SUBSEQUENT EVENT
During July 1996, the Company entered into a Credit Agreement with
NationsBanc Leasing Corporation, (NationsBanc) an affiliate of NationsBank, N.A.
Under the terms of the Agreement, NationsBanc may lend up to $2,000,000 in
various notes of terms of up to sixty months. The facility, but not transactions
financed thereunder, expires January 31, 1997. Borrowings under the facility
bear interest on a fixed or floating basis at the Company's option.
* * * * * *
F-15
<PAGE> 71
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
---------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Company........................... 18
Use of Proceeds....................... 18
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................. 24
Business.............................. 29
Management............................ 37
Certain Transactions.................. 44
Principal Stockholders................ 47
Description of Capital Stock.......... 49
Underwriting.......................... 53
Legal Matters......................... 54
Experts............................... 54
Index to Consolidated Financial
Statements.......................... F-1
UNTIL , 1996 (25 DAYS
AFTER THE DATE OF THE PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTION.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,000,000 SHARES
MLC HOLDINGS, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
FRIEDMAN, BILLINGS,
RAMSEY & CO., INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the various expenses expected to be incurred by
the Registrant in connection with the sale and distribution of the securities
being registered hereby other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 3,569
NASD filing fee................................................... $ 1,535
Nasdaq listing fee................................................ $ 30,000
Transfer Agent fees and expenses.................................. $ 2,500
Printing and engraving expenses................................... $100,000
Legal fees and expenses........................................... $250,000
Blue Sky fees and expenses........................................ $ 15,000
Accounting fees and expenses...................................... $125,000
Directors and Officers insurance premiums......................... $100,000
Miscellaneous..................................................... $ 50,000
--------
Total................................................... $677,604
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Ninth of the Certificate of Incorporation of the Registrant
provides:
"No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director; provided, however, that the foregoing shall not eliminate or
limit the liability of a director (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit."
Article Tenth of the Certificate of Incorporation of the Registrant
provides:
"The Corporation shall indemnify, in the manner and to the fullest
extent permitted by the Delaware General Corporation Law (and in the case
of any amendment thereto, to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), any person (or the estate of any person) who is or was a party
to, or is threatened to be made a party to, any threatened, pending or
completed action, suit or proceeding, whether or not by or in the right of
the Corporation, and whether civil, criminal, administrative, investigative
or otherwise, by reason of the fact that such person is or was a director
or officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise including service with respect to
an employee benefit plan. The Corporation may, to the fullest extent
permitted by the Delaware General Corporation Law, purchase and maintain
insurance on behalf of any such person against any liability which may be
asserted against such person. To the fullest extent permitted by the
Delaware General Corporation Law, the indemnification provided herein may
include expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement and any such expenses may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the person seeking
indemnification to repay such amounts if it is ultimately determined that
he or she is not entitled to be indemnified. The indemnification provided
herein shall not be deemed to limit the right of the Corporation to
indemnify any other person for any such expenses to the fullest extent
permitted by the Delaware General Corporation Law, nor shall it be deemed
exclusive of any other rights to which any person seeking
II-1
<PAGE> 73
indemnification from the Corporation may be entitled under any agreement,
the Corporation's Bylaws, vote of stockholders or disinterested directors,
or otherwise, both as to action in such person's official capacity and as
to action in another capacity while holding such office. The Corporation
may, but only to the extent that the Board of Directors may (but shall not
be obligated to) authorize from time to time, grant rights to
indemnification and to the advancement of expenses to any employee or agent
of the Corporation to the fullest extent of the provisions of this Article
Tenth as they apply to the indemnification and advancement of expenses of
directors and officers of the Corporation."
Section 145 of the Delaware General Corporation Law empowers the Registrant
to indemnify its officers and directors under certain circumstances. The
pertinent provisions of that statute read as follows:
"(a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) if there are no
such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final deposition of such action, suit or proceeding upon receipt of an
undertaking by or on
II-2
<PAGE> 74
behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employer or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees)."
The Registrant has purchased a directors' and officers' liability insurance
contract which provides, within stated limits, reimbursement either to a
director or officer whose actions in his capacity result in liability, or to the
Registrant, in the event it has indemnified the director or officer.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 12 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by director, officer, or controlling
person of the Registrant in the
II-3
<PAGE> 75
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant did not sell any securities which were not registered under
the Securities Act during the three year period ended June 30, 1996.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of Registrant, as currently in effect
3.2 Bylaws of Registrant
4.1 Specimen Certificate of Common Stock of the Company
5.1 Opinion of Hazel & Thomas, P.C. regarding legality
10.1 1996 Stock Incentive Plan
10.2 1996 Outside Director Stock Option Plan
10.3 1996 Nonqualified Stock Option Plan
10.4 1996 Incentive Stock Option Plan
10.5 Form of Indemnification Agreement entered into between Registrant and its
directors and officers
10.6 Lease dated July 14, 1993 for principal executive office located in Reston,
Virginia, together with amendment thereto dated March 18, 1996
10.7 Form of Employment Agreement between the Registrant and Phillip G. Norton
10.8 Form of Employment Agreement between the Registrant and Bruce M. Bowen
10.9 Form of Employment Agreement between the Registrant and William J. Slaton
10.10 Form of Employment Agreement between the Registrant and Kleyton L. Parkhurst
10.11 Form of Irrevocable Proxy and Stock Rights Agreement
10.12 Commitment and Loan Agreement by and between the Company and NationsBank, N.A.
10.13 Credit Agreement by and between the Company and First Union Bank of Virginia
10.14 First Amended and Restated Business Loan and Security Agreement by and between the
Company and NationsBanc Leasing Corporation
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP, independent auditors
23.2 Consent of Hazel & Thomas, P.C. (included in Exhibit 5.1)
24.1 Power of Attorney (see Page II-5)
27.1 Financial Data Schedule
99.1 Consent of Jonathan J. Ledecky (future director)
99.2 Consent of Terrence O'Donnell (future director)
99.3 Consent of Carl J. Rickersten (future director)
</TABLE>
II-4
<PAGE> 76
b. Financial Statement Schedules.
All financial statement schedules are omitted because the information is
not required, is not material or is otherwise included in the Consolidated
Financial Statements and Notes thereto of the Company.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the Closing, as specified in the Underwriting Agreement, certificates in such
denomination and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-5
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunder authorized, in the County of Fairfax, Commonwealth of
Virginia, on this 10th day of September, 1996.
MLC HOLDINGS, INC.
By: /s/ PHILLIP G. NORTON
------------------------------
Phillip G. Norton, Chairman
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Phillip G. Norton
and Bruce M. Bowen, and each one of them, his true and lawful attorneys-in-fact
and agents, each with full power of substitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post effective amendment
thereto, and to file the same, with all exhibits thereto and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming that each of said
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ ----------------------------- -------------------
<S> <C> <C>
/s/ PHILLIP G. NORTON Chairman of the Board, Chief September 10, 1996
- ------------------------------------------ Executive Officer and
Phillip G. Norton President
(Principal Executive Officer)
/s/ BRUCE M. BOWEN Director, Chief Financial September 10, 1996
- ------------------------------------------ Officer and Executive Vice
Bruce M. Bowen President
(Principal Financial Officer)
/s/ BARBARA J. SIMMONDS Controller September 10, 1996
- ------------------------------------------ (Vice President and Principal
Barbara J. Simmonds Accounting Officer)
</TABLE>
II-6
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ------------------------------------------------------------------------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement...........................................
3.1 Certificate of Incorporation of Registrant, as currently in effect.......
3.2 Bylaws of Registrant.....................................................
4.1 Specimen Certificate of Common Stock of the Company......................
5.1 Opinion of Hazel & Thomas, P.C. regarding legality.......................
10.1 1996 Stock Incentive Plan................................................
10.2 1996 Outside Director Stock Option Plan..................................
10.3 1996 Nonqualified Stock Option Plan......................................
10.4 1996 Incentive Stock Option Plan.........................................
10.5 Form of Indemnification Agreement entered into between Registrant and its
directors and officers.................................................
10.6 Lease dated July 14, 1993 for principal executive office located in
Reston, Virginia, together with amendment thereto dated March 18,
1996...................................................................
10.7 Form of Employment Agreement between the Registrant and Phillip G.
Norton.................................................................
10.8 Form of Employment Agreement between the Registrant and Bruce M. Bowen...
10.9 Form of Employment Agreement between the Registrant and William J.
Slaton.................................................................
10.10 Form of Employment Agreement between the Registrant and Kleyton L.
Parkhurst..............................................................
10.11 Form of Irrevocable Proxy and Stock Rights Agreement.....................
10.12 Commitment and Loan Agreement by and between the Company and NationsBank,
N.A. ..................................................................
10.13 Credit Agreement by and between the Company and First Union Bank of
Virginia...............................................................
10.14 First Amended and Restated Business Loan and Security Agreement by and
between the Company and NationsBanc Leasing Corporation................
21.1 Subsidiaries of the Company..............................................
23.1 Consent of Deloitte & Touche LLP, independent auditors...................
23.2 Consent of Hazel & Thomas, P.C. (included in Exhibit 5.1)................
24.1 Power of Attorney (see Page II-5)........................................
27.1 Financial Data Schedule..................................................
99.1 Consent of Jonathan J. Ledecky (future director).........................
99.2 Consent of Terrence O'Donnell (future director)..........................
99.3 Consent of Carl J. Rickersten (future director)..........................
</TABLE>
<PAGE> 1
EXHIBIT 1.1
MLC HOLDINGS, INC.
1,000,000 Shares(1)
Common Stock
UNDERWRITING AGREEMENT
----------------------
September __, 1996
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
Potomac Tower
1001 Nineteenth Street North
Arlington, Virginia 22209
As Representative of the Several Underwriters
Dear Sirs:
MLC Holdings, Inc., a Delaware corporation (the "Company")
hereby confirms its agreement with the several underwriters named in Schedule 1
hereto (the "Underwriters"), for whom you have been duly authorized to act as
representative (in such capacity, the "Representative"), as set forth below.
If you are the only Underwriter, all references herein to the Representative
shall be deemed to be to the Underwriters. All references herein to the
Company and representations and warranties relating thereto give effect to the
merger of a subsidiary of the Company with and into MLC Group, Inc., a Virginia
corporation ("MLC Group"), as a result of which MLC Group became a wholly-owned
subsidiary of the Company, which merger was consummated on September 1, 1996.
Accordingly, references to the Company herein at all times prior to the
September 1, 1996 shall mean MLC Group and reference to the Company on and
subsequent to the September 1, 1996 shall be deemed to include the Company and
MLC Group and the Company's other subsidiaries.
1. Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the several Underwriters
an aggregate of 1,000,000 shares (the "Firm Securities") of the Company's
Common Stock, $0.01 par value per share (the "Common Stock"). The Company
also proposes to issue and sell to the several Underwriters not more than
150,000 additional shares of Common Stock if requested by the Representative as
provided in Section 3 of this Agreement. Any and all shares of Common Stock to
be purchased by the Underwriters pursuant to such option are referred
- --------------------
1 Plus an option to purchase from MLC Holdings, Inc. up to 150,000
additional shares to cover over-allotments.
<PAGE> 2
to herein as the "Option Securities," the Firm Securities and any Option
Securities are collectively referred to herein as the "Securities."
2. Representations and Warranties of the Company and the
Stockholders.
(a) The Company represents and warrants to, and agrees
with, each of the several Underwriters that:
(i) A registration statement on Form
S-1 (File No. 333-_______) with respect to the Securities, including a
prospectus subject to completion, has been filed by the Company with
the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), and one or more
amendments to such registration statement may have been so filed.
After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have
been amended, has been declared by the Commission to be effective
under the Act, either (A) if the Company relies on Rule 434 under the
Act, a Term Sheet (as hereinafter defined) relating to the Securities,
that shall identify the Preliminary Prospectus (as hereinafter
defined) that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Act or
(B) if the Company does not rely on Rule 434 under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been
filed, in such registration statement), with such changes or
insertions as are required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act, and in the case of either clause (i)(A) or
(i)(B) of this sentence, as have been provided to and approved by the
Representative prior to the execution of this Agreement, or (ii) if
such registration statement, as it may have been amended, has not been
declared by the Commission to be effective under the Act, an amendment
to such registration statement, including a form of prospectus, a copy
of which amendment has been furnished to and approved by the
Representative prior to the execution of this Agreement. The Company
may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Act for the purpose of registering
certain additional Securities, which registration statement shall be
effective upon filing with the Commission. As used in this Agreement,
the term "Original Registration Statement" means the registration
statement initially filed relating to the Securities, as amended at
the time when it was or is declared effective, including all financial
schedules and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the
Prospectus (as hereinafter defined); the term "Rule 462(b)
Registration Statement" means any registration statement filed with
the Commission pursuant to Rule 462(b) under the Act (including the
Registration Statement and any Preliminary Prospectus or Prospectus
incorporated therein at the time such Registration Statement becomes
effective); the term "Registration Statement" includes both the
Original Registration Statement and any Rule 462(b) Registration
Statement; the term "Preliminary Prospectus" means
- 2 -
<PAGE> 3
each prospectus subject to completion filed with such registration
statement or any amendment thereto (including the prospectus subject
to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the
term "Prospectus" means: (A) if the Company relies on Rule 434 under
the Act, the Term Sheet relating to the Securities that is first filed
pursuant to Rule 424(b)(7) under the Act, together with the
Preliminary Prospectus identified therein that such Term Sheet
supplements; (B) if the Company does not rely on Rule 434 under the
Act, the prospectus first filed with the Commission pursuant to Rule
424(b) under the Act; or (C) if the Company does not rely on Rule 434
under the Act and if no prospectus is required to be filed pursuant to
Rule 424(b) under the Act, the prospectus included in the Registration
Statement; and the term "Term Sheet" means any term sheet that
satisfies the requirements of Rule 434 under the Act. Any reference
herein to the "date" of a Prospectus that includes a Term Sheet shall
mean the date of such Term Sheet.
(ii) The Commission has not issued any
order preventing or suspending the use of any Preliminary Prospectus.
When any Preliminary Prospectus was filed with the Commission it (A)
contained all statements required to be stated therein in accordance
with, and complied in all material respects with the requirements of,
the Act and the rules and regulations of the Commission thereunder and
(B) did not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. When the Registration Statement or any amendment
thereto was or is declared effective, it (A) contained or will contain
all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements
of, the Act and the rules and regulations of the Commission thereunder
and (B) did not or will not include any untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus or any Term
Sheet that is a part thereof or any amendment or supplement to the
Prospectus is filed with the Commission pursuant to Rule 424(b) (or,
if the Prospectus or any part thereof or such amendment or supplement
is not required to be so filed, when the Registration Statement or the
amendment thereto contain such amendment or supplement to the
Prospectus was or is declared effective) and on the Firm Closing Date
and any Option Closing Date (both as hereinafter defined), the
Prospectus, as amended or supplemented at any such time, (A) contained
or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects
with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (ii) do not apply to statements
or omissions made in any Preliminary Prospectus, the Registration
Statement or any amendment thereto or the Prospectus or any amendment
or
- 3 -
<PAGE> 4
supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representative specifically for use therein.
(iii) If the Company has elected to
rely on Rule 462(b) and the Rule 462(b) Registration Statement has not
been declared effective (i) the Company has filed a Rule 462(b)
Registration Statement in compliance with and that is effective upon
filing pursuant to Rule 462(b) and has received confirmation of its
receipt and (ii) the Company has given irrevocable instructions for
transmission of the applicable filing fee in connection with the
filing of the Rule 462(b) Registration Statement, in compliance with
Rule 111 promulgated under the Act or the Commission has received
payment of such filing fee.
(iv) The Company does not own or
control, directly or indirectly, any corporation, association or other
entity other than the subsidiaries listed in Schedule 2 hereto. The
Company and each of its subsidiaries have been duly organized and are
validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation and are duly qualified
to transact business as foreign corporations and are in good standing
under the laws of all other jurisdictions where the ownership or
leasing of their respective properties or the conduct of their
respective businesses requires such qualification, except where the
failure to be so qualified is not reasonably likely to result in a
material adverse change in the condition (financial or otherwise),
management, business, prospects, net worth or results of operations of
the Company and its subsidiaries, taken as a whole (a "Material
Adverse Effect").
(v) The Company and each of its
subsidiaries have full power (corporate and other) to own or lease
their respective properties and conduct their respective businesses as
described in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus); and the Company has full power (corporate and other) to
enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it.
(vi) The issued shares of capital
stock of each of the Company's subsidiaries have been duly authorized
and validly issued, are fully paid and nonassessable and are owned
beneficially by the Company free and clear of any security interests,
liens, encumbrances, equities or claims.
(vii) The Company has an authorized,
issued and outstanding capitalization as set forth in the Prospectus
(or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). All of the issued shares of capital stock of
the Company have been duly authorized and validly issued and are fully
paid and nonassessable. The Firm Securities and the Option Securities
have been duly authorized and at the Firm Closing Date or the related
Option Closing
- 4 -
<PAGE> 5
Date (as the case may be), after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable. At
the Firm Closing Date or the Option Closing Date, no holders of
outstanding shares of capital stock of the Company will be entitled as
such to any preemptive or other rights to subscribe for any of the
Securities, and no holder of securities of the Company has any right
which has not been fully exercised or waived to require the Company to
register the offer or sale of any securities owned by such holder
under the Act in the public offering contemplated by this Agreement.
(viii) The capital stock of the Company
conforms to the description thereof contained in the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary
Prospectus).
(ix) Except as disclosed in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), there are no outstanding (A) securities or
obligations of the Company or any of its subsidiaries convertible into
or exchangeable for any capital stock of the Company or any such
subsidiary, (B) warrants, rights or options to subscribe for or
purchase from the Company or any such subsidiary any such capital
stock or any such convertible or exchangeable securities or
obligations, or (C) obligations of the Company or any such subsidiary
to issue any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants, rights
or options.
(x) The financial statements and
schedules of the Company and its subsidiaries included in the
Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) fairly
present the financial position of the Company and its consolidated
subsidiaries and the results of operations and cash flows as of the
dates and periods therein specified. Such financial statements and
schedules have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout the
periods involved (except as otherwise noted therein). The selected
financial data set forth under the captions "Capitalization" and
"Selected Consolidated Financial Data" in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus) fairly present, in accordance with GAAP on the basis
stated in the Prospectus (or such Preliminary Prospectus), the
information included therein.
(xi) Deloitte & Touche LLP, who have
audited certain financial statements of the Company and its
consolidated subsidiaries and delivered their report with respect to
the audited consolidated financial statements included in the
Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), are
independent public accountants as required by the Act and the
applicable rules and regulations thereunder.
- 5 -
<PAGE> 6
(xii) The execution and delivery of
this Agreement have been duly authorized by the Company and this
Agreement has been duly executed and delivered by the Company, and is
the valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except as such
enforceability may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to rights
and remedies of creditors or by general equitable principles.
(xiii) No legal or governmental
proceedings are pending to which the Company or any of its
subsidiaries is a party or to which the property of the Company or any
of its subsidiaries is subject that are required to be described in
the Registration Statement or the Prospectus and are not described
therein (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), to the best of the Company's knowledge, and
no such proceedings have been threatened against the Company or any of
its subsidiaries or with respect to any of their respective
properties; and no contract or other document is required to be
described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement that is not
described therein (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) or filed as required.
(xiv) The issuance, offering and sale
of the Securities to the Underwriters by the Company pursuant to this
Agreement, the compliance by the Company with the other provisions of
this Agreement and the consummation of the other transactions herein
contemplated do not (A) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained, such as may be required under state
securities or blue sky laws, such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") and, if the
Registration Statement filed with respect to the Securities (as
amended) is not effective under the Act as of the time of execution
hereof, such as may be required (and shall be obtained as provided in
this Agreement) under the Act, or (B) conflict with or result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties are bound, or the
charter documents or by-laws of the Company or any of its
subsidiaries, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator applicable to the Company or any of its subsidiaries.
(xv) Subsequent to the respective
dates as of which information is given in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), neither the Company nor any of
its subsidiaries has sustained any loss or interference with their
respective
- 6 -
<PAGE> 7
businesses or properties which is reasonably likely to have or result
in a Material Adverse Effect from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding and there has not been
any event, circumstance, or development that results in, or that the
Company believes is reasonably likely to result in, a Material Adverse
Effect, except in each case as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(xvi) The Company has not, directly or
indirectly (except for the sale of Securities under this Agreement),
(i) taken any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities or (ii)
since the filing of the Registration Statement (A) sold, bid for,
purchased or paid anyone any compensation for soliciting purchases of,
the Securities or (B) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities
of the Company.
(xvii) None of the Company, its
subsidiaries or any employee of the Company or its subsidiaries has
made any payment of funds of the Company or its subsidiaries
prohibited by law and no funds of the Company or its subsidiaries have
been set aside to be used for any payment prohibited by law.
(xviii) (a) The Company and its
subsidiaries possess all certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses except
where the failure to possess any such item is not reasonably likely to
have a Material Adverse Effect, and (b) neither the Company nor any
such subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit that, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, is reasonably likely to have
a Material Adverse Effect, except as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus).
(xix) The Company is not an investment
company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and this transaction will not cause the Company to become
an investment company subject to registration under the 1940 Act.
(xx) The Company has filed all
foreign, federal, state and local tax returns that are required to be
filed or has requested extensions thereof (except in any case in which
the failure so to file is reasonably likely to have a Material Adverse
Effect) and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any
of the foregoing
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<PAGE> 8
is due and payable, except for any such assessment, fine or penalty
that is currently being contested in good faith or as described in or
contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xxi) Except for the shares of capital
stock of each of the subsidiaries owned by the Company, neither the
Company nor any such subsidiary owns any shares of stock or any other
equity securities of any corporation or has any equity interest in any
firm, partnership, association or other entity.
(xxii) The Company and each of its
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (A) transactions are
executed in accordance with management's general or specific
authorizations; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain asset accountability; (C) access to assets is permitted only
in accordance with management's general or specific authorization; and
(D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(xxiii) Except as described in the
Registration Statement and the Prospectus, no default exists, and no
event has occurred that, with notice or lapse of time or both, is
reasonably likely to constitute a default, in the due performance and
observance of any term, covenant or condition of any indenture,
mortgage, deed of trust, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries or any of their respective
properties is bound or may be affected, in any respect that would have
a Material Adverse Effect.
(xxiv) The Company has not distributed
and, prior to the later of (A) the Firm Closing Date or any Option
Closing Date and (B) the completion of the distribution of the
Securities, will not distribute any offering material in connection
with the offering and sale of the Securities other than the
Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or Term Sheet or any amendment or
supplement thereto, or other materials, if any, permitted by the Act.
(xxv) Neither the Company nor its
subsidiaries own any items of real property, and each of them has
marketable title to all personal property owned by each of them, in
each case free and clear of any security interests, liens,
encumbrances, equities, claims and other defects, except such as is
not reasonably likely to have a Material Adverse Effect on the value
of such property and do not interfere with the use made or proposed to
be made of such property by the Company or such subsidiary, and any
real property and buildings held under lease by the Company or any
such subsidiary are held under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not interfere
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<PAGE> 9
with the use made or proposed to be made of such property and
buildings by the Company or such subsidiary, in each case except as
described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus).
(xxvi) No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
Company's knowledge, is threatened or imminent that is reasonably
likely to result in a Material Adverse Effect, except as described in
or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xxvii) The Company and its subsidiaries
own or possess, or can acquire on reasonable terms, all material
trademarks, service marks, trade names, licenses, copyrights and
proprietary or other confidential information currently employed by
them in connection with their respective businesses, and neither the
Company nor any such subsidiary has received any notice of
infringement of or conflict with asserted rights of any third party
with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling, or
finding, is reasonably likely to have a Material Adverse Effect,
except as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus).
(xxviii) The Company and each of its
subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which they are engaged;
and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that is reasonably likely to have a Material
Adverse Effect, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(xxix) The merger of a subsidiary of the
Company with and into MLC Group, in order to effect the reorganization
of the Company in Delaware (the "Reorganization Merger") was approved
by all necessary corporate action on behalf of the Company and MLC
Group and the merger agreement and related certificates, in
appropriate form to effect the Reorganization Merger, were filed with
the State Corporation Commission of Virginia to permit the
Reorganization Merger and became effective at 8:00 A.M., Eastern time,
on the September1, 1996.
(b) _________ in their capacities as stockholders of the
Company (the "Stockholders"), represent and warrant to, and agree with each of
the several Underwriters that the Registration Statement as amended as of the
Firm Closing Date, does not include any untrue statement of a material fact or
omit to state any material fact
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<PAGE> 10
necessary to make the statements therein not misleading, and the Prospectus, as
amended or supplemented as of the Firm Closing Date and as of Option Closing
Date does not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(c) Any certificate signed by (i) any officer of the
Company or (ii) by the Stockholders and delivered to the Representative or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter, as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to each of the
Underwriters, and each of the Underwriters, severally and not jointly, agrees
to purchase from the Company, at a purchase price of $______ per share, the
number of Firm Securities set forth opposite the name of such Underwriter in
Schedule 1 hereto. One or more certificates in definitive form for the Firm
Securities that the several Underwriters have agreed to purchase hereunder, and
in such denomination or denominations and registered in such name or names as
the Representative request upon notice to the Company at least 48 hours prior
to the Firm Closing Date, shall be delivered by or on behalf of the Company to
the Representative for the respective accounts of the Underwriters, against
payment by or on behalf of the Underwriters of the aggregate purchase price
therefor by wire transfer in same day funds (the "Wired Funds") to the account
of the Company. Such delivery of and payment for the Firm Securities shall be
made at the offices of Alston & Bird, 601 Pennsylvania, Avenue, N.W., North
Building, Suite 250, Washington, D.C. 20004 at 9:30 A.M., Eastern time, on
__________, 1996, or at such other place, time or date as the Representative
and the Company may agree upon or as the Representative may determine pursuant
to Section 9 hereof, such time and date of delivery against payment being
herein referred to as the "Firm Closing Date." The Company will make such
certificate or certificates for the Firm Securities available for checking and
packaging by the Representative at the offices in New York, New York of the
Company's transfer agent or registrar at least 24 hours prior to the Firm
Closing Date.
(b) For the sole purpose of covering any over-allotments
in connection with the distribution and sale of the Firm Securities as
contemplated by the Prospectus, the Company hereby grants to the several
Underwriters an option to purchase, severally and not jointly, the Option
Securities. The purchase price to be paid for any Option Securities shall be
the same price per share as the price per share for the Firm Securities set
forth above in paragraph (a) of this Section 3. The option granted hereby may
be exercised as to all or any part of the Option Securities from time to time
within thirty days after the date of the Prospectus (or, if such 30th day shall
be a Saturday or Sunday or a holiday, on the next business day thereafter when
the Nasdaq National Market is open for trading).
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<PAGE> 11
The Underwriters shall not be under any obligation to purchase any of the
Option Securities prior to the exercise of such option. The Representative may
from time to time exercise the option granted hereby by giving notice in
writing or by telephone (confirmed within 24 hours in writing) to the Company
setting forth the aggregate number of Option Securities as to which the several
Underwriters are then exercising the option and the date and time for delivery
of and payment for such Option Securities. Any such date of delivery shall be
determined by the Representative but shall not be earlier than two business
days or later than five business days after such exercise of the option and, in
any event, shall not be earlier than the Firm Closing Date. The time and date
set forth in such notice, or such other time on such other date as the
Representative and the Company may agree upon or as the Representative may
determine pursuant to Section 9 hereof, is herein called the "Option Closing
Date" with respect to such Option Securities. Upon exercise of the option as
provided herein, the Company shall become obligated to sell to each of the
several Underwriters, and, subject to the terms and conditions herein set
forth, each of the Underwriters (severally and not jointly) shall become
obligated to purchase from the Company, the same percentage of the total number
of the Option Securities as to which the several Underwriters are then
exercising the option as such Underwriter is obligated to purchase of the
aggregate number of Firm Securities, as adjusted by the Representative in such
manner as it deems advisable to avoid fractional shares. If the option is
exercised as to all or any portion of the Option Securities, one or more
certificates in definitive form for such Option Securities, and payment
therefor, shall be delivered on the related Option Closing Date in the manner,
and upon the terms and conditions, set forth in paragraph (a) of this Section
3, except that reference therein to the Firm Securities and the Firm Closing
Date shall be deemed, for purposes of this paragraph 3(b), to refer to such
Option Securities and Option Closing Date, respectively.
(c) It is understood that you, individually and not as
the Representative, may (but shall not be obligated to) make payment on behalf
of any Underwriter or Underwriters for any of the Securities to be purchased by
such Underwriter or Underwriters. No such payment shall relieve such
Underwriter or Underwriters from any of its or their obligations hereunder.
(d) The Company hereby acknowledges that the wire
transfer by or on behalf of the Underwriters of the purchase price for any
Securities does not constitute closing of a purchase and sale of the
Securities. Only execution and delivery of a receipt (by facsimile or
otherwise) for the Securities by the Underwriters indicates completion of the
closing of a purchase of the Securities from the Company. Furthermore, in the
event that the Underwriters wire funds to the Company prior to the completion
of the closing of a purchase of Securities, the Company hereby acknowledges
that until the Underwriters execute and deliver a receipt for the Securities,
by facsimile or otherwise, the Company will not be entitled to the wired funds
and shall return the wired funds to the Underwriters as soon as practicable (by
wire transfer of same-day funds) upon demand. In the event that the closing of
a purchase of Securities is not completed and the wire funds are not returned
by the Company to the Underwriters on the same day the wired funds were
received by the Company, the Company agrees to pay to the Underwriters in
respect of
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<PAGE> 12
each day the wire funds are not returned by it, in same-day funds, interest at
the Prime Rate as stated in the Wall Street Journal on the date hereof on the
amount of such wire funds.
4. Offering by the Underwriters. Upon your authorization of the
release of the Firm Securities, the several Underwriters propose to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus.
5. Covenants of the Company. The Company covenants and agrees
with each of the Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, to become effective as promptly as possible. If required, the
Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Act. During any time when a prospectus relating to the Securities is required
to be delivered under the Act, the Company (i) will comply with all
requirements imposed upon it by the Act and the rules and regulations of the
Commission thereunder to the extent necessary to permit the continuance of
sales of or dealings in the Securities in accordance with the provisions hereof
and of the Prospectus, as then amended or supplemented, and (ii) will not file
with the Commission the Prospectus, Term Sheet or the amendment referred to in
the second sentence of Section 2(a) hereof, any amendment or supplement to such
Prospectus, Term Sheet or any amendment to the Registration Statement or any
Rule 462(b) Registration Statement of which the Representative shall not
previously have been advised and furnished with a copy for a reasonable period
of time prior to the proposed filing and as to which filing the Representative
shall not have given its consent. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the Commission,
promptly upon request by the Representative or counsel for the Underwriters,
any amendments to the Registration Statement or amendments or supplements to
the Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by the several Underwriters, and will use its
best efforts to cause any such amendment to the Registration Statement to be
declared effective by the Commission as promptly as possible. The Company will
advise the Representative, promptly after receiving notice thereof, of the time
when the Registration Statement or any amendment thereto has been filed or
declared effective or the Prospectus or any amendment or supplement thereto has
been filed and will provide to the Representative copies of each such filing.
(b) The Company will advise the Representative, promptly
after receiving notice or obtaining knowledge thereof, of (i) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement or any
amendment thereto or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, (ii) the suspension of the qualification of the Securities for
offering or
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<PAGE> 13
sale in any jurisdiction, (iii) the institution, threatening or contemplation
of any proceeding for any such purpose, or (iv) any request made by the
Commission for amending the Original Registration Statement or any Rule 462(b)
Registration Statement, for amending or supplementing the Prospectus or for
additional information. The Company will use its best efforts to prevent the
issuance of any such stop order and, if any such stop order is issued, to
obtain the withdrawal thereof as promptly as possible.
(c) The Company will arrange for the qualification of the
Securities for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representative may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities; provided, however, that in connection therewith
the Company shall not be required to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction.
(d) If, at any time prior to the later of (i) the final
date when a prospectus relating to the Securities is required to be delivered
under the Act or (ii) the Option Closing Date, any event occurs as a result of
which the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if for any other reason it is
necessary at any time to amend or supplement the Prospectus to comply with the
Act or the rules or regulations of the Commission thereunder, the Company will
promptly notify the Representative thereof and, subject to Section 5(a) hereof,
will prepare and file with the Commission, at the Company's expense, an
amendment to the Registration Statement or an amendment or supplement to the
Prospectus that corrects such statement or omission or effects such compliance.
(e) The Company will, without charge, provide (i) to the
Representative and to counsel for the Underwriters a signed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto) and any Rule 462(b)
Registration Statement, (ii) to each other Underwriter, a conformed copy of
such registration statement and any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and (iii) so long as
a prospectus relating to the Securities is required to be delivered under the
Act, as many copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as the Representative may reasonably request;
without limiting the application of clause (iii) of this sentence, the Company,
not later than (A) 8:00 P.M., Eastern time, on the date of determination of the
public offering price, if such determination occurred at or prior to 10:00
A.M., Eastern time, on such date or (B) 2:00 P.M., Eastern time, on the
business day following the date of determination of the public offering price,
if such determination occurred after 10:00 A.M., Eastern time, on such date,
will deliver to the Underwriters, without charge, as many copies of the
Prospectus and any amendment or supplement thereto as the Representative may
reasonably request for purposes of confirming orders that are expected to
settle on the Firm Closing Date. The Company will provide or cause to be
provided to each of the
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<PAGE> 14
Representative, and to each Underwriter that so requests in writing, a copy of
each report on Form SR filed by the Company as required by Rule 463 under the
Act.
(f) If the Company elects to rely on Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees in
accordance with Rule 111 promulgated under the Act by the earlier of (i) 10:00
P.M., Eastern time on the date of this Agreement and (ii) the time
confirmations are sent or given, as specified by Rule 462(b)(2).
(g) The Company, as soon as practicable, will make
generally available to its securityholders and to the Representative a
consolidated earnings statement of the Company and its subsidiaries that
satisfies the provisions of Section 11(a) of the Act and Rule 158 thereunder.
(h) The Company will apply the net proceeds from the sale
of the Securities as set forth under "Use of Proceeds" in the Prospectus.
(i) The Company will not, directly or indirectly, without
the prior written consent of the Representative, on behalf of the Underwriters,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant of any option to purchase or other sale
or disposition) of any shares of Common Stock or any securities convertible
into, or exchangeable or exercisable for, shares of Common Stock for a period
of 180 days after the date hereof, except pursuant to this Agreement and except
for the grant of options to purchase an aggregate of 420,000 shares of Common
Stock as disclosed in the Prospectus, or issuances pursuant to the exercise of
warrants or employee stock options outstanding on the date hereof.
(j) The Company will not, directly or indirectly, (i)
take any action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities or (ii)(A) sell, bid for, purchase, or pay anyone
any compensation for soliciting purchases of, the Securities or (B) pay or
agree to pay to any person any compensation for soliciting another to purchase
any other securities of the Company.
(k) The Company will obtain the lockup agreements
described in Section 7(f) hereof prior to the Firm Closing Date.
(1) If at any time during the 25-day period after the
Registration Statement becomes effective or the period prior to the Option
Closing Date, any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in your opinion the market price of
the Common Stock has been or is likely to be materially affected (regardless of
whether such rumor, publication or event necessitates a supplement to or
amendment of the Prospectus), the Company will, after written notice
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<PAGE> 15
from you advising the Company to the effect set forth above, forthwith prepare,
consult with you concerning the substance of, and disseminate a press release
or other public statement, reasonably satisfactory to you, your counsel and
counsel to the Company responding to or commenting on such rumor, publication
or event.
(m) The Company will cause the Securities to be duly
included for quotation on the Nasdaq National Market prior to the Firm Closing
Date. The Company will use its best efforts to ensure that the Securities
remain included for quotation on the Nasdaq National Market following the Firm
Closing Date.
(n) The Company will cause the Reorganization Merger to
be effected as of the Firm Closing Date, subject to completion of filing with
the Commonwealth of Virginia.
6. Expenses. The Company will pay all costs and expenses
incident to the performance of its obligations under this Agreement, whether or
not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (i) the printing or other production of documents with respect to
the transactions, including any costs of printing the Registration Statement
originally filed with respect to the Securities and any amendment thereto, any
Rule 462(b) Registration Statement, any Preliminary Prospectus and the
Prospectus and any amendment or supplement thereto, this Agreement and any blue
sky memoranda, (ii) all arrangements relating to the delivery to the
Underwriters of copies of the foregoing documents, (iii) the fees and
disbursements of the counsel, the accountants and any other experts or advisors
retained by the Company, (iv) the fees and disbursements of counsel for the
Underwriters, (v) preparation, issuance and delivery to the Underwriters of any
certificates evidencing the Securities, including transfer agent's and
registrar's fees, (vi) the qualification of the Securities under state
securities and blue sky laws, including filing fees and fees and disbursements
of counsel for the Underwriters relating thereto, (vii) the filing fees of the
Commission and the National Association of Securities Dealers, Inc. relating to
the Securities and (viii) any quotation of the Securities on the Nasdaq
National Market. If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section 7 hereof is not satisfied, because this Agreement is
terminated pursuant to Section 11 hereof or because of any failure, refusal or
inability on the part of the Company to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder other than by
reason of a default by any of the Underwriters, the Company will reimburse the
Representative upon demand for all reasonable out-of-pocket expenses (including
counsel fees and disbursements) that shall have been incurred by it in
connection with the proposed purchase and sale of the Securities. The Company
shall not in any event be liable to any of the Underwriters for the loss of
anticipated profits from the transactions covered by this Agreement.
7. Conditions of the Underwriters' Obligations. The obligations
of the several Underwriters to purchase and pay for the Firm Securities shall
be subject to the accuracy
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<PAGE> 16
of the representations and warranties of the Company contained herein as of the
date hereof and as of the Firm Closing Date, as if made on and as of the Firm
Closing Date, to the accuracy of the statements of the Company's officers made
pursuant to the provisions hereof, to the performance by the Company of its
covenants and agreements hereunder and to the following additional conditions:
(a) If the Original Registration Statement or any
amendment thereto filed prior to the Firm Closing Date has not been declared
effective as of the time of execution hereof, the Registration Statement or
such amendment, and if the Company has elected to rely upon Rule 462(b), the
Rule 462(b) Registration Statement, shall have been declared effective not
later than the earlier of (i) 11:00 A.M., Eastern time, on the date on which
the amendment to the Registration Statement originally filed with respect to
the Securities or to the Registration Statement, as the case may be, containing
information regarding the initial public offering price of the Securities has
been filed with the Commission, and (ii) the time confirmations are sent or
given as specified by Rule 462(b) or, with respect to the Original Registration
Statement, such later time and date as shall have been consented to by the
Representative; if required, the Prospectus or any Term Sheet that constitutes
a part thereof and any amendment or supplement thereto shall have been filed
with the Commission in the manner and within the time period required by Rules
434 and 424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or, to
the knowledge of the Company or the Representative, shall be contemplated by
the Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).
(b) The Representative shall have received an opinion,
dated the Firm Closing Date, of Hazel & Thomas, P.C., counsel for the Company,
to the effect that:
(i) the Company and each of its U.S.
subsidiaries listed in Schedule 2 hereto (the "Subsidiaries") have
been duly organized and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of
incorporation and are duly qualified to transact business as foreign
corporations and are in good standing under the laws of all other
jurisdictions where the ownership or leasing of their respective
properties or the conduct of their respective businesses requires such
qualification, except where the failure to be so qualified is not
reasonably likely to have a Material Adverse Effect;
(ii) the Company and each of the Subsidiaries
have corporate power to own or lease their respective properties and
conduct their respective businesses as described in the Registration
Statement and the Prospectus, and the Company has corporate power to
enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it;
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<PAGE> 17
(iii) the issued shares of capital stock of
each of the Subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and are owned by the Company free and
clear of any security interests, liens, encumbrances or claims;
(iv) the Company has an authorized, issued and
outstanding capitalization as set forth in the Prospectus; all of the
issued shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable,
and, to the best knowledge of such counsel after due inquiry, were not
issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities; the Firm Securities
have been duly authorized by all necessary corporate action of the
Company and, when issued and delivered to and paid for by the
Underwriters pursuant to this Agreement, will be validly issued, fully
paid and nonassessable; to the best knowledge of such counsel, no
holders of outstanding shares of capital stock of the Company are
entitled as such to any preemptive or other rights to subscribe for
any of the Securities; and, to the best knowledge of such counsel, no
holders of securities of the Company are entitled to have such
securities registered under the Registration Statement;
(v) the statements set forth under the
heading "Description of Capital Stock" in the Prospectus, insofar as
such statements purport to summarize certain provisions of the capital
stock of the Company, provide a fair summary of such provisions;
(vi) the execution and delivery of this
Agreement have been duly authorized by all necessary corporate action
of the Company and this Agreement has been duly executed and delivered
by the Company;
(vii) to the best knowledge of such counsel,
(A) no legal or governmental proceedings are pending to which the
Company or any of the Subsidiaries is a party or to which the property
of the Company or any of the Subsidiaries is subject that are required
to be described in the Registration Statement or the Prospectus and
are not described therein, and no such proceedings have been
threatened against the Company or any of the Subsidiaries or with
respect to any of their respective properties and (B) no contract or
other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as
required;
(viii) to the knowledge of such counsel,
subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), (1) the
Company and its Subsidiaries have not incurred any material liability
or obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; and (2) the
Company
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<PAGE> 18
has not purchased any of its outstanding capital stock, nor declared,
paid or otherwise made any dividend or distribution of any kind on its
capital stock, except in each case as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus);
(ix) the issuance, offering and sale of the
Securities to the Underwriters by the Company pursuant to this
Agreement, the compliance by the Company with the other provisions of
this Agreement and the consummation of the other transactions herein
contemplated do not (A) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained and such as may be required under
state securities or blue sky laws and by the NASD, or (B) conflict
with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, lease or other agreement or instrument known to such
counsel after due inquiry to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, or the
charter documents or by-laws of the Company or any of the
Subsidiaries, or, so far as it is known to such counsel after due
inquiry, any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator having jurisdiction over the Company or any of the
Subsidiaries, in each case, where such conflict, breach, violation or
default is not reasonably likely to have a Material Adverse Effect;
(x) the Registration Statement is effective
under the Act; any required filing of the Prospectus, or any Term
Sheet that constitutes a part thereof, pursuant to Rules 434 and
424(b) has been made in the manner and within the time period required
by Rules 434 and 424(b); and, to such counsel's best knowledge, no
stop order suspending the effectiveness of the Registration Statement
or any amendment thereto has been issued, and no proceedings for that
purpose have been instituted or threatened or are contemplated by the
Commission;
(xi) the Registration Statement originally
filed with respect to the Securities and each amendment thereto, any
Rule 462(b) Registration Statement and the Prospectus (in each case,
other than the financial statements and other financial and
statistical information contained therein, as to which such counsel
need express no opinion) comply as to form in all material respects
with the applicable requirements of the Act and the rules and
regulations of the Commission thereunder;
(xii) if the Company elects to rely on Rule
434, the Prospectus is not "materially different," as such term is
used in Rule 434, from the prospectus included in the Registration
Statement at the time of its effectiveness or an effective
post-effective amendment thereto (including such information that is
permitted to be omitted pursuant to Rule 430A);
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<PAGE> 19
(xiii) the Company is not, and the transactions
contemplated by this Agreement will not cause the Company to become,
an investment company subject to registration under the 1940 Act;
(xiv) the specimen stock certificate of the
Company filed as an exhibit to the Registration Statement is in due
and proper form to evidence shares of Common Stock, has been duly
authorized and approved by the Board of Directors of the Company and
complies with all legal requirements applicable under the Delaware
General Corporation Law; and
(xv) the execution and delivery of the merger
agreement effecting the Reorganization Merger have been duly
authorized by all necessary corporate action on the part of the
Company and MLC Group; the Reorganization Merger has been consummated
and is effective in accordance with Virginia law subject only to
confirmation of the acceptance of the filing of the merger agreement
and related certificates by the Commonwealth of Virginia.
Such counsel shall also state that they have no reason to believe that the
Registration Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or the date of such opinion, included or
includes any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading (except such
counsel need express no view as to the financial statements and notes thereto,
schedules and reports thereon, and other financial and statistical data
included or incorporated by reference in the Registration Statement or
Prospectus).
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deem(s) proper, on certificates of
responsible officers of the Company and public officials and opinions of such
other counsel as are reasonably acceptable to the Representative.
References to the Registration Statement and the Prospectus in
this paragraph (b) shall include any amendment or supplement thereto at the
date of such opinion.
(c) The Representative shall have received from Deloitte
& Touche LLP a letter or letters dated, respectively, the date hereof and the
Firm Closing Date, in form and substance reasonably satisfactory to the
Representative.
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<PAGE> 20
In the event that the letters referred to above set forth any
such changes, decreases or increases which, in the reasonable discretion of the
Representative, are reasonably likely to result in a Material Adverse Effect,
it shall be a further condition to the obligations of the Underwriters that
such letters shall be accompanied by a written explanation of the Company as to
the significance thereof, unless the Representative deems such explanation
unnecessary.
References to the Registration Statement and the Prospectus in
this paragraph (c) with respect to either letter referred to above shall
include any amendment or supplement thereto at the date of such letter.
(d) The Representative shall have received a certificate,
dated the Firm Closing Date, of Phillip G. Norton and Bruce M. Bowen in their
capacities as the principal executive officer and the principal financial or
accounting officer, respectively, of the Company to the effect that:
(i) the representations and warranties of the
Company in this Agreement are true and correct as if made on and as of
the Firm Closing Date; the Registration Statement, as amended as of
the Firm Closing Date, does not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading, and the Prospectus, as amended or
supplemented as of the Firm Closing Date, does not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the
Company has performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the
Firm Closing Date;
(ii) no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto
has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best of the Company's knowledge,
are contemplated by the Commission; and
(iii) subsequent to the respective dates as of
which information is given in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries has
sustained any loss or interference with their respective businesses or
properties reasonably likely to have or result in a Material Adverse
Effect from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, and there has not been any event,
circumstance, or development that results in, or that the Company
believes is reasonably likely to result in, a Material Adverse Effect,
except in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto).
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<PAGE> 21
(e) The Representative shall have received a certificate,
dated the Firm Closing Date (or the Option Closing Date, as the case may be),
of the Stockholders, to the effect that (i) the Registration Statement, as
amended as of the Firm Closing Date (or the Option Closing Date, as the case
may be), does not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading, and the Prospectus, as amended or supplemented as of the Firm
Closing Date (or the Option Closing Date, as the case may be), does not include
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(f) The Representative shall have received from each
Stockholder and from each person who is a director or officer of the Company or
who owns more than ____ shares of Common Stock (as calculated on the Firm
Closing Date) an agreement to the effect that such person will not, except to
the extent otherwise specifically permitted by the terms of each such person's
agreement and in accordance with Rule 144 under the Act, directly or
indirectly, without the prior written consent of the Representative, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of an option to purchase or other sale or disposition)
of any shares of Common Stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock for a period of 180
days after the date of this Agreement.
(g) On or before the Firm Closing Date, the
Representative and counsel for the Underwriters shall have received such
further certificates, documents or other information as they may have
reasonably requested from the Company.
(h) Prior to the commencement of the offering of the
Securities, the Securities shall have been included for trading on the Nasdaq
National Market.
(i) The Representative shall have received an opinion,
dated the Firm Closing Date, of Alston & Bird, counsel for the Underwriters,
with respect to the issuance and sale of the Firm Securities, the Registration
Statement and Prospectus, and such other related matters as the Representative
may reasonably require, and the Company shall have furnished to such counsel
such documents as they may reasonably request for the purpose of enabling them
to pass upon such matters.
All opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory in all material respects to the Representative and
counsel for the Underwriters. The Company shall furnish to the Representative
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representative and counsel for the Underwriters shall
reasonably request.
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<PAGE> 22
The respective obligations of the several Underwriters to
purchase and pay for any Option Securities shall be subject, in their
discretion, to each of the foregoing conditions to purchase the Firm
Securities, except that all references to the Firm Securities and the Firm
Closing Date shall be deemed to refer to such Option Securities and the related
Option Closing Date, respectively.
8. Indemnification and Contribution.
(a) The Company and the Stockholders jointly and
severally agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20 of the Securities Exchange Act of 1934, as amended,
(the "Exchange Act"), against any losses, claims, damages or liabilities, joint
or several, to which such Underwriter or such controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon a
breach or alleged breach by the Stockholders of Section 2(b) of this Agreement,
and the Company agrees to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities to which such Underwriter or such controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof arise out of or are based
upon:
(i) any untrue statement or alleged untrue
statement made by the Company in Section 2(a) of this Agreement,
(ii) any untrue statement or alleged untrue
statement of any material fact contained in (A) the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto or (B) any
application or other document, or any amendment or supplement thereto,
executed by the Company or based upon written information furnished by
or on behalf of the Company or Stockholders filed in any jurisdiction
in order to qualify the Securities under the securities or blue sky
laws thereof or filed with the Commission or any securities
association or securities exchange (each, an "Application"),
(iii) the omission or alleged omission to state
in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or any Application a material fact required to be
stated therein or necessary to make the statements therein not
misleading; or
(iv) any untrue statement or alleged untrue
statement of any material fact contained in any audio or visual
materials used in connection with the
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<PAGE> 23
marketing of the Securities, including without limitation, slides,
videos, films, tape recordings,
and, such party or parties, as the case may be, will reimburse, as incurred,
each Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action;
provided, however, that the Company and Stockholders will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto or any Application in reliance upon and in conformity
with written information furnished to the Company by any Underwriter through
the Representative specifically for use therein; and provided, further, that
neither the Company nor any of the Stockholders will be liable to any
Underwriter or any person controlling such Underwriter with respect to any such
untrue statement or omission made in any Preliminary Prospectus that is
corrected in the Prospectus (or any amendment or supplement thereto) if the
person asserting any such loss, claim, damage or liability purchased Securities
from such Underwriter but was not sent or given a copy of the Prospectus (as
amended or supplemented) at or prior to the written confirmation of the sale of
such Securities to such person in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Act, unless such
failure to deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5(d) and (e) of this Agreement. This
indemnity agreement will be in addition to any liability that the Company and
Stockholders may otherwise have. Neither the Company nor Stockholders will,
without the prior written consent of the Representative, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not any Underwriter or any person who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of all of
the Underwriters and such controlling persons from all liability arising out of
such claim, action, suit or proceeding.
(b) Each Underwriter, severally and not jointly, will
indemnify and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement, Stockholders and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act against any losses, claims, damages or
liabilities to which the Company or any such director, officer of the Company,
Stockholders or controlling person of the Company or Stockholders may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the
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<PAGE> 24
Prospectus or any amendment or supplement thereto, or any Application or (ii)
the omission or the alleged omission to state therein a material fact required
to be stated in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application, or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through the Representative specifically for
use therein; and, subject to the limitation set forth immediately preceding
this clause, will reimburse, as incurred, any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person or Stockholders in connection with investigating or defending any such
loss, claim, damage, liability or any action in respect thereof. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party of the
commencement thereof, but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded or
shall have been advised by its counsel that there may be one or more legal
defenses available to it and/or other indemnified parties that conflict with
those available to the indemnifying party, the indemnifying party shall not
have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by the Representative in
the case of paragraph (a) of this Section 8, representing the indemnified
parties under such paragraph (a) who are parties to such action or actions) or
(ii) the
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<PAGE> 25
indemnifying party does not promptly retain counsel satisfactory to the
indemnified party or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the
consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement
provided for in the preceding paragraphs of this Section 8 is unavailable or
insufficient, for any reason, to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof),
each indemnifying party, in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
(i) the relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party on the other from the offering of the
Securities or (ii) if the allocation provided by the foregoing clause (i) is
not permitted by applicable law, not only such relative benefits but also the
relative fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or omissions
or alleged statements or omissions that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company and Stockholders on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company, Stockholders or the Underwriters, the
parties' relative intents, knowledge, access to information and opportunity to
correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances. The Company, Stockholders and
the Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take into account the equitable
considerations referred to above in this paragraph (d). Notwithstanding any
other provision of this paragraph (d), no Underwriter shall be obligated to
make contributions hereunder that in the aggregate exceed the total amount of
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public, less the
aggregate amount of any damages that such Underwriter has otherwise been
required to pay in respect of the same or any substantially similar claim, and
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute hereunder are several in proportion to their respective underwriting
obligations and not joint, and contributions among Underwriters shall be
governed by the provisions of the
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<PAGE> 26
Representative's Agreement Among Underwriters. For the purposes of this
paragraph 8(d), each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company or Stockholders within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have
the same rights to contribution as the Company or Stockholders, as the case may
be.
(e) In making a claim for indemnification under this
Section 8, the indemnified parties may proceed against either (i) both the
Company and the Stockholders jointly or (ii) the Company only, but may not
proceed solely against the Stockholders. In the event that the indemnified
parties are entitled to seek indemnity or contribution hereunder against any
loss, liability, claim, damage and expense incurred with respect to a
settlement or judgment from a trial court (the "First Judgment") then, as a
precondition to any indemnified party obtaining indemnification or contribution
from the Stockholders, the indemnified parties shall first obtain a judgment
from a trial court that such indemnified parties are entitled to indemnity or
contribution under this Agreement with respect to such loss, liability, claim,
damage or expense (the "Final Judgment") from the Company and the Stockholders
and shall seek to satisfy such Final Judgment in full from the Company by
making a written demand upon the Company for such satisfaction. The
indemnified parties may seek a Final Judgment either through a cross- or
counter-claim in the action which results in the First Judgment, or they may
bring a subsequent, separate action against the Company and the Stockholders
for indemnification. Only in the event such Final Judgment shall remain
unsatisfied in whole or in part 45 days following the date of receipt by the
Company of such demand shall any indemnified party have the right to take
action to satisfy such Final Judgment by making demand directly on the
Stockholders (but only if and to the extent the Company has not already
satisfied such Final Judgment, whether by settlement, release or otherwise).
The indemnified party or parties may exercise this right to first seek to
obtain payment from the Company and thereafter obtain payment from the
Stockholders without regard to the pursuit by any party of its rights to the
appeal of such Final Judgment. The indemnified party or parties shall,
however, be relieved of their obligation to first obtain a Final Judgment, seek
to obtain payment from the Company with respect to such Final Judgment or,
having sought such payment, to wait such 45 days after failure by the Company
to immediately satisfy any such Final Judgment if (i) the Company files a
petition for relief under the United States Bankruptcy Code (the "Bankruptcy
Code"), (ii) an order for relief is entered against the Company in an
involuntary case under the Bankruptcy Code, (iii) the Company makes an
assignment for the benefit of its creditors, or (iv) any court orders or
approves the appointment of a receiver or custodian for the Company or a
substantial portion of its assets.
(f) Notwithstanding any other provision of this
Agreement, the aggregate liability of the Stockholders under this Agreement,
including this Section 8 hereof, shall not exceed the sum of __________
($________).
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<PAGE> 27
9. Default of Underwriters. If one or more Underwriters default
in their obligations to purchase Firm Securities or Option Securities hereunder
and the aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, then the other Underwriters may
make arrangements satisfactory to the Representative for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representative), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or
Option Securities that such defaulting Underwriter or Underwriters agreed but
failed to purchase. If one or more Underwriters so default with respect to an
aggregate number of Securities that is more than ten percent of the aggregate
number of Firm Securities or Option Securities, as the case may be, to be
purchased by all of the Underwriters at such time hereunder, and if
arrangements satisfactory to the Representative are not made within 36 hours
after such default for the purchase by other persons (who may include one or
more of the non-defaulting Underwriters, including the Representative) of the
Securities with respect to which such default occurs, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or
the Company other than as provided in Section 10 hereof. In the event of any
default by one or more Underwriters as described in this Section 9, the
Representative shall have the right to postpone the Firm Closing Date or the
Option Closing Date, as the case may be, established as provided in Section 3
hereof for not more than seven business days in order that any necessary
changes may be made in the arrangements or documents for the purchase and
delivery of the Firm Securities or Option Securities, as the case may be. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section 9. Nothing herein shall relieve any
defaulting Underwriter from liability for its default.
10. Survival. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers, Stockholders and the several Underwriters set forth in this Agreement
or made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force arid effect, regardless of (i) any investigation made by
or on behalf of the Company, any of its officers or directors, Stockholders,
any Underwriter or any controlling person referred to in Section 8 hereof and
(ii) delivery of and payment for the Securities. The respective agreements,
covenants, indemnities and other statements set forth in Sections 6 and 8
hereof shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
11. Termination.
(a) This Agreement may be terminated with respect to the
Firm Securities or any Option Securities in the sole discretion of the
Representative by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company or
the Stockholders shall have failed, refused
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<PAGE> 28
or been unable to perform all obligations and satisfy all conditions on its
part to be performed or satisfied hereunder at or prior thereto or, if at or
prior to the Firm Closing Date or, with respect to the Company, such Option
Closing Date, respectively,
(i) the Company or any of its subsidiaries
shall have, in the sole judgment of the Representative, sustained any
loss or interference with their respective businesses or properties
having or resulting in a Material Adverse Effect from fire, flood,
hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any event, circumstance of
development that results in, or that the Company believes would result
in, a Material Adverse Effect, except in each case as, described in or
contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(ii) trading in the Common Stock shall have
been suspended by the Commission or the Nasdaq National Market or
trading in securities generally on the New York Stock Exchange or
Nasdaq National Market shall have been suspended or minimum or maximum
prices shall have been established on either such exchange or market
system;
(iii) a banking moratorium shall have been
declared by New York or United States authorities; or
(iv) there shall have been (A) an outbreak or
escalation of hostilities between the United States and any foreign
power, (B) an outbreak or escalation of any other insurrection or
armed conflict involving the United States or (C) any other calamity
or crisis or material adverse change in general economic, political or
financial conditions having an effect on the U.S. financial markets
that, in the sole judgment of the Representative, makes it impractical
or inadvisable to proceed with the public offering or the delivery of
the Securities as contemplated by the Registration Statement, as
amended as of the date hereof.
(b) Termination of this Agreement pursuant to this
Section 11 shall be without liability of any party to any other party except as
provided in Section 10 hereof.
12. Information Supplied by Underwriters. The statements set
forth in (i) the last paragraph on the front cover page, (ii) under the heading
"Underwriting" in any Preliminary Prospectus or the Prospectus and (iii) on
page 2 in any Preliminary Prospectus or the Prospectus pertaining to
stabilization (to the extent such statements relate to the Underwriters)
constitute the only information furnished by any Underwriter through the
Representative to the Company for the purposes of Sections 2(b) and 8 hereof.
The Underwriters confirm that such statements (to such extent) are correct.
13. Notices. All communications hereunder shall be in writing
and, if sent to any of the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission
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<PAGE> 29
and confirmed in writing to Friedman, Billings, Ramsey & Co., Inc., Potomac
Tower, 1001 Nineteenth Street North, Arlington, Virginia 22209, Attention:
James Kleeblatt; and if sent to the Company, shall be delivered or sent by
mail, telex or facsimile, transmission and confirmed in writing to the Company
at 11150 Sunset Hills Road, Suite 110, Reston, Virginia 22190-5321, Attention:
Chief Executive Officer; and if sent to Stockholders, shall be delivered or
sent by mail, telex or facsimile transmission and confirmed in writing to
Stockholders at 11150 Sunset Hills Road, Suite 110, Reston, Virginia
22190-5321, Attention: Chief Executive Officer.
14. Successors. This Agreement shall inure to the benefit of and
shall be binding upon the several Underwriters, the Company, Stockholders and
their respective successors and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of
this Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person
except that (i) the indemnities of the Company and Stockholders contained in
Section 8 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act and (ii) the indemnities of the Underwriters
contained in Section 8 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement, Stockholders and any person or persons who control the
Company or Stockholders within the meaning of Section 15 of the Act or Section
20 of the Exchange Act. No purchaser of Securities from any Underwriter shall
be deemed a successor because of such purchase.
15. Applicable Law. The validity and interpretation of this
Agreement, and the terms and conditions set forth herein, shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia,
without giving effect to any provisions relating to conflicts of laws.
16. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the Commonwealth of
Virginia, and by execution and delivery of this Agreement, the Company and
Stockholders each accepts for itself and in connection with their respective
properties, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts and waives any defense of forum non conveniens and irrevocably
agree to be bound by any judgment rendered thereby in connection with this
Agreement. Stockholders designate and appoint Phillip G. Norton, and the
Company designates and appoints Bruce M. Bowen and such other persons as may
hereafter be selected by the Company or Stockholders irrevocably agreeing in
writing to so serve, as their respective agents to receive on its behalf
service of all process in any such proceedings in any such court, such service
being hereby acknowledged by the Company and Stockholders to be effective and
binding service in every respect. A copy of any such process so served shall
be mailed by registered mail to the Company and/or Stockholders
- 29 -
<PAGE> 30
at their respective addresses provided in Section 13 hereof; provided, however,
that, unless otherwise provided by applicable law, any failure to mail such
copy shall not affect the validity of service of such process. If any agent
appointed by the Company or Stockholders refuses to accept service, the Company
and Stockholders each hereby agrees that service of process sufficient for
personal jurisdiction in any action against the Company or Stockholders in the
Commonwealth of Virginia may be made by registered or certified mail, return
receipt requested, to the Company and/or Stockholders, as applicable, at their
respective addresses provided in Section 13 hereof, and Stockholders and the
Company each hereby acknowledge that such service shall be effective and
binding in every respect. Nothing herein shall affect the right to serve
process in any other manner permitted by law or shall limit the right of any
Underwriter to bring proceedings against the Company and Stockholders in the
courts of any other jurisdiction.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company and
each of the several Underwriters.
Very truly yours,
MLC HOLDINGS, INC.
By
---------------------------
Phillip G. Norton
Chairman and Chief Executive Officer
MLC GROUP, INC.
By
---------------------------
Phillip G. Norton
Chairman and Chief Executive Officer
- 30 -
<PAGE> 31
Stockholders
By:
---------------------------
By:
---------------------------
By:
---------------------------
By:
---------------------------
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By:
By:
---------------------------
Name:
Title:
For itself and as the Representative.
- 31 -
<PAGE> 32
Schedule 1
UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm
Underwriting Securities to be Purchased
------------ --------------------------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc. _________
Total
=========
</TABLE>
- 32 -
<PAGE> 33
Schedule 2
SUBSIDIARIES
Name Jurisdiction of Incorporation
---- -----------------------------
- 33 -
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
MLC HOLDINGS, INC.
The undersigned, a natural person, for the purpose of organizing MLC
Holdings, Inc. (the "Corporation") for conducting the business and promoting
the purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware (particularly Chapter 1,
Title 8 of the Delaware Code, as amended, and referred to as the "Delaware
General Corporation Law"), hereby certifies that:
FIRST
The name of the Corporation is:
MLC HOLDINGS, INC.
SECOND
The address of the registered office of the Corporation in the State
of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and
the name of the Corporation's registered agent in the State of Delaware is
Corporation Service Company.
THIRD
The purpose of the Corporation is to engage in any lawful act or
activity for which Corporations may be organized under the Delaware General
Corporation Law.
FOURTH
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twelve million (12,000,000) shares
consisting of ten million (10,000,000) shares of common stock having a par
value of $.01 per share (the "Common Stock") and two million (2,000,000) shares
of preferred stock having a par value of $.01 per share (the "Preferred
Stock").
The Board of Directors of the Corporation is authorized, subject to
limitations prescribed by law, to provide by resolution or resolutions for the
issuance of shares of the Preferred Stock as a class or in series, and, by
filing a certificate of designations, pursuant to the Delaware General
Corporation Law, setting forth a copy of such resolution or resolutions to
establish from time to time the number of shares to be included in each such
series and to fix the designation, powers, preferences and rights of the shares
of the class or of each such series and the qualifications, limitations, and
restrictions thereof. The authority of the Board of Directors
1 of 5
<PAGE> 2
with respect to the class or each series shall include, but not be limited to,
determination of the following:
a) the number of shares constituting any series and the
distinctive designation of that series;
b) the dividend rate of the shares of the class or of any series,
whether dividends shall be cumulative, and if so, from which date or dates, and
the relative rights of priority, if any of payment of dividends on shares of
the class or of that series;
c) whether the class or any series shall have voting rights, in
addition to the voting rights provided by law, and if so, the terms of such
voting rights;
d) whether the class or any series shall have conversion
privileges and, if so, the terms and conditions of conversion, including
provision for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
e) whether or not the shares of the class or of any series shall
be redeemable, and, if so, the terms and conditions of such redemption,
including the date or date upon or after which they shall be redeemable and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
f) whether the class or any series shall have a sinking fund for
the redemption or purchase of shares of the class or of that series, and if so,
the terms and amount of such sinking fund;
g) the rights of the shares of the class or of any series in the
event of voluntary or involuntary dissolution or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of the class
or of that series; and
h) any other powers, preferences, rights, qualifications,
limitations and restrictions of the class or of that series.
All rights accruing to the outstanding shares of the Corporation not
expressly provided for to the contrary herein or in any certificate of
designation shall be vested exclusively in the Common Stock.
2 of 5
<PAGE> 3
FIFTH
The name and mailing address of the Incorporator are as follows:
Benton Burroughs, Jr.
Hazel & Thomas, P.C.
3110 Fairview Park Drive
Suite 1400
Falls Church, Virginia 22042
SIXTH
The Incorporator shall appoint the initial directors of the
Corporation after filing of this Certificate of Incorporation. The terms of
the initial directors shall be determined by the Incorporator and thereafter by
the Board of Directors, with one class designated as elected for a one year
term, the second class designated as elected for a two year term and the third
class designated as elected for a three year term. At the first annual meeting
of stockholders of the Corporation, and at each subsequent annual meeting, the
successors of the class of directors whose term expires at that meeting shall
be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
SEVENTH
The Corporation is to have perpetual existence.
EIGHTH
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter, or repeal the Bylaws of the Corporation.
NINTH
No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that the foregoing shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
3 of 5
<PAGE> 4
TENTH
The Corporation shall indemnify, in the manner and to the fullest
extent permitted by the Delaware General Corporation Law (and in the case of
any amendment thereto, to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), any person (or the estate of any person) who is or was a party to, or
is threatened to be made a party to, any threatened, pending or completed
action, suit or proceeding, whether or not by or in the right of the
Corporation, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, including service with respect to an
employee benefit plan. The Corporation may, to the fullest extent permitted by
the Delaware General Corporation Law, purchase and maintain insurance on behalf
of any such person against any liability which may be asserted against such
person. To the fullest extent permitted by the Delaware General Corporation
Law, the indemnification provided herein may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement and any such
expenses may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the person seeking indemnification to repay such amounts if it is ultimately
determined that he or she is not entitled to be indemnified. The
indemnification provided herein shall not be deemed to limit the right of the
Corporation to indemnify any other person for any such expenses to the fullest
extent permitted by the Delaware General Corporation Law, nor shall it be
deemed exclusive of any other rights to which any person seeking
indemnification from the Corporation may be entitled under any agreement, the
Corporation's Bylaws, vote of stockholders or disinterested directors, or
otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office. The Corporation may, but
only to the extent that the Board of Directors may (but shall not be obligated
to) authorize from time to time, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article Tenth as they apply to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
4 of 5
<PAGE> 5
ELEVENTH
From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the Corporation by
this Certificate of Incorporation are granted subject to the provisions of this
Article Eleventh.
The effective date of this Certificate of Incorporation, and the date
upon which the existence of the Corporation shall commence, shall be the date
upon which the Secretary of State of the State of Delaware endorses the word
"Filed" on the Certificate.
I, the undersigned, being the Incorporator of the above mentioned
Corporation, do make this Certificate of Incorporation, hereby declaring and
certifying that this is my act and the facts stated herein are true, and
accordingly have hereunto set my hand upon this 27th day of August, 1996.
/s/ BENTON BURROUGHS, JR.
------------------------------
Benton Burroughs, Jr.,
Incorporator
5 of 5
<PAGE> 1
EXHIBIT 3.2
MLC HOLDINGS, INC.
A DELAWARE CORPORATION
BYLAWS
ARTICLE I: OFFICES.
SECTION 1.1 Registered Office. The registered office of MLC
HOLDINGS, INC. (the "Corporation") shall be at Corporation Service Company,
1013 Centre Road, City of Wilmington, County of New Castle, State of Delaware,
and the name of the registered agent in charge thereof shall be the Corporation
Service Company.
SECTION 1.2 Principal Office. The principal office for the
transaction of the business of the Corporation shall be at such place as the
Board of Directors of the Corporation (the "Board") may determine. The Board
is hereby granted full power and authority to change said principal office from
one location to another.
SECTION 1.3 Other Offices. The Corporation may also have an office
or offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of
the Corporation may require.
ARTICLE II: MEETINGS OF STOCKHOLDERS
SECTION 2.1 Place of Meetings. All annual meetings of stockholders
and all other meetings of stockholders shall be held either at the principal
office of the Corporation or at any other place within or without the State of
Delaware that may be designated by the Board pursuant to authority hereinafter
granted to the Board.
SECTION 2.2 Annual Meetings. Annual meetings of stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time and place and on such date as the Board shall determine by resolution.
SECTION 2.3 Special Meetings. A special meeting of the stockholders
for the transaction of any proper business may be called at any time
exclusively by the Board, the Chairman of the Board, the President or the
Executive Vice President.
SECTION 2.4 Notice of Meetings. Except as otherwise required by
law, notice of each meeting of stockholders, whether annual or special, shall
be given not less than 10 days nor more than 60 days before the date of the
meeting to each stockholder of record entitled to vote at such meeting by
delivering a typewritten or printed notice thereof to such stockholder
personally, or by depositing such notice in the United States mail, in a
postage prepaid envelope, directed to such
<PAGE> 2
stockholder at such stockholder's post office address furnished by such
stockholder to the Secretary of the Corporation for such purpose, or, if such
stockholder shall not have furnished an address to the Secretary for such
purpose, then at such stockholder's post office address last known to the
Secretary, or by transmitting a notice thereof to such stockholder at such
address by telegraph, cable, wireless or facsimile. Except as otherwise
expressly required by law, no publication of any notice of a meeting of
stockholders shall be required. Every notice of a meeting of stockholders shall
state the place, date and hour of the meeting and, in the case of a special
meeting, shall also state the purpose for which the meeting is called. Notice
of any meeting of stockholders shall not be required to be given to any
stockholder to whom notice may be omitted pursuant to applicable Delaware law
or who shall have waived such notice, and such notice shall be deemed waived by
any stockholder who shall attend such meeting in person or by proxy, except a
stockholder who shall attend such meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Except as otherwise expressly
required by law, notice of any adjourned meeting of stockholders need not be
given if the time and place thereof are announced at the meeting at which the
adjournment is taken.
SECTION 2.5 Quorum. Except as otherwise required by law, the
holders of record of a majority in voting interest of the shares of stock of
the Corporation entitled to be voted thereat, present in person or by proxy,
shall constitute a quorum for the transaction of business at any meeting of
stockholders of the Corporation or any adjournment thereof. Subject to the
requirement of a larger percentage vote, if any, contained in the Certificate
of Incorporation, these Bylaws or by statute, the stockholders present at a
duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding any withdrawal of stockholders that
may leave less than a quorum remaining, if any action taken (other than
adjournment) is approved by the vote of at least a majority in voting interest
of the shares required to constitute a quorum. In the absence of a quorum at
any meeting or any adjournment thereof, a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat or, in
the absence therefrom of all the stockholders, any officer entitled to preside
at, or to act as secretary of, such meeting may adjourn such meeting from time
to time. At any such adjourned meeting at which a quorum is present, any
business may be transacted that might have been transacted at the meeting as
originally called.
SECTION 2.6 Voting.
(A) Each stockholder shall, at each meeting of stockholders, be
entitled to vote in person or by proxy each share of the stock of the
Corporation that has voting rights on the matter in question and that shall
have been held by such stockholder and registered in such stockholder's name on
the books of the Corporation:
(i) on the date fixed pursuant to Section 6.5 of these Bylaws as the
record date for the determination of stockholders entitled to notice of and to
vote at such meeting; or
2
<PAGE> 3
(ii) if no such record date shall have been so fixed, then (a) at the
close of business on the day next preceding the day upon which notice of the
meeting shall be given or (b) if notice of the meeting shall be waived, at the
close of business on the day next preceding the day upon which the meeting
shall be held.
(B) Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes. Persons holding stock of the Corporation in a
fiduciary capacity shall be entitled to vote such stock. Persons whose stock
is pledged shall be entitled to vote, unless in the transfer by the pledgor on
the books of the Corporation the pledgor shall have expressly empowered the
pledgee to vote thereon, in which case only the pledgee, or the pledgee's
proxy, may represent such stock and vote thereon. Stock having voting power
standing of record in the names of two or more persons, whether fiduciaries,
members of a partnership, joint tenants, tenants in common, tenants by the
entirety or otherwise, or with respect to which two or more persons have the
same fiduciary relationship, shall be voted in accordance with the provisions
of the General Corporation Law of the State of Delaware as the same exists or
may hereafter be amended (the "Delaware General Corporation Law").
(C) Subject to the provisions of the Corporation's Certificate of
Incorporation, any such voting rights may be exercised by the stockholder
entitled thereto in person or by such stockholder's proxy appointed by an
instrument in writing, subscribed by such stockholder or by such stockholder's
attorney thereunto authorized and delivered to the secretary of the meeting.
The attendance at any meeting of a stockholder who may theretofore have given a
proxy shall not have the effect of revoking the same unless such stockholder
shall in writing so notify the secretary of the meeting prior to the voting of
the proxy. At any meeting of stockholders at which a quorum is present, all
matters, except as otherwise provided in the Certificate of Incorporation, in
these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon. The vote at any meeting of stockholders on any question
need not be by ballot, unless so directed by the chairman of the meeting. On a
vote by ballot, each ballot shall be signed by the stockholder voting, or by
such stockholder's proxy, if there by such proxy, and it shall state the number
of shares voted.
SECTION 2.7 Judges. Prior to each meeting of stockholders, the
Chairman of such meeting shall appoint a judge or judges to act with respect to
such vote. Each judge so appointed shall first subscribe an oath faithfully to
execute the duties of a judge at such meeting with strict impartiality and
according to the best of such judge's ability. Such judges shall decide upon
the qualification of the voters and shall certify and report the number of
shares represented at the meeting and entitled to vote on such question,
determine the number of votes entitled to be cast by each share, shall conduct
and accept the votes, when the voting is completed, ascertain and report the
number of shares voted respectively for and against the question, and
determine, and retain for a reasonable period a record of the disposition of,
any challenge made to any
3
<PAGE> 4
determination made by such judges. Reports of judges shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation. The
judges need not be stockholders of the Corporation, and any officer of the
Corporation may be a judge on any question other than a vote for or against a
proposal in which such officer shall have a material interest. The judges may
appoint or retain other persons or entities to assist the judges in the
performance of the duties of the judges.
SECTION 2.8 Advance Notice of Stockholder Proposals and Stockholder
Nominations.
(A) At any meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the Board or (ii) by any stockholder of the Corporation who
complies with the notice procedures set forth in this Section 2.8(A). For
business to be properly brought before any meeting of the stockholders by a
stockholder, the stockholder must have given notice thereof in writing to the
Secretary of the Corporation not less than 90 days in advance of such meeting
or, if later, the seventh day following the first public announcement of the
date of such meeting. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the meeting (1) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (2) the name and
address, as they appear on the Corporation's books, of the stockholder
proposing such business, (3) the class and number of shares of the Corporation
that are beneficially owned by the stockholder, and (4) any material interest
of the stockholder in such business. In addition, the stockholder making such
proposal shall promptly provide any other information reasonably requested by
the Corporation. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any meeting of the stockholders except in
accordance with the procedures set forth in this Section 2.8. The Chairman of
any such meeting shall direct that any business not properly brought before the
meeting shall not be considered.
(B) Nominations for the election of directors may be made by the
Board or by any stockholder entitled to vote in the election of directors;
provided, however, that a stockholder may nominate a person for election as a
director at a meeting only if written notice of such stockholder's intent to
make such nomination has been given to the Secretary of the Corporation not
later than 90 days in advance of such meeting or, if later, the seventh day
following the first public announcement of the date of such meeting. Each such
notice shall set forth: (i) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated;
(ii) a representation that the stockholder is a holder of record of stock of
the Corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting and nominate the person or persons specified
in the notice; (iii) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by the stockholder; (iv) such other information regarding each
nominee proposed by such stockholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the United States
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, by the Board; and (v) the consent of each nominee to
4
<PAGE> 5
serve as a director of the Corporation if so elected. In addition, the
stockholder making such nomination shall promptly provide any other information
reasonably requested by the Corporation. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 2.8(B). The Chairman of any meeting
of stockholders shall direct that any nomination not made in accordance with
these procedures be disregarded.
SECTION 2.9 Action Without Meeting. Any action required to be taken
at any annual or special meeting of stockholders of the Corporation, or any
action which may be taken at any annual or special meeting of such
stockholders, may, if such action has been approved by the Board of Directors,
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE III: BOARD OF DIRECTORS
SECTION 3.1 General Powers. Subject to any requirements in the
Certificate of Incorporation, these Bylaws, and of the Delaware General
Corporation Law as to action which must be authorized or approved by the
stockholders, any and all corporate powers shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be under
the direction of, the Board to the fullest extent permitted by law. Without
limiting the generality of the foregoing, it is hereby expressly declared that
the Board shall have the following powers, to wit:
(A) to select and remove all the officers, agents and employees of
the Corporation, prescribe such powers and duties for them as may not be
inconsistent with law, the Certificate of Incorporation or these Bylaws, fix
their compensation, and require from them security for faithful service;
(B) to conduct, manage and control the affairs and business of the
Corporation, and to make such rules and regulations therefor not inconsistent
with law, the Certificate of Incorporation or these Bylaws, as it may deem
best;
(C) to change the location of the registered office of the
Corporation in Section 1.1 hereof; to change the principal office and the
principal office for the transaction of the business of the Corporation from
one location to another as provided in Section 1.2 hereof; to fix and locate
from time to time one or more subsidiary offices of the Corporation within or
without the State of Delaware as provided in Section 1.3 hereof; to designate
any place within or without the State of Delaware for the holding of any
meeting or meetings of stockholders; and to adopt, make and use a corporate
seal, and to prescribe the forms of certificates of stock, and to alter the
form of such
5
<PAGE> 6
seal and of such certificates from time to time, and in its judgment as it may
deem best, provided such seal and such certificate shall at all times comply
with the provisions of law;
(D) to authorize the issuance of shares of stock of the Corporation
from time to time, upon such terms and for such considerations as may be
lawful;
(E) to borrow money and incur indebtedness for the purposes of the
Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust and
securities therefor;
(F) to fill vacancies on the Board as provided in Section 3.5
hereof; and
(G) by resolution adopted by a majority of the whole Board to
designate an executive and other committees of the Board, each consisting of
one or more directors, to serve at the pleasure of the Board, and to prescribe
the manner in which proceedings of such committee or committees shall be
conducted.
SECTION 3.2 Number and Term of Office.
(A) Until this Section 3.2 is amended by a resolution duly adopted by
the Board or by the stockholders of the Corporation, the number of directors
constituting the entire Board shall be five (5) members. Directors need not be
stockholders. Each of the directors of the corporation shall hold office until
his successor shall have been duly elected and shall qualify or until he shall
resign or shall have been removed in the manner hereinafter provided.
(B) The Board shall be divided into three classes: Class I comprised
of one (1) member, Class II comprised of two (2) members and Class III
comprised of two (2) members. Such classes shall be as nearly equal in number
of directors as possible with the term of office of one class expiring each
year. At the annual meeting of stockholders in 1996, the Class I director
shall be elected to hold office for a term ending at the next succeeding annual
meeting of stockholders, the Class II director shall be elected to hold office
for a term ending at the second succeeding annual meeting of stockholders and
directors of Class III shall be elected to hold office for a term ending at the
third succeeding annual meeting of stockholders. Subject to the following, at
each annual meeting of stockholders, the successors to the class of directors
whose term shall then expire shall be elected to hold office for a term
expiring at the third succeeding annual meeting of stockholders.
(C) During any period when the holders of preferred stock or any one
or more series thereof, voting as a class, shall be entitled to elect a
specified number of directors by reason of dividend arrearages or other
contingencies giving them the right to do so, then and during such time as such
right continues (1) the then otherwise authorized number of directors shall be
increased by such specified number of directors, and the holders of the
preferred stock or such series thereof, voting as a class, shall be entitled to
elect the additional directors as provided for
6
<PAGE> 7
pursuant to the provisions of such preferred stock or series; (2) the
additional directors shall be members of those respective classes of directors
in which vacancies are created as a result of such increase in the authorized
number of directors; and (3) each such additional director shall serve until
the annual meeting at which the term of office of his class shall expire and
until his successor shall be elected and shall qualify, or until his right to
hold such office terminates pursuant to the provisions of such preferred stock
or series, whichever occurs earlier. Whenever the holders of such preferred
stock or series thereof are divested of such rights to elect a specified number
of directors, voting as a class, pursuant to the provisions of such preferred
stock or series, the terms of office of all directors elected by the holders of
such preferred stock or series, voting as a class pursuant to such provisions,
or elected to fill any vacancies resulting from the death, resignation or
removal of directors so elected by the holders of such preferred stock or
series, shall forthwith terminate and the authorized number of directors shall
be reduced accordingly.
SECTION 3.3 Election of Directors. The directors shall be elected
by the stockholders of the Corporation, and at each election, the persons
receiving the greater number of votes, up to the number of directors then to be
elected, shall be the persons then elected. The election of directors is
subject to any provision contained in the Certificate of Incorporation relating
thereto, including any provision regarding the rights of holders of preferred
stock to elect directors.
SECTION 3.4 Resignations. Any director of the Corporation may
resign at any time by giving written notice to the Board or to the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time is not specified, it shall take effect immediately
upon receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.5 Vacancies. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors,
removal, or any other cause, shall be filled by vote of the majority of the
remaining directors, although less than a quorum. Increases in the number of
directors shall be filled in accordance with the rule that each class of
directors shall be as nearly equal in number of directors as possible.
Notwithstanding such rule, in the event of any change in the authorized number
of directors each director then continuing to serve as such will nevertheless
continue as a director of the class of which he is a member, until the
expiration of his current term or his earlier death, resignation or removal.
If any newly created directorship or vacancy on the Board of Directors,
consistent with the rule that the three classes shall be as nearly equal in
number of directors as possible, may be allocated to one or two or more
classes, the Board of Directors shall allocate it to that of the available
class whose term of office is due to expire at the earliest date following such
allocation. When the Board of Directors fills a vacancy, the director chosen
to fill that vacancy shall be of the same class as the director he succeeds and
shall hold office until such director's successor shall have been elected and
shall qualify or until such director shall resign or shall have been removed.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of
office.
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SECTION 3.6 Place of Meeting. The Board or any committee thereof
may hold any of its meetings at such place or places within or without the
Commonwealth of Virginia as the Board or such committee may from time to time
by resolution designate or as shall be designated by the person or persons
calling the meeting or in the notice or a waiver of notice of any such meeting.
Directors may participate in any regular or special meeting of the Board or any
committee thereof by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board or such committee can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 3.7 Regular Meetings. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution
determine. If any day fixed for a regular meeting shall be a legal holiday at
the place where the meeting is to be held, then the meeting shall be held at
the same hour and place on the next succeeding business day not a legal
holiday. Except as provided by law, notice of regular meetings need not be
given.
SECTION 3.8 Special Meetings. Special meetings of the Board for any
purpose or purposes shall be called at any time by the Chairman of the Board
or, if the Chairman of the Board is absent or unable or refuses to act, by the
Chief Executive Officer, the President or the Executive Vice President, and may
also be called by any two members of the Board. Except as otherwise provided
by law or by these Bylaws, written notice of the time and place of special
meetings shall be delivered personally or by facsimile to each director, or
sent to each director by mail or by other form of written communication,
charges prepaid, addressed to such director at such director's address as it is
shown upon the records of the Corporation, or, if it is not so shown on such
records and is not readily ascertainable, at the place in which the meetings of
the directors are regularly held. In case such notice is mailed or
telegraphed, it shall be deposited in the United States mail or delivered to
the telegraph company in the County in which the principal office for the
transaction of the business of the Corporation is located at least 48 hours
prior to the time of the holding of the meeting. In case such notice is
delivered personally or by facsimile as above provided, it shall be delivered
at least 24 hours prior to the time of the holding of the meeting. Such
mailing, telegraphing, delivery or facsimile transmission as above provided
shall be due, legal and personal notice to such director. Except where
otherwise required by law or by these Bylaws, notice of the purpose of a
special meeting need not be given. Notice of any meeting of the Board shall
not be required to be given to any director who is present at such meeting,
except a director who shall attend such meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
SECTION 3.9 Quorum and Manner of Acting. Except as otherwise
provided in these Bylaws, the Certificate of Incorporation or by applicable
law, the presence of a majority of the authorized number of directors shall be
required to constitute a quorum for the transaction of business at any meeting
of the Board, and all matters shall be decided at any such meeting, a quorum
being present, by the affirmative votes of a majority of the directors present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the
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<PAGE> 9
withdrawal of directors, provided any action taken is approved by at least a
majority of the required quorum for such meeting. In the absence of a quorum,
a majority of directors present at any meeting may adjourn the same from time
to time until a quorum shall be present. Notice of any adjourned meeting need
not be given. The directors shall act only as a Board, and the individual
directors shall have no power as such. Notwithstanding the foregoing to the
contrary, in the event of the existence of two or more vacancies of the Board
of Directors, a minimum of two (2) directors shall constitute a quorum to
transact any business of the Board.
SECTION 3.10 Action by Consent. Any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if consent in writing is given thereto by all members of the
Board or of such committee, as the case may be, and such consent is filed with
the minutes of proceedings of the Board or of such committee.
SECTION 3.11 Compensation. Directors, whether or not employees of
the Corporation or any of its subsidiaries, may receive an annual fee for their
services as directors in an amount fixed by resolution of the Board plus other
compensation, including options to acquire capital stock of the Corporation, in
an amount and of a type fixed by resolution of the Board, and, in addition, a
fixed fee, with or without expenses of attendance, may be allowed by resolution
of the Board for attendance at each meeting, including each meeting of a
committee of the Board. Nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation therefor.
SECTION 3.12 Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, including,
without limitation, an audit committee, a compensation committee and
stock-incentive committee. Each committee to consist of one or more of the
directors of the Corporation. Any such committee, to the extent provided in
the resolution of the Board and subject to any restrictions or limitations on
the delegation of power and authority imposed by applicable law, shall have and
may exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it. Any such
committee shall keep written minutes of its meetings and report the same to the
Board at the next regular meeting of the Board. Unless the Board or these
Bylaws shall otherwise prescribe the manner of proceedings of any such
committee, meetings of such committee may be regularly scheduled in advance and
may be called at any time by the chairman of the committee or by any two
members thereof; otherwise, the provisions of these Bylaws with respect to
notice and conduct of meetings of the Board shall govern.
SECTION 3.13 Affiliated Transactions. Notwithstanding any other
provisions of these Bylaws, each transaction, or, if an individual transaction
constitutes a part of a series of transactions, each series of transactions,
proposed to be entered into between the Corporation, on the one hand, or any
person affiliated with Corporation, on the other hand, must be approved by a
majority of the independent directors.
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ARTICLE IV: OFFICERS
SECTION 4.1 Officers. The officers of the Corporation shall be a
Chairman, a Chief Executive Officer, a President, an Executive Vice President,
one or more Vice Presidents (the number thereof and their respective titles to
be determined by the Board), a Secretary, and such other officers as may be
appointed at the discretion of the Board in accordance with the provisions of
Section 4.3 hereof.
SECTION 4.2 Election. The officers of the Corporation, except such
officers as may be appointed or elected in accordance with the provisions of
Sections 4.3 or 4.5 hereof, shall be chosen annually by the Board at the first
meeting thereof after the annual meeting of stockholders, and each officer
shall hold office until such officer shall resign or shall be removed or
otherwise disqualified to serve, or until such officer's successor shall be
elected and qualified.
SECTION 4.3 Other Officers. In addition to the officers chosen
annually by the Board at its first meeting, the Board also may appoint or elect
such other officers as the business of the Corporation may require, each of
whom shall have such authority and perform such duties as are provided in these
Bylaws or as the Board may from time to time specify, and shall hold office
until such officer shall resign or shall be removed or otherwise disqualified
to serve, or until such officer's successor shall be elected and qualified.
SECTION 4.4 Removal and Resignation. Any officer may be removed,
either with or without cause, by resolution of the Board, at any regular or
special meeting of the Board, or except in case of an officer chosen by the
Board, by any officer upon whom such power of removal may be conferred by the
Board. Any officer or assistant may resign at any time by giving written
notice of his resignation to the Board or the Secretary of the Corporation.
Any such resignation shall take effect at the time specified therein, or, if
the time is not specified, upon receipt thereof by the Board or the Secretary,
as the case may be; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 4.5 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in these Bylaws for regular appointments to such office.
SECTION 4.6 Chairman of the Board. The Chairman of the Board shall
preside at all meetings of stockholders and at all meetings of the Board. The
Chairman shall exercise and perform such powers and duties with respect to the
business and affairs of the Corporation as may be assigned to the Chairman by
the Board or such other powers and duties as may be prescribed by the Board or
these Bylaws.
SECTION 4.7 Chief Executive Officer. The Chief Executive Officer
shall exercise and perform such powers and duties with respect to the
administration of the business and affairs of the Corporation as may from time
to time be assigned to the Chief Executive Officer by the
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Chairman of the Board or by the Board, or as may be prescribed by these Bylaws.
In the absence or disability of the Chairman of the Board, or in the event and
during the period of a vacancy in that office, the Chief Executive Officer
shall perform all the duties of the Chairman of the Board, and when so acting
shall have all of the powers of, and be subject to all the restrictions upon,
the Chairman of the Board of the Corporation.
SECTION 4.8 President. The President shall exercise and perform
such powers and duties with respect to the administration of the business and
affairs of the Corporation as may from time to time be assigned to the
President by the Chairman of the Board or by the Board, or as may be prescribed
by these Bylaws. In the absence or disability of the Chairman of the Board and
the Chief Executive Officer, or in the event and during the period of a vacancy
in the office of Chairman of the Board, the President shall perform all the
duties of the Chairman of the Board, and when so acting shall have all of the
powers of, and be subject to all the restrictions upon, the Chairman of the
Board of the Corporation.
SECTION 4.9 Vice Presidents. The Executive Vice President and each
other Vice President shall have such powers and perform such duties with
respect to the administration of the business and affairs of the Corporation as
may from time to time be assigned to such Vice President by the Chairman of the
Board or the Board, or the President or as may be prescribed by these Bylaws.
In the absence or disability of the Chairman of the Board, the Chief Executive
Officer and the President, the Executive Vice President, and to the extent the
Executive Vice President is unable to perform, the other Vice Presidents in
order of their rank as fixed by the Board, or if not ranked, the Vice President
designated by the Board, shall perform all of the duties of the Chairman of the
Board, and when so acting shall have all the powers of, and be subject to all
the restrictions upon, the Chairman of the Board.
SECTION 4.10 Secretary.
(A) The Secretary shall keep, or cause to be kept, at the principal
office of the Corporation or such other place as the Board may order, a book of
minutes of all meetings of directors and stockholders, with the time and place
of holding, whether regular or special, and if special, how authorized and the
notice thereof given, the names of those present at meetings of directors, the
number of shares present or represented at meetings of stockholders, and the
proceedings thereof.
(B) The Secretary shall keep, or cause to be kept, at the principal
office of the Corporation's transfer agent, a share register, or a duplicate
share register, showing the name of each stockholder, the number of shares of
each class held by such stockholder, the number and date of certificates issued
for such shares, and the number and date of cancellation of every certificate
surrendered for cancellation.
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ARTICLE V: CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.1 Execution of Contracts. The Board, except as otherwise
provided in these Bylaws, may authorize any officer or officers, or agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances; and unless so authorized by the Board or by these Bylaws,
no officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.
SECTION 5.2 Checks, Drafts, Etc. All checks, drafts or other orders
for payment of money, notes or other evidence of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.
SECTION 5.3 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select,
or as may be selected by any officer or officers, assistant or assistants,
agent or agents, or attorney or attorneys of the Corporation to whom such power
shall have been delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, the Chairman of the
Board, the Chief Executive Officer, the President, the Executive Vice President
(or any other officer or officers, assistant or assistants, agent or agents, or
attorney or attorneys of the Corporation who shall from time to time be
determined by the Board) may endorse, assign and deliver checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation.
SECTION 5.4 General and Special Bank Accounts. The Board may from
time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board
may select or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to
whom such power shall have been delegated by the Board. The Board may make
such special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as it may deem expedient.
ARTICLE VI: SHARES AND THEIR TRANSFER
SECTION 6.1 Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, including without limitation a book
entry system, certifying the number and class or series of shares of the stock
of the Corporation owned by such owner. The certificates representing shares
of such stock shall be numbered in the order in which they shall be issued and
shall be signed in the name of the Corporation by the Chairman of the Board,
the Chief Executive Officer, the
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President or the Executive Vice President, and by the Secretary. Any or all of
the signatures on the certificates may be a facsimile. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any such certificate, shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, such certificate
may nevertheless be issued by the Corporation with the same effect as though
the person who signed such certificate, or whose facsimile signature shall have
been placed thereupon, were such an officer, transfer agent or registrar at the
date of issue. A record shall be kept of the respective names of the persons,
firms or corporations owning the stock represented by such certificates, the
number and class or series of shares represented by such certificates,
respectively, and the respective dates thereof, and in case of cancellation,
the respective dates of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be cancelled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases
provided for in Section 6.4 hereof.
SECTION 6.2 Transfers of Stock. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by such holder's attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, or with a
transfer clerk or a transfer agent appointed as provided in Section 6.3 hereof,
and upon surrender of the certificate or certificates for such shares properly
endorsed and the payment of all taxes thereon. The person in whose name shares
of stock stand on the books of the Corporation shall be deemed the owner
thereof for all purposes as regards the Corporation. Whenever any transfer of
shares shall be made for collateral security, and not absolutely, such fact
shall be so expressed in the entry of transfer if, when the certificate or
certificates shall be presented to the Corporation for transfer, both the
transferor and the transferee request the Corporation to do so.
SECTION 6.3 Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock to bear
the signature or signatures of any of them.
SECTION 6.4 Lost, Stolen, Destroyed, and Mutilated Certificates. In
any case of loss, theft, destruction, or mutilation of any certificate of
stock, another may be issued in its place upon proof of such loss, theft,
destruction, or mutilation and upon the giving of a bond of indemnity to the
Corporation in such form and in such sum as the Board may direct; provided,
however, that a new certificate may be issued without requiring any bond when,
in the judgment of the Board, it is proper so to do.
SECTION 6.5 Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any other
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<PAGE> 14
change, conversion or exchange of stock or for the purpose of any other lawful
action other than to consent to corporate action in writing without a meeting,
the Board may fix, in advance, a record date, which shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any such other action. If in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders the Board shall not fix such a record date, then the record date
for determining stockholders for such purpose shall be the close of business on
the day on which the Board shall adopt the resolution relating thereto. A
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of such meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
ARTICLE VII: INDEMNIFICATION
SECTION 7.1 Indemnification of Directors and Officers. The
Corporation shall indemnify, in the manner and to the fullest extent permitted
by the Delaware General Corporation Law (and in the case of any amendment
thereto, to the extent that such amendment permits the Corporation to provide
broader indemnification rights than permitted prior thereto), any person (or
the estate of any person) who is or was a party to, or is threatened to be made
a party to, any threatened, pending or completed action, suit or proceeding,
whether or not by or in the right of the Corporation, and whether civil,
criminal, administrative, investigative or otherwise, by reason of the fact
that such person is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise.
The Corporation may, to the fullest extent permitted by the Delaware General
Corporation Law, purchase and maintain insurance on behalf of any such person
against any liability which may be asserted against such person. The
Corporation may create a trust fund, grant a security interest or use other
means (including without limitation a letter of credit) to ensure the payment
of such sums as may become necessary to effect the indemnification as provided
herein. To the fullest extent permitted by the Delaware General Corporation
Law, the indemnification provided herein shall include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement and any such
expenses shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the indemnitee to repay such amounts if it is ultimately determined
that he or she is not entitled to be indemnified. The indemnification provided
herein shall not be deemed to limit the right of the Corporation to indemnify
any other person for any such expenses to the fullest extent permitted by the
Delaware General Corporation Law, nor shall it be deemed exclusive of any other
rights to which any person seeking indemnification from the Corporation may be
entitled under any agreement, the Corporation's Certificate of Incorporation,
vote of stockholders or disinterested directors, or otherwise, both as to
action in such person's official capacity and as to action in another capacity
while holding such office.
SECTION 7.2 Indemnification of Employees and Agents. The Corporation
may, but only to the extent that the Board of Directors may (but shall not be
obligated to) authorize from time to time, grant rights to indemnification and
to the advancement of expenses to any employee or
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agent of the Corporation to the fullest extent of the provisions of this
Article VII as they apply to the indemnification and advancement of expenses of
directors and officers of the Corporation.
SECTION 7.3 Enforcement of Indemnification. The rights to
indemnification and the advancement of expenses conferred above shall be
contract rights. If a claim under this ARTICLE VII is not paid in full by the
Corporation within 60 days after written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the indemnitee shall be entitled to be paid also
the expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) any suit by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel or
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel or
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article VII or otherwise shall be on the Corporation.
ARTICLE VIII: MISCELLANEOUS
SECTION 8.1 Seal. The Board shall adopt a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation and
words showing that the Corporation was incorporated in the State of Delaware.
SECTION 8.2 Waiver of Notices. Whenever notice is required to be
given by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or
after the time stated therein, and such waiver shall be deemed equivalent to
notice.
SECTION 8.3 Amendments. Except as otherwise provided herein or in
the Certificate of Incorporation, these Bylaws or any of them may be altered,
amended, repealed or rescinded and
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new Bylaws may be adopted by affirmative vote of a majority of the Board or by
affirmative vote of a majority of the outstanding shares of the corporation's
voting stock at any annual or special meeting of stockholders, provided that
notice of such proposed alteration, amendment, repeal, recession or adoption is
given in the notice of such meeting.
SECTION 8.4 Representation of Other Corporations. The Chairman of
the Board, the Chief Executive Officer, the President, the Executive Vice
President or the Secretary or any Vice President of the Corporation is
authorized to vote, represent and exercise on behalf of the Corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of the Corporation, other than a corporation of which the
Corporation owns twenty percent (20%) or more of its capital stock, in which
case such officers shall not be so authorized under these Bylaws without the
authorization of the Board. The authority herein granted to said officers to
vote or represent on behalf of the Corporation any and all shares held by the
Corporation in any other corporation or corporations may be exercised either by
such officers in person or by any person authorized so to do by proxy or power
of attorney duly executed by such officers.
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EXHIBIT 4.1
Incorporated Under the Laws of the State of Delaware
NUMBER SHARES
0
MLC HOLDINGS, INC.
TOTAL AUTHORIZED ISSUE
10 Million Shares Par Value $.01 each
COMMON STOCK
THIS CERTIFIES THAT_________SPECIMEN________, is the owner of
___________________________ (_____) Shares of Capital Stock of
MLC HOLDINGS, INC.
which Shares are fully paid and non-assessable and transferable on the books of
the Corporation by the holder hereof in person or by Attorney upon surrender of
this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate
to be signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed this ___ day of __________________, A.D. 199_.
- ------------------------ -----------------------
Secretary President
(C) GOES 509
<PAGE> 2
For Value Received,________________________ hereby sell, assign and transfer
unto _______________________________________ Shares of the Capital Stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ________________________ Attorney to transfer the said Stock on the
books of the within named Corporation with full power of substitution in the
premises.
Dated ________________, 1996
------------------------
In presence of
- ----------------------------
<PAGE> 1
EXHIBIT 5.1
EXHIBIT 5.1
[LETTERHEAD OF HAZEL & THOMAS, P.C.]
[Date]
MLC Holdings, Inc.
11150 Sunset Hills Road
Suite 110
Reston, Virginia 20190-5321
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel for MLC Holdings, Inc., a Delaware corporation
(the "Company"), in connection with a proposed restructuring, as a result of
which MLC Group, Inc., a Virginia corporation, has become a wholly-owned
subsidiary of the Company, and in connection with the registration of 1,150,000
shares of the Company's Common Stock, $.01 par value (the "Shares"), on
Form S-1 Registration Statement No. 333-____ (the "Registration Statement")
filed with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), thereto filed with the
Commission on September 11, 1996. Of the 1,150,000 Shares, 150,000 are subject
to an option granted to the Underwriters (as defined below) to cover
over-allotments. We understand that the Company proposes to sell the Shares to
a group of underwriters (the "Underwriters") represented by Friedman, Billings,
Ramsey & Co., Inc. for offering to the public.
We are familiar with the corporate actions to be taken by the Company in
connection with the authorization, issuance and sale of the Shares and have
made such other legal and factual inquiries as we deem necessary for the
purpose of rendering this opinion.
Based on the foregoing and in reliance thereon, and subject to the
effectiveness of the Registration Statement under the Act, we are of the
opinion that, upon conclusion of the proceedings contemplated by us to be taken
prior to the issuance of the Shares, the Shares, when issued and sold in the
manner described in the Registration Statement and in accordance with the terms
of the underwriting agreement to be entered into between the Company and the
Underwriters, will be legally issued, fully paid and nonassessable.
We are admitted to practice in Virginia. We are not admitted to practice
in Delaware. However, we are generally
<PAGE> 2
MLC Holdings, Inc.
September ____, 1996
Page 2
familiar with the Delaware General Corporation Law and have made such review
thereof as we consider necessary for the purpose of rendering this opinion.
Subject to the foregoing, this opinion is limited to Delaware, Virginia and
federal law.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" contained in the prospectus that forms a part of the
Registration Statement. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Act or the General Rules and Regulations of the Commission.
Very truly yours,
/s/ HAZEL & THOMAS, P.C.
<PAGE> 1
EXHIBIT 10.1
1996 STOCK INCENTIVE PLAN
This 1996 Stock Incentive Plan of MLC Holdings, Inc., a Delaware
corporation (the "Company"), is made effective as of the 1st day of
September, 1996.
RECITALS
WHEREAS, the Company desires to establish a stock incentive program to
provide an opportunity for directors, executive officers, independent
contractors, key employees, and rank and file employees of the Company to
participate in ownership of the Company; and
WHEREAS, the Company desires that the plan encompass a broad variety
of stock compensation alternatives to be governed and administered as
hereinafter provided.
ARTICLE 1
STOCK PLANS
1.1 The 1996 Stock Incentive Plan shall be comprised of the
following independent plans, the terms of which are incorporated herein in their
entirety:
A. 1996 Incentive Stock Option Plan;
B. 1996 Nonqualified Stock Option Plan;
C. 1996 Outside Director Stock Option Plan; and
C. Such other restricted stock and performance-based
stock awards and programs as shall be established by
the Board of Directors of the Company.
ARTICLE 2
ADMINISTRATION
2.1 The Stock Incentive Plan shall be administered by a stock
incentive committee (the "Stock Incentive Committee" or the "Committee")
consisting of not less than two (2) directors who shall each be "disinterested
persons" as no member of the Committee shall (i) be eligible to receive
awards under the Stock Incentive Plan, or (ii) owe more than 10% of the
voting stock of the corporation, or (iii) have been awarded or granted equity
securities under the Stock Incentive Plan or any other plan of the Company
during the period of one year prior to serving on the Committee except as may
be permitted in the SEC's Rule 16b-3. The Board may, from time to time, remove
members from or add members to the Committee. Vacancies in the Committee,
however caused, shall be filled by the Board. The Committee shall select one
of its members chairman and shall hold meetings at such times and places as it
may determine. The Committee may appoint a secretary
<PAGE> 2
and, subject to the provisions of the Stock Incentive Plan and to policies
determined by the Board, may make such rules and regulations for the conduct of
its business as it shall deem advisable.
2.2 The Committee shall establish from time to time, subject to
the limitations of the Stock Incentive Plan as hereinafter set forth, such
rules and regulations, and amendments thereof, as it deems necessary to comply
with applicable law and regulation and for the proper administration of the
Stock Incentive Plan. Every decision and action of the Committee shall be
valid if approved by (i) a majority of the Committee members then in office at
a meeting, or (ii) all of the Committee members then in office by unanimous
written consent in lieu of meeting.
2.3 The Committee shall make all determinations as to the persons
(including officers and key employees) who in the opinion of the Committee
should receive awards. The Committee shall also designate the time or times at
which awards are granted, the number of options or other benefits which are to
be granted to each person, and the term and price of each option or other
benefit. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Stock Incentive
Plan or any award.
2.4 Except for grants that are approved by a majority of the
disinterested members of the Stock Incentive Committee, no member of the Stock
Incentive Committee will be eligible to participate in the Stock Incentive
Plan.
ARTICLE 3
PARTICIPATION IN THE PLAN
3.1 Participation in the Plan shall be limited to those directors,
executive officers, independent contractors, key employees, and rank and file
employees who, from time to time, shall be designated by the Committee in
accordance with Section 2.3 hereof.
ARTICLE 4
STOCK SUBJECT TO PLAN
4.1 There are reserved for issuance under the stock plans included
within the Incentive Stock Plan, 155,000 shares of the common stock of MLC
Holdings, Inc. ("Reserved Shares").
4.2 Proceeds of the purchase of Reserved Shares shall be used for
the general business purposes of the Company.
4.3 In the event of reorganization, recapitalization, stock split,
stock dividend, stock combination, merger, consolidation, acquisition of
property or stock, any change in the capital structure of MLC Holdings, Inc. or
similar changes in the common stock of MLC Holdings, Inc., the Committee shall
make such adjustments as may be appropriate in the number and kind of
2
<PAGE> 3
shares reserved for purchase and in the number, kind and price of shares
covered by Options granted but not then exercised; provided, however, that any
Options to purchase fractional shares resulting from any such adjustment shall
be eliminated.
4.4 If the Company shall at any time merge or consolidate with or
into another corporation and (i) the Company is not the surviving entity, or
(ii) the Company is the surviving entity and the shareholders of the Company
are required to exchange their shares of Common Stock for property and/or
securities, the holder of each Option will thereafter receive, upon the
exercise thereof, the securities and/or property to which a holder of the
number of shares of Common Stock then deliverable upon the exercise of such
Option would have been entitled upon such merger or consolidation, and the
Company shall take such steps in connection with such merger or consolidation
as may be necessary to assure that the provisions of this Plan shall thereafter
be applicable, as nearly as reasonably may be, in relation to any securities or
property thereafter deliverable upon the exercise of such Option, provided,
however, that under no circumstance shall any Option exercise date be
accelerated in contemplation of such action. A sale of all or substantially
all the assets of the Company for consideration (apart from the assumption of
obligations) consisting primarily of securities shall be deemed a merger or
consolidation for the foregoing purposes.
The surviving entity following any reorganization may at any
time, in its sole discretion, tender substitute options as it may deem
appropriate. However, in no event may the substitute options entitle the
Participant to any fewer shares (or at any greater aggregate price) or any less
other property than the Participant would be entitled to under the immediately
preceding paragraph upon an exercise of the Options held prior to the
substitution of the new option.
4.5 In the event of the proposed dissolution or liquidation of the
Company, the Options granted hereunder shall terminate as of a date to be fixed
by the Committee, provided that not less than thirty (30) days prior written
notice of the date so fixed shall be given to the Participant, and the
Participant shall have the right, during the period of thirty (30) days
preceding such termination, to exercise his Options.
ARTICLE 5
AMENDMENTS AND DISCONTINUANCE OF THE PLAN
5.1 The Committee shall have the right at any time and from time
to time to amend, suspend, or terminate the Plan provided that, except as
provided in Section 4.3, no such amendment, suspension, or termination shall
(i) revoke or alter the terms of any valid Option previously granted in
accordance with this Plan; (ii) increase the number of shares to be reserved
for issuance of Options; (iii) change the class of eligible employees to whom
Options may be granted under this Plan; (iv) extend the term of the Plan beyond
five (5) years or provide for options exercisable more than two (2) years after
the date granted; (v) permit any member of the Committee to be eligible as a
Participant; or (vi) otherwise materially modify the Plan, except as
3
<PAGE> 4
provided herein or as necessary to comply with applicable law, without
Shareholder approval.
5.2 This Plan shall terminate at midnight on September 1, 2006.
Options outstanding at the termination of the Plan shall not be affected by
such termination.
ARTICLE 6
MISCELLANEOUS PROVISIONS
6.1 The Plan shall be construed, whenever possible, to be in
conformity with the requirements of all applicable federal law, including
without limitation the SEC's Rule 16b-3, as amended effective August 15, 1996.
To the extent not in conflict with the preceding sentence, the Plan shall be
construed, administered and governed in all respect under and by the laws of
the State of Delaware, except where preempted by federal law.
6.2 If any provision of the Plan is held invalid or unenforceable,
the invalidity or unenforceability shall not affect any other provisions and
the Plan shall be construed and enforced as if those provisions had not been
included.
6.3 This Plan shall be binding upon heirs, executors,
administrators, successors and assigns of all parties hereto, present and
future.
6.4 The Plan shall not be deemed to constitute a contract between
any employee and the Company. Nothing in the Plan shall give any employee the
right to be retained in the employ of the Company, and all employees shall
remain subject to discharge, discipline or layoff to the same extent as if the
Plan had not been put into effect.
6.5 In addition to such other rights of indemnification as they
may have as directors or as members of the Committee, the members of the
Committee shall be indemnified by the Corporation against the reasonable
expenses, including attorney's fees actually and necessarily incurred in
connection with the defense of any action, suit, or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Corporation) or paid by them in satisfaction of a
judgment in any such action, suit, or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit, or proceeding that such
Committee member is liable for negligence or misconduct in performance of his
duties; provided that within 60 days after institution of any such action,
suit, or proceeding a Committee member shall in writing offer the Corporation
the opportunity, at its own expense, to handle and defend the same.
6.6 Any Option Agreement shall provide the employee shall upon
each exercise of a part or all of the option granted represent a warrant that
his purchase of stock pursuant to such
4
<PAGE> 5
option is for investment only, and not with the view of distribution involving
a public offering unless such shares are provided for in such public offering
or such shares are registered. At any time the Board may waive the requirement
of such provision and any option agreement entered into under this Plan.
5
<PAGE> 1
EXHIBIT 10.2
MLC HOLDINGS, INC.
1996 OUTSIDE DIRECTOR STOCK OPTION PLAN
The proper execution of the duties and responsibilities of the
directors of MLC Holdings, Inc., and its subsidiaries is a vital factor in the
continued growth and success of the Company. Toward this end, it is necessary
to attract and retain effective and capable persons who will serve as
non-employee directors and contribute materially to the successful operation of
the business of the Company. It benefits the Company to bind the interests of
these persons more closely to its own interest by offering them options to
purchase shares cf common stock of the Company and thereby provide them with
added incentive to remain directors and to increase its prosperity and growth.
ARTICLE 1
DEFINITIONS
The following words and terms, unless the context clearly indicates
otherwise, have the following meanings. Where appropriate in the context of
this Outside Director Stock Option Plan, the singular shall include the plural,
the masculine gender shall include the feminine, and vice versa:
1:01 "Board" means the Board of Directors of MLC Holdings, Inc.
1:02 "Common Stock" means the common stock of the Company.
1:03 "Company" means MLC Holdings, Inc. and any subsidiary thereof.
1:04 "Option" means the options granted pursuant to this Plan.
1:05 "Option Agreement" means an agreement provided for in Section
6:01.
<PAGE> 2
1:06 "Participant" means a non-employee director of the Company who
has executed an Option Agreement.
1:07 "Plan" means this MLC Holdings, Inc. 1996 Outside Director
Stock Option Plan.
1:08 "SEC" means the United States Securities and Exchange
Commission.
ARTICLE 2
EFFECTIVE DATE OF THE PLAN
2:01 On September 1, 1996, the Board adopted this Plan subject to
approval by the Shareholders. The Plan shall become effective immediately
prior to the closing of the Company's initial public offering of its Common
Stock, provided that the Plan has been approved by a majority of the
Shareholders of the Company.
ARTICLE 3
AUTHORIZED GRANTS
3.01 An Option for ten thousand (10,000) shares of Common Stock
shall be granted to each non-employee director upon completion of the initial
public offering of the Common Stock.
3.02 An Option for five thousand (5,000) shares of Common Stock
shall be granted to each non-employee director on the anniversary of each full
year of his or her service as a director of the Company.
3:03 Options shall be granted only after execution of an Option
Agreement.
2
<PAGE> 3
ARTICLE 4
PARTICIPATION IN THE PLAN
4:01 Participation in the Plan shall be limited to full-time
non-employee directors of the Company.
ARTICLE 5
STOCK SUBJECT TO PLAN
5:01 There are reserved for the granting of Options under the Plan,
and for subsequent issuance and sale pursuant to granted Options, 75,000 shares
of unissued but authorized Common Stock or of Common Stock held in treasury.
If for any reason shares for which an Option has been granted cease to be
subject to purchase thereunder, those shares shall be available for the
granting of Options.
5:02 Proceeds of the purchase of optioned shares shall be used for
the general business purposes of the Company.
5:03 In the event of reorganization, recapitalization, stock split,
stock dividend, stock combination, merger, consolidation, acquisition of
property or stock, any change in the capital structure of the Company, or
similar changes in the Company's Common Stock, the Board shall make such
adjustments as may be appropriate in the number and kind of shares reserved for
purchase and in the number, kind and price of shares covered by Options granted
but not then exercised.
5:04 If the Company shall at any time merge or consolidate with or
into another corporation and (i) the Company is not the surviving entity, or
(ii) the Company is the surviving entity and the shareholders of the Company
are required to exchange their shares of Common
3
<PAGE> 4
Stock for property and/or securities, the holder each option will thereafter
receive, upon the exercise thereof, the securities and/or property to which a
holder of the number of shares of Common Stock then deliverable upon the
exercise of such Option would have been entitled upon such merger
consolidation, and the Company shall take such steps in connection with such
merger or consolidation as may be necessary to assure that the provisions of
this Plan shall thereafter be applicable, as nearly as reasonably may be, in
relation to any securities or property thereafter deliverable upon the exercise
such Option, provided, however, that under no circumstance shall any Option
exercise date be accelerated in contemplation of such action. A sale of all or
substantially all the assets of the Company for consideration (apart from the
assumption of obligations) consisting primarily of securities shall be deemed a
merger or consolidation for the foregoing purposes. Notwithstanding the
foregoing, the provisions of this Section 5:04 shall be subject to Section
6:04.
The surviving entity following any reorganization may at any time, in
its sole discretion, tender substitute options as it may deem appropriate.
However, in no event may the substitute options entitle the Participant to any
fewer shares (or at any greater aggregate price) or any less other property
than the Participant would be entitled to under the immediately preceding
paragraph upon an exercise of the Options held prior to the substitution of the
new option.
5:05 In the event of the proposed dissolution or liquidation of the
Company, the Options granted hereunder shall terminate as of a date to be fixed
by the Board, provided that not less than thirty (30) days' prior written
notice of the date so fixed shall be given to the Participant, and the
Participant shall have the right, during the period of thirty (30) days
preceding
4
<PAGE> 5
such termination, to exercise his Options. Notwithstanding the foregoing, the
provisions of this Section shall be subject to Section 6:04.
ARTICLE 6
TERMS AND CONDITIONS OF OPTIONS
6:01 Each Option shall be evidenced by an Option Agreement
specifying the number of shares of Common Stock covered thereby in such form as
the Board from time to time may determine, provided that no provision of the
Option Agreement shall be consistent with this Plan and such Option Agreement
may incorporate all or any of the terms of this Plan by reference.
6:02 The Option price per share shall not be less than 100% of the
fair market value of a share of the Common Stock on the date on which the
option is granted. At the effective time of closing of the Company's initial
public offering of Common Stock, the fair market value of a share of Common
Stock for this purpose shall be the initial price to public; thereafter, the
fair market value for share of Common Stock for this purpose shall be the mean
of the closing high bid and low asked prices per share in the over-the-counter
market, or the closing price if the Company's Common Stock is listed in the
NASDAQ National Market System, on the day of the grant (or if that date falls
on a non-business day then on the next business day on which the stock is
quoted).
6:03 No Option may be granted under this Plan after September 1,
2006.
6:04 The term of any Option granted under this Plan shall be ten
(10) years from the date on which it was granted. Each Option is exercisable
as follows at any time and from time to time (i) with respect to one-half (1/2)
of the shares covered hereby after the expiration of one (1) year from the date
of grant and prior to the termination of the Option, and (ii) with respect to
the
5
<PAGE> 6
remaining shares covered hereby after the expiration of two (2) years from the
date of grant and prior to the termination of the option.
6:05 Each Option by its terms shall be non-transferable and
non-assignable except that valid Option rights may be transferred by
testamentary instrument (will), by the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined in the Internal
Revenue Code or Title I of the Employee Retirement Income Security Act or the
rules thereunder. Otherwise, an Option is exercisable only by such
Participant.
6:06 Each Option granted under the Plan shall terminate and may no
longer be exercised if the Participant ceases to be a director of the Company,
except that (i) if the Participant dies while a director of the Company, or
within three (3) months after the termination of such service, such Option may
be exercised on his behalf as set forth in 6:07 below; and (ii) if the
Participant's term as director shall have been terminated for any reason other
than his death, he may at any time within a period of three (3) months after
such termination exercise such Option to the extent that the Option was
exercisable pursuant to Section 6:04 above by him on the date of the
termination of his directorship; provided, however, that in the case of removal
for cause, then the Participant's Option shall terminate and expire
concurrently with his removal and shall not thereafter be exercisable to any
extent. The definition of "cause" shall be as set forth in the Option
Agreement with each Participant.
6:07 If the Participant dies during the term of his Option while a
director of the Company, or within the three (3) month period after the
termination of services as a director, without having fully exercised his
Option, the executor or administrator of his estate or the person who inherits
the right to exercise the Option by bequest or inheritance shall have the right
within
6
<PAGE> 7
twelve (12) months after the Participant's death to purchase the number of
shares which the deceased Participant was entitled to purchase at the date of
his death, after which time the Option shall lapse.
6:08 A Participant may, at any time, elect in writing to abandon an
Option or any part thereof.
ARTICLE 7
METHODS OF EXERCISE OF OPTION
7:01 The Participant (or other person acting under Section 6:07)
desiring to exercise an Option as to all or part of the shares of Common Stock
subject to that option shall notify an officer of the Company in writing at its
principal office to that effect, specifying the number of shares to be
purchased.
7:02 The notice shall be accompanied by payment to the Company of
the full purchase price. With the prior consent of the Company the Option may
be exercised as to the number of shares specified in the notice by tendering to
the Company shares Common Stock already owned by the Participant which,
together with any cash tendered therewith shall equal in value the full
purchase price. The value of the tendered shares for this purpose shall be the
fair market value (as determined in accordance with the procedures set forth in
Section 6:02) of such shares (valued as if unlegended and freely transferable)
on the date the Participant executes and dates the notice provided in Section
7:01, and the Participant shall deliver only that number of shares of Common
Stock which, together with any cash delivered, has an aggregate value of not
less than the full purchase price for the Option.
7
<PAGE> 8
7:03 A Participant shall have none of the rights of a Stockholder
until the shares of Common Stock covered by the Option are issued to him. If
the shares of Common Stock issuable pursuant to the exercise of an Option are
not registered under the Securities Act of 1933, as amended, the Company may
require that the Participant deliver an investment representation letter at the
time of exercise in form acceptable to the Company and its counsel, and the
Company may place appropriate legends restricting transfer under applicable
securities laws on the certificates for the shares of Common Stock to be
issued.
ARTICLE 8
AMENDMENTS AND DISCONTINUANCE OF THE PLAN
8:01 The Board shall have the right at any time and from time to
time to amend, suspend, or terminate the Plan provided that, except as provided
in Section 5:03, no such amendment, suspension, or termination shall (i) revoke
or alter the terms of any valid Option previously granted in accordance with
this Plan; (ii) increase the number of shares to be reserved for issuance of
options; (iii) change the price determined pursuant to the provisions of
Section 6:02; (iv) change the class of eligible persons to whom Options may be
granted under this Plan; (v) extend the term of the Plan beyond ten (10) years
or provide for options exercisable more than five (5) years after the date
granted; (vi) permit any employee director to be eligible as a Participant; or
(vii) otherwise materially modify the Plan, except as provided herein or as
necessary to comply with applicable law, without Shareholder approval.
8:02 This Plan shall terminate at midnight on September 1, 2006.
Options outstanding at the termination of the Plan shall not be affected by
such termination.
8
<PAGE> 9
ARTICLE 9
MISCELLANEOUS PROVISIONS
9:01 The Plan shall be construed, whenever possible, to be in
conformity with the requirements of all applicable federal law, including
without limitation the SEC's Rule 16b-3, as amended effective August 15, 1996.
To the extent not in conflict with the preceding sentence, the Plan shall be
construed, administered and governed in all respect under and by the laws of
the State of Delaware, except where preempted by federal law.
9:02 If any provision of the Plan is held invalid or unenforceable,
the invalidity or unenforceability shall not affect any other provisions and
the Plan shall be construed and enforced as if those provisions had not been
included.
9:03 This Plan shall be binding upon heirs, executors,
administrators, successors and assigns of all parties hereto, present and
future.
9:04 The Plan shall not be deemed to constitute a contract between
any director and the Company. Nothing in the Plan shall give any director the
right to be retained as a director of the Company, and all director
Participants shall remain subject to non-election or removal to the same extent
as if the Plan had not been put into effect.
9
<PAGE> 1
EXHIBIT 10.3
1996 NONQUALIFIED STOCK OPTION PLAN
This 1996 Nonqualified Stock Option Plan of MLC Holdings, Inc. is intended
to reward certain MLC Holdings, Inc. employees and key non-employee consultants
for their contributions to the Company's continued success by awarding those
individuals with non-compensatory stock options. These stock options do not
qualify as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended.
ARTICLE 1
DEFINITIONS
The following words and terms, unless the context clearly indicates
otherwise, have the following meanings. Where appropriate in the context of
this 1996 MLC Holdings, Inc. Nonqualified Stock Option Plan, the singular shall
include the plural, the masculine gender shall include the feminine, and vice
versa:
1:01 "Board" means the Board of Directors of MLC Holdings, Inc.
1:02 "Committee" means the stock incentive committee appointed by the
Board to administer the 1996 Stock Incentive Plan of the Company, and the plans
adopted thereunder, including without limitation, this Plan.
1:03 "Common Stock" means the common stock of MLC Holdings, Inc.
1:04 "Company" means MLC Holdings, Inc. and any subsidiary thereof.
1:05 "Option" means the options granted pursuant to this Plan.
1:06 "Option Agreement" means an agreement provided for in Section
6:01.
1:07 "Participant" means an individual designated pursuant to Section
3:03 who has executed an Option Agreement.
1:08 "Permanent Disability" means the inability of an individual to
engage in any substantial gainful activity by reason of any
medically-determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than 12 months.
<PAGE> 2
1:09 "Plan" means this the 1996 MLC Holdings, Inc. Nonqualified Stock
Option Plan.
1:10 "Plan Administrator" means the Committee.
1:11 "SEC" means the United States Securities and Exchange Commission.
1:12 "Vesting" means 20% per year for each year.
ARTICLE 2
EFFECTIVE DATE OF THE PLAN
2:01 On September 1, 1996, the Board adopted this Plan subject to
approval by the Shareholders. The Plan shall become effective at the next
Special Meeting of Shareholders or by written consent of the Shareholders in
lieu of a special meeting, provided it is approved by a majority of the
Shareholders of the Company at that time. No Options granted prior to
Shareholder approval of the Plan shall be exercisable unless and until the
Shareholders of the Company approve this Plan and the Options granted prior to
such approval.
ARTICLE 3
ADMINISTRATION
3:01 The Plan shall be administered by the Committee.
3:02 The Committee shall establish from time to time, subject to the
limitations of the Plan as hereinafter set forth, such rules and regulations,
and amendments thereof, as it deems necessary to comply with applicable law and
regulation and for the proper administration of the Plan. Every decision and
action of the Committee shall be valid if approved by (i) a majority of the
Committee members then in office at a meeting, or (ii) all of the Committee
members then in office by unanimous written consent in lieu of meeting.
3:03 The Board, or any designee of the Board, may recommend employees
or non-employee consultants for participation in the Plan to the Committee.
Based on such recommendations, the Committee shall determine the persons
(including officers) who shall receive options, the time or times at which
options shall be granted, the number of shares for which Options are to be
granted to each participant and the term and price of each option. No member of
the Board or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Option.
2
<PAGE> 3
3:04 Options shall be granted only after prior designation by the
Committee and the execution of an Option Agreement. The Committee shall have
the flexibility to grant options under such reasonable terms and conditions as
the Committee determines in its sole discretion and may be. The Committee
shall report to the Secretary of the Company the names of persons granted
Options, the number of Options granted, and the terms and conditions of each
Option.
ARTICLE 4
PARTICIPATION IN THE PLAN
4:01 Participation in the Plan shall be limited to directors,
full-time officers and employees, non-employees and consultants of the Company
as the case may be who, from time to time, shall be recommended by the Board
and/or designated by the Committee in accordance with Section 3.03.
ARTICLE 5
STOCK SUBJECT TO PLAN
5:01 There are reserved for the granting of Options under the Plan,
and for subsequent issuance and sale pursuant to granted Options, of up to
eighty thousand (80,000) shares less any shares issued under The 1996 MLC
Holdings, Inc. Incentive Stock Option Plan of unissued but authorized Common
Stock or of Common Stock held in treasury. The combination of this Plan and The
1996 MLC Holdings, Inc. Incentive Stock Option Plan has a maximum number of
shares of eighty thousand (80,000). If for any reason shares for which an
Option has been granted lapses and is not subject to purchase thereunder, those
shares shall be available for the granting of Options.
5:02 Proceeds of the purchase of optioned shares shall be used for the
general business purposes of the Company.
5:03 In the event of reorganization, recapitalization, stock split,
stock dividend, stock combination, merger, consolidation, acquisition of
property or stock, any change in the capital structure of the Company, or
similar changes in the Company's Common Stock, the Committee shall make such
adjustments as may be appropriate in the number and kind of shares reserved for
purchase and in the number, kind and price of shares covered by Options granted
but not then exercised; provided, however, that any Options to purchase
fractional shares resulting from any such adjustment shall be eliminated.
3
<PAGE> 4
5:04 If the Company shall at any time merge or consolidate with or
into another corporation and (i) the Company is not the surviving entity, or
(ii) the Company is the surviving entity and the shareholders of the Company
are required to exchange their shares of Common Stock for property and/or
securities, the holder of each Option will thereafter receive, upon the
exercise thereof, the securities and/or property to which a holder of the
number of shares of Common Stock then deliverable upon the exercise of such
Option would have been entitled upon such merger or consolidation, and the
Company shall take such steps in connection with such merger or consolidation
as may be necessary to assure that the provisions of this Plan shall thereafter
be applicable, as nearly as reasonably may be, in relation to any securities or
property thereafter deliverable upon the exercise of such Option, provided,
however, that under no circumstance shall any Option exercise date be
accelerated in contemplation of such action. A sale of all or substantially all
the assets of the Company for consideration (apart from the assumption of
obligations) consisting primarily of securities shall be deemed a merger or
consolidation for the foregoing purposes. Notwithstanding the foregoing, the
provisions of this Section 5:04 shall be subject to Section 6:04.
The surviving entity following any reorganization may at any
time, in its sole discretion, tender substitute options as it may deem
appropriate. However, in no event may the substitute options entitle the
Participant to any fewer shares (or at any greater aggregate price) or any less
other property than the Participant would be entitled to under the immediately
preceding paragraph upon an exercise of the options held prior to the
substitution of the new option.
5:05 In the event of the proposed dissolution or liquidation of the
company, the Options granted hereunder shall terminate as of a date to be fixed
by the Committee, provided that not less than thirty (30) days prior written
notice of the date so fixed shall be given to the Participant, and the
Participant shall have the right, during the period of thirty (30) days
preceding such termination, to exercise his Options. Notwithstanding the
foregoing, the provisions of this Section shall be subject to section 6:04.
ARTICLE 6
TERMS AND CONDITIONS OF OPTIONS
6:01 Each Option shall be evidenced by an Option Agreement specifying
the number of shares of Common Stock covered thereby in such form as the
Committee from time to time may determine, provided that no provision of the
Option Agreement shall be inconsistent with this Plan and such Option Agreement
may incorporate all or any of the terms of this Plan by reference.
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6:02 The Option price per share shall not be less than 80% of the fair
market value of a share of the Common Stock on the date on which the Option is
granted. The Common Stock is not currently listed upon an established stock
exchange or traded in the over-the-counter market. Accordingly, until such time
as the Common Stock is listed upon an established stock exchange or traded in
the over-the-counter market, the fair market value of shares of the Common
Stock shall be determined in good faith by the Committee. When and if the
Common Stock is listed upon an established stock exchange or exchanges such
fair market value shall be deemed to be the highest closing price of the Common
Stock on such stock exchange or exchanges on the day the option is granted or
if no sale of the Common Stock shall have been made on any stock exchange on
that day, on the next preceding day on which there was a sale of such stock.
When and if shares of the Common Stock are traded in the over-the-counter
market but not on an established exchange or exchanges, the fair market value
per share shall be the mean between dealer "bid" and "asked" prices of the
Common Stock as reported by the National Association of Securities Dealers,
Inc., on the day the option is granted. Subject to the foregoing, the
Committee in fixing the Option price shall have full authority and discretion
and be fully protected in doing so.
6:03 No Option may be granted under this Plan after September 1, 2006.
6:04 The term of any Option granted under this Plan shall be up to ten
(10) years from the date on which it was granted. The Committee shall have the
right to set the time or times within which an Option shall be exercised, and
to accelerate the time or times of exercise; provided, however, that no Option
shall be exercisable until after the Shareholders of the company approve the
Plan.
6:05 Each option by its terms shall be non-transferable and
non-assignable except that valid Option rights may be transferred by
testamentary instrument (will), by the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined in the Internal
Revenue Code or Title I of the Employee Retirement Income Security Act or the
rules thereunder. Otherwise, an Option is exercisable only by such
Participant.
6:06 Each Option granted under the Plan shall terminate and may no
longer be exercised if the Participant ceases to be an employee of the Company,
except that (i) if the Participant dies while in the employ of the Company, or
within two (2) months after the termination of such employment, or within six
(6) months if determined to be permanently disabled, such Option may be
exercised on his behalf as set forth in 6:07 below; and (ii) if the
Participant's employment shall have been terminated for any reason other than
his death, or permanent disability, he may at any time within a period of two
(2) months after such termination exercise such
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Option to the extent that the Option was exercisable pursuant to Section 6:04
above by him on the date of the termination of his employment; provided,
however, that in the case of termination for cause by the Company of the
employment of the Participant or if a Participant shall terminate his
employment in violation of any employment agreement with the Company, then his
Option shall terminate and expire concurrently with the termination of his
employment and shall not thereafter be exercisable to any extent. The
definition of "cause" shall be as set forth in the Option Agreement with each
Participant.
6:07 If the Participant dies during the term of his Option while in
the employ of the Company, or within the two (2) month period after the
termination of employment or within six (6) months of becoming permanently
disabled, without having fully exercised his Option, the executor or
administrator of his estate or the person who inherits the right to exercise
the Option by bequest or inheritance shall have the right within twelve (12)
months after the Participant's death to purchase the number of shares which the
deceased Participant was entitled to purchase at the date of his death, after
which time the Option shall lapse.
6:08 A Participant may, at any time, elect in writing to abandon an
Option or any part thereof.
ARTICLE 7
METHODS OF EXERCISE OF OPTION
7:01 The Participant (or other person acting under Section 6:07)
desiring to exercise an Option as to all or part of the shares of Common Stock
subject to that option shall notify the Secretary of the Company in writing at
its principal office to that effect, specifying the number of shares to be
purchased. The Committee shall have the right to set the time or times within
which each Option shall be exercisable, and to accelerate the time or times of
exercise. Unless the Option Agreement executed by a Participant expressly
otherwise provides, the Option shall be exercisable at any time or from time to
time after the expiration of one year from the date of grant and prior to
termination of the Option. options mast be exercised in multiples of 100
shares, unless all Options theretofore granted are exercised at that time. An
Option may not be exercised to any extent, either by the Participant to whom it
was granted, or by any person after the Participant's death, unless the
Participant to whom the Option was granted has remained in the continuous
employ of the Company, and/or of a subsidiary, for not less than twelve (12)
months from the date the Option was granted.
7:02 The notice shall be accompanied by payment to the Company of the
full purchase price or the Committee in its sole and
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absolute discretion may accept an assignment of proceeds or funds or other
similar documents from a qualified brokerage company which trades on a national
or regional exchange or from a financial institution. With the prior consent of
the Company the Option may be exercised as to the number of shares specified in
the notice by tendering to the Company shares of Common Stock already owned by
the Participant which, together with any cash tendered therewith shall equal in
value the full purchase price. The value of the tendered shares for this
purpose shall be the fair market value (as determined in accordance with the
procedures set forth in Section 6:02) of such shares (valued as if unlegended
and freely transferable) on the date the Participant executes and dates the
notice provided in Section 7:01, and the Participant shall deliver only that
number of shares of Common Stock which, together with any cash delivered, has
an aggregate value of not less than the full purchase price for the Option.
7:03 A Participant shall have none of the rights of a Stockholder
until the shares of Common Stock covered by the Option are issued to him. If
the shares of Common Stock issuable pursuant to the exercise of an Option are
not registered under the Securities Act of 1933, as amended, the Company may
require that the Participant deliver an investment representation letter at the
time of exercise in form acceptable to the Company and its counsel, and the
Company may place appropriate legends restricting transfer under applicable
securities laws on the certificates for the shares of Common Stock to be
issued.
ARTICLE 8
AMENDMENTS AND DISCONTINUANCE OF THE PLAN
8:01 The Committee shall have the right at any time and from time to
time to amend, suspend, or terminate the Plan provided that, except as provided
in Section 5:03, no such amendment, suspension, or termination shall (i) revoke
or alter the terms of any valid Option previously granted in accordance with
this Plan; (ii) change the price determined pursuant to the provisions of
Section 6:02; (iii) change the class of eligible employees to whom Options may
be granted under this Plan; (iv) extend the term of the Plan beyond five (5)
years or provide for options exercisable more than two (2) years after the date
granted; (v) permit any member of the Committee to be eligible as a
Participant; or (vi) otherwise materially modify the Plan, except as provided
herein or as necessary to comply with applicable law, without Shareholder
approval.
8:02 This Plan shall terminate at midnight on September 1, 2006.
Options outstanding at the termination of the Plan shall not be affected by
such termination.
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8:03 The power to increase the number of shares is reserved under the
Plan to the Board of Directors. The increase in the reserved shares will become
effective based on a simple majority of the Board of Directors.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9:01 The Plan shall be construed, whenever possible, to be in
conformity with the requirements of all applicable federal law, including
without limitation the SEC's Rule l6b-3, as amended effective August 15, 1996.
To the extent not in conflict with the preceding sentence, the Plan shall be
construed, administered and governed in all respect under and by the laws of
the State of Delaware, except where preempted by federal law.
9:02 If any provision of the Plan is held invalid or unenforceable,
the invalidity or unenforceability shall not affect any other provisions and
the Plan shall be construed and enforced as if those provisions had not been
included.
9:03 This Plan shall be binding upon heirs, executors, administrators,
successors and assigns of all parties hereto, present and future.
9:04 The Plan shall not be deemed to constitute a contract between any
employee and the Company. Nothing in the Plan shall give any employee the right
to be retained in the employ of the Company, and all employees shall remain
subject to discharge, discipline or layoff to the same extent as if the Plan
had not been put into effect.
9:05 In addition to such other rights of indemnification as they may
have as directors or as members of the Committee, the members of the Committee
shall be indemnified by the Corporation against the reasonable expenses,
including attorney's fees actually and necessarily incurred in connection with
the defense of any action, suit, or proceeding, or in connection with any
appeal therein, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan or any
option granted thereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Corporation) or paid by them in satisfaction of a judgment in
any such action, suit, or proceeding, except in relation to matters as to which
it shall be adjudged in such action, suit, or proceeding that such Committee
member is liable for negligence or misconduct in performance of his duties;
provided that within 60 days after institution of any such action, suit, or
proceeding a Committee member shall in writing
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offer the Corporation the opportunity, at its own expense, to handle and defend
the same.
9.06 The Option Agreement shall provide the employee shall upon each
exercise of a part or all of the option granted represent a warrant that his
purchase of stock pursuant to such option is for investment only, and not with
the view of distribution involving a public offering unless such shares are
provided for in such public offering or such shares are registered. At any time
the Board may waive the requirement of such provision and any option agreement
entered into under this Plan.
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<PAGE> 1
EXHIBIT 10.4
1996 INCENTIVE STOCK OPTION PLAN
This 1996 Incentive Stock Option Plan of MLC Holdings, Inc. is
intended to reward certain MLC Holdings, Inc. employees, using stock
options, for their contribution to the success of the Company. Stock options
granted under the Plan are intended to qualify as incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986 as
amended.
ARTICLE 1
DEFINITIONS
The following words and terms, unless the context clearly indicates
otherwise, have the following meanings. Where appropriate in the context of
this Incentive Stock Option Plan, the singular shall include the plural, the
masculine gender shall include the feminine, and vice versa:
1:01 "Board" means the Board of Directors of MLC Holdings, Inc.
1:02 "Committee" means the stock incentive committee appointed by the
Board to administer the 1996 Stock Incentive Plan of the Company, and the plans
adopted thereunder, including without limitation, this Plan.
1:03 "Common Stock" means the common stock of MLC Holdings, Inc.
1:04 "Company" means MLC Holdings, Inc. and any subsidiary thereof.
1:05 "Option" means the options granted pursuant to this Plan.
1:06 "Option Agreement" means an agreement provided for in Section
6:01.
1:07 "Participant" means an individual designated pursuant to Section
3:03 who has executed an Option Agreement.
1:08 "Permanent Disability" means the inability of an individual to
engage in any substantial gainful activity by reason of any
medically-determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than 12 months.
1:09 "Plan" means this 1996 Incentive Stock Option Plan.
<PAGE> 2
1:10 "Plan Administrator" means the Committee.
1:11 "SEC" means the United States Securities and Exchange
Commission.
1:12 "Vesting" means 20% per year for each year.
ARTICLE 2
EFFECTIVE DATE OF THE PLAN
2:01 On September 1, 1996 the Board adopted this Plan subject to
approval by the Shareholders. The Plan shall become effective at the
next Special Meeting of Shareholders, provided it is approved by a majority of
the Shareholders of the Company at that time. No Options granted prior to
Shareholder approval of the Plan shall be exercisable unless and until the
Shareholders of the Company approve this Plan and the Options granted prior to
such approval.
ARTICLE 3
ADMINISTRATION
3:01 The Plan shall be administered by the Committee.
3:02 The Committee shall establish from time to time, subject to the
limitations of the Plan as hereinafter set forth, such rules and regulations,
and amendments thereof, as it deems necessary to comply with applicable law and
regulation and for the proper administration of the Plan. Every decision and
action of the Committee shall be valid if approved by (i) a majority of the
Committee members then in office at a meeting, or (ii) all of the Committee
members then in office by unanimous written consent in lieu of meeting.
3:03 The Board, or any designee of the Board, may recommend employees
for participation in the Plan to the Committee. Based on such recommendations,
the Committee shall determine the persons (including officers) who shall
receive options, the time or times at which options shall be granted, the
number of shares for which options are to be granted to each participant, and
the term and price of each option. No members of the Board or the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option.
3:04 Options shall be granted only after prior designation by the
Committee and the execution of an Option Agreement. Vesting shall be at 20%
per year. The Committee shall report to the Secretary of the Company the names
of persons granted Options, the
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number of Options granted, and the terms and conditions of each Option.
ARTICLE 4
PARTICIPATION IN THE PLAN
4:01 Participation in the Plan shall be limited to full-time officers
and employees of the Company who, from time to time, shall be recommended by
the Board or its designee(s) and designated by the Committee in accordance with
Section 3:03, provided however, that no shareholder who owns directly or by
attribution more then 10% of the common stock on a fully diluted basis shall be
eligible to be a participant in the Incentive Stock Option Plan unless their
grant price is 110% of the fair market value of the MLC shares granted under
this Plan.
ARTICLE 5
STOCK SUBJECT TO PLAN
5:01 There are reserved for the granting of Options under the Plan,
and for subsequent issuance and sale pursuant to granted Options, of up to
eighty thousand (80,000) shares less any shares issued under The 1996 MLC
Holdings, Inc. Nonqualified Stock Option Plan of unissued but authorized Common
Stock or of Common Stock held in treasury. The combination of this Plan and
The 1996 Nonqualified Stock Option Plan has a maximum number of shares of
eighty thousand (80,000). If for any reason shares for which an Option under
this Plan has been granted lapses and is not subject to purchase thereunder,
those shares shall be available for the granting of Options.
5:02 Proceeds of the purchase of optioned shares shall be used for
the general business purposes of the Company.
5:03 In the event of reorganization, recapitalization, stock split,
stock dividend, stock combination, merger, consolidation, acquisition of
property or stock, any change in the capital structure of the Company, or
similar changes in the Company's Common Stock, the Committee shall make such
adjustments as may be appropriate in the number and kind of shares reserved for
purchase and in the number, kind and price of shares covered by Options granted
but not then exercised; provided, however, that any Options to purchase
fractional shares resulting from any such adjustment shall be eliminated.
5:04 If the Company shall at any time merge or consolidate with or
into another corporation and (i) the Company is not the surviving entity, or
(ii) the Company is the surviving entity and
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<PAGE> 4
the shareholders of the Company are required to exchange their shares of Common
Stock for property and/or securities, the holder of each Option will thereafter
receive, upon the exercise thereof, the securities and/or property to which a
holder of the number of shares of Common Stock then deliverable upon the
exercise of such Option would have been entitled upon such merger or
consolidation, and the Company shall take such steps in connection with such
merger or consolidation as may be necessary to assure that the provisions of
this Plan shall thereafter be applicable, as nearly as reasonably may be, in
relation to any securities or property thereafter deliverable upon the exercise
of such Option, provided, however, that under no circumstance shall any Option
exercise date be accelerated in contemplation of such action. A sale of all or
substantially all the assets of the Company for consideration (apart from the
assumption of obligations) consisting primarily of securities shall be deemed a
merger or consolidation for the foregoing purposes. Notwithstanding the
foregoing, the provisions of this Section 5:04 shall be subject to Section
6:04.
The surviving entity following any reorganization may at any
time, in its sole discretion, tender substitute options as it may deem
appropriate. However, in no event may the substitute options entitle the
Participant to any fewer shares (or at any greater aggregate price) or any less
other property than the Participant would be entitled to under the immediately
preceding paragraph upon an exercise of the Options held prior to the
substitution of the new option.
5:05 In the event of the proposed dissolution or liquidation of the
Company, the Options granted hereunder shall terminate as of a date to be fixed
by the Committee, provided that not less than thirty (30) days prior written
notice of the date so fixed shall be given to the Participant, and the
Participant shall have the right, during the period of thirty (30) days
preceding such termination, to exercise his Options. Notwithstanding the
foregoing, the provisions of this Section shall be subject to Section 6:04.
ARTICLE 6
TERMS AND CONDITIONS OF OPTIONS
6:01 Each Option shall be evidenced by an Option Agreement specifying
the number of shares of Common Stock covered thereby in such form as the
Committee from time to time may determine, provided that no provision of the
Option Agreement shall be inconsistent with this Plan and such Option Agreement
may incorporate all or any of the terms of this Plan by reference.
6:02 The Option price per share shall not be less than 100% of the
fair market value of a share of the Common Stock on the date on which the
Option is granted. The Common Stock is not currently
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<PAGE> 5
listed upon an established stock exchange or traded in the over-the-counter
market. Accordingly, until such time as the Common Stock is listed upon an
established stock exchange or traded in the over-the-counter market, the fair
market value of shares of the Common Stock shall be determined in good faith by
the Committee. When and if the Common Stock is listed upon an established
stock exchange or exchanges such fair market value shall be deemed to be the
highest closing price of the Common Stock on such stock exchange or exchanges
on the day the option is granted or if no sale of the Common Stock shall have
been made on any stock exchange on that day, on the next preceding day on which
there was a sale of such stock. When and if shares of the Common Stock are
traded in the over-the-counter market but not on an established exchange or
exchanges, the fair market value per share shall be the mean between dealer
"bid" and "asked" prices of the Common Stock as reported by the National
Association of Securities Dealers, Inc., on the day the option is granted.
Subject to the foregoing, the Committee in fixing the Option price shall have
full authority and discretion and be fully protected in doing so.
6:03 No Option may be granted under this Plan after September 1,
2006.
6:04 The term of any Option granted under this Plan shall be up to
ten (10) years from the date on which it was granted. The Committee shall have
the right to set the time or times within which an Option shall be exercised,
and to accelerate the time or times of exercise; provided, however, that no
Option shall be exercisable until after the Shareholders of the Company approve
the Plan.
6:05 Each Option by its terms shall be non-transferable and
non-assignable except that valid Option rights may be transferred by
testamentary instrument (will), by the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined in the Internal
Revenue Code or Title I of the Employee Retirement Income Security Act or the
rules thereunder. Otherwise, an Option is exercisable only by such
Participant.
6:06 Each Option granted under the Plan shall terminate and may no
longer be exercised if the Participant ceases to be an employee of the Company,
except that (i) if the Participant dies while in the employ of the Company, or
within two (2) months after the termination of such employment, or within six
(6) months if determined to be permanently disabled, such Option may be
exercised on his behalf as set forth in 6:07 below; and (ii) if the
Participant's employment shall have been terminated for any reason other than
his death, or permanent disability, he may at any time within a period of two
(2) months after such termination exercise such Option to the extent that the
Option was exercisable pursuant to Section 6:04 above by him on the date of the
termination of his employment; provided, however, that in the case of
termination for
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<PAGE> 6
cause by the Company of the employment of the Participant or if a Participant
shall terminate his employment in violation of any employment agreement with
the Company, then his Option shall terminate and expire concurrently with the
termination of his employment and shall not thereafter be exercisable to any
extent. The definition of "cause" shall be as set forth in the Option
Agreement with each Participant.
6:07 If the Participant dies during the term of his Option while in
the employ of the Company, or within the two (2) month period after the
termination of employment, or within six (6) months if determined to be
permanently disabled without having fully exercised his Option, the executor or
administrator of his estate or the person who inherits the right to exercise
the Option by bequest or inheritance shall have the right within twelve (12)
months after the Participant's death to purchase the number of shares which the
deceased Participant was entitled to purchase at the date of his death, after
which time the Option shall lapse.
6:08 A Participant may, at any time, elect in writing to abandon an
Option or any part thereof.
6:09 No person to whom options are granted hereunder shall receive
options, first exercisable during any single calendar year, for shares, the
fair market value of which (determined at the time of grant of the options)
exceeds $100,000. Accordingly, no optionee shall be entitled to exercise
options in any single calendar year, except to the extent first exercisable in
previous calendar years, for shares of common stock, the value of which
(determined at the time of grant of the options) exceeds $100,000.
ARTICLE 7
METHODS OF EXERCISE OF OPTION
7:01 The Participant (or other person acting under Section 6:07)
desiring to exercise an Option as to all or part of the shares of Common Stock
subject to that option shall notify the Secretary of the Company in writing at
its principal office to that effect, specifying the number of shares to be
purchased. The Committee shall have the right to set the time or times within
which each Option shall be exercisable, and to accelerate the time or times of
exercise. Unless the Option Agreement executed by a Participant expressly
otherwise provides, the Option shall be exercisable at any time or from time to
time after the expiration of one year from the date of grant and prior to
termination of the Option. Options must be exercised in multiples of 100
shares, unless all Options theretofore granted are exercised at that time. An
Option may not be exercised to any extent, either by the Participant to whom it
was granted, or by any person after the Participant's death, unless the
Participant to whom the Option was
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<PAGE> 7
granted has remained in the continuous employ of the Company, and/or of a
subsidiary, for not less than twelve (12) months from the date the Option was
granted.
7:02 The notice shall be accompanied by payment to the Company of the
full purchase price or the Committee in its sole and absolute discretion may
accept an assignment of proceeds or funds or other similar documents from a
qualified brokerage company which trades on a national or regional exchange or
from a financial institution. With the prior consent of the Company the Option
may be exercised as to the number of shares specified in the notice by
tendering to the Company shares of Common Stock already owned by the
Participant which, together with any cash tendered therewith shall equal in
value the full purchase price. The value of the tendered shares for this
purpose shall be the fair market value (as determined in accordance with the
procedures set forth in Section 6:02) of such shares (valued as if unlegended
and freely transferable) on the date the Participant executes and dates the
notice provided in Section 7:01, and the Participant shall deliver only that
number of shares of Common Stock which, together with any cash delivered, has
an aggregate value of not less than the full purchase price for the Option.
7:03 A Participant shall have none of the rights of a Stockholder
until the shares of Common Stock covered by the Option are issued to him. If
the shares of Common Stock issuable pursuant to the exercise of an Option are
not registered under the Securities Act of 1933, as amended, the Company may
require that the Participant deliver an investment representation letter at the
time of exercise in form acceptable to the Company and its counsel, and the
Company may place appropriate legends restricting transfer under applicable
securities laws on the certificates for the shares of Common Stock to be
issued.
ARTICLE 8
AMENDMENTS AND DISCONTINUANCE OF THE PLAN
8:01 The Committee shall have the right at any time and from time to
time to amend, suspend, or terminate the Plan provided that, except as provided
in Section 5:03, no such amendment, suspension, or termination shall (i) revoke
or alter the terms of any valid Option previously granted in accordance with
this Plan; (ii) change the price determined pursuant to the provisions of
Section 6:02; (iii) change the class of eligible employees to whom Options may
be granted under this Plan; (iv) extend the term of the Plan beyond five (5)
years or provide for options exercisable more than two (2) years after the date
granted; (v) permit any member of the Committee to be eligible as a
Participant; or (vi) otherwise materially modify the Plan, except as provided
herein or as
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<PAGE> 8
necessary to comply with applicable law, without Shareholder approval.
8:02 This Plan shall terminate at midnight on September 1, 2006.
Options outstanding at the termination of the Plan shall not be affected by
such termination.
8:03 The power to increase the number of shares is reserved under the
Plan to the Board of Directors. The increase in the reserved shares will
become effective based on a simple majority of the Board of Directors.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9:01 The Plan shall be construed, whenever possible, to be in
conformity with the requirements of all applicable federal law, including
without limitation the SEC's Rule 16b-3. To the extent not in conflict with
the preceding sentence, the Plan shall be construed, administered and governed
in all respect under and by the laws of the State of Delaware, except where
preempted by federal law.
9:02 If any provision of the Plan is held invalid or unenforceable,
the invalidity or unenforceability shall not affect any other provisions and
the Plan shall be construed and enforced as if those provisions had not been
included.
9:03 This Plan shall be binding upon heirs, executors,
administrators, successors and assigns of all parties hereto, present and
future.
9:04 The Plan shall not be deemed to constitute a contract between
any employee and the Company. Nothing in the Plan shall give any employee the
right to be retained in the employ of the Company, and all employees shall
remain subject to discharge, discipline or layoff to the same extent as if the
Plan had not been put into effect.
9:05 In addition to such other rights of indemnification as they
may have as directors or as members of the Committee, the members of the
Committee shall be indemnified by the Corporation against the reasonable
expenses, including attorney's fees actually and necessarily incurred in
connection with the defense of any action, suit, or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Corporation) or paid
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by them in satisfaction of a judgment in any such action, suit, or proceeding,
except in relation to matters as to which it shall be adjudged in such action,
suit, or proceeding that such Committee member is liable for negligence or
misconduct in performance of his duties; provided that within 60 days after
institution of any such action, suit, or proceeding a Committee member shall in
writing offer the Corporation the opportunity, at its own expense, to handle
and defend the same.
9.06 The Option Agreement shall provide the employee shall upon each
exercise of a part or all of the option granted represent a warrant that his
purchase of stock pursuant to such option is for investment only, and not with
the view of distribution involving a public offering unless such shares are
provided for in such public offering or such shares are registered. At any
time the Board may waive the requirement of such provision and any option
agreement entered into under this Plan.
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<PAGE> 1
EXHIBIT 10.5
FORM OF
MLC HOLDINGS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated as of ______________, 1996, is
made by and between MLC Holdings, Inc., a Delaware corporation (the
"Corporation"), and [Indemnitee], [Title] of the Corporation ("Indemnitee").
RECITALS
A. Indemnitee is currently serving as, or is assuming the position
of, a director and/or officer of the Corporation and/or, at the Corporation's
request, a director, officer, employee and/or agent of another corporation,
partnership, joint venture, trust or other enterprise, and the Corporation
wishes Indemnitee to continue in such capacity(ies);
B. The Corporation and Indemnitee recognize that the present state of
the law is too uncertain to provide the Corporation's directors and officers
with adequate and reliable advance knowledge or guidance with respect to the
legal risks and potential liabilities to which they may become personally
exposed as a result of performing their duties for the Corporation;
C. The Certificate of Incorporation (the "Articles") and the Bylaws
(the "Bylaws") of the Corporation each provide that the Corporation may
indemnify, to the fullest extent permitted by law, certain persons, including
directors, officers, employees or agents of the Corporation, against specified
expenses and losses arising out of certain threatened, pending or completed
actions, suits or proceedings;
D. Section 145 of the General Corporation Law of the state of
Delaware (the "Delaware General Corporation Law") expressly recognizes that the
indemnification provided by the other subsections of Section 145 of the
Delaware General Corporation Law shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may
be entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office;
E. Indemnitee has indicated that he may not be willing to serve, or
continue to serve, as a director and/or officer of the Corporation and/or, at
the Corporation's request, as a director, officer, employee and/or agent of
another corporation, partnership, joint venture, trust or other enterprise in
the absence of an indemnification agreement of the Corporation;
F. The Board of Directors of the Corporation has concluded that, to
retain and attract talented and experienced individuals to serve as directors
and officers of the Corporation and to encourage such individuals to take the
business risks necessary for the success of the Corporation, it is necessary
for the Corporation to contractually indemnify them, and to assume for itself
liability for expenses and damages in connection with claims against them in
connection with their service to the Corporation, and has further concluded
that the failure to provide such contractual indemnification could result in
great harm to the Corporation and its stockholders.
<PAGE> 2
AGREEMENT
NOW, THEREFORE, the Corporation and Indemnitee agree as follows:
1. Definitions.
(a) "Expenses" means, for the purposes of this Agreement, all
direct and indirect costs of any type or nature whatsoever (including, without
limitation, any fees and disbursements of Indemnitee's counsel, accountants and
other experts and other out-of-pocket costs) actually and reasonably incurred
by Indemnitee in connection with the investigation, preparation, defense or
appeal of a Proceeding; provided, however, that Expenses shall not include
judgments, fines, penalties or amounts paid in settlement of a Proceeding
unless such matters may be indemnified under applicable provisions of the
Delaware General Corporation Law.
(b) "Proceeding" means, for the purposes of this Agreement,
any threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (including actions, suits or
proceedings brought by or in the right of the Corporation) in which Indemnitee
may be or may have been involved as a party or otherwise, by reason of the fact
that Indemnitee is or was a director or officer of the Corporation, by reason
of any action taken by him or of any inaction on his part while acting as such
director or officer or by reason of the fact that he is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise, or was a director and/or officer of the foreign or domestic
corporation which was a predecessor corporation to the Corporation or of
another enterprise at the request of such predecessor corporation, whether or
not he is serving in such capacity at the time any liability or expense is
incurred for which indemnification or reimbursement can be provided under this
Agreement.
2. Indemnification.
(a) Third Party Proceedings. To the fullest extent permitted
by law, the Corporation shall indemnify Indemnitee against Expenses and
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, penalties, and amounts paid in settlement (if the settlement is approved
in advance by the Corporation)) actually and reasonably incurred by Indemnitee
in connection with a Proceeding (other than a Proceeding by or in the right of
the Corporation) if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any Proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that Indemnitee did not act in good faith and in a manner that Indemnitee
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, or, with respect to any criminal Proceeding, had reasonable
2
<PAGE> 3
cause to believe that Indemnitee's conduct was unlawful. Notwithstanding the
foregoing, no indemnification shall be made in any criminal proceeding where
Indemnitee has been adjudged guilty unless a disinterested majority of the
directors determines that Indemnitee did not receive, participate in or share
in any pecuniary benefit to the detriment of the Corporation and, in view of
all the circumstances of the case, Indemnitee is fairly and reasonably entitled
to indemnity for Expenses or liabilities.
(b) Proceedings by or in the Right of the Corporation. To
the fullest extent permitted by law, the Corporation shall indemnify Indemnitee
against Expenses actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of a Proceeding by or in the right of the
Corporation to procure a judgment in its favor if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in, or not opposed
to, the best interests of the Corporation. Notwithstanding the foregoing, no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the Corporation in
the performance of Indemnitee's duty to the Corporation unless and only to the
extent that the court in which such Proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for Expenses and then
only to the extent that the court shall determine.
(c) Scope. Notwithstanding any other provision of this
Agreement other than Sections 3 and 13, the Corporation shall indemnify
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by other provisions of this
Agreement, the Articles, the Bylaws or statute.
3. Limitations on Indemnification. Any other provision herein to the
contrary notwithstanding, the Corporation shall not be obligated pursuant to
the terms of this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or
omissions or transactions from which a director may not be relieved of
liability under Section 102(b)(7) of the Delaware General Corporation Law; or
(b) Claims Initiated by Indemnitee. To indemnify or advance
Expenses to Indemnitee with respect to Proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise
as required under Section 145 of the Delaware General Corporation Law, but such
indemnification or advancement of Expenses may be provided by the Corporation
in specific cases if a majority of the disinterested directors has approved the
initiation or bringing of such suit; or
(c) Lack of Good Faith. To indemnify Indemnitee for any
Expenses incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such proceeding was not made in good faith or was frivolous; or
3
<PAGE> 4
(d) Insured Claims. To indemnify Indemnitee for Expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines or penalties, and amounts paid in settlement) which have been paid
directly to or on behalf of Indemnitee by an insurance carrier under a policy
of directors' and officers' liability insurance maintained by the Corporation
or any other policy of insurance maintained by the Corporation or Indemnitee;
or
(e) Claims Under Section 16(b). To indemnify Indemnitee for
Expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
4. Determination of Right to Indemnification. Upon receipt of a
written claim addressed to the Board of Directors for indemnification pursuant
to Section 2 of this Agreement, the Corporation shall determine by any of the
methods set forth in Section 145(d) of the Delaware General Corporation Law
whether Indemnitee has met the applicable standards of conduct that make it
permissible under applicable law to indemnify Indemnitee. If a claim under
Section 2 of this Agreement is not paid by the Corporation after such written
claim has been received by the Corporation, Indemnitee may at any time
bring suit against the Corporation to recover the unpaid amount of the claim
and, unless such action is dismissed by the court as frivolous or brought
in bad faith, Indemnitee shall be entitled to be paid also the expense of
prosecuting such claim. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to
make a determination prior to the commencement of such action that
indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct under applicable
law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) that Indemnitee has
not met such applicable standard of conduct, shall create a presumption that
Indemnitee has not met the applicable standard of conduct. The court in which
such action is brought shall determine whether Indemnitee or the Corporation
shall have the burden of proof concerning whether Indemnitee has or has not met
the applicable standard of conduct.
5. Advancement and Repayment of Expenses. The Expenses incurred by
Indemnitee in defending and investigating any Proceeding shall be paid by the
Corporation prior to the final disposition of such Proceeding within thirty
days after receiving from Indemnitee copies of invoices presented to Indemnitee
for such Expenses and an undertaking by or on behalf of Indemnitee to the
Corporation to repay such amount to the extent it is ultimately determined that
Indemnitee is not entitled to indemnification. In determining whether or not
to make an advance hereunder, the ability of Indemnitee to repay shall not be a
factor. Notwithstanding the foregoing, in a proceeding brought by the
Corporation directly, in its own right (as distinguished from an action brought
derivatively or by any receiver or trustee), the Corporation shall not be
required to make the advances called for hereby if a majority of the
disinterested directors determine that it does not appear that Indemnitee has
met the standards of conduct that made it permissible under
4
<PAGE> 5
applicable law to indemnify Indemnitee and that the advancement of Expenses
would not be in the best interests of the Corporation and its stockholders.
6. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification or advancement by the
Corporation of some or a portion of any Expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, penalties, and
amounts paid in settlement) incurred by him in the investigation, defense,
settlement or appeal of a Proceeding, but is not entitled to indemnification or
advancement of the total amount thereof, the Corporation shall nevertheless
indemnify or pay advancements to Indemnitee for the portion of such Expenses or
liabilities to which Indemnitee is entitled.
7. Notice to Corporation by Indemnitee. Indemnitee shall notify the
Corporation in writing of any matter with respect to which Indemnitee intends
to seek indemnification hereunder as soon as reasonably practicable following
the receipt by Indemnitee of written notice thereof; provided that any delay in
so notifying Corporation shall not constitute a waiver by Indemnitee of his
rights hereunder. The written notification to the Corporation shall be
addressed to the Board of Directors and shall include a description of the
nature of the Proceeding and the facts underlying the Proceeding and be
accompanied by copies of any documents filed with the court, if any, in which
the Proceeding is pending. In addition, Indemnitee shall give the Corporation
such information and cooperation as it may reasonably require and as shall be
within Indemnitee's power.
8. Defense of Claim. In the event that the Corporation shall be
obligated under Section 5 hereof to pay the Expenses of any Proceeding against
Indemnitee, the Corporation, if appropriate, shall be entitled to assume the
defense of such Proceeding, with counsel approved by Indemnitee, which approval
shall not be unreasonably withheld, upon the delivery to Indemnitee of written
notice of its election to do so. After delivery of such notice, approval of
such counsel by Indemnitee and the retention of such counsel by the
Corporation, the Corporation will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Proceeding; provided that (i) Indemnitee shall have the
right to employ his own counsel in any such Proceeding at Indemnitee's expense,
and (ii) if (A) the employment of counsel by Indemnitee has been previously
authorized by the Corporation, or (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Corporation and
Indemnitee in the conduct of such defense or (C) the Corporation shall not, in
fact, have employed counsel to assume the defense of such Proceeding, then the
fees and expenses of Indemnitee's counsel shall be paid by the Corporation.
9. Attorneys' Fees. If any legal action is necessary to enforce the
terms of this Agreement, the prevailing party shall be entitled to recover, in
addition to other amounts to which the prevailing party may be entitled, actual
attorneys' fees and court costs as may be awarded by the court.
5
<PAGE> 6
10. Continuation of Obligations. All agreements and obligations of
the Corporation contained herein shall continue during the period Indemnitee is
a director or officer of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, fiduciary, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, and
shall continue thereafter so long as Indemnitee shall be subject to any
possible Proceeding by reason of the fact that Indemnitee served in any
capacity referred to herein.
11. Successors and Assigns. This Agreement establishes contract
rights that shall be binding upon, and shall inure to the benefit of, the
successors, assigns, heirs and legal representatives of the parties hereto.
12. Non-exclusivity.
(a) The provisions for indemnification and advancement of
expenses set forth in this Agreement shall not be deemed to be exclusive of any
other rights that Indemnitee may have under any provision of law, the
Corporation's Certificate of Incorporation or Bylaws, the vote of the
Corporation's stockholders or disinterested directors, other agreements or
otherwise, both as to action in his official capacity and action in another
capacity while occupying his position as a director or officer of the
Corporation.
(b) In the event of any changes, after the date of this
Agreement, in any applicable law, statute, or rule that expand the right of a
Delaware corporation to indemnify its directors and officers, Indemnitee's
rights and the Corporation's obligations under this Agreement shall be expanded
to the fullest extent permitted by such changes. In the event of any changes
in any applicable law, statute or rule, that narrow the right of a Delaware
corporation to indemnify a director and officer, such changes, to the extent
not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder.
13. Effectiveness of Agreement. This Agreement shall be effective as
of the date set forth on the first page and may apply to acts or omissions of
Indemnitee that occurred prior to such date if Indemnitee was a director or
officer of the Corporation or its predecessor, or was serving at the request of
the Corporation or its predecessor as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, at
the time such act or omission occurred.
14. Severability. Nothing in this Agreement is intended to require
or shall be construed as requiring the Corporation to do or fail to do any act
in violation of applicable law. The Corporation's inability, pursuant to court
order, to perform its obligations under this Agreement shall not constitute a
breach of this Agreement. The provisions of this Agreement shall be severable
as provided in this Section 14. If this Agreement or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify Indemnitee to the fullest extent
permitted by any applicable portion of this
6
<PAGE> 7
Agreement that shall not have been invalidated, and the balance of this
Agreement not so invalidated shall be enforceable in accordance with its terms.
15. Governing Law. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware without regard to its
rules pertaining to conflicts of laws. To the extent permitted by applicable
law, the parties hereby waive any provisions of law that render any provision
of this Agreement unenforceable in any respect.
16. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed, on the date of such
receipt, or (ii) if delivered by facsimile transmission to the recipient
followed by a copy sent by mail on the same date as the facsimile transmission,
on the date of receipt of such facsimile transmission, or (iii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement, or as subsequently modified by written
notice.
17. Mutual Acknowledgment. Both the Corporation and Indemnitee
acknowledge that in certain instances, federal law or applicable public policy
may prohibit the Corporation from indemnifying its directors and officers under
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Corporation has undertaken or may be required in the future to undertake with
the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Corporation's right under public policy to indemnify Indemnitee.
18. Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original.
19. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth above.
MLC HOLDINGS, INC.
a Delaware corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
11150 Sunset Hills Road
Suite 110
Reston, VA 22190-5321
Attn: President
INDEMNITEE:
- -----------------------
[Indemnitee]
- -----------------------
(Address)
8
<PAGE> 1
EXHIBIT 10.6
TNE MASTER FORM OFFICE LEASE
11150 Sunset Hills Road
Reston, Virginia
Landlord: New England Mutual Life Insurance Company
Tenant: MLC Group, Inc., a Virginia corporation
Date: July 14, 1993
This Lease consists of four parts:
Part I Cover Sheet
Part II Standard Lease Provisions
Part III Additional Provisions (if any) and
Part IV Exhibits
EXHIBIT A - Floor Plan of Premises
EXHIBIT B - Legal Description of Lot
EXHIBIT C - Landlord's Notice of Lease Terms Dates
EXHIBIT D - Tenant Improvements
EXHIBIT E - Rules and Regulations
Form: [Property Name]
[TNE Asset No.]
[TNE Locator t:\Forms\MASTLEAS.DOC]
Last Revision Date: 02/22/93
<PAGE> 2
PART I
COVER SHEET
THE TERMS LISTED BELOW SHALL HAVE THE FOLLOWING MEANINGS THROUGHOUT THIS LEASE:
DATE OF LEASE: July 14, 1993, the date on which the parties have
signed this Lease.
LANDLORD: New England Mutual Life Insurance Company
TENANT: MLC Group, Incorporated, a Virginia Corporation
TENANT'S ADDRESS: 11150 Sunset Hills Road, Suite 240
Reston, Virginia 22090
MANAGING AGENT: The Carey Winston Company
MANAGING AGENT'S
ADDRESS: 8605 Westwood Center Drive, Suite 500
Vienna, Virginia 22182
PREMISES: The area consisting of approximately 4,517 rentable
square feet located on the first (1st) floor of the
Building as shown on Exhibit A attached.
BUILDING: The building in which the Premises are located, known
as Post Trail Office Building with a street address
of 11150 Sunset Hills Road, Reston, Virginia 22070
and consisting of approximately 50,011 square feet.
PROPERTY: The Building, other improvements and land (the
"Lot"), a legal description of which is Exhibit B
attached.
TENANT'S
PERCENTAGE: 9.032% (4,517 rentable square feet in the Premises
divided by 50,011 rentable square feet in the
Building)
<TABLE>
<S> <C>
[INITIALS] [INITIALS]
- ------------------------------------------- ---------------------------------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
</TABLE>
<PAGE> 3
PERMITTED USES: Office purposes, and the following additional uses
consistent with Paragraph 7.3 (if any):
-----------------------------------------------------
-----------------------------------------------------
TENANT
IMPROVEMENTS: See Additional Provisions
SCHEDULED
COMMENCEMENT
DATE: September 1, 1993
TERM: Five (5) years
BASE RENT: $12.00 payable as follows
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
MONTHS RENT PER ANNUAL RENT ANNUAL RENT
MONTH p.s.f.
----------------------------------------------------------------------------
<S> <C> <C> <C>
1-12 $4,517.00 $54,204.00 $12.00
----------------------------------------------------------------------------
13-24 $4,.652.51 $55,830.12 $12.36
----------------------------------------------------------------------------
25-36 $4,792.09 $57,505.02 $12.73
----------------------------------------------------------------------------
49-60 $5,083.92 $61,007.08 $13.51
----------------------------------------------------------------------------
</TABLE>
SECURITY DEPOSIT: $10,887.92 - See Additional Provisions
PUBLIC LIABILITY
INSURANCE AMOUNT: $1,000,000 Combined Single Limit
BROKER(S): Carey Winston Company
CB Commercial
GUARANTOR(S): [N/A] [INITIALS]
------------------------------------------------
<TABLE>
<S> <C>
[INITIALS] [INITIALS]
- ------------------------------------------- ---------------------------------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
</TABLE>
<PAGE> 4
TABLE OF CONTENTS OF STANDARD LEASE PROVISIONS
<TABLE>
<CAPTION> Page
<S> <C>
ARTICLE I: PREMISES
1.1 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.2 Common Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II: TERM
2.1 Commencement Without Tenant Improvements . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Commencement With Tenant Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III: RENT
3.1 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Additional Rent for Operating Expenses, Taxes, and Capital Costs . . . . . . . . . . . . . 8
ARTICLE IV: DELIVERY OF PREMISES AND TENANT IMPROVEMENTS
4.1 Condition of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Delay in Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Delivery and Acceptance of Possession . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Early Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V: ALTERATIONS AND TENANT'S PERSONAL PROPERTY
5.1 Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Tenant's Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V LANDLORD'S COVENANTS
6.1 Services Provided by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.2 Repairs and Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.4 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII: TENANT'S COVENANTS
7.1 Repairs, Maintenance and Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.2 Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.3 Assignment; Sublease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.4 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.5 Tenant's Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.6 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-4-
<PAGE> 5
<TABLE>
<S> <C>
7.7 Environmental Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.8 Americans With Disabilities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VIII: DEFAULT
8.1 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.2 Remedies of Landlord and Calculation of Damages . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE IX : CASUALTY AND EMINENT DOMAIN
9.1 Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.2 Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE X: RIGHTS OF PARTIES HOLDING SENIOR INTERESTS
10.1 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.2 Mortgagee's Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XI : GENERAL
11.1 Representations by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.3 No Waiver or Oral Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.5 Requests by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.6 Estoppel Certificate and Financial Statements . . . . . . . . . . . . . . . . . . . . . . 25
11.7 Waiver of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.8 Execution, Prior Agreements and No Representations . . . . . . . . . . . . . . . . . . . . 25
11.9 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.10 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.11 Applicable Law and Lease Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.12 Costs of Collection, Enforcement and Disputes . . . . . . . . . . . . . . . . . . . . . . 26
11.13 Holdover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.14 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.15 Limitation On Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.16 Lease not to be Recorded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.17 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.18 Guaranty of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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PART II STANDARD LEASE PROVISIONS
ARTICLE I PREMISES
1.1 PREMISES.
(a) Demise of Premises. This Lease (the "Lease"') is
made and entered into by and between Landlord and Tenant and shall become
effective as of the Date of Lease. In consideration of the mutual covenants
made herein, Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises, on all of the terms and conditions set forth in this
Lease.
(b) Measurement. If, as a result of any subsequent
measurement by Landlord (which measurement shall be completed in accordance
with standard office building measurement practices utilized in the area in
which the Building is located), the areas of the Building or the Premises are
determined to be more or less than the areas described in the Lease, then all
computations of rent and other matters described in the Lease where area is a
factor shall be recomputed. All payments required after the date of
computation shall be based on the new computations. Until Landlord remeasures
the Building and the Premises, all measurements of area contained in the Lease
shall be deemed to be correct and binding upon the Landlord and Tenant.
(c) Relocation. Landlord reserves the right to relocate
the Premises to comparable space within the Building by giving Tenant prior
written notice of such intention to relocate; provided, however, that Landlord
shall pay all reasonable costs of moving Tenant to such other space.
(d) Access to Premises. Landlord shall have reasonable
access to the Premises, at any time during the Term, to inspect Tenant's
performance hereunder and to perform any acts required of or permitted to
Landlord herein, including, without limitation, (i) the right to make any
repairs or replacements Landlord deems necessary, (ii) the right to show the
Premises to prospective purchasers and mortgagees, and (iii) during the last
nine (9) months of the Term, the right to show the Premises to prospective
tenants. Landlord shall at all times have a key to the Premises, and Tenant
shall not change any existing lock(s), nor install any additional lock(s)
without Landlord's prior consent. Except in the case of any emergency, any
entry into the Premises by Landlord shall be on reasonable advance notice.
1.2 COMMON AREAS. Tenant hall have the right to use, in common
with other tenants, the Building's common lobbies, corridors, stairways, and
elevators necessary for access to the Premises, and the common walkways and
driveways necessary for access to the Building, the common toilets, corridors
and elevator lobbies of any multi-tenant floor, and the parking areas for the
Building ("Common Areas"). Tenant's use of the Building parking areas shall
be on an unreserved, non-exclusive basis and solely for Tenant's employees and
visitors. Landlord shall not be liable to Tenant, and this Lease shall not be
affected, if any parking rights of Tenant hereunder are impaired by any law,
ordinance or
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other governmental regulation imposed after the Date of Lease. If Landlord
grants to any other tenant the exclusive right to use any particular parking
spaces, neither Tenant nor its visitors shall use such spaces. Use of the
Common Areas shall be only upon the terms set forth at any time by Landlord.
Landlord may at any time and in any manner make any changes, additions,
improvements, repairs or replacements to the Common Areas that it considers
desirable, provided that Landlord shall use reasonable efforts to minimize
interference with Tenant's normal activities. Such actions of Landlord shall
not constitute constructive eviction or give rise to any rent abatement or
liability of Landlord to Tenant.
ARTICLE II TERM
2.1 COMMENCEMENT WITHOUT TENANT IMPROVEMENTS. If Landlord is not
obligated to construct Tenant Improvements pursuant to Paragraph 4.1, the Term
shall begin on the Scheduled Commencement Date and shall continue for the
length of the Term, unless sooner terminated as provided in this Lease.
2.2 COMMENCEMENT WITH TENANT IMPROVEMENTS. If Landlord is
required to construct Tenant Improvements to the Premises pursuant to Paragraph
4.1, the Scheduled Commencement Date shall be only an estimate of the beginning
of the Term of this Lease ("Commencement Date") and the actual Commencement
Date shall be the first to occur of (i) the date the Premises are offered by
Landlord for occupancy following substantial completion of the Tenant
Improvements to be constructed by Landlord pursuant to Paragraph 4.1, as
reasonably determined by Landlord, and any certificate or approval required by
local governmental authority for occupancy of the Premises has been obtained,
or (ii) the date Tenant enters into occupancy of the Premises.
If Landlord is obligated to construct Tenant Improvements pursuant to
Paragraph 4.1, the dates upon which the Term shall commence and end shall be
confirmed in Landlord's Notice of Lease Term Dates ("Notice"), substantially in
the form attached as Exhibit C. Landlord shall deliver the Notice to Tenant
after Landlord offers possession of the Premises to Tenant or Tenant enters
into occupancy of the Premises. Tenant shall promptly return to Landlord a
countersigned original of the Notice, provided that Landlord's failure to
deliver the Notice shall not delay the Commencement Date.
ARTICLE III RENT
3.1 BASE RENT.
(a) Payment of Base Rent. Tenant shall pay the Base Rent
each month in advance on the first day of each calendar month during the Term.
If the Commencement Date is other than the first day of the month, Tenant shall
pay a proportionate part of such monthly installment on the Commencement Date.
An adjustment in the Base Rent for the last month of the Term shall be made if
the Term does not end on the last day of the month. All payments shall be made
to Managing Agent at Managing Agent's Address or to such other party or to such
other place as Landlord may designate in writing, without prior demand and
without abatement, deduction or offset. All charges to be paid by Tenant
hereunder, other than Base Rent, shall be considered additional rent for the
purposes of
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this Lease, and the words "rent" or "Rent" as used in this Lease shall mean
both Base Rent and additional rent unless the context specifically or clearly
indicates that only Base Rent is referenced.
(b) Late Payments. Tenant acknowledges that the late
payment by Tenant to Landlord of any rent or other sums due under this Lease
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of such costs being extremely difficult and impracticable to ascertain.
Therefore, if any rent or other sum due from Tenant is not received when due,
Tenant shall pay to Landlord no later than ten (10) calendar days after the
rental due date an additional sum equal to 5% of such overdue payment. In
addition to such late charge, all such delinquent rent or other sums due to
Landlord, including the late charge, shall bear interest beginning on the date
such payment was due at the then maximum lawful rate permitted to be charged by
Landlord. The notice and cure period provided in Paragraph 8.1(a) does not
apply to the foregoing late charges and interest. If payments of any kind are
returned for insufficient funds Tenant shall pay to Landlord an additional
handling charge of $50.00.
3.2 ADDITIONAL RENT FOR OPERATING EXPENSES, TAXES, AND CAPITAL
COSTS.
(a) Additional Rent. For each Comparison Year, Tenant
shall pay to Landlord as additional rent the sum of (1) the difference between
Comparison Year Operating Expenses and the Base Year Operating Expenses, (2)
the difference between the Comparison Year Taxes and the Base Year Taxes and
(3) the Capital Costs, times Tenant's Percentage ("Tenant's Share of
Expenses").
(b) Definitions. As used herein, the following terms
shall have the following meanings:
(i) Base Year. The calendar year in which the
lease term commences.
(ii) Comparison Year. Each calendar year of the
Term after the Base Year
(iii) Lease Year. Each successive 12 month period
following the Commencement Date
(iv) Operating Expenses. The total cost of
operation of the Property, including, without
limitation, (1) premiums and deductibles for
insurance carried with respect to the
Property; (2) all costs of supplies,
materials, equipment, and utilities used in
or related to the operation, maintenance, and
repair of the Property or any part thereof
(including utilities, unless the cost of any
utilities is to be paid separately by the
Tenant pursuant to Paragraph 6.1(b)); (3) all
labor costs, including without limitation,
salaries, wages, payroll and other taxes,
unemployment insurance costs, and employee
benefits; (4) all
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maintenance, management, janitorial,
inspection, legal, accounting, and service
agreement costs related to the operation,
maintenance, and repair of the Property or
any part thereof, including, without
limitation, service contracts with
independent contractors. Any of the above
services may be performed by Landlord or its
affiliates, provided that fees for the
performance of such services shall be
reasonable and competitive with fees charged
by unaffiliated entities for the performance
of such services in comparable buildings in
the area. Operating Expenses shall not
include Taxes, leasing commissions; repair
costs paid by insurance proceeds or by any
tenant or third party; the initial
construction cost of the Building or any
depreciation thereof; any debt service or
costs related to sale or financing of the
Property; any capital expenses, except those
which normally would be regarded as
operating, maintenance or repair costs;
tenant improvements provided for any tenant;
or any special services rendered to tenants
(including Tenant) for which a separate
charge is made.
(v) Base Year Operating Expenses. Operating
Expenses incurred during the Base Year,
provided that: (1) in the event that the
Building is less than 100% occupied during
the Base Year, then in determining the Base
Year Operating Expenses, all Operating
Expenses that may reasonably be determined to
vary in accordance with the occupancy level
of the Building, shall be grossed up to
reflect 100% occupancy by multiplying the
amount of such expenses by a fraction, the
numerator of which is the total rentable
square feet in the Building and the
denominator of which is the average square
feet in the Building that is occupied by
tenants during the Base Year; and (2) if any
extraordinary expenses are incurred during
the Base Year which typically are not
operations, maintenance, or repair costs of a
stabilized property, as reasonably estimated
by Landlord, then such expenses shall be
excluded from the calculation of Operating
Expenses during the Base Year.
(vi) Comparison Year Operating Expenses.
Operating Expenses incurred during the
Comparison Year, provided that: (1) if the
Building is less than 100% occupied during
the Comparison Year, then in determining the
Comparison Year Operating Expenses, all
Operating Expenses that may reasonably be
determined to vary in accordance with the
occupancy level of the Building, shall be
grossed up to reflect 100% occupancy by
multiplying the amount of such expenses by a
fraction, the numerator of which is the total
rentable square feet in the Building and the
denominator of which is the average square
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<PAGE> 10
feet in the Building that is occupied by
tenants during the Comparison Year; and (2)
if any extraordinary expenses are incurred
during the Comparison Year which typically
are not operations, maintenance, or repair
costs of a stabilized property, as reasonably
estimated by Landlord, then such expenses
shall be excluded from the calculation of
Operating Expenses for that Comparison Year.
(vii) Taxes. Any form of assessment, rental tax,
license tax, business license tax, levy,
charge, tax or similar imposition imposed by
any authority having the power to tax,
including any city, county, state or federal
government, or any school, agricultural,
lighting, library, drainage, or other
improvement or special assessment district,
as against the Property or any part thereof
or a any legal or equitable interest of
Landlord therein, or against Landlord by
virtue of its interest therein, and any
reasonable costs incurred by Landlord in any
proceedings for abatement thereof, including,
without limitation, attorneys' and
consultants' fees, and regardless of whether
any abatement is obtained. Landlord's income
and franchise taxes are excluded from Taxes.
(viii) Base Year Taxes. Taxes incurred during the
Base Year.
(ix) Comparison Year Taxes. Taxes incurred during
the Comparison Year.
(x) Capital Costs. The annual cost [initials]
[,including financing charges] [initials] of
any capital improvements to the Property,
made by Landlord after the Base Year that are
designed to increase safety, to reduce
Operating Expenses, or to comply with any
governmental law or regulation imposed after
initial completion of the Building, amortized
over such period as Landlord shall reasonably
determine, together with a fixed annual
interest rate equal to the Prime Rate plus 2%
on the unamortized balance. The Prime Rate
shall be the prime rate published in the Wall
Street Journal on the date the construction
is completed.
(c) Estimate of Tenant's Share of Expenses. Before each
Comparison Year, and from time to time as Landlord deems appropriate, Landlord
shall give Tenant estimates for the coming Comparison Year of Operating
Expenses, Taxes, Capital Costs, and Tenant's Share of Expenses. Landlord shall
make reasonable efforts to provide estimates fifteen (15) days before the
beginning of each Comparison Year. Tenant shall pay one twelfth (1/12) of the
estimated amount of Tenant's Share of Expenses with each monthly payment of
Base Rent during the Comparison Year. Each Comparison Year, Landlord shall
give Tenant a statement (the "Share of Expenses Statement") showing the
Operating Expenses, Taxes, and Capital Costs for the prior Comparison Year, a
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calculation of Tenant's Share of Expenses due for the prior Comparison Year and
a summary of amounts already paid by Tenant for the prior Comparison Year.
Landlord shall make reasonable efforts to provide the Share of Expenses
Statement within one hundred and twenty (120) days after the end of the prior
Comparison Year. Any underpayment by Tenant shall be paid to Landlord within
thirty (30) days after delivery of the Share of Expenses Statement; any
overpayment shall be credited against the next installment of Base Rent due,
provided that any overpayment shall be paid to Tenant within thirty (30) days
if the Term has ended. No delay by Landlord in providing any Share of Expenses
Statement shall be deemed a waiver of Tenant's obligation to pay Tenant's Share
of Expenses. Notwithstanding anything contained in this paragraph, the total
rent payable by Tenant shall in no event be less than the Base Rent.
(d) Partial Year Calculation.
(i) First Comparison Year. In the event the Term
did not commence on January 1st of the Base
Year, Tenant's Share of Expenses for the
first Comparison Year will be proportionately
reduced for the portion of the first Lease
Year falling in the first Comparison Year.
In this case, Tenant shall pay Landlord
Tenant's Share of Expenses multiplied by a
fraction whose numerator equals the number of
days between the Commencement Date and
December 31 and whose denominator equals 365.
(For example, if the Commencement Date is
September 1 in the Base Year, Tenant shall
pay in the first Comparison Year Tenant's
Share of Expenses times 122/365.) In the
event the Term commenced on January 1 of the
Base Year, Tenant shall pay Landlord in the
first Comparison Year Tenant's Share of
Expenses.
(ii) Last Comparison Year. In the event the Term
does not expire on December 31st of the last
Comparison Year, Tenant's Share of Expenses
shall be proportionately reduced for the
portion of the last Comparison Year falling
outside of the Term. In this case, Tenant
shall pay to Landlord the Tenant's Share of
Expenses multiplied by a fraction whose
numerator equals the number of days between
January 1st and the Lease expiration date and
whose denominator equals 365. (For example,
if the Lease expiration date is August 31st
in the last Comparison Year, Tenant shall pay
in the last Comparison Year the Tenant's
Share of Expenses times 244/365.)
ARTICLE IV DELIVERY OF PREMISES AND TENANT IMPROVEMENTS
4.1 CONDITION OF PREMISES. Landlord shall deliver the Premises to
Tenant in its "as-is" condition unless Landlord is required to construct tenant
improvements pursuant to and in accordance with the terms set forth in Exhibit
D of this Lease ("Tenant
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Improvements"). If Landlord is required to construct Tenant Improvements,
such Tenant Improvements shall become and remain the property of the Landlord.
4.2 DELAY IN POSSESSION. If Landlord is required to construct
Tenant Improvements pursuant to Paragraph 4.1, and Landlord is unable to
deliver possession of the Premises to Tenant on or before the Commencement Date
for any reason whatsoever, Landlord shall not be liable to Tenant for any loss
or damage resulting therefrom and this Lease shall continue in full force and
effect; provided, however, that if Landlord shall not deliver the Premises
within one hundred and eighty (180) days after the Commencement Date and the
reasons for such delay are under the control of Landlord, then Tenant may
cancel this Lease by notice in writing to Landlord within ten (10) days
thereafter.
4.3 DELIVERY AND ACCEPTANCE OF POSSESSION. Tenant shall accept
possession and enter in good faith occupancy of the entire Premises and
commence the operation of its business therein within thirty (30) days after
the Commencement Date. Tenant's taking possession of any part of the Premises
shall be deemed to be an acceptance and an acknowledgment by Tenant that (i)
Tenant has had an opportunity to conduct, and has conducted, such inspections
of the Premises as it deems necessary to evaluate its condition, (ii) except as
otherwise specifically provided herein, Tenant accepts possession of the
Premises in its then existing condition, "as-is", including all patent and
latent defects, (iii) Tenant Improvements have been completed in accordance
with the terms of this Lease, except for defects of which Tenant has given
Landlord written notice prior to the time Tenant takes possession, and (iv)
neither Landlord, nor any of Landlord's agents, has made any oral or written
representations or warranties with respect to such matters other than as set
forth in this Lease.
4.4 EARLY OCCUPANCY. If Landlord agrees in writing to allow
Tenant or its contractors to enter the Premises prior to the Commencement Date,
Tenant (and its contractors) shall do so upon all of the provisions of this
Lease (including Tenant's obligations regarding indemnity and insurance),
except those provisions regarding Tenant's obligation to pay Base Rent, which
obligation shall commence on the Commencement Date.
ARTICLE V ALTERATIONS AND TENANT'S PERSONAL PROPERTY
5.1 ALTERATIONS.
(a) Landlord's Consent. Tenant shall not make any
alterations, additions, installations, substitutes or improvements
("Alterations") in and to the Premises without first obtaining Landlord's
written consent. Landlord shall not unreasonably withhold or delay its
consent; provided, however, that Landlord shall have no obligation to consent
to Alterations of a structural nature or alterations that would violate the
certificate of occupancy for the Premises or any applicable law, code or
ordinance or the terms of any superior lease or mortgage affecting the
Property. No consent given by Landlord shall be deemed as a representation or
warranty that such Alterations comply with laws, regulations and rules
applicable to the Property ("Laws"). Tenant shall pay Landlord's
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reasonable costs of reviewing or inspecting any proposed Alterations and any
other costs that may be incurred by Landlord as a result of such Alterations.
(b) Workmanship. All Alterations shall be done at
reasonable times in a first-class workmanlike manner, by contractors approved
by Landlord, and according to plans and specifications previously approved by
Landlord. All work shall be done in compliance with all Laws, and with all
regulations of the Board of Fire Underwriters or any similar insurance body or
bodies. Tenant shall be solely responsible for the effect of any Alterations
on the Building's structure and systems, notwithstanding that Landlord has
consented to the Alterations, and shall reimburse Landlord on demand for any
costs incurred by Landlord by reason of any faulty work done by Tenant or its
contractors. Upon completion of Alterations, Tenant shall provide Landlord
with a complete set of "as-built" plans.
(c) Mechanics and Other Liens. Tenant shall keep the
Property and Tenant's leasehold interest therein free of any liens or claims of
liens, and shall discharge any such liens within ten (10) days of their filing.
Before commencement of any work, Tenant's contractor shall provide payment,
performance and lien indemnity bonds required by Landlord, and Tenant shall
provide evidence of such insurance as Landlord may require, naming Landlord as
an additional insured. Tenant shall indemnify Landlord and hold it harmless
from and against any cost, claim, or liability arising from any work done by or
at the direction of Tenant.
(d) Removal of Alterations. All Alterations affixed to
the Premises shall become part thereof and remain therein at the end of the
Term. However, if Landlord gives Tenant notice, at least thirty (30) days
before the end of the Term, to remove any Alterations, Tenant shall remove the
Alterations, make any repair required by such removal, and restore the Premises
to its original condition.
5.2 TENANT'S PERSONAL PROPERTY.
(a) In General. Tenant may provide and install, and
shall maintain in good condition, all trade fixtures, personal property,
equipment, furniture and moveable partitions required in the conduct of its
business in the Premises. All of Tenant's personal property, trade fixtures,
equipment, furniture, movable partitions, and any Alterations not affixed to
the Premises shall remain Tenant's property.
(b) Landlord's Lien. Tenant hereby pledges and conveys
to Landlord a security interest ("Landlord's Lien") in all of tenant's property
as collateral security for the full and prompt payment of Base Rent and any
additional rent as and when due and the full and faithful performance of
Tenant's covenants herein contained. Upon Landlord's request, Tenant will
execute and deliver financing statements and other documents reasonably
required by Landlord to perfect Landlord's Lien. Tenant also agrees that
Landlord's Lien may be enforced by distress sale, foreclosure, or by any other
method, and that any and all costs incurred by Landlord by enforcement of this
Landlord's Lien shall be payable to Landlord by Tenant. Tenant may not remove
Tenant's property from the Premises prior to the end of the Term without
Landlord's prior written consent.
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(c) Payment of Taxes. Tenant shall pay before
delinquency all taxes levied against Tenant's personal property or trade
fixtures in the Premises and any Alterations installed by or on behalf of
Tenant. If any such taxes are levied against Landlord or its property, or if
the assessed value of the Premises is increased by the inclusion of a value
placed on Tenant's property, Landlord may pay such taxes, and Tenant shall upon
demand repay to Landlord the portion of such taxes resulting from such
increase.
ARTICLE V LANDLORD'S COVENANTS
6.1 SERVICES PROVIDED BY LANDLORD.
(a) Services. Landlord shall provide services,
utilities, facilities and supplies equal in quality to those customarily
provided by landlords in buildings of a similar design in the area in which the
Property is located. Landlord shall provide reasonable additional Building
operation services upon reasonable advance request of Tenant at reasonable
rates from time to time established by Landlord. Landlord shall furnish space
heating and cooling as normal seasonal changes may require to provide
reasonably comfortable space temperature and ventilation for occupants of the
Premises under normal business operation, daily from 8:00 a.m. to 6:00 p.m.
(Saturdays from 9:00 a.m. to 1:00 p.m.), Sundays and legal state holidays
excepted. If Tenant shall require space heating or cooling outside the hours
and days above specified, Landlord shall provide service (including reasonable
costs and management expenses) in accordance with any advance notice
requirements established from time to time by Landlord. Landlord shall provide
the services described in this Paragraph 6.1(a) and Tenant shall pay for such
services as set forth in Paragraph 3.2.
(b) Separately Metered Utilities. The Premises will not
be separately metered or submetered as of the Commencement Date, and the costs
of utilities shall be included as an Operating Expense. If Landlord has reason
to believe that Tenant is using a disproportionate share of any utility,
Landlord may, at Landlord's election, and at Landlord's expense, conduct an
engineering audit to estimate Tenant's actual use. If such audit determines
that Tenant is using more than its proportionate share of any utility, Tenant
shall reimburse Landlord for the cost of the audit and Tenant shall pay for any
use above its proportionate share as additional rent.
(c) Graphics and Signs. Landlord shall provide, at
Tenant's expense, identification of Tenant's name and suite numerals at the
main entrance door to the Premises. All signs, notices, graphics and
decorations of every kind or character which are visible in or from the Common
Areas or the exterior of the Premises shall be subject to Landlord's prior
written approval, which Landlord shall have the right to withhold in its
absolute and sole discretion.
(d) Right to Cease Providing Services. In case of Force
Majeure or in connection with any repairs, alterations or additions to the
Property or the Premises, or any other acts required of or permitted to
Landlord herein, Landlord may reduce or suspend
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service of the Building's utilities, facilities or supplies, provided that
Landlord shall use reasonable diligence to restore such services, facilities or
supplies as soon as possible. No such reduction or suspension shall constitute
an actual or constructive eviction or disturbance of Tenant's use or possession
of the Premises.
6.2 REPAIRS AND MAINTENANCE. Landlord shall repair and maintain
(i) the Common Areas, (ii) the structural portions of the Building, (iii) the
exterior walls of the Building (including exterior windows and glazing), (iv)
the roof, and (v) the basic plumbing, electrical, mechanical and heating,
ventilating and air-conditioning systems serving the Premises, in the manner
and to the extent customarily provided by landlords in similar buildings in the
area. Tenant shall pay for such repairs as set forth in Paragraph 3.2. If any
maintenance, repair or replacement is required because of any act, omission or
neglect of duty by Tenant or its agents, employees, invitees or contractors,
the cost thereof shall be paid by Tenant to Landlord as additional rent within
thirty (30) days after billing.
6.3 QUIET ENJOYMENT. Upon Tenant's paying the rent and performing
its other obligations, Landlord shall permit Tenant to peacefully and quietly
hold and enjoy the Premises, subject to the provisions of this Lease.
6.4 INSURANCE. Landlord shall insure the Property, including the
Building and Tenant Improvements and approved Alterations, if any, against
damage by fire and standard extended coverage perils, and shall carry public
liability insurance, all in such reasonable amounts as would be carried by a
prudent owner of a similar building in the area. Landlord may carry any other
forms of insurance as it or its mortgagee may deem advisable. Insurance
obtained by Landlord shall not be in lieu of any insurance required to be
maintained by Tenant. Landlord shall not carry any insurance on Tenant's
Property, and shall not be obligated to repair or replace any of Tenant's
Property.
ARTICLE VII TENANT'S COVENANTS
7.1 REPAIRS, MAINTENANCE AND SURRENDER.
(a) Repairs and Maintenance. Tenant shall keep the
Premises in good order and condition, and shall promptly repair any damage to
the Premises excluding glass in exterior walls. Tenant shall also repair any
damage to the rest of the Property, including glass in exterior walls, if such
damage is attributable to Tenant's negligence or misuse caused by Tenant or its
agents, employees, or invitees, licensees or independent contractors. All
repairs shall be made in a workmanlike manner and any replacements or
substitutions shall be of a quality, utility, value and condition similar to or
better than the replaced or substituted item.
(b) Surrender. At the end of the Term, Tenant shall
peaceably surrender the Premises in good order, repair and condition, except
for reasonable wear and tear, and Tenant shall remove Tenant's Property and (if
required by Landlord) any Alterations, repairing any damage caused by such
removal and restoring the Premises and leaving them clean and neat. Any
property not so removed shall be deemed abandoned and may be retained by
Landlord or may be removed and disposed of by Landlord in such manner as
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Landlord shall determine. Tenant shall be responsible for costs and expenses
incurred by Landlord in removing any Alterations and disposing any such
abandoned property, making any incidental repairs and replacements to the
Premises, and restoring the Premises to its original conditions.
7.2 USE.
(a) General Use. Tenant shall use the Premises only for
the Permitted Uses, and shall not use or permit the Premises to be used in
violation of any law or ordinance or of any certificate of occupancy issued for
the Building or the. Premises, or of the Rules and Regulations. Tenant shall
not cause, maintain or permit any nuisance in, on or about the Property, or
commit or allow any waste in or upon the Property. Tenant shall not use
utility services in excess of amounts reasonably determined by Landlord to be
within the normal range of demand for the Permitted Uses.
(b) Obstructions and Exterior Displays. Tenant shall not
obstruct any of the Common Areas or any portion of the Property outside the
Premises, and shall not, except as otherwise previously approved by Landlord,
place or permit any signs, decorations, curtains, blinds, shades, awnings,
aerials or flagpoles, or the like, that may be visible from outside the
Premises. If Landlord designates a standard window covering for use throughout
the Building, Tenant shall use this standard window covering to cover all
windows in the Premises.
(c) Floor Load. Tenant shall not place a load upon the
floor of the Premises exceeding the load per square foot such floor was
designed to carry, as determined by applicable building code.
(d) Compliance with Insurance Policies. Tenant shall not
keep or use any article in the Premises, or permit any activity therein, which
is prohibited by any insurance policy covering the Building, or would result in
an increase in the premiums thereunder.
(e) Rules and Regulations. Tenant shall observe and
comply with the rules and regulations attached as Exhibit E (the "Rules and
Regulations"), and all modifications thereto as made by Landlord and put into
effect from time to time. Landlord shall not be responsible to Tenant for the
violation or non-performance by any other tenant or occupant of the Building of
the Rules and Regulations.
7.3 ASSIGNMENT; SUBLEASE. Tenant shall not assign its rights
under this Lease nor sublet the whole or any part of the Premises without
Landlord's prior written consent. In the event that Landlord grants such
consent, Tenant shall remain primarily liable to Landlord for the payment of
all rent and for the full performance of the obligations under this Lease and
any excess rents collected by Tenant shall be paid to Landlord. Any assignment
or subletting which does not conform with this Paragraph 7.3 shall be void and
a default hereunder.
7.4 INDEMNITY. Tenant, at its expense, shall defend (with counsel
satisfactory to Landlord), indemnify and hold harmless Landlord and its agents,
employees, invitees,
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licensees and contractors from and against any cost, claim, action, liability
or damage of any kind arising from (i) Tenant's use and occupancy of the
Premises or the Property or any activity done or permitted by Tenant in, on, or
about the Premises or the Property, (ii) any breach or default by Tenant of its
obligations under this Lease, or (iii) any negligent, tortious, or illegal act
or omission of Tenant, its agents, employees, invitees, licensees or
contractors. Landlord shall not be liable to Tenant or any other person or
entity for any damages arising from any act or omission of any other tenant of
the Building. The obligations of Tenant in this Paragraph shall survive the
expiration or termination of this Lease.
7.5 TENANT'S INSURANCE. Tenant shall maintain in responsible
companies qualified to do business, in good standing in the state in which the
Premises are located and otherwise acceptable to Landlord and at its sole
expense the following insurance: (i) comprehensive general liability insurance
covering the Premises insuring Landlord as well as Tenant with limits which
shall, at the commencement of the Term, be at least equal to the Public
Liability Insurance Amount and from time to time during the Term shall be for
such higher limits, if any, as are customarily carried in the area in which the
Premises are located with respect to similar properties, (ii) workers'
compensation insurance with statutory limits covering all of Tenant's employees
working in the Premises, (iii) property insurance insuring Tenant's Property
for the full replacement value of such items and (iv) business interruption
insurance. There shall be no deductible for liability policies and a
deductible not greater than $5,000 for property insurance policies. Tenant
shall deposit promptly with Landlord certificates for such insurance, and all
renewals thereof, bearing the endorsement that the policies will not be
canceled until after thirty (30) days' written notice to Landlord. All
policies shall be taken out with insurers with a rating of A-IX by Best's and
otherwise acceptable to Landlord.
7.6 PAYMENT OF TAXES. If at any time during the Term, any
political subdivision of the state in which the Property is located, or any
other governmental authority, levies or assesses against Landlord a tax or
excise on rents or other tax (excluding income tax), however described,
including but not limited to assessments, charges or fees required to be paid,
by way of substitution for or as a supplement to real estate taxes, or any
other tax on rent or profits in substitution for or as a supplement to a tax
levied against the Property, Building or Landlord's personal property, then
Tenant will pay to Landlord as additional rent its proportionate share based on
Tenant's Percentage of said tax or excise.
7.7 ENVIRONMENTAL ASSURANCES.
(a) Covenants.
(i) Tenant shall not cause any Hazardous
Materials to be used, generated, stored or
disposed of on, under or about, or
transported to or from, the Premises unless
the same is specifically approved in advance
by Landlord in writing other than small
quantities of retail, household, and office
chemicals customarily sold over-the-counter
to the public and which are related to
Tenant's Permitted Uses.
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(ii) Tenant shall comply with all obligations
imposed by Environmental Laws, and all other
restrictions and regulations upon the use,
generation, storage or disposal of Hazardous
Materials at, to or from the Premises.
(iii) Tenant shall deliver promptly to Landlord
true and complete copies of all notices
received by Tenant from any governmental
authority with respect to the use,
generation, storage or disposal by Tenant of
Hazardous Materials at, to or from the
Premises and shall immediately notify
Landlord both by telephone and in writing of
any unauthorized discharge of Hazardous
Materials or of any condition that poses an
imminent hazard to the Property, the public
or the environment.
(iv) Tenant shall complete fully, truthfully and
promptly any questionnaires sent by Landlord
with respect to Tenant's use of the Premises
and its use, generation, storage and disposal
of Hazardous Materials at, to or from the
Premises.
(v) Tenant shall permit entry onto the Premises
by Landlord or Landlord's representatives at
any reasonable time to verify and monitor
Tenant's compliance with its covenants set
forth in this Paragraph and to perform other
environmental inspections of the Premises.
(vi) If Landlord conducts any environmental
inspections because it has reason to believe
that Tenant's activities have or are likely
to result in a violation of Environmental
Laws or a release of Hazardous Materials on
the Property, then Tenant shall pay to
Landlord, as additional rent, the costs
incurred by Landlord for such inspections.
(vii) Tenant shall cease immediately upon notice
from Landlord any activity which violates or
creates a risk of violation of any
Environmental Laws.
(viii) After notice to and approval by Landlord,
Tenant shall promptly remove, clean-up,
dispose of or otherwise remediate, in
accordance with Environmental Laws and good
commercial practice, any Hazardous Materials
on, under or about the Property resulting
from Tenant's activities on the Property.
(b) Indemnification. Tenant shall indemnify, defend with
counsel acceptable to Landlord and hold Landlord harmless from and against any
claims, damages,
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costs, liabilities or losses (including, without limitation, any decrease in
the value of the Property, loss or restriction of any area of the Property, and
adverse impact of the marketability of the Property or Premises) arising out of
Tenant's use, generation, storage or disposal of Hazardous Materials at, to or
from the Premises.
(c) Definitions. Hazardous Materials shall include but
not be limited to substances defined as "hazardous substances", "toxic
substances", or "hazardous wastes" in the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; the federal
Hazardous Materials Transportation Act, as amended; and the federal Resource
Conservation and Recovery Act, as amended; those substances defined as
"hazardous substances", "materials", or "wastes" under the law of the state in
which the Premises are located; and as such substances are defined in any
regulations adopted and publications promulgated pursuant to said laws
("Environmental Laws"); materials containing asbestos or urea formaldehyde;
gasoline and other petroleum products; flammable explosives; radon and other
natural gases; and radioactive materials.
(d) Survival. The obligations of Tenant in this
Paragraph shall survive the expiration or termination of this Lease.
7.8 AMERICANS WITH DISABILITIES ACT. Tenant shall comply with the
Americans with Disabilities Act of 1 990 ("ADA") and the regulations
promulgated thereunder. Tenant hereby expressly assumes all responsibility for
compliance with the ADA relating to the Premises and the activities conducted
by Tenant within the Premises. Any Alterations to the Premises made by Tenant
for the purpose of complying with the ADA or which otherwise require compliance
with the ADA shall be done in accordance with this Lease; provided, that
Landlord's consent to such Alterations shall not constitute either Landlord's
assumption, in whole or in part, of Tenant's responsibility for compliance with
the ADA, or representation or confirmation by Landlord that such Alterations
comply with the provisions of the ADA.
ARTICLE VIII DEFAULT
8.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a default hereunder by Tenant:
(a) The failure by Tenant to make any payment of Base
Rent or additional rent or any other payment required hereunder, as and when
due, where such failure shall continue for a period of five (5) days after
written notice thereof from Landlord to Tenant; provided, that Landlord shall
not be required to provide such notice more than twice during the Term with
respect to non-payment of Rent, the third such non-payment constituting a
default without requirement of notice;
(b) The vacating or abandonment of the Premises.
[initials] [Provided Tenant has not given Landlord proper notice,] [initials]
Tenant shall be deemed to have abandoned the Premises if the Premises remain
substantially vacant or unoccupied for a period of thirty (30) days;
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(c) The failure by Tenant to observe or perform any of
the express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in clauses (i) and (ii) above,
where such failure shall continue for a period of more than thirty (30) days
after written notice thereof from Landlord to Tenant; provided, however, that
if the nature of Tenant's default is such that more than thirty (30) days are
reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences such cure within said thirty (30) day period,
diligently prosecutes such cure to completion, and completes such cure no later
than sixty (60) days from the date of such notice from Landlord;
(d) The failure by Tenant, Guarantor (if any), or any
present or future guarantor of all or any portion of Tenant s obligations under
this Lease to pay its debts as they become due, or Tenant or any such Guarantor
(if any) becoming insolvent, filing or having filed against it a petition under
any chapter of the United States Bankruptcy Code, 11 U.S.C. Paragraph 101 et
seq. (or any similar petition under any insolvency law of any jurisdiction) and
such petition is not dismissed within sixty (60) days thereafter, proposing any
dissolution, liquidation, composition, financial reorganization or
recapitalization with creditors, making an assignment or trust mortgage for the
benefit of creditors, or if a receiver, trustee, custodian or similar agent is
appointed or takes possession with respect to any property or business of
Tenant or Guarantor (if any); or
(e) If the leasehold estate under this Lease or any
substantial part of the property or assets of Tenant or of Guarantor of this
leasehold is taken by execution, or by other process of law, or is attached or
subjected to any involuntary encumbrance if such attachment or other seizure
remains undismissed or undischarged for a period of ten business (10) days
after the levy thereof.
8.2 REMEDIES OF LANDLORD AND CALCULATION OF DAMAGES.
(a) Remedies. In the event of any default by Tenant,
whether or not the Term shall have begun, in addition to any other remedies
available to Landlord at law or in equity, Landlord may, at its option and
without further notice exercise any or all of the following remedies:
(i) Terminate the Lease and upon notice to Tenant
of termination of the Lease all rights of
Tenant hereunder shall thereupon come to an
end as fully and completely as if the date
such notice is given were the date originally
fixed for the expiration of the Term, and
Tenant shall then quit and surrender the
Premises to Landlord and Landlord shall have
the right, without judicial process, to
re-enter the Premises. No such expiration or
termination of the Lease shall relieve Tenant
of its liability and obligation under the
Lease.
(ii) Enter the Premises and cure any default by
Tenant and in so doing, Landlord may make any
payment of money or perform
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any other act. All sums so paid by Landlord,
and all incidental costs and expenses,
including reasonable attorneys' fees, shall
be considered additional rent under this
Lease and shall be payable to Landlord
immediately on demand, together with interest
from the date of demand to the date of
payment at the maximum lawful rate permitted
to be charged by Landlord.
(b) Calculation of Damages. If this Lease is terminated
as provided in Paragraph 8.2 or otherwise, Tenant, until the end of the Term,
or what would have been such Term in the absence of any such event, shall be
liable to Landlord, as damages for Tenant's default, for the amount of the Base
Rent and all additional rent and other charges which would be payable under
this lease by Tenant if this Lease were still in effect, less the net proceeds
of any reletting of the Premises actually collected by Landlord after deducting
all Landlord's expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage and management commissions,
operating expenses, legal expenses, reasonable attorneys' fees, alteration
costs and expenses of preparation of the Premises for such reletting. Tenant
shall pay such damages to Landlord monthly on the days on which the Base Rent
would have been payable as if this Lease were still in effect, and Landlord
shall be entitled to recover from Tenant such damages monthly as the same shall
arise. In lieu of the foregoing computation of damages, Landlord may elect, at
its sole option, to receive liquidated damages in one payment equal to the
total amount of Base Rent and additional rent reserved in this Lease from the
date of default to the date of expiration of the Term discounted at a fixed
annual interest rate equal to the Prime Rate plus 2%. The Prime Rate shall be
the prime rate published in the Wall Street Journal on the date of Landlord's
election to accelerate the rents hereunder. Whether or not the Lease is
terminated, Landlord shall in no way be responsible or liable for any failure
to relet the Premises or for any failure to collect any rent upon such
reletting.
(c) No Limitations. Nothing contained in this Lease
shall limit or prejudice the right of Landlord to prove for and obtain in
proceedings for bankruptcy or insolvency by reason of the termination of this
Lease, an amount equal to the maximum allowed by any statute or rule of law in
effect at the time when, and governing the proceedings in which, the damages
are to be provided, whether or not the amount be greater, equal to, or less
than the amount of the loss or damages referred to above.
(d) Cumulative Remedies. Landlord's remedies under this
Lease are cumulative and not exclusive of any other remedies to which Landlord
may be entitled in case of Tenant's default or threatened default under this
Lease, including, without limitation, the remedies of injunction and specific
performance.
ARTICLE IX CASUALTY AND EMINENT DOMAIN
9.1 CASUALTY.
(a) Casualty in General. If, during the Term, the
Premises, the Building or the Lot, are wholly or partially damaged or destroyed
by fire or other casualty, and the
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casualty renders the Premises totally or partially inaccessible or unusable by
Tenant in the ordinary conduct of Tenant's business, then Landlord shall,
within thirty (30) days of the date of the damage, give Tenant a notice
("Damage Notice") stating whether, according to Landlord's good faith estimate,
the damage can be repaired within one hundred eighty (180) days from the date
of damage ("Repair Period"), without the payment of overtime or other premiums.
The parties' rights and obligations shall then be governed according to whether
the casualty is an Insured Casualty or an Uninsured Casualty as set forth in
the following Paragraphs.
(b) Insured Casualty. If the casualty results from a
risk, the loss to Landlord from which is fully covered by insurance maintained
by Landlord or for Landlord's benefit (except for any deductible amount), it
shall be an "Insured Casualty" and governed by this Paragraph 9.1(b). In such
event, if the Damage Notice states that the repairs can be completed within the
Repair Period without the payment of overtime or other premiums, then Landlord
shall promptly proceed to make the repairs, this Lease shall remain in full
force and effect, and Base Rent shall be reduced, during the period between the
casualty and completion of the repairs, in proportion to the portion of the
Premises that is inaccessible or unusable during that period and which is, in
fact, not utilized by Tenant. Base Rent shall not be reduced by reason of any
portion of the Premises being unusable or inaccessible for a period of five (5)
business days or less. If the Damage Notice states that the repairs cannot, in
Landlord's estimate, be completed within the Repair Period without the payment
of overtime or other premiums, then either party may, terminate this Lease by
written notice given to the other within thirty (30) days after the giving of
the Damage Notice. If either party elects to terminate this Lease, the lease
shall terminate as of the date of the occurrence of such damage or destruction
and Tenant shall vacate the Premises five (5) business days from the date of
the written notice terminating the Lease. If neither party so terminates, then
this Lease shall remain in effect, Landlord shall make repairs, and Base Rent
shall be proportionately reduced as set forth above during the period when the
Premises is inaccessible or unusable and is not used by Tenant.
(c) Uninsured Casualty. If the casualty is not an
Insured Casualty as set forth in the previous Paragraph, it shall be an
"Uninsured Casualty" governed by this Paragraph 9.1 (c). In such event, if the
Damage Notice states that the repairs can be completed within the Repair Period
without the payment of overtime or other premiums, Landlord may elect, by
written notice given to Tenant within thirty (30) days after the Damage Notice,
to make the repairs, in which event this Lease shall remain in effect and Base
Rent shall be proportionately reduced as set forth above. If Landlord does not
so elect to make the repairs, or if the Damage Notice states that the repairs
cannot be made within the Repair Period, this Lease stall terminate as of the
date of the casualty and Tenant shall vacate the Premises five (5) business
days from the date of Landlord's written notice to Tenant terminating the
Lease.
(d) Casualty within final six months of Term.
Notwithstanding anything to the contrary contained in this Paragraph 9.1, if
the Premises or the Building is wholly or partially damaged or destroyed within
the final six (6) months of the Term of this Lease, Landlord shall not be
required to repair such casualty and either Landlord or Tenant may elect to
terminate this Lease.
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(e) Tenant Improvements and Alterations. If Landlord
elects to repair after a casualty in accordance with this Paragraph 9.1,
Landlord shall cause Tenant Improvements and Alterations which Landlord has
approved, to be repaired and restored at Landlord's sole expense. Landlord
shall have no responsibility for any personal property placed or kept in or on
the Premises or the Building by Tenant or Tenant's agents, employees, invitees
or contractors and Landlord shall not be required to repair any damage to, or
make any repairs to or replacements of, Tenant's personal property.
(f) Exclusive Remedy. This Paragraph 9.1 shall be
Tenant's sole and exclusive remedy in the event of damage or destruction to the
Premises or the Building. No damages, compensation or claim shall be payable by
Landlord for any inconvenience, any interruption or cessation of Tenant's
business, or any annoyance, arising from any damage to or destruction of all or
any portion of the Premises or the Building.
(g) Waiver of Subrogation. Landlord and Tenant shall use
reasonable efforts to cause each insurance policy obtained by each of them to
provide that the insurer waives all right of recovery by way of subrogation
against either Landlord or Tenant in connection with any loss or damage covered
by such policy.
9.2 EMINENT DOMAIN.
(a) Eminent Domain in General. If the whole of the
Premises, or so much of the Premises as to render the balance unusable by
Tenant, shall be taken or appropriated under the power of eminent domain or
condemnation (a "Taking"), either Landlord or Tenant may terminate this Lease
and the termination date shall be the date of the Order of Taking, or the date
possession is taken by the Taking authority, whichever is earlier. If any part
of the Property is the subject of a Taking and such Taking materially affects
the normal operation of the Building or Common Areas, Landlord may elect to
terminate this Lease. A sale by Landlord under threat of a Taking shall
constitute a Taking for the purpose of this Paragraph 9.2. No award for any
partial or entire Taking shall be apportioned. Landlord shall receive
(subject to the rights of Landlord's mortgagees) and Tenant hereby assigns to
Landlord any award which may be made and any other proceeds in connection with
such Taking, together with all rights of Tenant to such award or proceeds,
including, without limitation, any award or compensation for the value of all
or any part of the leasehold estate; provided that nothing contained in this
Paragraph 9.2(a) shall be deemed to give Landlord any interest in or to require
Tenant to assign to Landlord any separate award made to Tenant for (i) the
taking of Tenant's personal property, or (ii) interruption of or damage to
Tenant's business, or (iii) Tenant's moving and relocation costs.
(b) Reduction in Base Rent. In the event of a Taking
which does not result in a termination of the Lease, Base Rent shall be
proportionately reduced based on the portion of the Premises rendered unusable,
and Landlord shall restore the Premises or the Building to the extent of
available proceeds or awards from such Taking. Landlord shall not be required
to repair or restore any damage to Tenant's personal property or any
Alterations.
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(c) Sole Remedies. This Paragraph 9.2 sets forth Tenant's
and Landlord's sole remedies for Taking. Upon termination of this Lease
pursuant to this Paragraph 9.2, Tenant and Landlord hereby agree to release
each other from any and all obligations and liabilities with respect to this
Lease except such obligations and liabilities which arise or accrue prior to
such termination.
ARTICLE X RIGHTS OF PARTIES HOLDING SENIOR INTERESTS
10.1 SUBORDINATION. This Lease shall be subject and subordinate to
any and all mortgages, deeds of trust and other instruments in the nature of a
mortgage, ground lease or other matters or record ("Senior Interests") which
now or at any time hereafter encumber the Property and Tenant shall, within
twenty (20) days of Landlord's request, execute and deliver to Landlord such
recordable written instruments as shall be necessary to show the subordination
of this Lease to such Senior Interests. Notwithstanding the foregoing, if any
holder of a Senior Interest succeeds to the interest of Landlord under this
Lease, then, at the option of such holder, this Lease shall continue in full
force and effect and Tenant shall attorn to such holder and to recognize such
holder as its landlord.
10.2 MORTGAGEE'S CONSENT. No assignment of the Lease and no
agreement to make or accept any surrender, termination or cancellation of this
Lease and no agreement to modify so as to reduce the Rent, change the Term, or
otherwise materially change the rights of Landlord under this Lease, or to
relieve Tenant of any obligations or liability under this Lease, shall be valid
unless consented to by Landlord's mortgagees of record, if any.
ARTICLE XI GENERAL
11.1 REPRESENTATIONS BY TENANT. Tenant represents and warrants
that any financial statements provided by it to Landlord were true, correct and
complete when provided, and that no material adverse change has occurred since
that date that would render them inaccurate or misleading. Tenant represents
and warrants that those persons executing this Lease on Tenant's behalf are
duly authorized to execute and deliver this Lease on its behalf, and that this
Lease is binding upon Tenant in accordance with its terms, and simultaneously
with the execution of this Lease, Tenant shall deliver evidence of such
authority to Landlord in form satisfactory to Landlord.
11.2 NOTICES. Any notice required or permitted hereunder shall be
in writing. Notices shall be addressed to Landlord c/o Managing Agent at
Managing Agent's Address and to Tenant at Tenant's Address. Any communication
so addressed shall be deemed duly given when delivered by hand, one day after
being sent by Federal Express (or other guaranteed one day delivery service) or
three days after being sent by registered or certified mail, return receipt
requested. Either party may change its address by giving notice to the other.
11.3 NO WAIVER OR ORAL MODIFICATION. No provision of this Lease
shall be deemed waived by Landlord or Tenant except by a signed written waiver.
No consent to any act or waiver of any breach or default, express or implied,
by Landlord or Tenant, shall be construed as a consent to any other act or
waiver of any other breach or default.
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11.4 SEVERABILITY. If any provision of this Lease, or the
application thereof in any circumstances, shall to any extent be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each provision hereof shall be valid and enforceable to the fullest extent
permitted by law.
11.5 REQUESTS BY TENANT. Tenant shall pay, on demand, all costs
incurred by Landlord, including without limitation reasonable attorneys' fees,
in connection with any matter requiring Landlord's review or consent or any
other requests made by Tenant under this Lease, regardless of whether such
request is granted by Landlord.
11.6 ESTOPPEL CERTIFICATE AND FINANCIAL STATEMENTS.
(a) Estoppel Certificate. Within ten (10) days after
written request by Landlord, Tenant shall execute, acknowledge and deliver to
Landlord a written statement certifying (i) that this Lease is unmodified and
in full force and effect, or is in full force and effect as modified and
stating the modifications; (ii) the amount of Base Rent and the date to which
Base Rent and additional rent have been paid in advance; (iii) the amount of
any security deposited with Landlord; and (iv) that Landlord is not in default
hereunder or, if Landlord is claimed to be in default, stating the nature of
any claimed default, and (v) such other matters as may be reasonably requested
by Landlord. Any such statement may be relied upon by a purchaser, assignee or
lender. Tenant's failure to execute and deliver such statement within the time
required shall be a default under this Lease and shall also be conclusive upon
Tenant that this Lease is in full force and effect and has not been modified
except as represented by Landlord; and there are no uncured defaults in
Landlord's performance and Tenant has no right of offset, counterclaim or
deduction against rent.
(b) Financial Statements. Tenant shall, without charge
therefore, at any time, within ten (10) days following a request by Landlord,
deliver to Landlord, or to any other party designated by Landlord, a true and
accurate copy of Tenant's most recent financial statements. All requests made
by Tenant regarding renewals or expansions must be accompanied by Tenant's most
recent financial statements. All requests made by Tenant regarding subleases,
or assignments must be accompanied by Tenant's prospective subtenant's and
prospective assignee's most recent financial statements.
11.7 WAIVER OF LIABILITY. Landlord and Tenant each hereby waive
all rights of recovery against the other and against the officers, employees,
agents, and representatives of the other, on account of loss by or damage to
the waiving party or its property or the property of others under its control,
to the extent that such loss or damage is insured against under any insurance
policy that either may have in force at the time of the loss or damage. Each
party shall notify its insurers that the foregoing waiver is contained in this
Lease.
11.8 EXECUTION, PRIOR AGREEMENTS AND NO REPRESENTATIONS. This
Lease shall not be binding and enforceable until executed by authorized
representatives of Landlord and Tenant. This Lease contains all of the
agreements of the parties with respect to the
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subject matter hereof and supersedes all prior dealings, whether written or
oral, between them with respect to such subject matter. Each party
acknowledges that the other has made no representations or warranties of any
kind except as may be specifically set forth in this Lease.
11.9 BROKERS. Each party represents and warrants that it has not
dealt with any real estate broker or agent in connection with this Lease or its
negotiation except Broker. Each party shall indemnify the other and hold it
harmless from any cost, expense, or liability (including costs of suit and
reasonable attorneys' fees) for any compensation, commission or fees claimed by
any other real estate broker or agent in connection with this Lease or its
negotiation by reason of any act or statement of the indemnifying party.
11.10 SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that only the original Landlord named herein shall
be liable for obligations accruing before the beginning of the Term, and
thereafter the original Landlord named herein and each successive owner of the
Premises shall be liable only for obligations accruing during the period of
their respective ownership.
11.11 APPLICABLE LAW AND LEASE INTERPRETATION. This Lease shall be
construed, governed and enforced according to the laws of the state in which
the Property is located. In construing this Lease, Paragraph headings are for
convenience only and shall be disregarded. Any recitals herein or exhibits
attached hereto are hereby incorporated into this Lease by this reference.
Time is of the essence of this Lease and every provision contained herein. The
parties acknowledge that this Lease was freely negotiated by both parties, each
of whom was represented by counsel; accordingly, this Lease shall be construed
according to the fair meaning of its terms, and not against either party.
11.12 COSTS OF COLLECTION, ENFORCEMENT AND DISPUTES. Tenant shall
pay all costs of collection, including reasonable attorneys' fees, incurred by
Landlord in connection with any default by Tenant. If either Landlord or
Tenant institutes any action to enforce the provisions of this Lease or to seek
a declaration of rights hereunder, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and court costs as part of any award.
Landlord and Tenant hereby waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against the other, on or
in respect to any matter whatsoever arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant hereunder, Tenant's use or
occupancy of the Premises, and/or claim of injury or damage.
11.13 HOLDOVER. If Tenant holds over in occupancy of the Premises
after the expiration of the Term, Tenant shall, at the election of Landlord (i)
become a tenant at sufferance only on a month-to-month basis subject to the
terms and conditions herein specified, so far as applicable. In either case,
Tenant shall pay rent during the holdover period, at a base rental rate equal
to twice the Base Rent in effect at the end of the Term, plus the amount of
Tenant's Share of Expenses then in effect. Tenant shall also be liable for all
damages sustained by Landlord on account of such holding over.
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11.14 FORCE MAJEURE. If Landlord or Tenant is prevented from or
delayed in performing any act required of it hereunder, and such prevention or
delay is caused by strikes, labor disputes, inability to obtain labor,
materials, or equipment, inclement weather, acts of God, governmental
restrictions, regulations, or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond such party's reasonable control ("Force Majeure"), the performance of
such act shall be excused for a period equal to the period of prevention or
delay. A party's financial inability to perform its obligations shall in no
event constitute Force Majeure. Nothing in this Paragraph shall excuse or
delay Tenant's obligation to pay any rent or other charges due under this
Lease.
11.15 LIMITATION ON LIABILITY. Landlord, and its partners,
directors, officers, shareholders, trustees or benefactors, shall not be liable
to Tenant for any damage to loss of personal property in, or to any personal
injury occurring in, the Premises, unless such damage, loss or injury is the
result of the gross negligence of Landlord or its agents as determined by a
final non-appeal judicial proceeding. The obligations of Landlord under this
Lease do not constitute personal obligations of the individual partners,
directors, officers, shareholders, trustees or beneficiaries of Landlord, and
Tenant shall not seek recourse against the partners, directors, officers,
shareholders, trustees or beneficiaries of Landlord, or any of their personal
assets for satisfaction of any liability with respect to this Lease. In the
event of any default by Landlord under this Lease, Tenant's sole and exclusive
remedy shall be against the Landlord's interest in the Property.
11.16 LEASE NOT TO BE RECORDED. Tenant agrees that it will not
record this Lease. Both parties shall, upon the request of either, execute and
deliver a notice or short form of this Lease in such form, if any, as may be
permitted by applicable statute. If this Lease is terminated before the Term
expires the parties shall execute, deliver and record an instrument
acknowledging such fact and the actual date of termination of this Lease, and
Tenant hereby appoints Landlord its attorney-in-fact, coupled with an interest,
with full power of substitution to execute such instrument.
11.17 SECURITY DEPOSIT. Upon the execution and delivery of this
Lease, Tenant shall pay to Landlord the Security Deposit, which shall be held
as security for Tenant's performance as herein provided and refunded to the
Tenant at the end of the Term subject to the Tenant's satisfactory compliance
with the conditions hereof. The Security Deposit may be commingled with other
funds of Landlord and no interest shall accrue thereon or be payable by
Landlord with respect to the Security Deposit. If all or any part of the
Security Deposit is applied to an obligation of Tenant hereunder, Tenant shall
immediately upon request by Landlord restore the Security Deposit to its
original amount.
11.18 GUARANTY OF LEASE. If Landlord and Tenant intend for this
Lease to be guaranteed by the Guarantor, upon the execution and delivery of
this Lease, and as a condition to the effectiveness of this Lease, Tenant shall
cause Guarantor, if any, to execute and deliver to Landlord a guaranty in the
form attached as Exhibit F. It shall
-27-
<PAGE> 28
constitute a default under this Lease if any Guarantor fails or refuses, upon
reasonable request by Landlord, to give: (i) evidence of the due execution of
the guaranty called for by this Lease, (ii) current financial statements of
Guarantor as may from time to time be requested by Landlord; (iii) an estoppel
certificate, or (iv) written confirmation that the guaranty is still in effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease,
which includes the cover sheet, the foregoing Standard Provisions, Additional
Provisions, if any, and Exhibits attached to this Lease, with the intent that
each of the parties shall be legally bound thereby and that this Lease shall
become effective as of the Date of Lease.
LANDLORD:
NEW ENGLAND MUTUAL LIFE INSURANCE
COMPANY, a Massachusetts corporation
By: Boylston Capital Advisors, Inc.,
asset manager and advisor hereunto
duly authorized
By: /s/ BRUCE R. HARTLEIN
-------------------------------------------
Name: BRUCE R. HARTLEIN
-------------------------------------------
Title:
-------------------------------------------
Date: July 14, 1993
-------------------------------------------
Vice President
Boylston Capital Advisors
TENANT:
MLC GROUP, INC.
--------------------------------------------------
a Virginia corporation
--------------------------------------------------
By: /s/ BRUCE BOWEN
-------------------------------------------
Name: BRUCE BOWEN
-------------------------------------------
Title: PRESIDENT
-------------------------------------------
Date: 7/12/93
-------------------------------------------
-28-
<PAGE> 29
GLOSSARY
<TABLE>
<CAPTION>
TERM PARAGRAPH IN WHICH
DEFINITION APPEARS
<S> <C>
ADA 7.8
Additional Provisions Part III
Alterations 5.1
Base Rent Cover Sheet
Base Year 3.2
Base Year Operating Expenses 3.2
Base Year Taxes 3.2
Broker(s) Cover Sheet
Building Cover Sheet
Capital Costs 3.2
Commencement Date 2.2
Common Areas 1.2
Comparison Year 3.2
Comparison Year Operating Expenses 3.2
Comparison Year Taxes 3.2
Damage Notice 9.1
Date of Lease Cover Sheet
Force Majeure 11.14
Guarantor(s) Cover Sheet
Hazardous Materials 7.7
Landlord Cover Sheet
Landlord's Lien 5.2
Laws 5.1
Lease Year 3.2
Managing Agent Cover Sheet
Managing Agent's Address Cover Sheet
Notice 2.2
Operating Expenses 3.2
Permitted Uses Cover Sheet
Premises Cover Sheet
Property Cover Sheet
Public Liability Insurance Amount Cover Sheet
Repair Period 9.1
Scheduled Commencement Date Cover Sheet
Security Deposit Cover Sheet
Senior Interests 10.1
Taxes 3.2
Tenant Cover Sheet
Tenant Improvements 4.1
Tenant's Address Cover Sheet
Tenant's Percentage Cover Sheet
Tenant's Share of Expenses 3.2
Term Cover Sheet
</TABLE>
<PAGE> 30
PART III ADDITIONAL PROVISIONS
The following provisions ("Additional Provisions") identified below
and attached and/or set forth below are included as part of he Lease between
Landlord and Tenant. Capitalized terms used in any of the Additional Provisions
and not otherwise defined shall have the meanings given such terms in Part I
and Part II of this Lease. Unless express reference is made to a provision in
Part I and Part II of this Lease for the purpose of modifying such provision,
in the event of any conflict between the Additional Provisions and the
provisions of Part I and Part II of this Lease, the provisions contained in
Parts I and II shall control.
1. The following is added to Paragraph 1.2
Tenant shall be entitled, free of charge for the term of the Lease,
fifteen (15) non-reserved parking spaces as identified per separate letter.
2. The following is added to Paragraph 11.17
Security Deposit. Upon the execution and delivery of this Lease,
Tenant shall deliver to Landlord by means of certified funds, a check in the
amount of Nine Thousand Thirty Four Dollars and NO/1OOTHS ($9,034.00), which
shall be held as security for Tenant's performance, provided under the terms of
this Lease, and provided Tenant is not in default, will be refunded to Tenant
at the end of the Term. In addition, Landlord agrees to credit to Tenants past
security deposit in the amount of One Thousand Eight Hundred Fifty Three and
92/100 Dollars ($1,853.92). Total cash security will then total $10,887.92.
The cash security deposit may be commingled with other funds of Landlord and no
interest shall accrue thereon or be payable by Landlord with respect thereto.
If all or any part of the security deposit is applied to an obligation of
Tenant hereunder, Tenant shall immediately upon request by Landlord restore the
security deposit to its original amount.
3. The following is added to Paragraph 4.5
Moving Allowance. Landlord shall pay to Tenant $4,517.00 to reimburse
Tenant for costs in connection with taking occupancy of the Premises. The
payment shall be made by Landlord within fifteen (15) days after the
Commencement Date and return by Tenant to Landlord of the Notice described in
Paragraph 2.2.
4. The following is added as Paragraph 12.1
Early Termination. Tenant shall have a one-time right to terminate
the Lease at the end of the thirty-sixth (36th) month of the Term, provided
that (i) Tenant shall not be in default under any of the terms of this Lease,
beyond applicable cure periods, (ii) Tenant shall not have assigned or sublet
the Premises in whole or in part, and (iii) Tenant give to Landlord ninety (90)
days advance written notice of its intention to terminate the Lease. In the
event Tenant elects to exercise this Early Termination Fee of Thirty Two
Thousand Three Hundred Sixty Nine Dollars and Fifty Cents ($32,369.50). The
Early Termination fee shall be paid to Landlord at the time Tenant provides
notice to Landlord of its exercise of this Early Termination option.
<TABLE>
<S> <C>
[INITIALS] [INITIALS]
- ------------------------------------------- ---------------------------------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
</TABLE>
<PAGE> 31
5. Right of First Offer to Lease Additional Space. Subject to the terms
and conditions hereof, Landlord hereby grants to Tenant a right of offer to
lease (the "Offer Right") the space known as Suite 160, and furthermore shown
on Exhibit A-1, of the Building (the "Offer Space") if the Offer Space becomes
available for occupancy before the second (2nd) anniversary of the Commencement
Date of this Lease. The term of any lease of Offer Space leased pursuant to
this provision shall end on the last day of the Term of this Lease. One time
during the first year of the Term and one time during the second year of the
Term, Landlord shall send Tenant a notice if the Offer Space is available and
Landlord desires to lease the Offer Space at that time. Landlord's notice shall
indicate the specific terms and conditions, including rent, upon which Landlord
desires to lease such Offer Space (the "Proposed Terms"). Tenant shall have
ten (10) days subsequent to the date of receipt (the "Offer Date") by Tenant of
notice from Landlord in which to exercise its option to lease the Offer Space
on the Proposed Terms.
In the event Tenant does not, within such ten (10) day period, accept
the offer on the Proposed Terms, Landlord shall be free to lease such Offer
Space to any third party without having to offer such space to Tenant.
Notwithstanding the foregoing, Tenant's right to accept any offer hereunder and
to lease the Offer Space is subject to the additional conditions precedent that
at the time Tenant exercises its right to lease the Offer Space and a the time
the lease for the Offer Space commences (i) No other party has elected to
exercise its prior right of first offer, if any, to lease the Offer Space, (ii)
Tenant shall not be in default under this Lease beyond any applicable grace or
cure periods, and (iii) Tenant shall not have sublet the Premises or assigned
this Lease.
<TABLE>
<S> <C>
[INITIALS] [INITIALS]
- ------------------------------------------- ---------------------------------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
</TABLE>
<PAGE> 32
PART IV EXHIBITS
<PAGE> 33
EXHIBIT A
PREMISES
Attach a copy of the Floor Plan showing the location of the Premises.
<PAGE> 34
[EXHIBIT A]
[Diagram Showing Office Space]
<PAGE> 35
EXHIBIT A-1 "OFFER SPACE"
[Diagram Showing Offer Space]
<PAGE> 36
EXHIBIT B
ALL THAT CERTAIN PROPERTY LOCATED IN FAIRFAX COUNTY, VIRGINIA:
Block One (1), Section 927, Reston, as the same is duly dedicated, platted and
recorded in Deed Book 5457 at Page 1841, among the land records of Fairfax
County, Virginia.
Being the same property as shown on an unrecorded site plan survey by Eugene C.
Dorn, Land Surveyor, entitled "RESTON - Section 927, Book 1, Post Trail Office
Park", dated April 14, 1986.
<PAGE> 37
EXHIBIT C
NOTICE OF LEASE TERM DATES
[Tenant]
Date: 12/2/93
MLC Group, Inc.
11150 Sunset Hills Road
Reston, Virginia 22090
Re: Lease dated July 14, 1993 between New England Mutual Life Insurance
Company, Landlord, and MLC Group, Inc., Tenant, (the "Lease")
concerning the Premises (as defined in the Lease) located at 11150
Sunset Hills Road, Reston, Virginia (the "Lease").
Ladies and Gentlemen:
In accordance with the Lease, please confirm the following by signing
below.
1. The Premises have been accepted by the Tenant as
being substantially complete in accordance with the Lease, and there is no
deficiency in construction.
2. The Tenant has possession of the Premises. The
Commencement Date of the Lease is November 20, 1993 and the Term shall end on
November 19, 1998.
Your rent checks should be made payable to The New England
Mutual Life Insurance Company [Managing Agent].
<TABLE>
<S> <C>
AGREED AND ACCEPTED
[Tenant] [Managing Agent]
MLC GROUP INC. THE CAREY WINSTON COMPANY
- ------------------------------------------- -------------------------------------------
a AGENT FOR THE NEW ENGLAND
----------------------------------------- -------------------------------------------
MUTUAL LIFE INS. CO.
By: /s/ BRUCE BOWEN -------------------------------------------
---------------------------------------- [SIG]
Its BRUCE BOWEN -------------------------------------------
------------------------------------------- PROPERTY MANAGEMENT
PRESIDENT -------------------------------------------
</TABLE>
<PAGE> 38
EXHIBIT D
TENANT IMPROVEMENTS
Landlord shall pay all costs (including, without limitation, all
engineering, demolition and construction costs and all architectural fees and
permitting expenses) associated with the following improvements ("Tenant
Improvements"): painting, carpeting or other improvements to the Premises in
an amount up to $11.07 per square feet of space within the Premises, or in the
aggregate up to $50,000.00 (the "Tenant Allowance"). If the costs of making
the Tenant Improvements is greater than the Tenant Allowance, the funds
expanded by Landlord in excess of the Tenant Allowance shall be additional rent
and shall be payable by Tenant immediately upon receipt of Landlord's invoice
therefor.
Landlord shall control the construction of the Tenant Improvements and
shall solicit bids from contractor to complete the work. Tenant may recommend
a contractor to do the work and Landlord shall solicit a bid from such
contractor in the same manner and on the same terms as Landlord solicits bids
from other contractors. Landlord agree to consider the bid submitted by
Tenant's contractor pursuant to the same criteria used to review other bids
submitted. Landlord shall have full discretion to select the contractor for
the Tenant Improvements, and shall not be obligated to select Tenant's
designated contractor.
<TABLE>
<S> <C>
[INITIALS] [INITIALS]
- ------------------------------------------- ---------------------------------------------------
LANDLORD'S INITIALS TENANT'S INITIALS
</TABLE>
<PAGE> 39
EXHIBIT E
RULES AND REGULATIONS
1. The requirements of Tenants will be attended to only upon application
at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of their regular duties,
unless under special instructions from the office of the Landlord.
2. Tenants, their clerks or employees, agents, visitors or licensees
shall at no time bring or keep upon their premises any inflammable,
combustible or explosive fluid, chemical or substance, except ordinary
cleaning supplies, without written consent of Landlord.
3. No animals or birds shall be kept in the Building, and the use of
premises as sleeping quarter is absolutely prohibited.
4. Canvassing, soliciting and peddling is prohibited and each Tenant
shall cooperate to prevent the same.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside
or inside of its premises or the Building without the written consent
of Landlord. In the event of Tenant's violation of this Rule,
Landlord may without liability remove same, and may charge the expense
incurred in such removal to the Tenant violating this Rule. Corridor
signs on doors shall be inscribed, painted or affixed for each Tenant
by Landlord at the expense of Landlord, all shall be of a size, color,
and style acceptable to Landlord. A building directory will be placed
in the first floor lobby by Landlord. Landlord shall have the right
to prohibit any advertising by any Tenant which, in Landlord's
opinion, tends to impair the reputation of the Building or its
desirability as a high- quality office building and upon written
notice from Landlord, Tenant shall refrain from or discontinue such
advertising.
6. If a Tenant desires telegraphic or telephonic connections, or the
installation of any other electric wiring which will be installed at
Tenants expense, the Landlord will, upon receiving a written request
from Tenant, direct the electricians as to where and how the wires are
to be introduced and run, and without such directions no boring,
cutting or installation or wires will be permitted. No Tenant shall
install any radio or television antenna connected to the Building,
either inside or outside its premises.
7. No furniture or other material shall be moved into or out of the
Building without first notifying the superintendent, and the moving
thereof shall be under his direction and control. In order to
minimize inconvenience to other Tenants, safes, furniture, boxes or
other bulky articles shall be delivered into a Tenant's premises only
with the written consent of Landlord, and then only by such means as
Landlord may in writing direct. Safes and other heavy articles shall
be placed by Tenant in such
<PAGE> 40
places only as are first approved in writing by Landlord, and any
damage done to the Building or to Tenants or to other persons by
taking safes or other heavy articles in or out of the premises or the
Building from overloading a floor, or in any other manner, shall be
paid for by the Tenant causing such damage. Landlord reserves the
right to inspect all freight to be brought into the Building and to
exclude from the Building all freight which violates any of these
Rules and Regulations of the Lease of which these Rules and
Regulations are a part.
8. Business machines and mechanical equipment which cause noise or
vibration that may be transmitted to the structure of the Building or
to any space therein shall be installed and maintained by Tenants at
their expense, on vibration eliminators or other devices sufficient to
eliminate such noise and vibrations.
9. No hand trucks shall be used in any space, or in the public halls of
the Building except those equipped with pneumatic rubber tires and
side guards.
10. Automatic elevator service shall be furnished regularly by Landlord on
business days, daily from 8:00 a.m. to 6:00 p.m. and on Saturday from
8:00 a.m. to 2:00 p.m., and an elevator shall be subject to call at
all other reasonable times. Heat and air conditioning will be
furnished by Landlord when as required, daily from 8:00 a.m. to 6:00
p.m., Saturday from 9:00 a.m. to 1:00 p.m.
11. Landlord shall furnish janitor services in the premises. No person
shall be employed by any Tenant to do janitor work in its premises,
and no persons, other than the janitors of the Building shall clean
the premises, unless Landlord shall consent thereto. Any person
employed by a Tenant, with Landlord's consent as aforesaid, to do
janitor work shall, while in the Building, and outside of the
premises, but subject to, and under the control and direction of, the
superintendent of the Building (but no as agent or servant said
superintendent or of the Landlord).
12. Landlord reserves the right to exclude from the Building between the
hours of 6:00 p.m. and 8:00 a.m. and at all hours on Sundays and legal
holidays all persons who do not present a pass to the Building signed
by Landlord. Each Tenant shall be responsible for all person for whom
it requests such passes and shall be liable to Landlord for all acts
of such persons.
13. Landlord and its Agent reserve the following rights:
a. during the last ninety (90) days of the term of any lease, if
during or prior to that time Tenant vacates the premises, to
decorate, remodel, repair, alter or otherwise prepare the
premises for re-occupancy;
b. to have pass keys to the premises;
c. to change the name by which the Building is commonly known
and/or its mail address at any time;
d. to enter upon the premises and exercises any or all of the
foregoing rights hereby served without being deemed guilty of
any eviction or disturbance of
<PAGE> 41
a Tenant's use possession and without being liable in any
manner to any Tenant;
e. to make such other and further reasonable rules and
regulations as in Landlord's judgment may from time to time be
needful for the safety, care and cleanliness of the premises
or the Building, and for the preservation of good order
therein, and any such other or further rules and regulations
shall be binding upon all Tenants with the same force and
effect as they had been inserted herein at the time of the
execution hereof.
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
(Phillip G. Norton)
THIS EMPLOYMENT AGREEMENT is hereby made as of September 1, 1996, by
and between PHILLIP G. NORTON, hereinafter referred to as the "Employee," and
MLC HOLDINGS, INC., a Delaware corporation, whose principal place of business
is located at 11150 Sunset Hills Road, Suite 110, Reston, Virginia 22190,
hereinafter referred to as the "Employer."
RECITALS:
A. The Employer is engaged in the business of specialized asset
financing with a focus on the leasing of information technology equipment
and services.
B. The Employee has substantial experience in the business of the
Employer.
C. The Employer desires to secure the services of the Employee,
and the Employee is willing to be employed as President and Chief Executive
Officer of the Employer and its subsidiaries, including without limitation MLC
Group, Inc. and MLC GATX, Inc. (hereinafter, collectively, the "Company"), on
the terms, covenants and conditions hereinafter set forth.
THEREFORE, in consideration of the mutual promises and agreements
hereinafter set out, the Employer and the Employee agree as follows:
1. Employment. The Employer hereby employs, engages, and hires
the Employee, and the Employee hereby accepts employment with the Employer as
President and Chief Executive Officer, to render such services for the Employer
as determined by the Board of Directors of the Employer. The Employee accepts
and agrees to such hiring, engagement and employment, subject to the general
supervision and pursuant to the orders, advice and direction of the directors
of the Employer.
2. Extent of Efforts; Other Employment. The Employee agrees that
the Employee shall devote his entire productive time and attention to the
business affairs of the Employer and, to the best of the Employee's ability,
experience and talents, shall perform all of the duties that may be required of
and from the Employee pursuant to the express and implicit terms hereof to the
reasonable satisfaction of the Employer. The Employee shall not engage in any
other business duties or pursuits whatsoever, or directly or indirectly render
any services of a business, commercial, or professional nature to any person or
organization, whether for compensation or otherwise, without the prior written
consent of the Employer's Board of Directors. This paragraph 2 shall not
prohibit the making of passive, personal investments, nor the conduct to a
reasonable extent of private business affairs if those activities do not
interfere with the services required under this Agreement.
<PAGE> 2
3. Term and Termination of Employment.
A. Term - Subject to the provisions of Section 3(B), the
"Term" of the Employee's employment shall be three (3) years, commencing on the
date of closing of the initial public offering by the Employer (the "Effective
Date"), and shall renew automatically for successive one (1) year periods
unless a party hereto provides written notice to terminate to the other party
prior to thirty (30) days before the end of the original period or any
successive period.
B. Termination - Either the Employee or the Employer may
terminate the Employee's employment at any time upon thirty (30) days advance
written notice. This Agreement shall automatically terminate upon the
occurrence of any of the following events:
(i) The death of the Employee;
(ii) The "Permanent Disability" (hereinafter
defined) of the Employee; or
(iii) Written notice from the Board of Directors
to the Employee of his termination for "Cause" (hereinafter defined).
As used herein, "Permanent Disability" means any mental or physical
illness or disability continuing for a period of more than six (6) consecutive
months which renders the Employee unable to perform his duties and services
hereunder in a satisfactory manner. In the event of any disputes over the
existence or commencement of such disability, the issue shall be determined by
a qualified physician mutually agreed to by the Employer and the Employee , or,
if applicable, the Employee's legal representative. The determination of such
physician shall be conclusive and binding on the parties hereto.
As used herein, "Cause" means: gross neglect of duty, prolonged
absence from duty without the consent of the Employer, the acceptance by the
Employee of a position with another employer without consent, intentionally
engaging in any activity which is in conflict with or adverse to the business
or other interests of the Company, willful misconduct on the part of the
Employee, misfeasance or malfeasance of duty causing a violation of any law
which is reasonably determined to be detrimental to the Company, breach of a
fiduciary duty owed to the Company or any material breach of this Agreement by
the Employee which has not been corrected by the Employee within (30) days
after his receipt of notice of such breach from the Employer.
4. Compensation of the Employee. As the Employee's entire
compensation (exclusive of director's fees, if any) for all services rendered
to the Employer during the term of this Agreement, the Employee shall have and
receive, subject to withholding and other applicable employment taxes:
A. Commencing on the first day of the first month immediately
following the Effective Date (the "Salary Commencement Date"), a "basic salary"
at the rate of Two Hundred Thousand and 00/100 Dollars ($200,000) per annum,
payable in cash or good check, not less frequently than
2
<PAGE> 3
monthly and not later than the last day of the month in question; provided,
however, that the rate of such salary shall be reviewed by the Board of
Directors of the Employer not less often than annually and may be increased
(but not decreased) at each yearly renewal date. Prior to the Salary
Commencement Date, the Employee shall continue to receive his basic salary as
in effect on the date of this Agreement.
B. Bonus compensation over and above the basic salary equal
to five percent (5%) of increase of the net income before taxes (as defined on
Exhibit A attached hereto) over net income before taxes for the preceding
fiscal year, but not to exceed One Hundred Fifty Thousand and 00/100 Dollars
($150,000) for any fiscal year, as more particularly determined by the formula
set forth on Exhibit A hereto and payable at such time or times as the Board of
Directors in its discretion may from time to time determine.
C. The right to receive an immediately exercisable grant of
an option to acquire 130,000 shares in accordance with that certain
Non-Qualified Stock Option Agreement by and between the Employer and the
Employee, a copy of which is attached hereto as Exhibit B.
D. The right to receive or participate in any additional
"fringe" benefits, including but not limited to insurance programs and pension
or profit-sharing plans, which may from time to time be made available to
executives of the Employer.
E. Upon termination of employment for any reason, the right
to have any insurance policies that the Employer then owns on his life assigned
to him without further consideration.
F. Upon termination of employment, other than for cause, the
right to receive the Washington Bullets basketball season tickets (for the then
current and all future seasons) held by the Employer.
5. Facilities and Expenses.
A. The Employer shall provide the Employee with a private
office, office equipment, supplies and other facilities and services
consistent with the current practices of the Employer, and suitable to the
Employee's position and adequate for the performance of his duties.
B. The Employee may be authorized from time to time to incur
reasonable expenses for promoting the business of the corporation, including
expenses for entertainment, travel, and similar items. The Employer will
reimburse the Employee for all such authorized expenses upon the presentation
by the Employee of an itemized account of such expenditures. The Employee
shall provide the Employee's own personal transportation, except for such times
as the Employee is using the Employer-owned vehicles for official business.
3
<PAGE> 4
6. Reimbursement of Disallowed Expenses. If any salary payment,
medical reimbursement, employee fringe benefit, expense allowance payment, or
other expense incurred by the Employer for the benefit of the Employee is
disallowed, in whole or in part, as a deductible expense of the Employer for
federal income tax purposes, the Employee shall reimburse the Employer upon
notice and demand, to the full extent of the disallowance. This legally
enforceable obligation is in accordance with the provisions of Revenue Ruling
69-115 and is for the purpose of entitling the Employee to a business expense
deduction for the taxable year in which the repayment is made to the Employer.
7. Vacation and Sick Leave.
A. The Employee shall accrue four (4) weeks vacation each
calendar year and may take such vacation at times to be determined in the
manner most convenient to the business of the Employer. In addition, the
Employee may take time off at such times as may be determined by the Board of
Directors to attend such meetings and postgraduate courses as may directly
benefit the Employer and the Employee. Unused days of vacation may not be
carried over to future years. In addition, the Employee may take as holidays
five (5) days of the Employee's choosing, so long as it is convenient to and
approved by the Employer.
B. The Employee shall accrue ___________ (__) days sick leave
in each calendar month, not to exceed a total of thirty (30) days. Unused days
of sick leave may not be carried over to future years. Any date used for the
purpose of determining the date of permanent or partial disability under this
Agreement shall be postponed until such time as all of the Employee's sick
leave shall be exhausted.
8. Illness or Incapacity. If the Employee becomes unable to
devote the Employee's full time to the business of the Employer because of
illness or incapacity during the term of this Agreement, then during such
period of illness or incapacity, the Employee's compensation shall be as
follows:
A. For the first six (6) months thereof--One Hundred percent
(100%) of the compensation provided for by paragraph 4 of this Agreement.
B. If the Employee shall not have resumed the Employee's
duties within the six (6) month period specified above, then the Employee's
compensation hereunder shall be terminated as of the end of the six (6) month
period, and the Employer shall have no further financial obligation to the
Employee.
9. Death During Employment. If the Employee dies during the term
of the Employee's employment, the Employer shall pay to the estate of the
Employee the basic salary which would otherwise be payable to the Employee up
to the end of the month in which the Employee's death occurs, not including any
bonuses. The Employer shall have no further financial obligations to the
Employee or to the Employee's estate under the terms of this Agreement.
4
<PAGE> 5
10. Non-Competition Agreement.
During the duration of this Agreement and any extensions or
renewals hereof and for a period of one (1) year after the later of (i) the
date this Agreement is terminated by the Employer for cause or by voluntary
termination by the Employee, or (ii) the expiration of this Agreement at the
end of the initial or any renewal term or extensions thereof, the Employee
agrees as follows:
A. The Employee agrees that the Employee shall not:
(i) in any capacity whatsoever, whether as a
proprietor, partner, investor, corporate stockholder, director, officer,
employee, consultant, independent contractor, co-venturer, employer, agent,
representative, or otherwise, own, engage directly or indirectly in, or be
interested in a business or business activities competing with the Employer in
the United States;
(ii) in any capacity whatsoever, whether as a
lender, guarantor, accommodation party, financier, investor, or otherwise,
assist or attempt to assist with respect to the providing of capital needs,
borrowing needs, or credit needs of any person, persons or entities of every
nature and description, other than the Employer, who or which shall be engaged
in, or intend to be engaged in, a business or business activities competing
with the Employer in the United States.
B. The Employee hereby agrees that the Employee will not
at any time disclose to any person, individual or entity, who or which is, or
reasonably may be expected to be, in competition with the Employer in the
United States, any confidential information or trade secrets of the Employer,
the contents of any client lists of the Employer, or the general needs of any
client or other contracting parties with the Employer; provided, however, the
foregoing shall not prevent such Employee from responding to the request of a
governmental agency or pursuant to a court order or as otherwise required by
law.
C. The Employee hereby agrees that the Employee shall
not at any time after execution of this Agreement, interfere with, solicit, or
disrupt the relationship, contractual or otherwise, between the Employer and
its clients, suppliers, agents, consultants, officers or employees.
D. The Employee acknowledges (i) that the foregoing
provisions are reasonable as to time and areas as to which their activities are
to be restricted, (ii) that the Employee understands the same and intends to be
fully bound with respect thereto, and (iii) that such limitations upon the
Employee's activities for the time and in the designated market area shall not
prevent the Employee from earning a reasonable livelihood during the two year
period following the termination or expiration of this Agreement.
E. Recognizing that a breach of any covenant contained
in Section 10 hereof would cause the Employer irreparable injury and that
damages at law would be difficult to ascertain, the Employee hereby consents to
the granting of equitable relief (without the posting of any bond by
5
<PAGE> 6
the Employer) by way of a restraining order or temporary or permanent
injunction by any court of competent jurisdiction to prohibit the breach or
enforce the performance of any covenant contained in Section 10 hereof.
Employee shall only be liable for actual monetary damages to the Company, and
not any consequential or punitive damages for any breach of any covenant of
Section 10 hereof.
11. Registration Rights. If the Employer at any time proposes to
file a registration statement on Form S-3 or any successor thereto (or other
applicable SEC registration form available for registering restricted stock),
the Employer shall give written notice to Employee of its intention to do so.
Upon the written request of Employee, received by the Employer within 30 days
after the giving of any such notice by the Employer, to register any of
Employee's shares of Employer stock, the Employee will use its best efforts to
cause the stock as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Employer, all to the extent requisite to permit the sale or
other disposition by the Employee of such stock so registered.
12. Severability. All agreements and covenants contained herein
are severable, and in the event any of them shall be held to be invalid by any
competent court, this contract shall be interpreted as if such invalid
agreements or covenants were not contained herein.
13. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and sent by certified or
registered mail, return receipt requested, to the parties at the following
addresses:
TO THE EMPLOYER:
MLC Group, Inc.
11150 Sunset Hills Road
Suite 110
Reston, Virginia 22190
TO THE EMPLOYEE:
Phillip G. Norton
1019 Basil Road
McLean, Virginia 22101
14. Assignment. This Agreement is personal to each of the parties
hereto and neither may assign or delegate any of the party's rights or
obligations hereunder without first obtaining the written consent of the other
party.
15. Miscellaneous.
A. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties hereto.
B. This Agreement shall be governed in all respects by the
laws of or applicable to the State of Delaware. The paragraph headings in this
Agreement are included solely for convenience and shall not affect or be used
in connection with the interpretation of this Agreement.
C. This contract contains the complete agreement concerning
the employment arrangement between the parties and shall, as of the
commencement of the term of employment hereunder, supersede all other
agreements between the parties. The parties stipulate that neither of
6
<PAGE> 7
them has made any representation with respect to the subject matter of this
Agreement or any representations, including the execution and delivery hereof,
except such representations as are specifically set forth herein, and each of
the parties acknowledges that the party has relied on the party's own judgment
in entering into this Agreement.
D. The waiver by the Employer of a breach of any condition of
this Agreement by the Employee shall not be construed as a waiver of any
subsequent breach by the Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement as the
date first above written.
EMPLOYER:
MLC HOLDINGS, INC., a Delaware
corporation
By:
--------------------------------
Bruce M. Bowen, Executive
Vice President
EMPLOYEE:
-----------------------------------
PHILLIP G. NORTON
7
<PAGE> 8
EXHIBIT A
Bonus Compensation Formula
8
<PAGE> 9
EXHIBIT B
Copy of Stock Option Agreement
9
<PAGE> 10
EXHIBIT B
TO
EXHIBIT 10.7
NONQUALIFIED STOCK OPTION AGREEMENT
(Phillip G. Norton)
MLC Holdings, Inc. (the "Company"), in consideration of the value of
the continuing services of Phillip G. Norton (hereinafter called "Optionee"),
which continuing services the grant of this option is designed to secure, and
in consideration of the undertakings made herein by Optionee, hereby grants to
Optionee an option (the "Option"), evidenced by this option agreement ("Option
Agreement"), exercisable for the period and upon the terms hereinafter set out,
to purchase one hundred thirty thousand (130,000) shares of common stock of the
Company ("Common Stock") at a price equal to one hundred percent (100%) of the
opening price of the common stock of the Company in connection with the initial
public offering by the Company (the "Offering") which becomes binding on the
Company upon the completion of the Offering.
1. Term of Option. This Option is granted and dated on the date
set forth next above the signature shown (sometimes hereinafter called the
"Date of Grant") and will terminate and expire, to the extent not previously
exercised, ten (10) years after the Date of Grant, or at such earlier time as
may be specified in Section 4 hereof.
Except as otherwise provided in this Option Agreement, this Option is
exercisable as follows:
(a) 32,500 shares at any time and from time to time after the
Date of Grant and exercisable upon the completion of the Offering and prior to
the termination of the Option;
(b) 32,500 additional shares at any time and from time to
time after the expiration of one year from the Date of Grant and prior to the
termination of the Option;
(c) 32,500 additional shares at any time and from time to
time after the expiration of two years from the Date of Grant and prior to the
termination of the Option; and
(d) 32,500 additional shares at any time and from time to
time after the expiration of three years from the Date of Grant and prior to the
termination of the Option.
2. Non-Transferability. This Option is not assignable or
transferable otherwise than by will or by the laws of descent and distribution.
During the lifetime of the Optionee, this Option shall be exercisable only by
him.
3. Manner of Exercise. The Optionee (or other person entitled to
exercise the Option) shall purchase shares of Common Stock subject hereto by
the payment to the Company of the purchase price therefore in full. The Option
may be exercised from time to time in multiples of 100 shares by written notice
to the Company stating the full number of shares to be purchased and the time
of deliver thereof, which shall be at least 15 days after the giving of notice
unless an earlier date shall have been agreed upon between Optionee (or other
person entitled to exercise the Option) and the Company, accompanied by full
payment for the shares by certified check or the equivalent or otherwise
acceptable to the Company. At the time of delivery, the Company shall, without
transfer or issue tax to the Optionee (or other person entitled to exercise the
Option) deliver at the principal office of the Company, or at such other place
as shall be mutually agreed upon, a certificate or certificates for such
shares; provided, however, that the time of delivery may be postponed by the
Company for such period as may be required for it to comply with reasonable
diligence with any requirements of law. If the Optionee (or other person
entitled to exercise the Option) fails to accept delivery of all or any part of
the number of shares specified in such notice upon tender of delivery thereof,
Optionee's payment shall be returned and the right to exercise the Option with
respect to such undelivered shares shall be thereupon terminated.
4.01. The Option shall terminate and may no longer be
exercised if the Optionee ceases to be an employee of the Company, except
that (i) if the Optionee dies while in the employ of
<PAGE> 11
the Company, or within two (2) months after the termination of such employment,
or within six (6) months if determined to be permanently disabled, such Option
may be exercised on his behalf as set forth below; and (ii) if the Optionee's
employment shall have been terminated for any reason other than his death, or
permanent disability, he may at any time within a period of two (2) months
after such termination exercise such Option to the extent that the Option was
exercisable on the date of the termination of his employment; provided,
however, that in the case of termination for cause by the Company of the
employment of the Optionee, or if an employee shall terminate his employment in
violation of any employment agreement with the Company, then the Option shall
terminate and expire concurrently with the termination of his employment and
shall not thereafter be exercisable to any extent. The definition of "cause"
shall be as set forth in paragraph 4.03 below for each Optionee.
4.02 If the Optionee dies during the term of the Option
while in the employ of the Company, or within the two (2) month period after
the termination of employment, or within six (6) months if determined to be
permanently disabled without having fully exercised the Option, the executor or
administrator of his estate or the person who inherits the right to exercise
the Option by bequest or inheritance shall have the right within twelve (12)
months after the Optionee's death to purchase the number of shares which the
deceased Optionee was entitled to purchase at the date of his death, after
which time the Option shall lapse.
4.03 The term "cause" as used herein shall mean gross
neglect of duty, prolonged absence from duty without the consent of the
Company, the acceptance by Optionee of a position with another employer without
consent, intentionally engaging in any activity which is in conflict with or
adverse to the business or other interests of the Company, willful misconduct
on the part of Optionee, misfeasance or malfeasance of duty causing a violation
of any law which is reasonably determined to be detrimental to the Company,
breach of a fiduciary duty owed to the Company or any material breach of an
employment contract which has not been corrected by Optionee within (30) days
after his receipt of notice of such breach from the Company.
5. Adjustments on Recapitalization. The number of shares of
Common Stock subject hereto and the option price per share shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of the Common Stock resulting from the subdivision or consolidation of
shares, or the payment of a stock dividend after the Date of Grant, or other
decrease or increase in the shares of Common Stock outstanding effected without
receipt of consideration by the Company; provided, however, that any option to
purchase fractional shares resulting from such adjustments shall be eliminated.
6. Adjustments on Reorganization. If the Company shall at any
time merge or consolidate with or into another corporation, the holder of this
Option will thereafter receive, upon the exercise thereof, the securities
and/or property to which a holder of the number of shares of Common Stock then
deliverable upon the exercise of the Option would have been entitled upon such
merger or consolidation, and the Company shall take such steps in connection
with such merger or consolidation as may be necessary to assure that the
provisions of this Agreement shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or property thereafter
deliverable upon the exercise of such option; provided, however, that under no
circumstances shall
2
<PAGE> 12
any option exercise date be accelerated in contemplation of such action and the
surviving entity following any such action shall at all times be entitled, in
its sole discretion, to tender options on such terms and conditions as such
surviving entity may deem appropriate. A sale of all or substantially all of
the assets of the Company for a consideration (apart from the assumption of
obligations) consisting primarily of securities shall be deemed a merger or
consolidation for the foregoing purposes.
IN WITNESS WHEREOF, this Option Agreement is executed as of the _____
day of September, 1996.
MLC HOLDINGS, INC.
By:
--------------------------
Bruce M. Bowen
Executive Vice President
The undersigned Optionee hereby accepts the benefits of the foregoing
Incentive Stock Option Agreement.
- ------------------------- ------------------------------
Date Phillip G. Norton
3
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
(Bruce M. Bowen)
THIS EMPLOYMENT AGREEMENT is hereby made as of September 1, 1996, by
and between BRUCE M. BOWEN, hereinafter referred to as the "Employee," and MLC
HOLDINGS, INC., a Delaware corporation, whose principal place of business is
located at 11150 Sunset Hills Road, Suite 110, Reston, Virginia 22190,
hereinafter referred to as the "Employer."
RECITALS:
A. The Employer is engaged in the business of specialized asset
financing with a focus on the leasing of information technology equipment
and services.
B. The Employee has substantial experience in the business of the
Employer.
C. The Employer desires to secure the services of the Employee,
and the Employee is willing to be employed as Executive Vice President and
Chief Financial Officer of the Employer and its subsidiaries, including without
limitation MLC Group, Inc. and MLC GATX, Inc. (hereinafter, collectively, the
"Company"), on the terms, covenants and conditions hereinafter set forth.
THEREFORE, in consideration of the mutual promises and agreements
hereinafter set out, the Employer and the Employee agree as follows:
1. Employment. The Employer hereby employs, engages, and hires
the Employee, and the Employee hereby accepts employment with the Employer as
Executive Vice President and Chief Financial Officer, to render such services
for the Employer as determined by the Board of Directors of the Employer. The
Employee accepts and agrees to such hiring, engagement and employment, subject
to the general supervision and pursuant to the orders, advice and direction of
the directors of the Employer.
2. Extent of Efforts; Other Employment. The Employee agrees that
the Employee shall devote his entire productive time and attention to the
business affairs of the Employer and, to the best of the Employee's ability,
experience and talents, shall perform all of the duties that may be required of
and from the Employee pursuant to the express and implicit terms hereof to the
reasonable satisfaction of the Employer. The Employee shall not engage in any
other business duties or pursuits whatsoever, or directly or indirectly render
any services of a business, commercial, or professional nature to any person or
organization, whether for compensation or otherwise, without the prior written
consent of the Employer's Board of Directors. This paragraph 2 shall not
prohibit the making of passive, personal investments, nor the conduct to a
reasonable extent of private business affairs if those activities do not
interfere with the services required under this Agreement.
<PAGE> 2
3. Term and Termination of Employment.
A. Term - Subject to the provisions of Section 3(B), the
"Term" of the Employee's employment shall be three (3) years, commencing on the
date of closing of the initial public offering by the Employer (the "Effective
Date"), and shall renew automatically for successive one (1) year periods
unless a party hereto provides written notice to terminate to the other party
prior to thirty (30) days before the end of the original period or any
successive period.
B. Termination - Either the Employee or the Employer may
terminate the Employee's employment at any time upon thirty (30) days advance
written notice. This Agreement shall automatically terminate upon the
occurrence of any of the following events:
(i) The death of the Employee;
(ii) The "Permanent Disability" (hereinafter
defined) of the Employee; or
(iii) Written notice from the Board of Directors
to the Employee of his termination for "Cause" (hereinafter defined).
As used herein, "Permanent Disability" means any mental or physical
illness or disability continuing for a period of more than six (6) consecutive
months which renders the Employee unable to perform his duties and services
hereunder in a satisfactory manner. In the event of any disputes over the
existence or commencement of such disability, the issue shall be determined by
a qualified physician mutually agreed to by the Employer and the Employee , or,
if applicable, the Employee's legal representative. The determination of such
physician shall be conclusive and binding on the parties hereto.
As used herein, "Cause" means: gross neglect of duty, prolonged
absence from duty without the consent of the Employer, the acceptance by the
Employee of a position with another employer without consent, intentionally
engaging in any activity which is in conflict with or adverse to the business
or other interests of the Company, willful misconduct on the part of the
Employee, misfeasance or malfeasance of duty causing a violation of any law
which is reasonably determined to be detrimental to the Company, breach of a
fiduciary duty owed to the Company or any material breach of this Agreement by
the Employee which has not been corrected by the Employee within (30) days
after his receipt of notice of such breach from the Employer.
4. Compensation of the Employee. As the Employee's entire
compensation (exclusive of director's fees, if any) for all services rendered
to the Employer during the term of this Agreement, the Employee shall have and
receive, subject to withholding and other applicable employment taxes:
A. Commencing on the first day of the first month immediately
following the Effective Date (the "Salary Commencement Date"), a "basic salary"
at the rate of One Hundred Fifty Thousand and 00/100 Dollars ($150,000) per
annum, payable in cash or good check, not less frequently than
2
<PAGE> 3
monthly and not later than the last day of the month in question; provided,
however, that the rate of such salary shall be reviewed by the Board of
Directors of the Employer not less often than annually and may be increased
(but not decreased) at each yearly renewal date. Prior to the Salary
Commencement Date, the Employee shall continue to receive his basic salary as
in effect on the date of this Agreement.
B. Bonus compensation over and above the basic salary equal
to five percent (5%) of increase of the net income before taxes (as defined on
Exhibit A attached hereto) over net income before taxes for the preceding
fiscal year, but not to exceed One Hundred Thousand and 00/100 Dollars
($100,000) for any fiscal year, as more particularly determined by the formula
set forth on Exhibit A hereto and payable at such time or times as the Board of
Directors in its discretion may from time to time determine.
C. The right to receive an immediately exercisable grant of
an option to acquire 15,000 shares in accordance with that certain Nonqualified
Stock Option Agreement by and between the Employer and the Employee, a copy of
which is attached hereto as Exhibit B.
D. The right to receive or participate in any additional
"fringe" benefits, including but not limited to insurance programs and pension
or profit-sharing plans, which may from time to time be made available to
executives of the Employer.
E. Upon termination of employment, other than for cause,
the right to receive the membership at Lowe's Island Golf Club held by the
Employer.
5. Facilities and Expenses.
A. The Employer shall provide the Employee with a private
office, office equipment, supplies and other facilities and services
consistent with the current practices of the Employer, and suitable to the
Employee's position and adequate for the performance of his duties.
B. The Employee may be authorized from time to time to incur
reasonable expenses for promoting the business of the corporation, including
expenses for entertainment, travel, and similar items. The Employer will
reimburse the Employee for all such authorized expenses upon the presentation
by the Employee of an itemized account of such expenditures. The Employee
shall provide the Employee's own personal transportation, except for such times
as the Employee is using the Employer-owned vehicles for official business.
6. Reimbursement of Disallowed Expenses. If any salary payment,
medical reimbursement, employee fringe benefit, expense allowance payment, or
other expense incurred by the Employer for the benefit of the Employee is
disallowed, in whole or in part, as a deductible expense of the Employer for
federal income tax purposes, the Employee shall reimburse the Employer upon
notice and demand, to the full extent of the disallowance. This legally
enforceable obligation
3
<PAGE> 4
is in accordance with the provisions of Revenue Ruling 69-115 and is for the
purpose of entitling the Employee to a business expense deduction for the
taxable year in which the repayment is made to the Employer.
7. Vacation and Sick Leave.
A. The Employee shall accrue four (4) weeks vacation each
calendar year and may take such vacation at times to be determined in the
manner most convenient to the business of the Employer. In addition, the
Employee may take time off at such times as may be determined by the Board of
Directors to attend such meetings and postgraduate courses as may directly
benefit the Employer and the Employee. Unused days of vacation may not be
carried over to future years. In addition, the Employee may take as holidays
five (5) days of the Employee's choosing, so long as it is convenient to and
approved by the Employer.
B. The Employee shall accrue ___________ (__) days sick leave
in each calendar month, not to exceed a total of thirty (30) days. Unused days
of sick leave may not be carried over to future years. Any date used for the
purpose of determining the date of permanent or partial disability under this
Agreement shall be postponed until such time as all of the Employee's sick
leave shall be exhausted.
8. Illness or Incapacity. If the Employee becomes unable to
devote the Employee's full time to the business of the Employer because of
illness or incapacity during the term of this Agreement, then during such
period of illness or incapacity, the Employee's compensation shall be as
follows:
A. For the first six (6) months thereof--One Hundred percent
(100%) of the compensation provided for by paragraph 4 of this Agreement.
B. If the Employee shall not have resumed the Employee's
duties within the six (6) month period specified above, then the Employee's
compensation hereunder shall be terminated as of the end of the six (6) month
period, and the Employer shall have no further financial obligation to the
Employee.
9. Death During Employment. If the Employee dies during the term
of the Employee's employment, the Employer shall pay to the estate of the
Employee the basic salary which would otherwise be payable to the Employee up
to the end of the month in which the Employee's death occurs, not including any
bonuses. The Employer shall have no further financial obligations to the
Employee or to the Employee's estate under the terms of this Agreement.
10. Non-Competition Agreement.
During the duration of this Agreement and any extensions or
renewals hereof and for a period of one (1) year after the later of (i) the
date this Agreement is terminated by the
4
<PAGE> 5
Employer for cause or by voluntary termination by the Employee, or (ii) the
expiration of this Agreement at the end of the initial or any renewal term or
extensions thereof, the Employee agrees as follows:
A. The Employee agrees that the Employee shall not:
(i) in any capacity whatsoever, whether as a
proprietor, partner, investor, corporate stockholder, director, officer,
employee, consultant, independent contractor, co-venturer, employer, agent,
representative, or otherwise, own, engage directly or indirectly in, or be
interested in a business or business activities competing with the Employer in
the United States;
(ii) in any capacity whatsoever, whether as a
lender, guarantor, accommodation party, financier, investor, or otherwise,
assist or attempt to assist with respect to the providing of capital needs,
borrowing needs, or credit needs of any person, persons or entities of every
nature and description, other than the Employer, who or which shall be engaged
in, or intend to be engaged in, a business or business activities competing
with the Employer in the United States.
B. The Employee hereby agrees that the Employee will not
at any time disclose to any person, individual or entity, who or which is, or
reasonably may be expected to be, in competition with the Employer in the
United States, any confidential information or trade secrets of the Employer,
the contents of any client lists of the Employer, or the general needs of any
client or other contracting parties with the Employer; provided, however, the
foregoing shall not prevent such Employee from responding to the request of a
governmental agency or pursuant to a court order or as otherwise required by
law.
C. The Employee hereby agrees that the Employee shall
not at any time after execution of this Agreement, interfere with, solicit, or
disrupt the relationship, contractual or otherwise, between the Employer and
its clients, suppliers, agents, consultants, officers or employees.
D. The Employee acknowledges (i) that the foregoing
provisions are reasonable as to time and areas as to which their activities are
to be restricted, (ii) that the Employee understands the same and intends to be
fully bound with respect thereto, and (iii) that such limitations upon the
Employee's activities for the time and in the designated market area shall not
prevent the Employee from earning a reasonable livelihood during the two year
period following the termination or expiration of this Agreement.
E. Recognizing that a breach of any covenant contained
in Section 10 hereof would cause the Employer irreparable injury and that
damages at law would be difficult to ascertain, the Employee hereby consents to
the granting of equitable relief (without the posting of any bond by the
Employer) by way of a restraining order or temporary or permanent injunction by
any court of competent jurisdiction to prohibit the breach or enforce the
performance of any covenant contained in Section 10 hereof. Employee shall
only be liable for actual monetary damages to the Company, and not any
consequential or punitive damages for any breach of any covenant of Section 10
hereof.
5
<PAGE> 6
11. Registration Rights. If the Employer at any time proposes to
file a registration statement on Form S-3 or any successor thereto (or other
applicable SEC registration form available for registering restricted stock),
the Employer shall give written notice to Employee of its intention to do so.
Upon the written request of Employee, received by the Employer within 30 days
after the giving of any such notice by the Employer, to register any of
Employee's shares of Employer stock, the Employee will use its best efforts to
cause the stock as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Employer, all to the extent requisite to permit the sale or
other disposition by the Employee of such stock so registered.
12. Severability. All agreements and covenants contained herein
are severable, and in the event any of them shall be held to be invalid by any
competent court, this contract shall be interpreted as if such invalid
agreements or covenants were not contained herein.
13. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and sent by certified or
registered mail, return receipt requested, to the parties at the following
addresses:
TO THE EMPLOYER:
MLC Group, Inc.
11150 Sunset Hills Road
Suite 110
Reston, Virginia 22190
TO THE EMPLOYEE:
Bruce M. Bowen
10895 Lake Windermere Drive
Great Falls, VA 22066
14. Assignment. This Agreement is personal to each of the parties
hereto and neither may assign or delegate any of the party's rights or
obligations hereunder without first obtaining the written consent of the other
party.
15. Miscellaneous.
A. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties hereto.
B. This Agreement shall be governed in all respects by the
laws of or applicable to the State of Delaware. The paragraph headings in this
Agreement are included solely for convenience and shall not affect or be used
in connection with the interpretation of this Agreement.
C. This contract contains the complete agreement concerning
the employment arrangement between the parties and shall, as of the
commencement of the term of employment hereunder, supersede all other
agreements between the parties. The parties stipulate that neither of them has
made any representation with respect to the subject matter of this Agreement or
any representations, including the execution and delivery hereof, except such
representations as are specifically set forth herein, and each of the parties
acknowledges that the party has relied on the party's own judgment in entering
into this Agreement.
6
<PAGE> 7
D. The waiver by the Employer of a breach of any condition of
this Agreement by the Employee shall not be construed as a waiver of any
subsequent breach by the Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement as the
date first above written.
EMPLOYER:
MLC HOLDINGS, INC., a Delaware
corporation
By:
-----------------------------
Phillip G. Norton, President
EMPLOYEE:
--------------------------------
BRUCE M. BOWEN
7
<PAGE> 8
EXHIBIT A
Bonus Compensation Formula
8
<PAGE> 9
EXHIBIT B
Copy of Stock Option Agreement
9
<PAGE> 10
EXHIBIT B
TO
EXHIBIT 10.8
NONQUALIFIED STOCK OPTION AGREEMENT
(Bruce M. Bowen)
MLC Holdings, Inc. (the "Company"), in consideration of the value of
the continuing services of Bruce M. Bowen (hereinafter called "Optionee"),
which continuing services the grant of this option is designed to secure, and
in consideration of the undertakings made herein by Optionee, hereby grants to
Optionee an option (the "Option"), evidenced by this option agreement ("Option
Agreement"), exercisable for the period and upon the terms hereinafter set out,
to purchase fifteen thousand (15,000) shares of common stock of the Company
("Common Stock") at a price equal to one hundred percent (100%) of the opening
price of the common stock of the Company in connection with the initial public
offering by the Company (the "Offering") which becomes binding on the Company
upon the completion of the Offering.
1. Term of Option. This Option is granted and dated on the date
set forth next above the signature shown (sometimes hereinafter called the
"Date of Grant") and will terminate and expire, to the extent not previously
exercised, ten (10) years after the Date of Grant, or at such earlier time as
may be specified in Section 4 hereof.
Except as otherwise provided in this Option Agreement, this Option is
exercisable as follows:
(a) 3,750 shares at any time and from time to time after the
Date of Grant and exercisable upon the completion of the Offering and prior to
the termination of the Option;
(b) 3,750 additional shares at any time and from time to time
after the expiration of one year from the Date of Grant and prior to the
termination of the Option;
(c) 3,750 additional shares at any time and from time to time
after the expiration of two years from the Date of Grant and prior to the
termination of the Option; and
(d) 3,750 additional shares at any time and from time to time
after the expiration of three years from the Date of Grant and prior to the
termination of the Option.
2. Non-Transferability. This Option is not assignable or
transferable otherwise than by will or by the laws of descent and distribution.
During the lifetime of the Optionee, this Option shall be exercisable only by
him.
3. Manner of Exercise. The Optionee (or other person entitled to
exercise the Option) shall purchase shares of Common Stock subject hereto by
the payment to the Company of the purchase price therefore in full. The Option
may be exercised from time to time in multiples of 100 shares by written notice
to the Company stating the full number of shares to be purchased and the time
of deliver thereof, which shall be at least 15 days after the giving of notice
unless an earlier date shall have been agreed upon between Optionee (or other
person entitled to exercise the Option) and the Company, accompanied by full
payment for the shares by certified check or the equivalent as contemplated or
otherwise acceptable to the Company. At the time of delivery, the Company
shall, without transfer or issue tax to the Optionee (or other person entitled
to exercise the Option) deliver at the principal office of the Company, or at
such other place as shall be mutually agreed upon, a certificate or
certificates for such shares; provided, however, that the time of delivery may
be postponed by the Company for such period as may be required for it to comply
with reasonable diligence with any requirements of law. If the Optionee (or
other person entitled to exercise the Option) fails to accept delivery of all
or any part of the number of shares specified in such notice upon tender of
delivery thereof, Optionee's payment shall be returned and the right to
exercise the option with respect to such undelivered shares shall be thereupon
terminated.
4.01 The Option shall terminate and may no longer be
exercised if the Optionee ceases to be an employee of the Company, except that
(i) if the Optionee dies while in the employ of
<PAGE> 11
the Company, or within two (2) months after the termination of such employment,
or within six (6) months if determined to be permanently disabled, the Option
may be exercised on his behalf as set forth below; and (ii) if the Optionee's
employment shall have been terminated for any reason other than his death, or
permanent disability, he may at any time within a period of two (2) months
after such termination exercise such Option to the extent that the Option was
exercisable on the date of the termination of his employment; provided,
however, that in the case of termination for cause by the Company of the
employment of the Optionee, or if an employee shall terminate his employment in
violation of any employment agreement with the Company, then the Option shall
terminate and expire concurrently with the termination of his employment and
shall not thereafter be exercisable to any extent. The definition of "cause"
shall be as set forth in paragraph 4.03 below for each Optionee.
4.02 If the Optionee dies during the term of the Option
while in the employ of the Company, or within the two (2) month period after
the termination of employment, or within six (6) months if determined to be
permanently disabled without having fully exercised the Option, the executor or
administrator of his estate or the person who inherits the right to exercise
the Option by bequest or inheritance shall have the right within twelve (12)
months after the Optionee's death to purchase the number of shares which the
deceased Optionee was entitled to purchase at the date of his death, after
which time the Option shall lapse.
4.03 The term "cause" as used herein shall mean gross
neglect of duty, prolonged absence from duty without the consent of the
Company, the acceptance by Optionee of a position with another employer without
consent, intentionally engaging in any activity which is in conflict with or
adverse to the business or other interests of the Company, willful misconduct
on the part of Optionee, misfeasance or malfeasance of duty causing a violation
of any law which is reasonably determined to be detrimental to the Company,
breach of a fiduciary duty owed to the Company or any material breach of an
employment contract which has not been corrected by Optionee within (30) days
after his receipt of notice of such breach from the Company.
5. Adjustments on Recapitalization. The number of shares of
Common Stock subject hereto and the option price per share shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of the Common Stock resulting from the subdivision or consolidation of
shares, or the payment of a stock dividend after the Date of Grant, or other
decrease or increase in the shares of Common Stock outstanding effected without
receipt of consideration by the Company; provided, however, that any option to
purchase fractional shares resulting from such adjustments shall be eliminated.
6. Adjustments on Reorganization. If the Company shall at any
time merge or consolidate with or into another corporation, the holder of this
Option will thereafter receive, upon the exercise thereof, the securities
and/or property to which a holder of the number of shares of Common Stock then
deliverable upon the exercise of the Option would have been entitled upon such
merger or consolidation, and the Company shall take such steps in connection
with such merger or consolidation as may be necessary to assure that the
provisions of this Agreement shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or property thereafter
deliverable upon the exercise of such option; provided, however, that under no
circumstances shall
2
<PAGE> 12
any option exercise date be accelerated in contemplation of such action and the
surviving entity following any such action shall at all times be entitled, in
its sole discretion, to tender options on such terms and conditions as such
surviving entity may deem appropriate. A sale of all or substantially all of
the assets of the Company for a consideration (apart from the assumption of
obligations) consisting primarily of securities shall be deemed a merger or
consolidation for the foregoing purposes.
IN WITNESS WHEREOF, this Option Agreement is executed as of the _____
day of September, 1996.
MLC HOLDINGS, INC.
By:
---------------------------
Philip G. Norton,
Chief Executive Officer
The undersigned Optionee hereby accepts the benefits of the foregoing
Incentive Stock Option Agreement.
- -------------------------- ----------------------------
Date Bruce M. Bowen
3
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
(William J. Slaton)
THIS EMPLOYMENT AGREEMENT is hereby made as of September 1, 1996, by
and between WILLIAM J. SLATON, hereinafter referred to as the "Employee," and
MLC HOLDINGS, INC., a Delaware corporation, whose principal place of business
is located at 11150 Sunset Hills Road, Suite 110, Reston, Virginia 22190,
hereinafter referred to as the "Employer."
RECITALS:
A. The Employer is engaged in the business of specialized asset
financing with a focus on the leasing of information technology equipment and
services.
B. The Employee has substantial experience in the business of the
Employer.
C. The Employer desires to secure the services of the Employee,
and the Employee is willing to be employed as Vice President of Marketing of
the Employer and its subsidiaries, including without limitation MLC Group, Inc.
and MLC GATX, Inc. (hereinafter, collectively, the "Company"), on the terms,
covenants and conditions hereinafter set forth.
THEREFORE, in consideration of the mutual promises and agreements
hereinafter set out, the Employer and the Employee agree as follows:
1. Employment. The Employer hereby employs, engages, and hires
the Employee, and the Employee hereby accepts employment with the Employer as
Vice President of Marketing to render such services for the Employer as
determined by the Board of Directors of the Employer. The Employee accepts and
agrees to such hiring, engagement and employment, subject to the general
supervision and pursuant to the orders, advice and direction of the directors
of the Employer.
2. Extent of Efforts; Other Employment. The Employee agrees that
the Employee shall devote his entire productive time and attention to the
business affairs of the Employer and, to the best of the Employee's ability,
experience and talents, shall perform all of the duties that may be required of
and from the Employee pursuant to the express and implicit terms hereof to the
reasonable satisfaction of the Employer. The Employee shall not engage in any
other business duties or pursuits whatsoever, or directly or indirectly render
any services of a business, commercial, or professional nature to any person or
organization, whether for compensation or otherwise, without the prior written
consent of the Employer's Board of Directors. This paragraph 2 shall not
prohibit the making of passive, personal investments, nor the conduct to a
reasonable extent of private business affairs if those activities do not
interfere with the services required under this Agreement.
3. Term and Termination of Employment.
A. Term - Subject to the provisions of Section 3(B), the
"Term" of the Employee's employment shall be three (3) years, commencing on the
date of closing of the initial
<PAGE> 2
public offering by the Employer (the "Effective Date"), and shall renew
automatically for successive one (1) year periods unless a party hereto
provides written notice to terminate to the other party prior to thirty (30)
days before the end of the original period or any successive period.
B. Termination - Either the Employee or the Employer may
terminate the Employee's employment at any time upon thirty (30) days advance
written notice. This Agreement shall automatically terminate upon the
occurrence of any of the following events:
(i) The death of the Employee;
(ii) The "Permanent Disability" (hereinafter
defined) of the Employee; or
(iii) Written notice from the Board of Directors
to the Employee of his termination for "Cause" (hereinafter defined).
As used herein, "Permanent Disability" means any mental or physical
illness or disability continuing for a period of more than six (6) consecutive
months which renders the Employee unable to perform his duties and services
hereunder in a satisfactory manner. In the event of any disputes over the
existence or commencement of such disability, the issue shall be determined by
a qualified physician mutually agreed to by the Employer and the Employee , or,
if applicable, the Employee's legal representative. The determination of such
physician shall be conclusive and binding on the parties hereto.
As used herein, "Cause" means: gross neglect of duty, prolonged
absence from duty without the consent of the Employer, the acceptance by the
Employee of a position with another employer without consent, intentionally
engaging in any activity which is in conflict with or adverse to the business
or other interests of the Company, willful misconduct on the part of the
Employee, misfeasance or malfeasance of duty causing a violation of any law
which is reasonably determined to be detrimental to the Company, breach of a
fiduciary duty owed to the Company or any material breach of this Agreement by
the Employee which has not been corrected by the Employee within (30) days
after his receipt of notice of such breach from the Employer.
4. Compensation of the Employee. As the Employee's entire
compensation (exclusive of director's fees, if any) for all services rendered
to the Employer during the term of this Agreement, the Employee shall have and
receive, subject to withholding and other applicable employment taxes:
A. Commencing on the first day of the first month immediately
following the Effective Date (the "Salary Commencement Date"), a "basic salary"
at the rate of One Hundred Twenty Thousand and 00/100 Dollars ($120,000) per
annum, payable in cash or good check, not less frequently than monthly and not
later than the last day of the month in question; provided, however, that the
rate of such salary shall be reviewed by the Board of Directors of the Employer
not less often than annually and may be increased (but not decreased) at each
yearly renewal date. Prior to the
2
<PAGE> 3
Salary Commencement Date, the Employee shall continue to receive his basic
salary as in effect on the date of this Agreement.
B. Bonus compensation over and above the basic salary in such
amount and pursuant to such criteria as shall be determined by Philip G. Norton
and Bruce M. Bowen in their sole and absolute discretion, but not to exceed
Eighty Thousand and 00/100 Dollars ($80,000) for any fiscal year.
C. The right to receive or participate in any additional
"fringe" benefits, including but not limited to insurance programs and pension
or profit-sharing plans, which may from time to time be made available to
executives of the Employer.
5. Facilities and Expenses.
A. The Employer shall provide the Employee with a private
office, office equipment, supplies and other facilities and services consistent
with the current practices of the Employer, and suitable to the Employee's
position and adequate for the performance of his duties.
B. The Employee may be authorized from time to time to incur
reasonable expenses for promoting the business of the corporation, including
expenses for entertainment, travel, and similar items. The Employer will
reimburse the Employee for all such authorized expenses upon the presentation
by the Employee of an itemized account of such expenditures. The Employee
shall provide the Employee's own personal transportation, except for such times
as the Employee is using the Employer-owned vehicles for official business.
6. Reimbursement of Disallowed Expenses. If any salary payment,
medical reimbursement, employee fringe benefit, expense allowance payment, or
other expense incurred by the Employer for the benefit of the Employee is
disallowed, in whole or in part, as a deductible expense of the Employer for
federal income tax purposes, the Employee shall reimburse the Employer upon
notice and demand, to the full extent of the disallowance. This legally
enforceable obligation is in accordance with the provisions of Revenue Ruling
69-115 and is for the purpose of entitling the Employee to a business expense
deduction for the taxable year in which the repayment is made to the Employer.
7. Vacation and Sick Leave.
A. The Employee shall accrue four (4) weeks vacation each
calendar year and may take such vacation at times to be determined in the
manner most convenient to the business of the Employer. In addition, the
Employee may take time off at such times as may be determined by the Board of
Directors to attend such meetings and postgraduate courses as may directly
benefit the Employer and the Employee. Unused days of vacation may not be
carried over to future years. In
3
<PAGE> 4
addition, the Employee may take as holidays five (5) days of the Employee's
choosing, so long as it is convenient to and approved by the Employer.
B. The Employee shall accrue ___________ (__) days sick leave
in each calendar month, not to exceed a total of thirty (30) days. Unused days
of sick leave may not be carried over to future years. Any date used for the
purpose of determining the date of permanent or partial disability under this
Agreement shall be postponed until such time as all of the Employee's sick
leave shall be exhausted.
8. Illness or Incapacity. If the Employee becomes unable to
devote the Employee's full time to the business of the Employer because of
illness or incapacity during the term of this Agreement, then during such
period of illness or incapacity, the Employee's compensation shall be as
follows:
A. For the first six (6) months thereof--One Hundred percent
(100%) of the compensation provided for by paragraph 4 of this Agreement.
B. If the Employee shall not have resumed the Employee's
duties within the six (6) month period specified above, then the Employee's
compensation hereunder shall be terminated as of the end of the six (6) month
period, and the Employer shall have no further financial obligation to the
Employee.
9. Death During Employment. If the Employee dies during the term
of the Employee's employment, the Employer shall pay to the estate of the
Employee the basic salary which would otherwise be payable to the Employee up
to the end of the month in which the Employee's death occurs, not including any
bonuses. The Employer shall have no further financial obligations to the
Employee or to the Employee's estate under the terms of this Agreement.
10. Non-Competition Agreement.
During the duration of this Agreement and any extensions or
renewals hereof and for a period of one (1) year after the later of (i) the
date this Agreement is terminated by the Employer for cause or by voluntary
termination by the Employee, or (ii) the expiration of this Agreement at the
end of the initial or any renewal term or extensions thereof, the Employee
agrees as follows:
A. The Employee agrees that the Employee shall not:
(i) in any capacity whatsoever, whether as a
proprietor, partner, investor, corporate stockholder, director, officer,
employee, consultant, independent contractor, co-venturer, employer, agent,
representative, or otherwise, own, engage directly or indirectly in, or be
interested in a business or business activities competing with the Employer in
the United States;
4
<PAGE> 5
(ii) in any capacity whatsoever, whether as a
lender, guarantor, accommodation party, financier, investor, or otherwise,
assist or attempt to assist with respect to the providing of capital needs,
borrowing needs, or credit needs of any person, persons or entities of every
nature and description, other than the Employer, who or which shall be engaged
in, or intend to be engaged in, a business or business activities competing
with the Employer in the United States.
B. The Employee hereby agrees that the Employee will not
at any time disclose to any person, individual or entity, who or which is, or
reasonably may be expected to be, in competition with the Employer in the
United States, any confidential information or trade secrets of the Employer,
the contents of any client lists of the Employer, or the general needs of any
client or other contracting parties with the Employer; provided, however, the
foregoing shall not prevent such Employee from responding to the request of a
governmental agency or pursuant to a court order or as otherwise required by
law.
C. The Employee hereby agrees that the Employee shall
not at any time after execution of this Agreement, interfere with, solicit, or
disrupt the relationship, contractual or otherwise, between the Employer and
its clients, suppliers, agents, consultants, officers or employees.
D. The Employee acknowledges (i) that the foregoing
provisions are reasonable as to time and areas as to which their activities are
to be restricted, (ii) that the Employee understands the same and intends to be
fully bound with respect thereto, and (iii) that such limitations upon the
Employee's activities for the time and in the designated market area shall not
prevent the Employee from earning a reasonable livelihood during the two year
period following the termination or expiration of this Agreement.
E. Recognizing that a breach of any covenant contained
in Section 10 hereof would cause the Employer irreparable injury and that
damages at law would be difficult to ascertain, the Employee hereby consents to
the granting of equitable relief (without the posting of any bond by the
Employer) by way of a restraining order or temporary or permanent injunction by
any court of competent jurisdiction to prohibit the breach or enforce the
performance of any covenant contained in Section 10 hereof. Employee shall
only be liable for actual monetary damages to the Company, and not any
consequential or punitive damages for any breach of any covenant of Section 10
hereof.
11. Severability. All agreements and covenants contained herein
are severable, and in the event any of them shall be held to be invalid by any
competent court, this contract shall be interpreted as if such invalid
agreements or covenants were not contained herein.
12. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and sent by certified or
registered mail, return receipt requested, to the parties at the following
addresses:
5
<PAGE> 6
TO THE EMPLOYER:
MLC Group, Inc.
11150 Sunset Hills Road
Suite 110
Reston, Virginia 22190
TO THE EMPLOYEE:
William J. Slaton
----------------------------------
----------------------------------
----------------------------------
13. Assignment. This Agreement is personal to each of the parties
hereto and neither may assign or delegate any of the party's rights or
obligations hereunder without first obtaining the written consent of the other
party.
14. Miscellaneous.
A. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties hereto.
B. This Agreement shall be governed in all respects by the
laws of or applicable to the State of Delaware. The paragraph headings in this
Agreement are included solely for convenience and shall not affect or be used
in connection with the interpretation of this Agreement.
C. This contract contains the complete agreement concerning
the employment arrangement between the parties and shall, as of the
commencement of the term of employment hereunder, supersede all other
agreements between the parties. The parties stipulate that neither of them has
made any representation with respect to the subject matter of this Agreement or
any representations, including the execution and delivery hereof, except such
representations as are specifically set forth herein, and each of the parties
acknowledges that the party has relied on the party's own judgment in entering
into this Agreement.
D. The waiver by the Employer of a breach of any condition of
this Agreement by the Employee shall not be construed as a waiver of any
subsequent breach by the Employee.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as the
date first above written.
EMPLOYER:
MLC HOLDINGS, INC., a Delaware
corporation
By:
-------------------------------------
Phillip G. Norton, President
EMPLOYEE:
----------------------------------------
WILLIAM J. SLATON
7
<PAGE> 8
EXHIBIT A
Bonus Compensation Formula
8
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
(Kleyton L. Parkhurst)
THIS EMPLOYMENT AGREEMENT is hereby made as of September 1, 1996, by
and between KLEYTON L. PARKHURST, hereinafter referred to as the "Employee,"
and MLC HOLDINGS, INC., a Delaware corporation, whose principal place of
business is located at 11150 Sunset Hills Road, Suite 110, Reston, Virginia
22190, hereinafter referred to as the "Employer."
RECITALS:
A. The Employer is engaged in the business of specialized asset
financing with a focus on the leasing of information technology equipment and
services.
B. The Employee has substantial experience in the business of the
Employer.
C. The Employer desires to secure the services of the Employee,
and the Employee is willing to be employed as Secretary and Treasurer of the
Employer and its subsidiaries, including without limitation MLC Group, Inc. and
MLC GATX, Inc. (hereinafter, collectively, the "Company"), on the terms,
covenants and conditions hereinafter set forth.
THEREFORE, in consideration of the mutual promises and agreements
hereinafter set out, the Employer and the Employee agree as follows:
1. Employment. The Employer hereby employs, engages, and hires
the Employee, and the Employee hereby accepts employment with the Employer as
Secretary and Treasurer, to render such services for the Employer as determined
by the Board of Directors of the Employer. The Employee accepts and agrees to
such hiring, engagement and employment, subject to the general supervision and
pursuant to the orders, advice and direction of the directors of the Employer.
2. Extent of Efforts; Other Employment. The Employee agrees that
the Employee shall devote his entire productive time and attention to the
business affairs of the Employer and, to the best of the Employee's ability,
experience and talents, shall perform all of the duties that may be required of
and from the Employee pursuant to the express and implicit terms hereof to the
reasonable satisfaction of the Employer. The Employee shall not engage in any
other business duties or pursuits whatsoever, or directly or indirectly render
any services of a business, commercial, or professional nature to any person or
organization, whether for compensation or otherwise, without the prior written
consent of the Employer's Board of Directors. This paragraph 2 shall not
prohibit the making of passive, personal investments, nor the conduct to a
reasonable extent of private business affairs if those activities do not
interfere with the services required under this Agreement.
3. Term and Termination of Employment.
A. Term - Subject to the provisions of Section 3(B), the
"Term" of the Employee's employment shall be three (3) years, commencing on the
date of closing of the initial
<PAGE> 2
public offering by the Employer (the "Effective Date"), and shall renew
automatically for successive one (1) year periods unless a party hereto
provides written notice to terminate to the other party prior to thirty (30)
days before the end of the original period or any successive period.
B. Termination - Either the Employee or the Employer may
terminate the Employee's employment at any time upon thirty (30) days advance
written notice. This Agreement shall automatically terminate upon the
occurrence of any of the following events:
(i) The death of the Employee;
(ii) The "Permanent Disability" (hereinafter
defined) of the Employee; or
(iii) Written notice from the Board of Directors to
the Employee of his termination for "Cause" (hereinafter defined).
As used herein, "Permanent Disability" means any mental or physical
illness or disability continuing for a period of more than six (6) consecutive
months which renders the Employee unable to perform his duties and services
hereunder in a satisfactory manner. In the event of any disputes over the
existence or commencement of such disability, the issue shall be determined by
a qualified physician mutually agreed to by the Employer and the Employee , or,
if applicable, the Employee's legal representative. The determination of such
physician shall be conclusive and binding on the parties hereto.
As used herein, "Cause" means: gross neglect of duty, prolonged
absence from duty without the consent of the Employer, the acceptance by the
Employee of a position with another employer without consent, intentionally
engaging in any activity which is in conflict with or adverse to the business
or other interests of the Company, willful misconduct on the part of the
Employee, misfeasance or malfeasance of duty causing a violation of any law
which is reasonably determined to be detrimental to the Company, breach of a
fiduciary duty owed to the Company or any material breach of this Agreement by
the Employee which has not been corrected by the Employee within (30) days
after his receipt of notice of such breach from the Employer.
4. Compensation of the Employee. As the Employee's entire
compensation (exclusive of director's fees, if any) for all services rendered
to the Employer during the term of this Agreement, the Employee shall have and
receive, subject to withholding and other applicable employment taxes:
A. Commencing on the first day of the first month immediately
following the Effective Date (the "Salary Commencement Date"), a "basic salary"
at the rate of One Hundred Twenty Thousand and 00/100 Dollars ($120,000) per
annum, payable in cash or good check, not less frequently than monthly and not
later than the last day of the month in question; provided, however, that the
rate of such salary shall be reviewed by the Board of Directors of the Employer
not less often than annually and may be increased (but not decreased) at each
yearly renewal date. Prior to the
2
<PAGE> 3
Salary Commencement Date, the Employee shall continue to receive his basic
salary as in effect on the date of this Agreement.
B. Bonus compensation over and above the basic salary equal
to five percent (5%) of increase of the net income before taxes (as defined on
Exhibit A attached hereto) over net income before taxes for the preceding
fiscal year, but not to exceed Eighty Thousand and 00/100 Dollars ($80,000) for
any fiscal year, as more particularly determined by the formula set forth on
Exhibit A hereto and payable at such time or times as the Board of Directors in
its discretion may from time to time determine.
C. The right to receive an immediately exercisable grant of
an option to acquire 100,000 shares in accordance with that certain
Nonqualified Stock Option Agreement by and between the Employer and the
Employee, a copy of which is attached hereto as Exhibit B.
D. The right to receive or participate in any additional
"fringe" benefits, including but not limited to insurance programs and pension
or profit-sharing plans, which may from time to time be made available to
executives of the Employer.
5. Facilities and Expenses.
A. The Employer shall provide the Employee with a private
office, office equipment, supplies and other facilities and services consistent
with the current practices of the Employer, and suitable to the Employee's
position and adequate for the performance of his duties.
B. The Employee may be authorized from time to time to incur
reasonable expenses for promoting the business of the corporation, including
expenses for entertainment, travel, and similar items. The Employer will
reimburse the Employee for all such authorized expenses upon the presentation
by the Employee of an itemized account of such expenditures. The Employee
shall provide the Employee's own personal transportation, except for such times
as the Employee is using the Employer-owned vehicles for official business.
6. Reimbursement of Disallowed Expenses. If any salary payment,
medical reimbursement, employee fringe benefit, expense allowance payment, or
other expense incurred by the Employer for the benefit of the Employee is
disallowed, in whole or in part, as a deductible expense of the Employer for
federal income tax purposes, the Employee shall reimburse the Employer upon
notice and demand, to the full extent of the disallowance. This legally
enforceable obligation is in accordance with the provisions of Revenue Ruling
69-115 and is for the purpose of entitling the Employee to a business expense
deduction for the taxable year in which the repayment is made to the Employer.
3
<PAGE> 4
7. Vacation and Sick Leave.
A. The Employee shall accrue four (4) weeks vacation each
calendar year and may take such vacation at times to be determined in the
manner most convenient to the business of the Employer. In addition, the
Employee may take time off at such times as may be determined by the Board of
Directors to attend such meetings and postgraduate courses as may directly
benefit the Employer and the Employee. Unused days of vacation may not be
carried over to future years. In addition, the Employee may take as holidays
five (5) days of the Employee's choosing, so long as it is convenient to and
approved by the Employer.
B. The Employee shall accrue ___________ (__) days sick leave
in each calendar month, not to exceed a total of thirty (30) days. Unused days
of sick leave may not be carried over to future years. Any date used for the
purpose of determining the date of permanent or partial disability under this
Agreement shall be postponed until such time as all of the Employee's sick
leave shall be exhausted.
8. Illness or Incapacity. If the Employee becomes unable to
devote the Employee's full time to the business of the Employer because of
illness or incapacity during the term of this Agreement, then during such
period of illness or incapacity, the Employee's compensation shall be as
follows:
A. For the first six (6) months thereof--One Hundred percent
(100%) of the compensation provided for by paragraph 4 of this Agreement.
B. If the Employee shall not have resumed the Employee's
duties within the six (6) month period specified above, then the Employee's
compensation hereunder shall be terminated as of the end of the six (6) month
period, and the Employer shall have no further financial obligation to the
Employee.
9. Death During Employment. If the Employee dies during the term
of the Employee's employment, the Employer shall pay to the estate of the
Employee the basic salary which would otherwise be payable to the Employee up
to the end of the month in which the Employee's death occurs, not including any
bonuses. The Employer shall have no further financial obligations to the
Employee or to the Employee's estate under the terms of this Agreement.
4
<PAGE> 5
10. Registration Rights. If the Employer at any time proposes to
file a registration statement on Form S-3 or any successor thereto (or other
applicable SEC registration form available for registering restricted stock),
the Employer shall give written notice to Employee of its intention to do so.
Upon the written request of Employee, received by the Employer within 30 days
after the giving of any such notice by the Employer, to register any of
Employee's shares of Employer stock, the Employee will use its best efforts to
cause the stock as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Employer, all to the extent requisite to permit the sale or
other disposition by the Employee of such stock so registered.
11. Severability. All agreements and covenants contained herein
are severable, and in the event any of them shall be held to be invalid by any
competent court, this contract shall be interpreted as if such invalid
agreements or covenants were not contained herein.
5
<PAGE> 6
12. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and sent by certified or
registered mail, return receipt requested, to the parties at the following
addresses:
TO THE EMPLOYER:
MLC Group, Inc.
11150 Sunset Hills Road
Suite 110
Reston, Virginia 22190
TO THE EMPLOYEE:
Kleyton L. Parkhurst
605 Abbott Lane
Falls Church, VA 22046
13. Assignment. This Agreement is personal to each of the parties
hereto and neither may assign or delegate any of the party's rights or
obligations hereunder without first obtaining the written consent of the other
party.
14. Miscellaneous.
A. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties hereto.
B. This Agreement shall be governed in all respects by the
laws of or applicable to the State of Delaware. The paragraph headings in this
Agreement are included solely for convenience and shall not affect or be used
in connection with the interpretation of this Agreement.
C. This contract contains the complete agreement concerning
the employment arrangement between the parties and shall, as of the
commencement of the term of employment hereunder, supersede all other
agreements between the parties. The parties stipulate that neither of them has
made any representation with respect to the subject matter of this Agreement or
any representations, including the execution and delivery hereof, except such
representations as are specifically set forth herein, and each of the parties
acknowledges that the party has relied on the party's own judgment in entering
into this Agreement.
D. The waiver by the Employer of a breach of any condition of
this Agreement by the Employee shall not be construed as a waiver of any
subsequent breach by the Employee.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as the
date first above written.
EMPLOYER:
MLC HOLDINGS, INC., a Delaware
corporation
By:
---------------------------------------
Phillip G. Norton, President
EMPLOYEE:
------------------------------------------
KLEYTON L. PARKHURST
7
<PAGE> 8
EXHIBIT A
Bonus Compensation Formula
8
<PAGE> 9
EXHIBIT B
Copy of Stock Option Agreement
9
<PAGE> 10
EXHIBIT B
TO
EXHIBIT 10.10
NONQUALIFIED STOCK OPTION AGREEMENT
(Kleyton L. Parkhurst)
MLC Holdings, Inc. (the "Company"), in consideration of the value of
the continuing services of Kleyton L. Parkhurst (hereinafter called
"Optionee"), which continuing services the grant of this option is designed to
secure, and in consideration of the undertakings made herein by Optionee,
hereby grants to Optionee an option (the "Option"), evidenced by this option
agreement ("Option Agreement"), exercisable for the period and upon the terms
hereinafter set out, to purchase one hundred thousand (100,000) shares of
common stock of the Company ("Common Stock") for a purchase price equal to Six
and 40/100 Dollars ($6.40) per share.
1. Term of Option. This Option is granted and dated on the date
set forth next above the signature shown (sometimes hereinafter called the
"Date of Grant") and will terminate and expire, to the extent not previously
exercised, ten (10) years after the Date of Grant, or at such earlier time as
may be specified in Section 4 hereof.
Except as otherwise provided in this Option Agreement, this Option is
exercisable as follows:
(a) 25,000 shares at any time on or after the
completion of the Offering and from time to time thereafter and prior to the
termination of the Option;
(b) 25,000 additional shares at any time and from time to
time after the expiration of one year from the Date of Grant and prior to the
termination of the Option;
(c) 25,000 additional shares at any time and from time to
time after the expiration of two years from the Date of Grant and prior to the
termination of the Option; and
(d) 25,000 additional shares at any time and from time to
time after the expiration of three years from the Date of Grant and prior to
the termination of the Option.
2. Non-Transferability. This Option is not assignable or
transferable otherwise than by will or by the laws of descent and distribution.
During the lifetime of the Optionee, this Option shall be exercisable only by
him.
3. Manner of Exercise. The Optionee (or other person entitled to
exercise the Option) shall purchase shares of Common Stock subject hereto by
the payment to the Company of the purchase price therefore in full. The Option
may be exercised from time to time in multiples of 100 shares by written notice
to the Company stating the full number of shares to be purchased and the time
of deliver thereof, which shall be at least 15 days after the giving of notice
unless an earlier date shall have been agreed upon between Optionee (or other
person entitled to exercise the Option) and the Company, accompanied by full
payment for the shares by certified check or the equivalent or otherwise
acceptable to the Company. At the time of delivery, the Company shall, without
transfer or issue tax to the Optionee (or other person entitled to exercise the
Option) deliver at the principal office of the Company, or at such other place
as shall be mutually agreed upon, a certificate or
<PAGE> 11
certificates for such shares; provided, however, that the time of delivery may
be postponed by the Company for such period as may be required for it to comply
with reasonable diligence with any requirements of law. If the Optionee (or
other person entitled to exercise the Option) fails to accept delivery of all
or any part of the number of shares specified in such notice upon tender of
delivery thereof, Optionee's payment shall be returned and the right to
exercise the Option with respect to such undelivered shares shall be thereupon
terminated.
4.01 The Option shall terminate and may no longer be
exercised if the Optionee ceases to be an employee of the Company, except that
(i) if the Optionee dies while in the employ of the Company, or within two (2)
months after the termination of such employment, or within six (6) months if
determined to be permanently disabled, the Option may be exercised on his
behalf as set forth below; and (ii) if the Optionee's employment shall have
been terminated for any reason other than his death, or permanent disability,
he may at any time within a period of two (2) months after such termination
exercise such Option to the extent that the Option was exercisable on the date
of the termination of his employment; provided, however, that in the case of
termination for cause by the Company of the employment of the Optionee, or if
an employee shall terminate his employment in violation of any employment
agreement with the Company, then the Option shall terminate and expire
concurrently with the termination of his employment and shall not thereafter be
exercisable to any extent. The definition of "cause" shall be as set forth in
paragraph 4.03 below for each Optionee.
4.02 If the Optionee dies during the term of the Option
while in the employ of the Company, or within the two (2) month period after
the termination of employment, or within six (6) months if determined to be
permanently disabled without having fully exercised the Option, the executor or
administrator of his estate or the person who inherits the right to exercise
the Option by bequest or inheritance shall have the right within twelve (12)
months after the Optionee's death to purchase the number of shares which the
deceased Optionee was entitled to purchase at the date of his death, after
which time the Option shall lapse.
4.03 The term "cause" as used herein shall mean gross
neglect of duty, prolonged absence from duty without the consent of the
Company, the acceptance by Optionee of a position with another employer without
consent, intentionally engaging in any activity which is in conflict with or
adverse to the business or other interests of the Company, willful misconduct
on the part of Optionee, misfeasance or malfeasance of duty causing a violation
of any law which is reasonably determined to be detrimental to the Company,
breach of a fiduciary duty owed to the Company or any material breach of an
employment contract which has not been corrected by Optionee within (30) days
after his receipt of notice of such breach from the Company.
5. Adjustments on Recapitalization. The number of shares of
Common Stock subject hereto and the option price per share shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of the Common Stock resulting from the subdivision or consolidation of
shares, or the payment of a stock dividend after the Date of Grant, or other
decrease or increase in the shares of Common Stock outstanding effected without
receipt of consideration by the Company; provided, however, that any option to
purchase fractional shares resulting from such adjustments shall be eliminated.
2
<PAGE> 12
6. Adjustments on Reorganization. If the Company shall at any
time merge or consolidate with or into another corporation, the holder of this
Option will thereafter receive, upon the exercise thereof, the securities
and/or property to which a holder of the number of shares of Common Stock then
deliverable upon the exercise of the Option would have been entitled upon such
merger or consolidation, and the Company shall take such steps in connection
with such merger or consolidation as may be necessary to assure that the
provisions of this Agreement shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or property thereafter
deliverable upon the exercise of such option; provided, however, that under no
circumstances shall any option exercise date be accelerated in contemplation of
such action and the surviving entity following any such action shall at all
times be entitled, in its sole discretion, to tender options on such terms and
conditions as such surviving entity may deem appropriate. A sale of all or
substantially all of the assets of the Company for a consideration (apart from
the assumption of obligations) consisting primarily of securities shall be
deemed a merger or consolidation for the foregoing purposes.
IN WITNESS WHEREOF, this Option Agreement is executed as of the _____
day of September, 1996.
MLC HOLDINGS, INC.
By:
--------------------------
Philip G. Norton
Chief Executive Officder
The undersigned Optionee hereby accepts the benefits of the foregoing
Incentive Stock Option Agreement.
- ------------------------- ------------------------------
Date Kleyton L. Parkhurst
3
<PAGE> 1
EXHIBIT 10.11
IRREVOCABLE PROXY AND STOCK RIGHTS AGREEMENT
THIS IRREVOCABLE PROXY AND STOCK RIGHTS AGREEMENT (this "Agreement")
is made as of the ____ day of September, 1996, by and among (i) PHILLIP G.
NORTON (hereinafter sometimes referred to as "Proxy") and (ii) KEVIN M. NORTON
(hereinafter sometimes referred to as "K. Norton"), PATRICK J. NORTON, JR.
(hereinafter sometimes referred to as "P. Norton") and J.A.P. Investment Group,
L.P., a Virginia limited partnership ("J.A.P.") [K. Norton, P. Norton and
J.A.P. being hereinafter sometimes together referred to as the "Norton Family
Stockholders" and being hereinafter sometimes each individually referred to as a
"Norton Family Stockholder"].
WHEREAS, MLC Holdings, Inc., a Delaware Corporation ("the
Corporation") has authorized common stock consisting of ten million
(10,000,000) shares with a par value of $0.01 per share (which common stock is
hereinafter sometimes referred to as the "Stock");
WHEREAS, the Norton Family Stockholders are the legal and beneficial
owners of certain of the issued and outstanding shares of Stock as follows:
<TABLE>
<CAPTION>
Number of Shares
Stockholder of Common Stock
----------- ---------------
<S> <C>
K. Norton 376,500
P. Norton 376,500
J.A.P. 2,040,000
----------
Total 2,793,000
</TABLE>
WHEREAS, the parties hereto believe it is in the best interests of the
Corporation and of the Norton Family Stockholders to make provision for future
dispositions of shares of Stock and certain other matters; and
WHEREAS, the parties hereto desire to set forth in writing their
understandings and agreements.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises hereinafter set forth and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, hereby agree as follows:
ARTICLE 1
RESTRICTIONS ON STOCK
1.1. Agreement Binding Upon Transferees. In the event that at any
time or from time to time, any shares of Stock are transferred to any party
(other than the Corporation or any other Norton Family Stockholder) pursuant to
and in compliance with all provisions hereof, including, but not limited to the
first right to purchase under Article 3 hereof, the transferee shall take such
shares of Stock
<PAGE> 2
free and clear of all provisions, conditions and covenants of this Agreement.
1.2. Endorsement on Stock Certificates. Each certificate, if any,
representing shares of Stock of the Corporation now or hereafter held by a
Norton Family Stockholder shall bear any legend or legends required by
applicable securities laws and, in addition thereto, shall bear a statement in
substantially the following form:
The voluntary or involuntary encumbering, transfer
or other disposition(including, without
limitation, any disposition pursuant to the laws
of bankruptcy, intestacy, descent and distribution
or succession) of the shares of stock evidenced by
the within Certificate is subjected under the
terms of a Proxy and Stock Rights Agreement, dated
September, 1996, by and among Phillip G. Norton,
Kevin M. Norton, Patrick J. Norton, Jr. and J.A.P.
Investment Group, L.P., a copy of which Agreement
is on file at the principal office of the
Corporation. Upon written request of a
stockholder of the Corporation, the Corporation
shall furnish, without charge to such stockholder,
a copy of such Agreement.
ARTICLE 2
APPOINTMENT OF IRREVOCABLE PROXY
2.1. Each Norton Family Stockholder does hereby irrevocably
constitute and appoint Phillip G. Norton attorney and proxy for such Norton
Family Stockholder with power of substitution for and in the name of such
Norton Family Stockholder to vote all shares of voting stock of the Corporation
now owned or hereafter acquired (whether by purchase, dividend, stock split,
reclassification or otherwise) by such Norton Family Stockholder in the
Corporation at any meeting of the stockholders of the Corporation and to
execute a consent, in lieu of voting said shares at a meeting, to any action
that is required to be taken or may be taken at a stockholder meeting, and
gives or grants unto said attorney and proxy the right to exercise all powers,
rights and privileges which such Norton Family Stockholder would possess; and
ratifies and approves all that said attorney and proxy shall lawfully do or
cause to be done, hereby revoking any proxy or proxies heretofore given to any
person or persons to vote said shares. It is understood and agreed that each
appointment and proxy hereunder is irrevocable and coupled with an interest,
and shall terminate only upon the earlier to occur of (i) the death or
formally adjudicated mental incapacity of Phillip G. Norton or (ii) the sale
or transfer of such Norton Family Stockholder's voting stock to a third
party.
2
<PAGE> 3
ARTICLE 3
FIRST RIGHT TO PURCHASE STOCK
3.1. First Right to Purchase Shares of K. Norton and P. Norton.
(a) In the event that either K. Norton or P. Norton
("Seller") desires to sell or transfer the Seller's shares of Stock for any
reason, the Seller shall deliver to Proxy a written notice of intent to sell
and first offer to purchase (the "Notice"), and the Proxy shall have the right,
exercisable within thirty (30) days after receipt of the Notice, to require the
Seller to sell to Proxy all (but not less than all) of the shares of Stock
owned by the Seller as hereinafter provided in this Article 3.
(b) If Proxy does not exercise his option to purchase
the Stock of the Seller, as provided in paragraph (a) above, the Seller shall
be entitled to sell his Stock without the restrictions proposed by this
Article 3.
(c) The first right to purchase granted in this Article 3
shall be assignable by Proxy in Proxy's sole discretion.
3.2. Settlement. Settlement shall be held on the purchase of
shares of Stock under Section 3.1 (a) at the principal office of the
Corporation within ninety (90) days after the receipt by Proxy of the Notice.
At settlement on a purchase of shares of Stock by Proxy, under this Article 3,
the Seller shall resign as a director and/or officer of the Corporation (if
and to the extent that the Seller shall be a director and/or officer of the
Corporation as of the date of such settlement) and shall deliver to the Proxy
the shares of Stock owned by the Seller and the Proxy shall execute and deliver
to the Seller a negotiable promissory note in substantially the same form as
the promissory note attached hereto as Exhibit A and made a part hereof
representing the purchase price). The note shall provide for five equal annual
installments of principal and interest which shall be computed in accordance
with the applicable federal rate of interest under Section 1274 of the
Internal Revenue Code of 1986, as amended.
3.3. Purchase Price. The purchase price of the shares of Stock to
be sold under this Article 3 shall be as follows:
(a) If the purchase and sale occurs on or before the
three (3) year anniversary date of the Effective Date of this Agreement, the
purchase price per share shall be 85% of the fair market value of the Stock as
determined under paragraph (c) below; and
(b) If the purchase and sale occurs after the three (3)
year anniversary date of the Effective Date of this Agreement, the purchase
price per share shall be 95% of the fair market value of the Stock as
determined under paragraph (c) below.
3
<PAGE> 4
(c) For purposes of this Section 3.3, the fair market
value of the Stock, on a purchase basis, shall mean the mean of the closing
high bid and low asked prices per share in the over-the-counter market, or the
closing price if the Company's Stock is listed as the NASDAQ National Market
System for the last (10) trading days immediately preceding the date of
settlement.
ARTICLE 4
GENERAL PROVISIONS REGARDING PURCHASES
4.1. Delivery of Stock and Documents. Upon the closing of any
purchase of any shares of Stock pursuant to this Agreement, the Seller shall
deliver to the purchaser the following: The certificate or certificates
representing the shares of Stock being sold, duly endorsed for transfer and
bearing such documentary stamps, if any, as are necessary, and such
assignments, certificates of authority, tax releases, consents to transfer,
instruments and evidences of title of the Seller and of his compliance with
this Agreement as may be reasonably required by the purchaser (or by counsel
for the purchaser).
4.2. Remedy for Failure to Transfer Shares. In the event that a
Seller shall become obligated to sell his shares of Stock pursuant to any
provision hereof, and in the further event that such Seller is unable to, or
for any reason does not, deliver the certificate or certificates evidencing
such shares to the person who, or entity which, is (or desires) to purchase
such shares, in accordance with the applicable provisions of this Agreement,
the purchaser of such shares may deposit the purchase price for such shares (by
good check, promissory note or both, as the case may be under the applicable
provisions of this Agreement) with any bank doing business within fifty (50)
miles of the Corporation's principal office, or with the Corporation's
certified public accountants, as agent or trustee, or in escrow, for such
Seller, to be held by such bank or accountant until withdrawn by such Seller.
Upon such deposit by the purchaser of such shares and upon notice to the
Seller who was required to sell, the shares of Stock of such Seller to be
sold pursuant to the applicable provisions of this Agreement shall at such time
be deemed to have been sold, assigned, transferred and convoyed to such
purchaser, such Seller shall have no further rights thereto and the Corporation
shall record such transfer in its stock transfer book.
ARTICLE 5
MISCELLANEOUS
5.1. Notices. Any and all notices, requests or other
communications hereunder provided for herein shall be given in writing and sent
by hand delivery or by registered or certified mail, return receipt requested,
with first-class postage prepaid; and such notices shall be addressed: (i) if
to Proxy, to Phillip G. Norton, 1019 Basil Road McLean, Virginia 22101; and
(ii) if to a Norton Family Stockholder, to the address of such Norton
Family Stockholder as reflected in the stock records of the Corporation, unless
notice of a change of address is furnished to all parties in the manner
provided in this Section 5.1. Any notice which is required to be made within a
stated period of time shall be considered timely if delivered or mailed before
midnight of the last day of such period.
4
<PAGE> 5
5.2. Invalid or Unenforceable Provisions. The invalidity or
unenforceability of any particular provision of this Agreement shall not affect
the other provisions hereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provision were omitted.
5.3. Benefit and Burden. This Agreement shall inure to the benefit
of, and shall be binding upon, the parties hereto and their legatees,
distributees, estates, executors, administrators personal representatives,
successors and assigns, and other legal representatives.
5.4. Gender. The use of any gender herein shall be deemed to be or
include the other genders and the use of the singular herein shall be deemed to
be or include the plural (and vice versa), wherever appropriate.
5.5. Changes: Waiver. No change or modification of this Agreement
shall be valid unless the same is in writing and signed by all the parties
hereto. No waiver of any provision of this Agreement shall be valid unless in
writing and signed by the person against whom sought to be enforced. The
failure of any party at any time to insist upon strict performance of any
condition, promise, agreement or understanding set forth herein shall not be
construed as a waiver or relinquishment of the right to insist upon strict
performance of the same or any other condition, promise, agreement or
understanding at a future time.
5.6. Entire Agreement. This Agreement sets forth all of the
promises, agreements, conditions, understandings, warranties and
representations among the parties hereto with respect to the shares of Stock
owned by the Norton Family Stockholders and any other matters set forth herein,
and there are no promises, agreements, conditions, understandings, warranties or
representations, oral or written, express or implied, among them with respect
to such shares or such other matters except as set forth herein. Any and all
prior agreements among the parties hereto with respect to the shares of Stock
owned by the Norton Family Stockholders are hereby revoked. This Agreement is,
and is intended by the parties to be, an integration of any and all prior
agreements or understandings, oral or written, by and among the parties with
respect to the shares of Stock.
5.7. Governing Law. This Agreement shall be construed and enforced
in accordance with the laws of the of State of Delaware.
5.8. Headings. The headings, subheadings and other captions in
this Agreement are for convenience and reference only and shall not be used in
interpreting, construing or enforcing any of the provisions of this Agreement.
5.9. Term of Agreement. This Agreement shall be effective as of
the date first hereinabove set forth and shall terminate at such time as such
Norton Family Stockholder shall sell or transfer all of his shares of
Stock to the Proxy or to, with respect to a Selling Norton Family Stockholder,
another Norton Family Stockholder or third party pursuant to any provision of
this Agreement or otherwise. Notwithstanding the foregoing, certain Sections
of this Agreement may terminate prior to the aforesaid termination if such
Sections so provide.
5
<PAGE> 6
5.10. Specific Performance. Strict compliance shall be required
with each and every provision of this Agreement and particularly with the
procedures set forth in the provisions of Articles 1, 2 and 3 hereof. The
parties hereto agree that the shares of Stock are unique, that failure to
perform the obligations provided by this Agreement shall result in irreparable
damage and that specific performance of these obligations may be obtained by
suit in equity.
IN WITNESS WHEREOF, Proxy and each Norton Family Stockholder have
executed this Agreement, all as of the day and year first above written.
PROXY:
-----
------------------------------------------
PHILLIP G. NORTON
STOCKHOLDERS:
------------
------------------------------------------
KEVIN M. NORTON
------------------------------------------
PATRICK J. NORTON, JR.
J.A.P. INVESTMENT GROUP, L.P.
By: J.A.P., Inc., General Partner
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
6
<PAGE> 7
The Corporation, by its duly authorized officer, hereby sets forth its
signature to evidence its agreement, for and on behalf of itself and its
successors and assigns, that:
A. It hereby consents to this Agreement.
B. All certificates representing shares of Stock issued
by the Corporation and held by either Stockholder shall bear an endorsement in
substantially the form specified in Section 1.2 hereof.
MLC HOLDINGS, INC.
By:
----------------------------
Bruce M. Bowen,
Executive Vice President
COMMONWEALTH OF VIRGINIA )
) To wit:
CITY/COUNTY OF )
----------
The foregoing instrument was duly acknowledged before me this ______
day of September, 1996 by Kevin M. Norton.
-------------------------------------
Notary Public
My Commission expires:
----------
COMMONWEALTH OF VIRGINIA )
) To wit:
CITY/COUNTY OF )
----------
The foregoing instrument was duly acknowledged before me this ______
day of September, 1996 by Patrick J. Norton, Jr.
-------------------------------------
Notary Public
My Commission expires:
----------
7
<PAGE> 8
COMMONWEALTH OF VIRGINIA )
) To wit:
CITY/COUNTY OF )
----------
The foregoing instrument was duly acknowledged before me this ______
day of September, 1996 by ________, ___________ of J.A.P., Inc., as general
partner of J.A.P. Investment Group, L.P.
-------------------------------------
Notary Public
My Commission expires:
----------
8
<PAGE> 9
EXHIBIT A
PROMISSORY NOTE
$
------------------- ----------------,
, 19
---------------- ---
FOR VALUE RECEIVED, the undersigned, Phillip G. Norton (hereinafter
referred to as "Maker"), hereby promises to pay to [insert name of terminated
stockholder] ("Payee"), at ______________________________________, ________, or
at such other place as the holder hereof may from time to time designate in
writing, the principal sum of ___________ Dollars ($_________), in three (3)
equal annual installments of ____________________ Dollars ($____), such
installments due on ___________, 19___ and on _______ of each year thereafter,
together with interest from and after the date hereof at the rate of ___
percent (___%) per annum computed on the unpaid principal balance and payable
at the same time as an installment of principal hereunder is due.
Maker shall have the right to prepay in part or in full, without
penalty, this promissory note (together with accrued interest to the date of
prepayment on the amount of principal thus prepaid) at any time or times in the
inverse order of maturity.
In the event of any failure to pay when due any installment of
interest hereunder or any installment of the principal sum hereof, and the
continuance of such failure to pay for a period of ten (10) days after written
notice (by certified or registered mail or by hand delivery) of such failure,
this promissory note shall be considered to be in default and the entire unpaid
principal sum hereof, together with accrued interest, shall at the option of
the holder hereof become immediately due and payable in full.
Except as set forth herein, Maker waives presentment, demand and
presentation for payment, notice of nonpayment and dishonor, protest and notice
of protest and expressly agrees that this promissory note or any payment
hereunder may be extended from time to time without in any way affecting the
liability of Maker.
In the event of default and the placement of this promissory note in
the hands of an attorney for collection, Maker agrees to pay all collection
costs and expenses, including attorneys' fees equal to fifteen percent (15%) of
the amount then due hereunder.
The validity and construction of this promissory note and all matters
pertaining hereto are to be determined in accordance with the laws of the
_________________ of __________________________.
<PAGE> 10
IN WITNESS WHEREOF, Maker, has executed this promissory note on this
___ day of ___________, 19___.
By:
----------------------------
PHILLIP G. NORTON
2
<PAGE> 1
EXHIBIT 10.12
December 1, 1995
Mr. Bruce Bowen
President
MLC Group, Inc.
11150 Sunset Hills Rd., Suite 110
Reston, Virginia 22090
Dear Mr. Bowen:
On behalf of NationsBank, I am pleased to inform you that renewal of your
$2,000,000.00 line of credit has been approved. The loan is subject to the
following terms and conditions:
BORROWER: MLC Group, Inc.
LOAN AMOUNT: Two Million Dollars and 00/100 ($2,000,000.00)
PURPOSE: Working Capital to finance timing difference of equipment purchases
prior to placement on lease or sale.
INTEREST: One percent (1.00%) above NationsBank's Prime rate (floating).
NationsBank Prime rate is the rate established from time to time by the Bank as
its "Prime Rate". The Borrower acknowledges and agrees that the Prime Rate is
a reference used by the Bank in determining interest rate on certain loans and
is not intended to be the lowest rate of interest charged on any extension of
credit to any customer.
COLLATERAL: $1,500,000.00 of the Nations Prime Fund held by NationsBank, which
is described in the enclosed note dated ____________________. The value of
these securities must be $1,500,000.00 or greater at all times. The Borrower
or Guarantors agree to provide additional liquid collateral to cover the
shortfall within five business days, unless waived by the Bank in writing.
GUARANTORS: Philip G. Norton, Patricia Norton, Bruce Bowen, Elizabeth Bowen,
Kevin Norton, Brianna Norton, Patrick Norton, William Slaton, and Margaret
Newton will all be the unconditional and unlimited guarantors of the loan.
REPAYMENT: Interest will be payable on a monthly basis with principal due in
full at maturity.
<PAGE> 2
MATURITY: One year.
REPORTING: Annual and quarterly financial statements with balance sheet and
cash flow information on MLC in a form acceptable to the Bank. Guarantors will
provide annual personal financial statements to include cash flow information
in a form acceptable to the Bank.
LIQUIDITY MAINTENANCE: Guarantors agree to maintain, throughout the term of
the loan, unencumbered liquidity which is defined as cash, U.S. Government
Obligations, municipal bonds, corporate bonds, stocks that are traded over the
New York, American, or OTC Exchanges, or mutual funds in the Guarantor's name,
in an amount of at least $700,000.00 between all Guarantors. Evidence of this
liquidity will be provided by Bruce Bowen, President of MLC, through quarterly
submission of the attached form.
RESTRICTIONS/COVENANTS: Borrower agrees to notify the Bank if any additional
recourse loans or contingencies larger than $100,000.00 are obtained. Borrower
will maintain the following fixed charge coverage ratio of at least 1.2 times.
The ratio is specifically defined as:
Earning Before Interest Expense and Taxes + Rent Expense
--------------------------------------------------------
Interest Expense + Rent Expense
The Borrower must be in compliance with this ratio at every quarter end, on a
rolling four quarter basis, as evidence in the quarterly financial statements.
DEFAULTS: The Bank may terminate this commitment at any time and any amounts
outstanding shall become due and payable upon the occurrence of any of the
following:
1) Failure to comply in a timely manner with any of the terms and
conditions of the commitment letter, 2) The Bank in its sole discretion
determines that a material adverse change has occurred in the Borrowers
financial condition, 3) Any of the information, data, representations,
exhibits, and other materials that have been submitted to the Bank shall
contain any inaccuracy and or misrepresentation that the Bank in its sole
discretion determines to be material to its decision to issue this commitment
letter.
SURVIVAL: The terms and provisions of this commitment letter shall survive the
closing of the loan made hereunder, the delivery of all documents necessary to
carry out the provision of this commitment, and the funding and making of loans
and disbursements hereunder.
<PAGE> 3
SUPERSESSION: This letter supersedes any and all prior agreements or
understandings whether oral or written. The terms of this commitment cannot be
modified except in written instrument signed by the borrowers and the Bank.
This commitment letter, does not contain all the terms and conditions
pertaining to the loan which will be more fully described in the loan
documents. If there is a conflict between the commitment letter and the loan
documents, the loan documents prevail. This commitment letter survives the
execution of the loan documents and is in effect for the entire term of the
facility.
If these terms and conditions meet your approval, please sign this agreement
and the other enclosed loan documents.
We thank you for your business and look forward to working with you again in
the future.
Sincerely,
/s/ THOMAS C. DEXTER, JR.
Thomas C. Dexter, Jr.
Assistant Vice President
<TABLE>
<S> <C>
Accepted by:
Borrower: /s/ BRUCE M. BOWEN
-----------------------
Bruce M. Bowen
President/Treasurer, MLC Group, Inc. Date:
-----------------------------
Acknowledged By:
Guarantors: /s/ BRUCE BOWEN /s/ KEVIN M. NORTON
------------------------------------------- -------------------------------------------
/s/ ELIZABETH BOWEN /s/ BRIANNA G. NORTON
------------------------------------------- -------------------------------------------
/s/ PHILLIP G. NORTON /s/ PATRICK J. NORTON, JR.
------------------------------------------- -------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.13
FIRST AMENDED AND RESTATED BUSINESS LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDED AND RESTATED BUSINESS LOAN AND SECURITY AGREEMENT
("Agreement") is made this 6th, day of October, 1995, by and between MLC GROUP,
INC., a Virginia corporation ("Borrower"), and FIRST UNION NATIONAL BANK OF
VIRGINIA ("Bank").
RECITALS
WHEREAS, on September 28, 1995, the Borrower and the Bank executed a
Business Loan and Security Agreement in connection with a Line of Credit to
Borrower in the aggregate principal amount of Five Million Dollars
($5,000,000.00); and
WHEREAS, the Borrower has requested that the Bank make certain
modifications to the Business Loan and Security Agreement, which the Bank is
agreeable to making.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Borrower and Bank do hereby agree as follows:
1. CONSTRUCTION AND DEFINITION OF TERMS
All terms used herein without definition which are defined by the
Virginia Uniform Commercial Code shall have the meanings assigned to them by
the Virginia Uniform Commercial Code unless and to the extent varied by this
Agreement. Unless the context otherwise requires, all of the accounting terms
used herein without definition shall have the meanings assigned to them as
determined by GAAP except to the extent varied by this Agreement. Whenever the
phrase "satisfactory to Bank" is used in this Agreement such phrase shall mean
"satisfactory to Bank in its sole discretion." The use of any gender or the
neuter herein shall also refer to the other gender or the neuter and the use of
the plural shall also refer to the singular, and vice versa. In addition to
the terms defined elsewhere in this Agreement, unless the context otherwise
requires, when used herein, the following terms shall have the following
meanings:
IMPORTANT NOTICE
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION
WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND
ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER
NOTICE.
<PAGE> 2
"ACCEPTABLE CONTRACTED INVENTORY" shall mean Inventory consisting of
used information technology equipment which has been pre-sold (but as to which
title has not yet passed) or pre-leased to a Contract Obligor satisfactory to
Bank pursuant to a Contract in form and substance satisfactory to Bank, and is
otherwise acceptable to Bank from time to time, in its discretion exercised in
good faith, as a basis for making Line of Credit Advances to Borrower. Without
limitation of the foregoing, if the applicable Contract is a lease or an
installment or conditional sales contract, such Inventory must be the subject
of executed financing statements (copies of which Borrower shall have provided
to Bank) to be recorded in all jurisdictions required to properly perfect the
security interest of Borrower in such Inventory. In addition, at Bank's option
or request, Borrower shall provide evidence satisfactory to Bank of (1) the
delivery to the Contract Obligor of such Inventory and of the Contract
Obligor's acceptance thereof, and (2) the assignability of such Contract to
Bank and/or of the Contract Obligor's assent to such assignment. Without
limitation of the foregoing, except as otherwise agreed by Bank from time to
time, Acceptable Contracted Inventory shall not include:
(a) any Inventory which Borrower does not own or which Borrower
has owned for a period exceeding 90 days (such ownership to be deemed to begin
upon payment of the purchase price of the Inventory);
(b) any Inventory which is subject to any Lien except for
Permitted Liens, in which Borrower does not have the right and power to grant a
first priority security interest to Bank, or which has been the subject of an
Ordinary Course Sale or Refinancing;
(c) any Inventory which is defective or damaged;
(d) any Inventory consisting of Software;
(e) any Inventory which is the subject of a Contract for which the
Contract Obligor has failed to make a required payment when due, or a Contract
which has been terminated, suspended or discontinued by any Contract Obligor,
for any reason, or with respect to which there exists any colorable claim or
right of setoff, counterclaim or deduction in favor of the Contract Obligor or
any other person against any payment due under such Contract;
(f) any Inventory created or acquired by Borrower in connection
with, or identified to, any contract of Borrower with the United States of
America or any State, county, municipality or other governmental entity, or any
department or agency thereof, unless Bank is satisfied in good faith that, by
law or agreement, Bank's security interest therein has and will have priority
over any claim to or against such Inventory, arising prior to delivery of such
Inventory under such contract, of the United States of America or such State,
county, municipality or other governmental entity, or department or agency
thereof;
(g) any MLC/GATX Inventory;
(h) any Inventory with respect to which the Contract Obligor is
insolvent, is unable to pay its debts as they mature or is the subject of any
pending, imminent or threatened bankruptcy,
- 2 -
<PAGE> 3
reorganization, insolvency, readjustment of debt, trusteeship, receivership,
dissolution or liquidation law, statute or proceeding;
(i) any Inventory with respect to which the Contract Obligor is an
Affiliate; or
(j) any Inventory with respect to which the Contract Obligor's
principal place of business (if not an individual) or residence (if an
individual) is not located in the United States of America.
Bank may determine from time to time, in its discretion exercised in good faith
and notwithstanding any previous contrary determinations made by Bank, to
exclude from Acceptable Contracted Inventory specific Inventory or categories
or types of Inventory. Such determinations may be based upon evaluations of
risk or any other factors deemed relevant by Bank in good faith, whether or not
such factors have theretofore been used, contemplated or foreseen as a basis
for limiting Acceptable Contracted Inventory. Bank will promptly communicate
any such determination to Borrower.
"ACCEPTABLE NON-CONTRACTED INVENTORY" shall mean Inventory which has
not been pre-sold or pre-leased pursuant to a Contract in form and substance
satisfactory to Bank, but which in all other respects would be Acceptable
Contracted Inventory.
"ACCEPTABLE CONTRACT" shall mean a Contract for the lease or licensure
of Software or information technology equipment to a Contract Obligor which is
acceptable to Bank from time to time, in its discretion exercised in good
faith, as a basis for making Line of Credit Advances to Borrower. Without
limitation of the foregoing, except as otherwise agreed by Bank from time to
time, Acceptable Contract shall not include:
(a) any Contract (i) which is not a valid and enforceable
obligation of the applicable Contract Obligor, is not in form and substance
satisfactory to Bank or has not been assigned by the original lessor or
licensor thereunder (or its assignee) to Borrower, or (ii) relating to Software
or equipment which has been leased or licensed to a Contract Obligor for a
period exceeding 90 days;
(b) any Contract which is not lawfully owned by Borrower,
is encumbered by a Lien in favor of any person other than Bank, or in which
Borrower does not have the right and power to grant a first priority security
interest as to Bank;
(c) any Contract which has been terminated, suspended or
discontinued, with respect to which the subject equipment or Software is
defective or damaged, or under which the Contract Obligor has failed to make a
required payment when due or has alleged any defense, setoff, counterclaim,
retainage, holdback, credit, discount, allowance, adjustment, deduction or
reduction of any kind;
(d) any Contract which has been the subject of an
Ordinary Course Sale or Refinancing;
- 3 -
<PAGE> 4
(e) any Contract with the United States of America or any
State, county, municipality or other governmental entity, or any department or
agency thereof, to the extent that sums due or to become due to Borrower in
connection therewith have not been duly assigned to Bank in accordance with the
Federal Assignment of Claims Act and/or any other applicable federal, State or
local laws, rules and regulations relating to the assignment or payment of such
Contract and sums;
(f) any Contract with respect to which the Contract
Obligor is insolvent, is unable to pay its debts as they mature, or is the
subject of any pending, imminent or threatened bankruptcy, reorganization,
insolvency, readjustment of debt, trusteeship, receivership, dissolution or
liquidation law, statute or proceeding;
(g) any Contract in which the Contract Obligor is an
Affiliate; or
(h) any Contract with respect to which the Contract
Obligor's principal place of business (if not an individual) or residence (if
an individual) is not located in the United States of America.
Bank may determine from time to time, in its discretion exercised in good faith
and notwithstanding any previous contrary determinations made by Bank, to
exclude from Acceptable Contract specific Contracts or categories or types of
Contracts. Such determinations may be based upon evaluations of risk or any
other factors deemed relevant by Bank in good faith, whether or not such
factors have theretofore been used, contemplated or foreseen as a basis for
limiting Acceptable Contract. Bank will promptly communicate any such
determination to Borrower.
"ADVANCE" shall mean each Line of Credit Advance and each Compliance
Advance.
"ADVANCEABLE ASSETS" shall mean Acceptable Contracted Inventory,
Acceptable Non-Contracted Inventory and Acceptable Contracts.
"AFFILIATE" shall mean: (a) any person in which Borrower legally or
beneficially owns or holds, directly or indirectly, any capital stock or other
equity interest; (b) any person that is a partner in or of Borrower, a
partnership in which Borrower is a partner, a joint venture in which Borrower
is a joint venturer, or a joint venturer in or of Borrower, (c) any person that
is a director, officer, employee, stockholder (legally or beneficially) or
other affiliate of any of the foregoing or of Borrower, and (d) any person that
directly or indirectly controls, is under the control of, or is under common
control with, Borrower, including, without limitation, any person that directly
or indirectly has the right or power to direct the management or policies of
Borrower and any person whose management or policies Borrower directly or
indirectly has the right or power to direct.
"AVAILABLE FUNDS" shall mean the gross balance in the Management
Account, less Instruments presented for payment and less the aggregate amount
of all deposited items which Bank has not credited to the Management Account as
available.
- 4 -
<PAGE> 5
"BANKING DAY" shall mean any day that banks in the Commonwealth of
Virginia are not required or permitted to be closed.
"BUSINESS PREMISES" shall mean 11150 Sunset Hills Road, Suite 110,
Reston, Virginia 22090; 1900 Point West Way, Suite 120, Sacramento, California
95815; 5130 Bonita Road, Bonita, California 91902; 6616 Six Forks Road, Suite
201, Raleigh, North Carolina 27615; 901 MoPac Expressway, Building 2, Suite
305, Austin, Texas 78746; 17110 Dallas Parkway, Dallas, Texas 75248; P.O. Box
682140, Park City, Utah 84058; 600 First Avenue, Suite 617, Seattle, Washington
98104; 950 N. Raddant, Batavila, Illinois 60510; 106 Iron Mountain Road, Mine
Hills, New Jersey 07801; 11 Vincent Circle, Jacksonville Park, Ivyland,
Pennsylvania 18974; and 2985 113th Street, Grand Prairie, Texas 75050.
"CERTIFIED" shall mean that the information, statement, schedule,
report or other document required to be "Certified" contains a representation
by Borrower, that to Borrower's knowledge and belief after diligent inquiry,
such information, statement, schedule, report or other document is true and
complete in all material respects.
"CLOSING" shall mean the first date on which funds are advanced to
Borrower hereunder.
"COLLATERAL" shall mean:
(a) all Receivables, Inventory, General Intangibles,
Contracts, and Equipment and, in addition, all other property of Borrower in
which Bank has, or may in the future acquire or be granted, a Lien hereunder or
under any of the Other Agreements;
(b) all amounts now or in the future owed by Bank to
Borrower and all property and funds of Borrower (including deposit accounts,
certificates of deposit, and investments made or managed by Bank on behalf of
Borrower), now owned or hereafter acquired by Borrower and now or hereafter in
Bank's possession or control;
(c) all present and future substitutions, replacements,
appurtenances, accessories, accessions and materials and supplies relating to
any of the foregoing;
(d) all of Borrower's present and future books and
records in any form, in or on any media, including data processing materials in
any form (including software, tapes, discs and the like), whether in the
possession of Borrower or any other person; and
(e) all present and future proceeds and products of all
of the foregoing in any form whatsoever and all rights, including rights to the
payment of money for any reason, arising on account of any sale, assignment,
lease, rental, license, exchange, liquidation, condemnation, taking, theft or
any disposition of any nature of, or any damage or casualty to, or any loss
with respect to, any of the foregoing or any rights or interests of Borrower in
any of the foregoing, including, without limitation, cash proceeds (including
all payments under any indemnities, warranties or guaranties payable with
respect to any of the foregoing), noncash proceeds and proceeds acquired with
cash proceeds, whether any such proceeds constitute consumer goods,
- 5 -
<PAGE> 6
farm products, equipment, inventory, documents of title, chattel paper,
accounts, instruments or general intangibles, and all proceeds of insurance
policies insuring any of the foregoing or any risks to Borrower associated with
any of the foregoing. Notwithstanding the foregoing, the Collateral shall not
include (x) except to the extent Borrower has retained an interest therein, any
Inventory or any Contract sold or refinanced by Borrower in an Ordinary Course
Sale or Refinancing, (v) the MLC/GATX Inventory, or (z) any rights with respect
to payments resulting from the lease of the MLC/GATX Inventory.
"COMPLIANCE ADVANCE" shall mean an Advance made by Bank under
Subsection 2.01B(b)(ii) or Subsection 10.01 of this Agreement.
"CONTRACT" shall mean any equipment lease, purchase agreement or other
agreement between Borrower (or its assignor) and a Contract Obligor, whether
now existing or hereafter arising, providing for the lease or sale of Inventory
and/or the lease or licensure of Software.
"CONTRACT OBLIGOR" shall mean each person obligated to make a payment
to Borrower under a Contract.
"DEFAULT" shall mean any event which, with the giving of notice or
lapse of time (or both), would be an Event of Default.
"DEFAULT RATE OF INTEREST" shall mean a fluctuating rate of interest
equal to the LIBOR Rate in effect from time to time plus 475 basis points.
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and foreign
laws relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including, without limitation,
ambient air, surface water, ground water, or land), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes, and any and all regulations, codes,
plans, orders, decrees, judgments, injunctions, notices or demand letters
issued, entered, promulgated or approved thereunder.
"EQUIPMENT" shall mean:
(a) all equipment of Borrower of every type and
description, now owned and hereafter acquired and wherever located, including,
without limitation, all machinery, vehicles and other rolling stock, furniture,
furnishings, tools, dies, leasehold improvements, fixtures, and materials and
supplies relating to any of the foregoing;
(b) all present and future documents of title and trust
receipts relating to any of the foregoing;
- 6 -
<PAGE> 7
(c) all present and future rights, claims and causes of
action of Borrower in connection with purchases by Borrower of (or contracts
for the purchase by Borrower of), or warranties relating to, or damages to,
goods held or to be held by Borrower as equipment;
(d) all present and future warranties, manuals and other
written materials (and packaging thereof or relating thereto) relating to any
of the foregoing;
(e) all present and future rights, claims and causes of
action of Borrower in connection with any agreements pursuant to which any
suppliers, manufacturers or other persons have agreed or may agree,
conditionally or otherwise, to purchase or repurchase from Borrower, in bulk or
otherwise, any goods held or to be held by Borrower as equipment; and
(f) all present and future general intangibles of
Borrower in any way relating to any of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor legislation, and all
regulations, codes, plans, orders, decrees, judgments, injunctions, notices or
demand letters issued, entered, promulgated or approved thereunder.
"EVENT OF DEFAULT" shall mean any of the events described in Section 8
hereof.
"EXCESS FUNDS" shall mean the amount by which Available Funds exceeds
the Target Balance.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"GOOD FAITH" shall mean, with respect to a determination to be made by
Bank "in good faith," that Bank shall make such determination honestly and not
maliciously.
"GENERAL INTANGIBLES" shall mean general intangibles as such term is
defined in Section 9-106 of the UCC, now owned or hereafter acquired by
Borrower and, in any event includes, without limitation, all customer lists,
trademarks, patents, rights in intellectual property, licenses, permits,
copyrights, trade secrets, proprietary or confidential information, inventions
(whether patented or patentable or not) and technical information, procedures,
designs, knowledge, knowhow, software, data bases, data, skill, expertise,
experience, processes, models, drawings, materials and records, goodwill,
rights of indemnification and all right, title and interest which Borrower may
now or hereafter have in or under any Contract, now owned or hereafter acquired
by Borrower.
"GUARANTIES" shall mean the guaranties required to be delivered
pursuant to Section 5.01 of this Agreement.
- 7 -
<PAGE> 8
"HAZARDOUS SUBSTANCE" shall mean any flammable explosives, radon,
radioactive materials, asbestos, urea, formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum- based products, methane and
all other pollutants, contaminates, chemicals, industrial substances,
industrial wastes, toxic substances, toxic wastes, toxic materials, hazardous
substances, hazardous wastes and hazardous materials. The meaning of each term
used in this definition shall include, without limitation, the meaning or
meanings assigned to such term by any Environmental Laws.
"INDEBTEDNESS" shall include all items which would properly be
included in the liability section of a balance sheet or in a footnote to a
financial statement in accordance with GAAP, and shall also include all
contingent liabilities.
"INSTRUMENT" shall mean any item for the payment of money drawn upon,
or any charge against, the Management Account.
"INVENTORY" shall mean:
(a) all inventory of Borrower of every type and
description, now owned and hereafter acquired and wherever located, including,
without limitation, raw materials, work in process, finished goods, goods
returned or repossessed, and goods held for demonstration, marketing or similar
purposes;
(b) all present and future materials and supplies of
Borrower used, usable or consumed in the course of Borrower's business, whether
relating to the manufacture, assembly, installation, repair, packaging, packing
or shipment of goods by Borrower, or relating to advertising or any other
aspect of Borrower's business;
(c) all present and future property of Borrower in or on
which any of the foregoing is stored or maintained;
(d) all present and future warranties, manuals and other
written materials (and packaging thereof or relating thereto) relating to any
of the foregoing;
(e) all present and future documents of title and trust
receipts relating to any of the foregoing;
(f) all present and future customer lists of Borrower,
(g) all present and future rights of Borrower in
connection with goods consigned to or by Borrower;
(h) all present and future rights of Borrower as an
unpaid seller of goods, including rights of stoppage in transit, detinue and
reclamation;
- 8 -
<PAGE> 9
(i) all present and future rights, claims and causes of
action of Borrower in connection with purchases by Borrower of (or contracts
for the purchase by Borrower of), or warranties relating to, or damages to,
good s held or to be held by Borrower as inventory;
(j) all present and future rights, claims and causes of
action of Borrower in connection with any agreements pursuant to which any
suppliers, manufacturers or other persons have agreed or may agree,
conditionally or otherwise, to purchase or repurchase from Borrower, in bulk or
otherwise, any goods held or to be held by Borrower as inventory; and
(k) all present and future general intangibles of
Borrower in any way relating to any of the foregoing.
"INVESTMENT" shall mean repurchase agreements (minimum investment
amount of $25,000.00).
"LIBOR RATE" shall mean a rate per annum (rounded upwards, if
necessary, to the next higher l/100 of l%) determined pursuant to the following
formula:
LIBOR = LIBOR Based Rate
----------------
1.00 - Eurodollar Reserve Percentage
The terms used in the preceding formula shall have the following
meanings:
1. "LIBOR Based Rate" shall mean the rate for deposits in United
States Dollars for a maturity of 30 days which appears on the
Telerate Page 3750 at approximately 11:00 a.m. London time,
two (2) London business days prior to the effective date of
the applicable LIBOR Based Rate. If, for any reason, such
rate is not available, then "LIBOR Based Rate" shall mean the
rate per annum at which, in the opinion of Bank, United States
Dollars in the amount of $5,000,000 are being offered to
leading reference banks for settlement in the London interbank
market at approximately 11:00 a.m. London time, two (2) London
business days prior to the effective date of the applicable
LIBOR Based Rate for a maturity of 30 days.
2. "Eurodollar Reserve Percentage" shall mean, for any day, the
percentage (expressed as a decimal and rounded upwards, if
necessary, to the next higher 1/100 of 1%) which is in effect,
if applicable, for such day as prescribed by the Federal
Reserve Board (or any successor) for determining the maximum
reserve requirement (including without limitation any basic,
supplemental or emergency reserves) for Bank in respect of
Eurocurrency liabilities or any similar category of
liabilities.
"LIEN" shall mean any statutory or common law consensual or
nonconsensual mortgage, pledge, security interest, encumbrance, lien, right of
setoff, claim or charge of any kind, including, without limitation, any
conditional sale or other title retention transaction, any lease
- 9 -
<PAGE> 10
transaction in the nature thereof and any secured transaction under the Uniform
Commercial Code of any jurisdiction.
"LINE OF CREDIT" shall mean the line of credit extended from Bank to
Borrower pursuant to Section 2 hereof.
"LINE OF CREDIT ADVANCE" shall mean each Advance made by Bank under
the Line of Credit.
"LOAN DOCUMENTS" shall mean the Note, this Agreement, the Guaranties,
the Pledge and Security Agreement and any other document now or hereafter
executed by the Borrower or any other Obligor in connection with this Agreement
and the Line of Credit.
"MANAGEMENT ACCOUNT" shall mean Borrower's deposit account number
2050000361221 at Bank.
"MATURITY DATE" shall mean October 31, 1996.
"MAXIMUM ACCEPTABLE CONTRACTED INVENTORY LINE OF CREDIT AMOUNT" shall
mean the lesser of
(a) $5,000,000.00, or
(b) one hundred percent (100%) of the Net Cost of
Acceptable Contracted Inventory.
"MAXIMUM ACCEPTABLE NON-CONTRACTED INVENTORY LINE OF CREDIT AMOUNT"
shall mean the lesser of
(a) $750,000.00, or
(b) one hundred percent (100%) of the Net Cost of
Acceptable Non-Contracted Inventory.
"MAXIMUM ACCEPTABLE CONTRACT LINE OF CREDIT AMOUNT" shall mean one
hundred percent (100%) of the Net Cost of Acceptable Contracts, of which no
more than $500,000.00 shall consist of Software Contracts; provided, however,
that the Bank may in its sole discretion increase the $500,000.00 limit upon
request of the Borrower.
"MAXIMUM LINE OF CREDIT AMOUNT" shall mean, at any given time, (a) the
lesser of (i) $5,000,000.00, or (ii) the sum of (A) the Maximum Acceptable
Contracted Inventory Line of Credit Amount, plus (B) the Maximum Acceptable
Non-Contracted Inventory Line of Credit Amount, plus (C) the Maximum Acceptable
Contract Line of Credit Amount, minus (b) the Metropolitan Reserve.
- 10 -
<PAGE> 11
"METROPOLITAN RESERVE" shall equal $175,000.00; provided. however,
that upon the satisfaction of the Indebtedness of Borrower evidenced by that
certain promissory note dated July 19, 1991 in the original amount of
$250,000.00 to the order of Metropolitan Bank, N.A. (the "Metropolitan Note"),
the release of all Liens securing such Indebtedness and the termination of all
financing statements evidencing such Liens, the Metropolitan Reserve shall be
$0.
"MLC/GATX INVENTORY" shall mean inventory which is beneficially owned
by MLC Group/GATX Limited Partnership, a Colorado limited partnership, which
inventory may be nominally owned by Borrower as agent for such limited
partnership.
"NET COST" shall mean (a) with respect to any item of Inventory, the
net cost to Borrower of such Inventory, excluding delivery, installation and
similar charges and after giving effect to all discounts and credits provided
in connection with the purchase thereof, as established by the invoice for such
Inventory, a copy of which Borrower shall deliver to Bank upon Bank's request,
and (b) with respect to any Contract for the lease of equipment or the lease or
licensure of Software, the net cost to Borrower of acquiring the rights of the
original lessor (or its assignee) under such Contract
"NON-DEFAULT RATE OF INTEREST" shall mean a fluctuating rate of
interest equal to the LIBOR Rate in effect from time to time plus 275 basis
points.
"NOTE" shall mean a promissory note of Borrower in the form attached
hereto as Exhibit No. 1 and all renewals, replacements and extensions thereof
"OBLIGATIONS" shall mean, as the same may be amended, modified,
extended, renewed, supplemented, increased, refinanced, consolidated or
replaced from time to time, all present and future obligations, indebtedness
and liabilities of Borrower to Bank of every kind and nature, whether arising
under this Agreement, the Other Agreements or otherwise (including, without
limitation, all principal amounts, including future advances, interest charges,
service charges, late charges, fees and all other charges and sums, as well as
all costs and expenses, including attorneys' fees and expenses, payable or
reimbursable by Borrower under or pursuant to this Agreement, the Other
Agreements and otherwise), whether direct or indirect, joint or several,
contingent or non-contingent, matured or unmatured, accrued or not accrued,
liquidated or unliquidated, secured or unsecured, related or unrelated to this
Agreement, whether or not now contemplated, whether arising in contract, tort
or otherwise, whether or not any instrument or agreement relating thereto
specifically refers to this Agreement, and whether or not of the same character
or class as Borrower's obligations under this Agreement, including, without
limitation, reimbursement obligations of Borrower in connection with any
letters of credit issued by Bank, obligations of Borrower in connection with
overdrafts in any checking or other account of Borrower at Bank, all claims
against Borrower acquired by assignment to Bank, and all claims of Bank against
Borrower arising or re-arising on account of or as a result of any payment made
by Borrower or any Other Obligor with respect to any obligations included in
this definition which are rescinded or recovered from or restored or returned
by Bank under authority of any law, rule, regulation, order of court or
governmental agency, or in connection with any compromise or
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settlement relating thereto or relating to any pending or threatened action,
suit or proceeding relating thereto, whether arising out of any proceedings
under the United States Bankruptcy Code or otherwise.
"ORDINARY COURSE SALE OR REFINANCING" shall mean each of the following
to occur in the ordinary course of business of Borrower
(a) the sale (including the installment or conditional
sale) by Borrower of Inventory;
(b) the refinancing by Borrower of Inventory with a
lender other than Bank; provided, however, that except to the extent otherwise
provided in clause (d) below in connection with the simultaneous sale or
refinancing of any Contract described therein (i) any Lien granted by Borrower
to such lender in connection with such refinancing (which may be a first
priority Lien) shall not attach to any property of Borrower other than the
specific refinanced Inventory, and (ii) the Indebtedness of Borrower to such
lender in connection with such refinancing shall be without recourse to
Borrower except with respect to Borrower's interest in the refinanced
Inventory;
(c) the sale by Borrower of its ownership interest in any
Inventory which has been refinanced in an Ordinary Course Sale or Refinancing
described in clause (b) above; and
(d) the sale or refinancing by Borrower of any Contract
providing for the lease of Inventory or the lease or licensure of Software;
provided, however, that, except to the extent otherwise provided in clause (b)
above in connection with the simultaneous refinancing of Inventory (i) any Lien
granted by Borrower to such lender in connection with any such refinancing
(which may be a first priority Lien) shall not attach to any property of
Borrower other than the specific refinanced Contract, and (ii) the Indebtedness
of Borrower to such lender in connection with such refinancing shall be without
recourse to Borrower except with respect to Borrower's interest in the
refinanced Contract.
Notwithstanding the foregoing, a transaction described in clauses (b) or (d)
above shall still qualify as an Ordinary Course Sale or Refinancing even if the
Indebtedness of Borrower to such lender in connection with such financing is
with recourse to Borrower, as long as the total of such recourse financing is
not more than 20% of the total amount of such financing at any time.
Notwithstanding the foregoing, no transaction described in clauses (a), (b) or
(d) above shall qualify as an Ordinary Course Sale or Refinancing unless
Borrower shall have received from such purchaser or lender in immediately
available funds (w) in the case of a sale by Borrower of Inventory (other than
an installment or conditional sale), an amount equal to not less than 100% of
the Net Cost of the Inventory being sold, (x) in the case of a refinancing by
Borrower of Inventory (which may also include the sale or refinancing of any
Contract for the lease thereof) in which the interest of primary value being
acquired by the lender is in such Inventory (and not in any such Contract), an
amount equal to not less than 100% of the Net Cost of the Inventory being
refinanced, and (y) in the case of a sale or refinancing by Borrower of any
Contract for the
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<PAGE> 13
lease of Inventory (which may also include the refinancing of such Inventory)
in which the interest of primary value being acquired by the lender in such
Contract (and not in any such Inventory), an amount equal to not less than 100%
of the present value of such Contract, and (z) in the case of a sale or
refinancing by Borrower of a Contract providing for the lease or licensure of
Software, an amount equal to not less than 100% of the Net Cost of such
Contract.
"OTHER AGREEMENTS" shall mean, as the same may be amended, modified,
extended, renewed, supplemented or replaced from time to time, any and all
agreements, contracts, promissory notes and other instruments (including the
Note), drafts, checks, bankers acceptances, security agreements, assignments,
pledge agreements, hypothecation agreements, indemnification agreements,
letters of credit and applications and agreements relating thereto,
subordination agreements, mortgages, deeds of trust, leases, guaranties and
other documents.
(a) now and hereafter existing between Bank and Borrower,
(b) executed and/or delivered in connection with this
Agreement or any of the Obligations, or
(c) evidencing, guaranteeing, securing (directly or
indirectly), subordinating other obligations of Borrower or any Other Obligor
to, containing any warranties, covenants, agreements or representations of any
person relating to, or in any other manner relating to, any of the Obligations
or any obligation of any Other Obligor in connection with any of the
Obligations. The Other Agreements shall include, without limitation, the
instruments and documents referred to in Subsection 5.01 hereof.
"OTHER OBLIGOR" shall mean any person that is now or hereafter
primarily or secondarily, or contingently or non-continently, liable for or
obligated upon or in connection with any of the Obligations, or, whether or not
so liable, that has granted any Lien to or for the benefit of Bank as security
for any of the Obligations or any obligations of any Other Obligor in
connection with any of the Obligations.
"PERMITTED LIENS" shall mean:
(a) Liens of Bank;
(b) Liens for taxes not delinquent or for taxes being
diligently contested in good faith by Borrower by appropriate proceedings,
subject to the conditions set forth in Subsection 6.02 hereof and provided such
Lien is subordinate to any security interest of Bank in the property encumbered
by such Lien;
(c) mechanic's, artisan's, materialman's, landlord's,
carrier's or other like Liens arising in the ordinary course of business with
respect to obligations which are not due;
(d) Liens arising out of a judgment, order or award with
respect to which Borrower shall in good faith be prosecuting diligently an
appeal or proceeding for review and
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<PAGE> 14
with respect to which there shall be in effect a subsisting stay of execution
pending such appeal or proceeding for review, provided appropriate reserves
therefor are established by Borrower in accordance with GAAP and provided such
Liens are subordinate to Bank's security interest in the property encumbered by
such Lien;
(e) any deposit of funds made in the ordinary course of
business to secure obligations of Borrower under worker's compensation laws,
unemployment insurance laws or similar legislation, to secure public or
statutory obligations of Borrower, to secure surety, appeal or customs bonds in
proceedings to which Borrower is a party, or to secure Borrower's performance
in connection with bids, tenders, contracts (other than contracts for the
payment of money), leases or subleases made by Borrower in the ordinary course
of business;
(f) any Lien on Inventory and Contracts granted in
connection with a nonrecourse refinancing transaction which qualifies as an
Ordinary Course Sale or Refinancing;
(g) Liens of public record on the date hereof encumbering
specifically identified items of Inventory and/or specifically identified items
of chattel paper; and
(h) Liens specifically consented to by Bank in writing.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, trust, government (or subdivision, agency or department
thereof) or any other entity of any kind.
"RECEIVABLES" shall mean:
(a) all of Borrower's present and future accounts,
contract rights, receivables, promissory notes and other instruments, chattel
paper and general intangibles;
(b) all present and future tax refunds of Borrower and
all present and future rights of Borrower to refunds or returns of prepaid
expenses, including unearned insurance premiums;
(c) all present and future cash of Borrower;
(d) all deposit accounts now or hereafter maintained or
established by, for or on behalf of Borrower with any bank or other
institution, and all balances of funds now or hereafter on deposit in all such
accounts, including, without limitation, all checking accounts, collection
accounts, lockbox accounts, disbursement accounts, concentration accounts and
all other deposit accounts of every kind and nature;
(e) all present and future judgments, orders, awards and
decrees in favor of Borrower and causes of action in favor of Borrower;
(f) all present and future claims, rights of
indemnification and other rights of Borrower under or in connection with any
contracts or agreements to which Borrower is or becomes a party or third party
beneficiary;
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<PAGE> 15
(g) all rights and claims of Borrower with respect to any
deposits of money or other property made with any lessors of any property,
insurers, bonding agents or any other persons;
(h) all present and future rights and claims which
Borrower may now or hereafter have under any insurance policies, contracts or
coverages now or hereafter in effect;
(i) all goods previously or hereafter returned,
repossessed or stopped in transit, the sale, lease or other disposition of
which contributed to the creation of any account, instrument or chattel paper
of Borrower;
(j) all present and future rights of Borrower as an
unpaid seller of goods, including rights of stoppage in transit, detinue and
reclamation;
(k) all rights which Borrower may now or at any time
hereafter have, by law or agreement, against any account debtor or other
Obligor of Borrower, and all rights and Liens which Borrower may now or at any
time hereafter have, by law or agreement, against any property of any account
debtor or other obligor of Borrower;
(l) all present and future interests and rights of
Borrower, including rights to the payment of money, under or in connection with
all present and future leases and subleases of real or personal property to
which Borrower is a party, as lessor, sublessor, lessee or sublessee;
(m) all present and future customer lists of Borrower;
(n) all present and future contingent and non-contingent
rights of Borrower to the payment of money for any reason whatsoever, whether
arising in contract, tort or otherwise, whether or not such rights are
otherwise included in this definition; and
(o) all present and future rights of Borrower with
respect to licenses, patents, copyrights, franchises, trade names and
trademarks.
"SECURITY AGREEMENT" shall mean the agreement by which Patricia A.
Norton as Trustee for the Phillip G. Norton, Jr. Trust, the Andrew L. Norton
Trust and the Jeremiah O. Norton Trust grants a lien in favor of Bank in
certain collateral to secure payment of the Obligations.
"SOFTWARE" shall mean all computer programs leased or licensed to a
Contract Obligor, including all physical storage media and intangible property
rights associated therewith, together with all documentation relating thereto.
"SOFTWARE CONTRACT" shall mean a Contract for the lease or licensure
of Software.
"STATE" shall mean any State of the United States and the District of
Columbia.
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<PAGE> 16
"SUBSIDIARY" shall include any corporation at least a majority of the
outstanding Voting Stock of which, now or in the future, is owned or controlled
by Borrower, directly or indirectly through one or more Subsidiaries.
"TARGET BALANCE" shall mean $25,000.00.
"VOTING STOCK" shall mean the shares of any class of capital stock of
a corporation having ordinary voting power to elect the directors, officers or
trustees thereof, including such shares that shall or might have voting power
by reason of the occurrence of one or more conditions or contingencies.
2. THE LINE OF CREDIT
2.01 LINE OF CREDIT: LINE OF CREDIT ADVANCES.
2.01A PROCEDURE FOR REQUESTING LINE OF CREDIT ADVANCES.
Subject to all of the terms and conditions set forth herein, Borrower
is authorized to request from time to time, and Bank may make, Line of Credit
Advances. All requests by Borrower for Line of Credit Advances shall be made
in such manner and form and with such prior notice to Bank as Bank may
reasonably require from time to time. Each such request shall contain or be
accompanied by such information and documents (which shall be Certified if
required by Bank) concerning the Collateral, the financial condition of
Borrower, the use of the proceeds of such Advance and of Advances previously
made and/or any other matters as Bank may from time to time require. In no
event shall Bank be obligated to make any Line of Credit Advance hereunder (a)
if a Default or an Event of Default shall have occurred, or (b) if such Advance
would cause the total principal amount of Advances made and outstanding under
the Line of Credit to exceed the Maximum Line of Credit Amount. Bank may in
its sole discretion make an Advance if as a result of making the Advance more
than $1,000,000.00 is outstanding under the Line of Credit with respect to one
Contract Obligor of the Borrower; provided, however, in no event shall Bank be
obligated to make any Line of Credit Advance hereunder if more than $1,000,000
is outstanding under the Line of Credit with respect to one Contract Obligor of
the Borrower, and the Advance is to be made with respect to Contracted
Inventory or a Contract involving such Contract Obligor. Even if the total
principal amount of Advances outstanding shall at any time and for any reason
exceed the Maximum Line of Credit Amount, Borrower and all guarantors shall
nonetheless be liable for the entire principal amount outstanding, with
interest thereon at the rate and calculated in the manner provided herein and
in the Note, in accordance with and subject to this Agreement, the Note and the
Guaranties of such guarantors. If the total principal amount of outstanding
Advances shall at any time exceed the Maximum Line of Credit Amount, Borrower
shall immediately pay to Bank upon demand the amount of such excess, with
interest thereon at the rate and calculated in the manner provided herein and
in the Note. Borrower agrees that Borrower shall be liable for, and the
Collateral shall secure, the repayment of each Advance, with interest at the
rate and calculated in the manner provided herein and in the Note, whether or
not such Advance was duly requested or authorized
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<PAGE> 17
by Borrower and whether or not any person requesting such Advance was duly
authorized to make such request. Subject to all of the terms and conditions of
this Agreement and the Other Agreements, Borrower may borrow, repay and
reborrow under the Line of Credit until the Maturity Date.
2.01B REPAYMENT OF LINE OF CREDIT ADVANCES: TARGET BALANCE
MANAGEMENT PROGRAM.
(a) Except as otherwise provided in the Loan Documents,
the principal of each Line of Credit Advance, together with all accrued and
unpaid interest thereon, shall be due and payable without demand on the
Maturity Date.
(b) (i) In order to accommodate Borrower's desire to
manage its cash by initiating payments under Bank's target balance management
program, payments of Line of Credit Advances may be made as described in this
Subsection 2.01B(b)(i) and in Subsection 2.01B(b)(ii) hereof. Bank will
monitor the Management Account on each Banking Day to determine the amount of
Excess Funds, if any, in the Management Account, and Borrower authorizes Bank
to transfer Excess Funds from the Management Account and apply the same in the
following order of priority: first, in payment of the Line of Credit Advances
outstanding; and second, to purchase the Investment (or increase the amount of
the existing Investment) to the extent that the minimum investment requirements
are met. As security for the payment and performance of the Obligations,
Borrower hereby pledges to Bank and grants to Bank a security interest in any
Investment now or hereafter made by Bank for Borrower and the proceeds thereof.
(ii) If Bank determines on any Banking Day that the
amount of Available Funds is less than the Target Balance, Borrower authorizes
Bank to liquidate the Investment, in whole or in part in accordance with the
minimum investment requirements associated with the Investment, and transfer
the proceeds of such liquidation to the Management Account in order to cause
Available Funds to equal, at least, the Target Balance. If, after liquidation
of the entire Investment and transfer of the liquidation proceeds to the
Management Account, Available Funds are less than the Target Balance, Borrower
authorizes Bank, in its sole discretion, to make a Compliance Advance in the
amount necessary to cause Available Funds to equal, at least, the Target
Balance.
(iii) Borrower shall pay to Bank a monthly service
charge for the services to be performed by Bank under its target balance
management program, which charge shall be determined according to the schedule
of such charges as the same may be established from time to time by Bank.
Borrower acknowledges that the services to be performed by Bank under its
target balance management program are provided as a service accommodation to
Borrower and do not and shall not constitute conditions to or consideration for
the Obligations and, therefore, Bank shall not be liable to Borrower and
Borrower shall not be entitled to any reduction in interest charged to Bank on
the Line of Credit Advances on account of any failure of Bank to make any
Investment for Borrower or to cause any reduction to be made in the principal
amount outstanding of the Line of Credit Advances. Nothing herein contained
shall be construed
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<PAGE> 18
to limit, diminish or in any way impair any security interest, lien or right of
setoff of Bank. Bank makes no warranties, express or implied, with respect to
any Investment.
(iv) At any time Bank may terminate the operation of
the target balance management program without prior notice to Borrower.
2.0IC INTEREST ON LINE OF CREDIT ADVANCES.
Until the occurrence of an Event of Default and the expiration without
cure of any applicable notice period (see Section 9.01 below), the outstanding
principal amount of all Line of Credit Advances and/or the principal amount
outstanding under the Note shall bear interest at the Non- Default Rate of
Interest. After the occurrence of an Event of Default, and the expiration
without cure of any applicable notice period (see Section 9.01 below), the
outstanding, principal amount of all Line of Credit Advances and/or the
principal amount outstanding under the Note shall bear interest until paid at
the Default Rate of Interest. Interest shall be payable monthly as provided in
the Note and shall be calculated on a year of 360 days based upon the actual
number of days elapsed. As the rates of interest charged on the principal
amount of Line of Credit Advances and/or the principal amount outstanding under
the Note are based upon the LIBOR Rate, such rates of interest may fluctuate
and vary from time to time. If the LIBOR Rate shall increase or decrease, then
such rates of interest shall automatically and contemporaneously increase or
decrease (as the case may be) so as to reflect such increase or decrease in the
LIBOR Rate.
2.01D PREPAYMENT OF LINE OF CREDIT ADVANCES.
Borrower may at its option prepay any or all of the Line of Credit
Advances in whole at any time or in part from time to time without penalty or
premium. All payments may, in Bank's discretion, be applied first to the
payment of accrued and unpaid interest and then to the unpaid principal
balance.
2.01E NOTE.
The Line of Credit Advances made by Bank shall be evidenced by the
Note representing the obligation of Borrower to pay as prescribed therein the
lesser of (a) the Maximum Line of Credit Amount and (b) the aggregate unpaid
principal amount of all Line of Credit Advances, with interest thereon as
prescribed in Subsection 2.01C hereof. The Note shall bear interest for the
period from and including the date the thereof on the unpaid principal amount
thereof from time to time outstanding at the applicable interest rate per annum
determined as provided in Subsection 2.01C and shall be subject to prepayment
and payment as provided in this Agreement.
2.01F LATE CHARGE.
If any payment (except for the payment due on the Maturity Date)
required to be made by Borrower hereunder or under the Note is not paid within
fifteen (15) days after the date on which
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<PAGE> 19
such payment is due, Borrower shall pay to Bank on demand a late charge equal
to 5% of the amount of such payment.
3. SECURITY
3.01 SECURITY INTEREST.
As security for the payment and performance of all of the Obligations,
whether or not any instrument or agreement relating to any Obligation
specifically refers to this Agreement or the security interest created
hereunder, Borrower hereby grants to Bank a lien and continuing security
interest in, and pledges and assigns to Bank, the Collateral. Bank's security
interest shall continually exist until (a) all Obligations have been paid in
full, and (b) there exists no commitment by Bank which could give rise to any
Obligations, whether or not all Obligations shall at any time or from time to
time be reduced to zero. Borrower shall make notations, satisfactory to Bank,
on its books and records disclosing the existence of Bank's security interest
in the Collateral. Bank shall have no liability or duty, either before or
after the occurrence of an Event of Default hereunder, on account of loss of or
damage to, or to collect or enforce any of its rights against, the Collateral,
or to preserve any rights against account debtors or other parties with prior
interests in the Collateral, the sole duty of Bank in this regard being to
exercise reasonable care with respect to tangible Collateral in its actual
possession. Although the Collateral shall include all of Borrower's rights,
title and interests in and to the Contracts, the assignment thereof to Bank
hereunder shall not represent a delegation of any duties of Borrower thereunder
to Bank, or any undertaking by Bank to perform any such duties.
3.02 COVENANTS AND REPRESENTATIONS CONCERNING COLLATERAL.
With respect to all of the Collateral, Borrower covenants, warrants
and represents that:
(a) No financing statement covering any of the Collateral
is on file in any public office or land or financing records except for
financing statements in favor of Bank and financing statements with respect to
any Permitted Liens described in the Permitted Liens Exhibit and Borrower is
the legal and beneficial owner of all of the Collateral, free and clear of all
Liens, except for Permitted Liens.
(b) The security interest granted Bank hereunder shall
constitute a first priority Lien upon the Collateral, except for any existing
Liens described in the Permitted Liens Exhibit. Borrower will not except in the
ordinary course of business, transfer, discount, sell, grant or assign any
interest in the Collateral nor, without Bank's prior written consent, permit
any other Lien to be created or remain thereon except for Permitted Liens.
(c) Borrower will maintain the Collateral in good order
and condition, ordinary wear and tear excepted, and will use, operate and
maintain the Collateral in compliance with all laws, regulations and ordinances
and in compliance with all applicable insurance requirements and regulations.
Borrower will promptly notify Bank in writing of any litigation
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<PAGE> 20
involving or affecting the Collateral which Borrower knows or has reason to
believe is pending or threatened. Borrower will promptly pay when due all
taxes and all transportation, storage, warehousing and other such charges and
fees affecting or arising out of or relating to the Collateral and shall defend
the Collateral, at Borrower's expense, against all claims and demands of any
persons claiming any interest in the Collateral adverse to Borrower or Bank.
(d) At all reasonable times Bank and its agents and
designees may enter the Business Premises and any other premises of Borrower
and inspect the Collateral and all books and records of Borrower (in whatever
form).
(e) Borrower will maintain comprehensive casualty
insurance on the Collateral against such risks, in such amounts, with such loss
deductible amounts and with such companies as may be satisfactory to Bank, and
each such policy shall contain a clause or endorsement satisfactory to Bank
naming Bank as mortgagee and a clause or endorsement satisfactory to Bank that
such policy may not be canceled or altered and Bank may not be removed as
mortgagee without at least 30 days prior written notice to Bank. In all
events, the amounts of such insurance coverages shall conform to prudent
business practices and shall be in such minimum amounts that Borrower will not
be deemed a coinsurer under applicable insurance laws, regulations, policies or
practices. Borrower hereby assigns to Bank and grants to Bank a security
interest in any and all proceeds of such policies and authorizes and empowers
Bank to adjust or compromise any loss under such policies and to collect and
receive all such proceeds. Borrower hereby authorizes and directs each
insurance company to pay all such proceeds directly and solely to Bank and not
to Borrower and Bank jointly. Borrower authorizes and empowers Bank to execute
and endorse in Borrower's name all proofs of loss, drafts, checks and any other
documents or instruments necessary to accomplish such collection, and any
persons making payments to Bank under the terms of this paragraph are hereby
relieved absolutely from any obligation or responsibility to see to the
application of any sums so paid. After deduction from any such proceeds of all
costs and expenses (including attorney's fees) incurred by Bank in the
collection and handling of such proceeds the net proceeds may be applied, at
Bank's option, either toward replacing or restoring the Collateral, in a manner
and on terms satisfactory to Bank, or as a credit against such of the
Obligations, whether matured or unmatured, as Bank shall determine in Bank's
sole discretion.
(f) All books and records pertaining to the Collateral
are located at the Business Premises and Borrower will not change the location
of such books and records without the prior written consent of Bank.
(g) Except for (i) any vehicles of Borrower, (ii)
Collateral in transit to Borrower or to customers of Borrower, (iii) mobile
goods of a type normally used in more than one jurisdiction, (iv) leased or
financed Collateral covered by appropriate financing statements recorded in all
applicable filing offices, and (v) Acceptable Non-Contracted Inventory held for
refurbishment at refurbishment centers, all of the Collateral is, and, unless
Bank shall consent otherwise in writing, shall remain located at the Business
Premises.
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<PAGE> 21
(h) Borrower shall do, make, execute and deliver all such
additional and further acts, things, deeds, assurances, instruments and
documents as Bank may request to vest in and assure to Bank its rights
hereunder or in any of the Collateral, including, without limitation, the
execution and delivery of financing statements, financing statement amendments
and/or continuation statements, assignments of trademarks and powers of
attorney in connection therewith, and Borrower agrees to pay all taxes, fees
and costs (including attorney's fees) paid or incurred by Bank in connection
with the preparation and filing or recordation thereof.
(i) A carbon, photographic or other reproduction of this
Agreement or any financing statement signed by Borrower in connection with this
Agreement shall be sufficient as a financing statement.
(i) Whenever required by Bank, Borrower shall promptly
deliver to Bank, with all endorsements and/or assignments required by Bank, all
instruments, chattel paper, guaranties and the like received by Borrower
constituting, evidencing or relating to any of the Collateral or proceeds of
any of the Collateral.
(k) If at any time Receivables attributable to contracts
with the United States of America or any State, county, municipality or any
department, agency or instrumentality thereof ("Government Contracts") exceed
$500,000.00 in the aggregate, or if any Government Contracts shall exist at the
time a Default of Event of Default shall have occurred, Borrower shall
immediately notify Bank thereof and Bank at its option may require Borrower to
execute and deliver any agreements, notices and/or assignments and do such
other things as may be satisfactory to Bank in order that all sums due and to
become due to Borrower under such contract(s) shall be duly assigned to Bank in
accordance with the Federal Assignment of Claims Act (31 United States Code
Section 1203; 41 United States Code Section 15) and/or any other applicable
federal, State and local laws and regulations relating to the assessment of
governmental obligations. Bank shall have the right at any time, in its
discretion, in order to comply with the Assignment of Claims Act, to notify any
and all obligors under all affected Receivables that all payments under such
Receivables have been assigned to Bank, and to obtain acknowledgment of the
same by such obligors.
(l) Borrower agrees that until the Obligations shall have
been satisfied in full and this Agreement shall have been terminated, Borrower
will not, without Bank's prior written consent, (i) consign any Collateral to
any consignee, or (ii) enter into any agreement (for example, a license
agreement) which is inconsistent with Borrower's obligations under this
Agreement. Borrower further agrees that it will not take any action, or permit
any action to be taken by others subject to its control, including lessees and
licensees, or fail to take any action, which would materially adversely affect
the validity or enforcement of the rights transferred to Bank under this
Agreement.
(m) Within fifteen (15) days after the end of each month,
Borrower shall provide Bank a borrowing base certificate in form and substance
acceptable to Bank, and substantially in the form attached as Exhibit No. 2,
appropriately completed and Certified by the
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<PAGE> 22
chief financial officer of Borrower, reconciling the outstanding amount under
the Line of Credit with the Advanceable Assets.
(n) Immediately upon learning thereof, Borrower shall
notify Bank of any event or circumstance which disqualifies any Contract as an
Acceptable Contract and any event or circumstance which Borrower has reason to
believe would or might cause any such Contract to be unacceptable to Bank.
(o) No Contract has or will be reported or scheduled to
Bank as an Acceptable Contract which Borrower knows or should know is not an
Acceptable Contract and Borrower shall pay to Bank upon demand the amount
advanced by Bank with respect to any Contract reported or scheduled to Bank as
an Acceptable Contract which is not an Acceptable Contract or which
subsequently becomes unacceptable.
3.03 COLLATERAL COLLECTIONS.
Whether or not an Event of Default shall have occurred, Bank shall
have the right at any and all times to:
(a) notify and/or require Borrower to notify any or all
account debtors and other obligors on Receivables to make payments thereon
directly to Bank or in care of a post office lock box under the sole control of
Bank established at Borrower's expense subject to Bank's customary arrangements
and charges therefor, and to take any or all action with respect to Receivables
as Bank shall determine in its sole discretion, including, without limitation,
the right to demand, collect, sue for and receive any money or property at any
time due, payable or receivable on account thereof, compromise and settle with
any person liable thereon, and extend the time of payment or otherwise change
the terms thereof, without incurring liability or responsibility to Borrower or
any guarantor therefor;
(b) require Borrower to segregate and hold in trust for
Bank and, on the day of Borrower's receipt thereof, transmit to Bank in the
exact form received by Borrower (except for such assignments and endorsements
as may be required by Bank), all cash, checks, drafts, money orders and other
items of payment constituting Collateral or proceeds of Collateral for
application, upon collection when applicable, against such of the Obligations,
whether matured or unmatured, as Bank shall determine in its sole discretion;
and/or
(c) establish and maintain at Bank a "Repayment Account,"
which shall be under the exclusive control of and subject to the sole order of
Bank and which shall be subject to the imposition of such customary charges as
are imposed by Bank from time to time upon such accounts, for the deposit, as a
tender of payment of the Obligations, of cash, checks, drafts, money orders and
other items of payment constituting Collateral or proceeds of Collateral coming
into Bank's possession pursuant to the terms of this Agreement and from which
Bank may, in its sole discretion, at any time and from time to time, withdraw
all or any part of the balance for application against such of the Obligations,
whether matured or unmatured, as Bank shall determine in its sole discretion.
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<PAGE> 23
3.04 ADDITIONAL COLLATERAL.
If Bank shall at any time notify Borrower that the market value of the
collateral provided under the Security Agreement (the "Securities Collateral")
is less than $1,500,000.00, Borrower shall, within ten days after the giving of
such notice, pledge or cause to be pledged to Bank, pursuant to written
agreements in form end substance satisfactory to Bank, such additional cash
and/or United States government or municipal securities ("Additional
Collateral") to secure the payment and performance of the Obligations as shall
cause the sum of the market value of the Securities Collateral plus the market
value of the Additional Collateral to equal not less than $1,500,000.00. Bank
may from time to time require the pledge of Additional Collateral under this
Subsection 3.04 if the market value of the Cash Collateral and/or any
previously provided Additional Collateral shall decline, it being understood
and agreed that the market value of the Securities Collateral plus the market
value of the Additional Collateral must at all times be not less than
$1,500,000.00. All legal matters in connection with the provision of
Additional Collateral must be satisfactory to Bank and Bank's counsel.
4. REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement, Borrower represents and
warrants to Bank that:
4.01 GOOD STANDING.
Borrower and each Subsidiary is a corporation duly organized, legally
existing and in good standing under the laws of the State of its incorporation,
has the power to own its property and to carry on its business and is duly
qualified to do business and is in good standing in each jurisdiction in which
the character of the properties owned by it therein or in which the transaction
of its business makes such qualification necessary.
4.02 AUTHORITY.
Borrower has, and each Other Obligor which has executed any Other
Agreements in connection with this Agreement has, full power and authority to
enter into this Agreement and all Other Agreements executed by it in connection
with this Agreement, to execute and deliver all documents and instruments
required hereunder and thereunder, and to incur and perform the obligations
provided for herein and therein, all of which have been duly authorized by all
necessary corporate, partnership and other action, and no consent or approval
of any person, including, without limitation, its stockholders or partners, and
any governmental authority, which has not been obtained, is required as a
condition to the validity or enforceability hereof or thereof.
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<PAGE> 24
4.03 BINDING AGREEMENT.
This Agreement and all Other Agreements executed by Borrower and/or
Other Obligors in connection with this Agreement have been duly executed and
delivered by Borrower and each such Other Obligor, and constitute, and will
continue to constitute, the valid and legally binding obligations of Borrower
and each such Other Obligor, and are, and will continue to be, fully
enforceable against Borrower and each such Other Obligor in accordance with
their terms, subject to bankruptcy and other laws affecting the rights of
creditors generally.
4.04 NO CONFLICTING AGREEMENTS.
The execution, delivery and performance by Borrower, and by each Other
Obligor which has executed any Other Agreements in connection with this
Agreement, of this Agreement and all Other Agreements executed by Borrower
and/or Other Obligors in connection with this Agreement, and the borrowings
hereunder, will not violate (i) any provision of law or any order, rule or
regulation of any court or governmental authority, (ii) the corporate charter
or bylaws of Borrower or any Subsidiary, or the corporate charter or bylaws of
any Other Obligor that is a corporation, or the partnership agreement of any
Other Obligor that is a partnership, or (iii) any instrument, contract,
agreement, indenture, mortgage, deed of trust or other document or obligation
to which Borrower, any Subsidiary or any Other Obligor is a party or by which
any one or more of them, or any of their property, is bound.
4.05 LITIGATION.
Except as heretofore disclosed to Bank in writing, there are no
judgments, injunctions or similar orders or decrees, claims, actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower, any Subsidiary or any Other Obligor, or any property of
Borrower, any Subsidiary or any Other Obligor, at law or in equity, by or
before any court or any federal, State, county, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which could result in any material adverse change in the business,
operations, prospects, properties or in the condition, financial or otherwise,
of Borrower, and neither Borrower nor any Subsidiary is, to Borrower's
knowledge, in default with respect to any judgment, order, writ, injunction,
decree, rule or regulation of any court or any federal, State, county,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which could have a material adverse
effect on Borrower.
4.06 FINANCIAL CONDITION.
(a) None of Borrower, Subsidiaries and Other Obligors is
insolvent (as defined in Section 101(31) of the United States Bankruptcy Code),
unable to pay its debts as they mature or engaged in business for which its
property is an unreasonably small capital.
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<PAGE> 25
(b) None of Borrower, Subsidiaries and Other Obligors is
or has been the subject of any bankruptcy, reorganization, insolvency,
readjustment of debt, trusteeship, receivership, dissolution or liquidation
law, statute or proceeding.
(c) The financial statements of Borrower for the fiscal
year ending March 31, 1995 and for the three months ending June 30, 1995 and
heretofore delivered to Bank are true and complete, fairly present the
financial condition of Borrower as at such dates and the results of its
operations for the periods then ended and were prepared in accordance with GAAP
applied on a consistent basis for prior periods. There is no Indebtedness of
Borrower as of the date of such statements which is not reflected therein and
no material adverse change in the operations or financial condition of Borrower
has occurred since the date of such statements.
4.07 TAXES.
Borrower, each Subsidiary and each Other Obligor has paid or caused to
be paid all federal, State, local and foreign taxes to the extent that such
taxes have become due and has filed or caused to be filed all federal, State,
local and foreign tax returns which are required to be filed by Borrower, each
Subsidiary and each Other Obligor.
4.08 TITLE TO PROPERTIES.
Borrower has good and marketable title to all of its properties and
assets (including the Collateral) and all of the properties and assets of
Borrower are free and clear of Liens, except for Permitted Liens.
4.09 PLACE OF BUSINESS.
Borrower's only places of business are located at the Business
Premises and Borrower's chief executive office is located at 11150 Sunset Hills
Road, Suite 110, Reston, Virginia 22090. Borrower will not change such
locations or have or maintain any other place of business without Bank's prior
written consent.
4.10 FINANCIAL INFORMATION.
All financial statements, schedules, reports and other information
supplied to Bank by or on behalf of Borrower heretofore and hereafter are and
will be true and complete.
4.11 SUBSIDIARIES.
Except for Subsidiaries hereafter formed or acquired with Bank's prior
written consent, and except for Subsidiaries permitted under Subsection 7.05
hereof, there are and will be no Subsidiaries.
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<PAGE> 26
4.12 LICENSES AND PERMITS.
Borrower, each Subsidiary and each Other Obligor that is not an
individual has duly obtained and now holds all licenses, permits,
certifications, approvals and the like required by federal, State and local
laws of the jurisdictions in which Borrower and each Subsidiary conducts its
business and each remains valid and in full force and effect.
4.13 CERTAIN INDEBTEDNESS.
There is no Indebtedness of Borrower owing to any employee, officer,
stockholder or director of Borrower other than accrued salaries, commissions
and the like and existing Indebtedness to shareholders of Borrower in the
aggregate principal amount of $300,000.00.
4.14 BROKER'S OR FINDER'S COMMISSIONS.
No broker's or finder's fee or commission is or will be payable in
connection with this Agreement or the transactions contemplated hereby, and
Borrower agrees to save harmless and indemnify Bank from and against any claim,
demand, action, suit, proceeding or liability for any such fee or commission,
including any costs and expenses (including attorney's fees) incurred by Bank
in connection therewith. The provisions of this Subsection shall survive the
termination of this Agreement and Bank's security interest hereunder and the
payment of all other Obligations.
4.15 OUTSTANDING, INDEBTEDNESS, DEFAULTS.
Borrower has no outstanding Indebtedness except as permitted by
Subsection 7.01 hereof. None of Borrower, Subsidiaries and Other Obligors is in
default under any instrument, contract, agreement, indenture, mortgage, deed of
trust or other document or obligation to which Borrower, any Subsidiary or any
Other Obligor is a party or by which any one or more of them, or any of their
property, is bound.
4.16 CAPITAL STOCK.
All of the issued and outstanding capital Stock of Borrower is owned
by those persons and in those amounts indicated in the Capital Stock Exhibit
attached hereto and incorporated herein.
4.17 REGULATION U.
Neither Borrower nor any Subsidiary owns or presently intends to
acquire any "margin stock" as defined in Regulation U (12 CFR Part 221) of the
Board of Governors of the Federal Reserve System. None of the proceeds of any
advances hereunder will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin stock or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry a
margin stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of Regulation U. Neither Borrower nor any
agent acting on its behalf has
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<PAGE> 27
taken or will take any action which might cause this Agreement to violate
Regulation U or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Securities Exchange Act of 1934, in each case
as in effect now or as the same may hereafter be in effect.
4.18 EMPLOYEE MATTERS.
(a) With respect to each employee pension benefit plan,
as defined in Section 3(2) of the ERISA (a "Retirement Plan"), established or
maintained or to which contributions have been made by or for Borrower, or any
Subsidiary (including, for purposes of this Section, any other entity, whether
or not incorporated, which is part of a controlled group including Borrower or
which is under common control with Borrower, as defined in Sections 414(b) and
(c) of the Internal Revenue Code of 1986 (the "Code")); (i) the Retirement
Plan, including all amendments, is the subject of a favorable determination
letter from the Internal Revenue Service (or an application for such a letter
is presently pending); (ii) the Retirement Plan is and has at an times been
qualified, in form and operation, under Section 401(a) of the Code; (iii) the
Retirement Plan is and has at all times been administered, maintained and
operated in compliance with its terms and with all applicable provisions of the
Code, ERISA and all other applicable federal, state and local laws (and all
rules and regulations promulgated thereunder); (iv) neither Borrower nor any
Subsidiary, nor, to the knowledge of any director or officer of Borrower or any
Subsidiary, any other person or entity who or which is a party in interest as
defined in Section 3(14) of ERISA, or a disqualified person as defined in
Section 4975(e)(2) of the Code, has acted or failed to act with respect to the
Retirement Plan in any manner which constitutes a breach of fiduciary
responsibility within the meaning of Title 1, Part 4 of ERISA, a prohibited
transaction within the meaning of Section 4975 of the Code or Sections 406
through 408 of ERISA, or any other violation of ERISA; (v) no contributions to
the Retirement Plan are past due; (vi) no proceedings, investigations, filings
or other matters are pending before the Internal Revenue Service, the
Department of Labor or any court with respect to the Retirement Plan or the
operation thereof, (vii) if the Retirement Plan is a multiemployer plan, as
defined in Sections 3(37) or 4001(a)(3) of ERISA, neither Borrower nor any
Subsidiary has incurred, and neither Borrower nor any Subsidiary expects to
incur, any withdrawal liability which has not been satisfied in connection with
any complete or partial withdrawal from the Retirement Plan occurring on or
before the date hereof; and (viii) if subject thereto, the Retirement Plan has
been funded in accordance with the minimum funding standards described in
Section 412 of the Code and Title I, Subtitle B, Part 3 of ERISA (for which
purpose there is no "accumulated funding deficiency"), and in accordance with
principles that are actuarially sound for such Retirement Plan.
(b) With respect to each Retirement Plan which is a
defined benefit plan, as defined in Section 3(35) of ERISA: (i) no event has
occurred within the 12 month period preceding the date hereof, or, to the
knowledge of any director or officer of Borrower or any Subsidiary is
threatened or about to occur, which would materially adversely affect the
actuarial status of the Retirement Plan; (ii) no fact exists in connection with
the Retirement Plan (or with respect to any other defined benefit plan
maintained by Borrower or any Subsidiary at any time
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<PAGE> 28
after September 2, 1974) which constitutes a reportable event (other than those
for which notice has been waived by the Pension Benefit Guaranty Corporation
(the "PBGC")) under Section 4043(b) of ERISA or which constitutes grounds for
termination by, or other liability to, the PBGC pursuant to Title IV of ERISA;
(iii) all premiums due the PBGC have been timely paid; and (iv) if the
Retirement Plan were terminated, the termination would qualify under the
standard termination procedure, as described in Section 4041(b) of ERISA (and
Part 2617 of the PBGC regulations), without payment of any additional
contributions by Borrower or any Subsidiary.
(c) With respect to each employee welfare benefit plan,
as defined in Section 3(1) of ERISA (a "Welfare Plan"), established or
maintained or to which contributions have been made by or for Borrower or any
Subsidiary: (i) the Welfare Plan is and has at all times been administered,
maintained and operated in compliance with its terms and with all applicable
provisions of ERISA and the Code (including the continuation coverage
requirements for group health plans, commonly known as "COBRA requirements,"
under Sections 106(b), 162(i)(2) & (3), and 162(k) of the Code and Sections
601-607 of ERISA) and all other applicable federal, state and local laws (and
all rules and regulations promulgated thereunder); (ii) neither Borrower nor
any Subsidiary nor to the knowledge of any director or officer of Borrower or
any Subsidiary, any other person or entity who or which is a party in interest
as defined in Section 3(14) of ERISA, has acted or failed to act with respect
to the Welfare Plan in any manner which constitutes a breach of fiduciary
responsibility within the meaning of Title I, Part 4 of ERISA, a prohibited
transaction within the meaning of Sections 406 through 408 of ERISA, or any
other violation of ERISA; (iii) no contributions to the Welfare Plan are past
due; (iv) no proceedings, investigations, filings or other matters are pending
before the Department of Labor or any court, with respect to the Welfare Plan
or the operation thereof, and (v) the Welfare Plan is either unfunded or is
funded solely through insurance contracts.
(d) All Retirement Plans and Welfare Plans (jointly
"Benefit Plans") are in substantial compliance with all applicable reporting,
disclosure and other requirements of the Code and ERISA.
(e) There are no actions, suits or claims pending or, to
the best knowledge of Borrower or any Subsidiary, threatened with respect to
any Benefit Plan or any administrator or fiduciary thereof.
(f) There are no strikes, work stoppages, material
grievance proceedings or other material controversies pending, imminent or, to
Borrower's knowledge and belief, threatened between Borrower and any employees
of Borrower or between Borrower and any union or other collective bargaining
unit representing employees of Borrower.
4.19 COMPLIANCE WITH LAWS.
None of Borrower, Subsidiaries and Other Obligors is in violation of,
or under investigation with respect to or threatened to be charged or given
notice of a violation of, any applicable law, rule, regulation, order or
judgment relating to any of its businesses, properties or operations,
including, without limitation, ERISA, any law, rule, regulation or order
regarding the
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<PAGE> 29
collection, payment and deposit of employees' income, unemployment and social
security taxes or of sales, use or excise taxes, any Environmental Laws, any
laws pertaining to occupational safety and health or any laws relating to
public health.
4.20 REPRESENTATIONS.
All representations and information heretofore made or supplied to
Bank by or on behalf of Borrower, any Subsidiary or any Other Obligor,
including, without limitation, all representations and information heretofore
made or supplied to Bank pursuant to or in connection with this Agreement or
any of the Other Agreements or any transaction involving or affecting Borrower,
any Subsidiary or any Other Obligor, were, at the time made or supplied to
Bank, true and complete in all material respects, and all representations and
information hereafter made or supplied to Bank by or on behalf of Borrower, any
Subsidiary or any Other Obligor, including, without limitation, an
representations and information hereafter made or supplied to Bank pursuant to
or in connection with, this Agreement or any of the Other Agreements or any
transaction involving or affecting Borrower, any Subsidiary or any Other
Obligor, will be, at the time made or supplied to Bank, true and complete in
all material respects.
5. CONDITIONS OF LENDING
Unless Bank shall otherwise agree, Bank shall have no obligation to
advance any funds to Borrower hereunder unless each of the following conditions
precedent shall be satisfied as provided below:
5.01 DOCUMENTS.
There shall have been delivered to Bank, appropriately completed and
duly executed (when applicable), the following, each in form and substance
satisfactory to Bank:
(a) the Note;
(b) a certificate of the Secretary of Borrower to the
effect that resolutions in form and content satisfactory to Bank authorizing
the transactions contemplated hereby have been duly adopted and remain in full
force and effect;
(c) evidence satisfactory to Bank that all insurance
coverages and all insurance clauses or endorsements required pursuant to this
Agreement and the Other Agreements are in effect, together with copies of all
insurance policies and endorsements;
(d) a written opinion of counsel to Borrower, dated as of
Closing and addressed to Bank, relating to such matters in connection with the
transactions contemplated hereby as may be required by Bank;
(e) such financing statements as may be required by Bank;
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<PAGE> 30
(f) written guaranties of the Obligations by Phillip G.
Norton, Patricia A. Norton, Elizabeth Bowen, Bruce M. Bowen, William J.
Slaton, Kevin Norton and Patrick J. Norton, Jr.;
(g) the Security Agreement, together with such stock
powers, financing statements and acknowledgments in connection therewith as
Bank may require;
(h) the properly recorded charter or articles of
incorporation, the Bylaws, certificates of good standing and authorization to
do business from all appropriate governmental authorities, and incumbency and
signature certificates;
(i) current financial statements of the Borrower and each
of the Guarantors, in form and content satisfactory to the Bank;
(j) 1994 Federal tax returns from each of the Guarantors
(except that the Bank will accept a copy of Phillip G. Norton's request for
extension to file his 1994 tax returns in lieu of Phillip G. Norton's 1994
federal tax return, provided, however, that Phillip G. Norton shall provide
first Union with a copy of his 1994 tax return within 15 days after filing; and
(k) a breakdown of the components of net lease activity
represented in the Borrower's audited financial statements for the fiscal years
ended 1992 through 1995.
5.02 NO DEFAULT.
At Closing and at the time of every subsequent advance under this
Agreement, Bank shall be fully satisfied that (a) all of the covenants,
conditions, warranties and representations set forth herein and in the Other
Agreements have been complied with and are true and complete on and as of such
time with the same effect as though such covenants, conditions, warranties and
representations had been made on and as of such time, (b) no Default or Event
of Default shall have occurred, and (c) the documents and matters required to
be executed, delivered, opened and/or Certified pursuant to Subsection 5.01
hereof shall be in full force and effect and/or true and complete, as the case
may be.
5.03 LEGAL MATTERS.
At Closing, all legal matters in connection therewith or incidental
thereto shall be fully satisfactory to Bank's counsel.
5.04 LOAN FEE.
Prior to or contemporaneously with Closing, Borrower shall have paid
to the Bank, as compensation for extending the Line of Credit, a non-refundable
fee of $50,000.00, which shall be in addition to all other costs and expenses
payable by Borrower hereunder and under the Other Agreements, including,
without limitation, the costs and expenses described in Subsection 10.02
hereof.
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<PAGE> 31
5.05 FINANCIAL CONDITION AT CLOSING.
The financial condition of Borrower shall be satisfactory to Bank and
there shall have been delivered to Bank such written statements, schedules or
reports in such form, containing such information and accompanied by such
documents as may be satisfactory to Bank concerning the financial condition of
Borrower, any of the Collateral or any other matter or matters as Bank may
require.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees with Bank that, until (a) all
Obligations have been paid in full and (b) there exists no commitment by Bank
which could give rise to any Obligations, Borrower will:
6.01 FINANCIAL STATEMENTS.
Furnish to Bank in writing:
(a) as soon as available but in no event more than 30
days after the end of each quarter, a consolidated and consolidating statement
of income and retained earnings of Borrower and any Subsidiaries for such
period and for the period from the beginning of the current fiscal year of
Borrower to the end of each period, and a consolidated and consolidating
statement of cash flows of Borrower and any Subsidiaries for such period and
for the period from the beginning of the current fiscal year of Borrower to the
end of each period, and a consolidated and consolidating balance sheet of
Borrower and any Subsidiaries as at the end of such period, setting forth in
each case in comparative form figures for the budgeted results for such period
and figures for the corresponding periods in the preceding fiscal year of
Borrower, all in detail and scope satisfactory to Bank, prepared in accordance
with GAAP consistently applied, Certified by the chief financial officer of
Borrower and accompanied by a certificate of that officer stating whether any
event has occurred which constitutes a Default or an Event of Default and, if
so, stating the facts with respect thereto;
(b) as soon as available but ii no event more than 120
days after the end of each fiscal year of Borrower, a consolidated and
consolidating statement of income and retained earnings of Borrower and any
Subsidiaries for such year, and a consolidated and consolidating statement of
cash flows of Borrower and any Subsidiaries for such year, and a consolidated
and consolidating balance sheet of Borrower and any Subsidiaries as at the end
of such year, setting forth in each case in comparative form corresponding
figures for the preceding fiscal year of Borrower, all in detail and scope
satisfactory to Bank, prepared in accordance with GAAP consistently applied and
examined and audited by independent certified public accountants satisfactory
to Bank, accompanied by a report of such independent certified public
accountants with respect to such financial statements which is satisfactory to
Bank, and accompanied by a certificate of the chief financial officer of
Borrower stating whether any event has occurred
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<PAGE> 32
which constitutes a Default or an Event of Default and, if so, stating the
facts with respect thereto;
(c) as soon as available but in no event more than 15
days after the end of each month, or Receivables aging and an accounts payable
aging in detail and scope satisfactory to Bank as of the end of the preceding
month; and
(d) promptly upon transmission thereof, copies of any
financial statements, proxy statements, reports and the like which Borrower or
any Subsidiary sends to its shareholders and copies of all registration
statements (with exhibits) and all regular, special or periodic reports which
Borrower or any Subsidiary files with the United States Securities and Exchange
Commission (or any governmental body or agency succeeding to the functions of
the United States Securities and Exchange Commission) or with any national
stock exchange on which any of Borrower's or any Subsidiary's securities are
listed and copies of all press releases and other statements made available by
Borrower or any Subsidiary to the public concerning material developments in
the business of Borrower and/or any Subsidiary.
6.02 TAXES.
Pay and discharge, and cause each Subsidiary to pay and discharge, all
taxes, assessments and governmental charges upon Borrower and each Subsidiary,
its income and properties, prior to the date on which penalties attach thereto
unless and to the extent only that the same are being diligently contested by
Borrower or a Subsidiary, as the case may be, in good faith by appropriate
proceedings, provided, however, that (a) Bank shall have been given reasonable
prior written notice of intention to contest, (b) nonpayment of the same will
not, in Bank's sole discretion, materially impair any of the Collateral or
Bank's rights or remedies with respect thereto or the prospect for full and
punctual payment of all of the Obligations, (c) no notice of lien with respect
thereto is filed in any recording office, (d) Borrower or such Subsidiary at
any times effectively stays or prevents any official or judicial sale of or
action against any of the Collateral by reason of nonpayment of the same, and
(e) Borrower or such Subsidiary establishes reasonable reserves for any
liabilities being contested and for expenses arising out of such contest in
accordance with GAAP.
6.03 CORPORATE EXISTENCE, CONTINUATION OF BUSINESS AND COMPLIANCE
WITH LAWS.
Maintain, and cause each Subsidiary to maintain, its corporate
existence in good standing; maintain, and cause each Subsidiary to maintain, in
good standing its qualification to do business in each jurisdiction in which
such qualification is required by law; continue, and cause each Subsidiary to
continue, its business operations as now being conducted; and comply with, and
cause each Subsidiary to comply with, all applicable federal, State and local
laws, rules, ordinances, regulations and orders (including, without limitation,
ERISA and all Environmental Laws).
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<PAGE> 33
6.04 LITIGATION.
Promptly notify Bank in writing of any action, suit or proceeding at
law or in equity by or before any court, governmental agency or instrumentality
which could result in any material adverse change in the business, operations,
prospects, properties or assets or in the condition, financial or otherwise, of
Borrower or any Subsidiary.
6.05 EXTRAORDINARY LOSS: CHANGE IN CONDITION.
Promptly notify Bank in writing of (a) any event causing extraordinary
loss or depreciation of the value of Borrower's or any Subsidiary's assets
(whether or not insured) and the facts with respect thereto, and (b) the
occurrence of any material adverse change in Borrower's, any Subsidiary's or
any Other Obligor's business, assets, operations, business prospects or
financial condition.
6.06 BOOKS AND RECORDS.
Keep and maintain, and cause each Subsidiary to keep and maintain,
proper and current books and records in accordance with GAAP consistently
applied and permit access by Bank to, reproduction by Bank of, copying by Bank
from, and verification (by such means, including audits, as Bank may determine)
by Bank of any information contained in, such books and records. Without
limitation of the foregoing, it is understood and agreed that Bank intends to
audit the books and records of Borrower on a semiannual basis. All such audits
shall be performed at Bank's expense; provided, however, that any audit
performed by Bank after the occurrence of an Event of Default shall be
performed at the expense of Borrower.
6.07 MAINTENANCE.
Maintain, and cause each Subsidiary to maintain, all properties and
improvements necessary to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and cause replacements and repairs
to be made when necessary for the proper conduct of its business.
6.08 PATENTS, FRANCHISES, ETC.
Maintain, preserve and protect all licenses, patents, franchises,
trademarks and trade names of Borrower and each Subsidiary or licensed by
Borrower or any Subsidiary which are necessary to the conduct of the business
of Borrower or any Subsidiary as now conducted, free of any conflict with the
rights of any other person.
6.09 INSURANCE.
(a) Maintain or cause to be maintained comprehensive
casualty insurance policies insuring the Collateral, all other property of
Borrower and all property of each Subsidiary against loss by fire, theft,
explosion, collision and such other risks, in such amounts, subject to such
loss
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<PAGE> 34
deductible amounts and with such responsible insurance companies as may be
satisfactory to Bank, in Bank's discretion exercised in good faith, and, in all
events, against such risks, in such amounts and subject to such loss deducible
amounts as are customary in Borrower's or such Subsidiary's industry, as
applicable, and in such minimum amounts that neither Borrower nor any
Subsidiary will be deemed a coinsurer under applicable insurance laws,
regulations, policies or practices, and (ii) endorsements to such insurance
policies satisfactory to Bank, in Bank's discretion exercised in good faith,
naming Bank as loss payee with respect to all Collateral insured thereunder;
(b) maintain or cause to be maintained (i) in the maximum
amount available, flood insurance policies insuring all property of Borrower or
any Subsidiary which is located in an area that has been, or subsequently is,
identified as having special flood or mudslide hazards and in which the sale of
flood insurance has been made available under the National Flood Insurance Act
of 1968, as amended from time to time, and (ii) endorsements to such insurance
policies satisfactory to Bank, in Bank's discretion exercised in good faith,
naming Bank as loss payee with respect to all Collateral thereunder;
(c) maintain and cause each Subsidiary to maintain, in
amounts and with responsible insurance companies satisfactory to Bank, in
Bank's discretion exercised in good faith, such additional insurance against
such risks and subject to such loss deductible amounts as may be satisfactory
to Bank, in Bank's discretion exercised in good faith, including, without
limitation, personal injury and property damage liability insurance, automobile
liability insurance, product liability insurance, worker's compensation
insurance, business interruption insurance, employee dishonesty insurance, and
directors' and officers' liability insurance, all such insurance in all events
to insure against such risks, in such amounts and subject to such loss
deductible amounts as are customary in Borrower's or such Subsidiary's
industry, as applicable;
(d) maintain endorsements to all insurance policies of
Borrower and Subsidiaries naming Bank as additional insured, which endorsements
shall be satisfactory to Bank, in Bank's discretion exercised in good faith,
and endorsements to such policies satisfactory to Bank, in Bank's discretion
exercised in good faith, providing that such policies may not be canceled or
materially altered, and that Bank may not be removed as loss payee or
additional insured, without at least 30 days prior written notice to Bank; and
(e) deliver to Bank from time to time, and periodically
if Bank shall so require, evidence satisfactory to Bank that all insurance and
policy endorsements required pursuant to this Agreement and the Other
Agreements are in effect.
6.10 INFORMATION.
(a) deliver to Bank promptly (upon Bank's request, and
periodically if Bank shall so require, such written statements, schedules or
reports (which shall be Certified if required by Bank) in such form, containing
such information and accompanied by such documents as may be satisfactory to
Bank from time to time concerning the Collateral, Borrower's or any
Subsidiary's business, assets, operations, business products or financial
condition or any other matter or
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<PAGE> 35
matters, including, without limitation, copies of federal, State and local tax
returns of Borrower and Subsidiaries, and permit Bank, its agents and
designees, to discuss Borrower's or any Subsidiary's business, assets,
operations, business prospects or financial condition with Borrower's or any
Subsidiary's directors, officers, employees or agents;
(b) promptly notify Bank in writing if any financial
statement, schedule, report, certificate or information previously or hereafter
supplied to Bank by or on behalf of Borrower, any Subsidiary or any Other
Obligor, including, without limitation, any of the same previously or hereafter
supplied to Bank pursuant to or in connection with this Agreement or any of the
Other Agreements or any transaction involving or affecting, Borrower, any
Subsidiary or any Other Obligor, shall, to Borrower's knowledge or belief
subsequently become inaccurate or misleading in any material respect; and
(c) promptly notify Bank of the occurrence of any default
under any Contract by any Contract Obligor or of the existence or any colorable
claim or right of setoff, counterclaim or deduction, whether or not related to
such Contract, in favor of any Contract Obligor against any payment due or to
become due under any Contract.
6.11 USE OF PROCEEDS.
Use the proceeds of Line of Credit Advances only to
(a) provide funds to support short term timing
differences between the purchase of Inventory for identified leases and receipt
of funds from long term lenders,
(b) to support the purchase of Inventory for resale, and
(c) to provide short-term financing for the purchase of
existing leases.
The Borrower may not use proceeds of the Line of Credit for any other purpose,
including to pay for fees, overhead, sales commission, broker's fees, or profit
to the Borrower or any Subsidiary.
6.12 NOTICE OF EVENT OF DEFAULT.
Immediately notify Bank of the occurrence of any Default or any Event
of Default and the facts with respect thereto.
6.13 EMPLOYEE BENEFIT PLANS.
(a) At all times administer, maintain and operate, and
cause each Subsidiary at all times to administer, maintain and operate, each of
its Benefit Plans in conformity with all applicable provisions of ERISA and
other federal and state statutes relating to employee benefit plans (including
the continuation coverage requirements of ERISA and the Code for group health
plans under Sections 106(b), 162(i)(2) & (3), and 162(k) of the Code and
Sections 601-607 of ERISA);
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<PAGE> 36
(b) at all times make, and cause each Subsidiary at all
times to make, all required contributions and premium payments under each
Benefit Plan for all periods after the date hereof;
(c) comply with, and cause each Subsidiary to comply
with, all applicable reporting, disclosure and other requirements of ERISA and
the Code as they relate to Benefit Plans, and furnish Bank with copies of all
reports filed in connection therewith promptly after the filing thereof;
(d) notify Bank immediately of any fact, including,
without limitation, any reportable event under Section 4043(b) of ERISA,
arising in connection with any Retirement Plan which might constitute grounds
for the termination thereof by the PBGC; and
(e) furnish to Bank, promptly upon its request therefor,
such additional information concerning any Benefit Plan as Bank may request.
6.14 ENVIRONMENTAL LAWS.
(a) At all reasonable times, permit Bank, and its agents
and designees, to enter upon and inspect all business premises owned, leased,
subleased, occupied, operated or used by Borrower or any Subsidiary, and to
conduct thereon, at Borrower's expense, such audit tests and examinations,
including subsurface exploration and testing, as Bank may deem necessary to
determine whether Borrower's or such Subsidiary's ownership, tenancy,
occupation, operation and/or use of the premises, as the case may be, and the
conduct of the activities engaged in thereon, are in compliance with
Environmental Laws;
(b) maintain, and cause all operators, tenants,
subtenants, lessees, licensees and occupants of all property owned, leased,
subleased, occupied, used or operated by Borrower or any Subsidiary to
maintain, all such property free of all Hazardous Substances, and prevent all
such property from being used for the manufacture, generation, production,
processing, distribution, use, treatment, storage, disposal, transport or
handling of any Hazardous Substances;
(c) promptly upon its receipt thereof, provide Bank with
copies of all reports prepared by governmental and regulatory agencies, and all
environmental auditors, engineers and others relating to or in connection with
Borrower's compliance with Environmental Laws; and
(d) notify Bank in writing, promptly upon learning
thereof, of (i) any notice that Borrower is not in compliance in any material
respect with all terms and conditions of all permits, licenses and
authorizations which are required under Environmental Laws, or that Borrower is
not in compliance in any material respect with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws, and (ii) any
notice or claim of any civil, criminal or administrative action, suit, demand,
claim, hearing, notice or demand letter, notice of violation, investigation, or
proceeding pending or threatened against Borrower relating in any way to
Environmental Laws.
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<PAGE> 37
6.15 CONTRACT LEGEND.
If the aggregate payments to be made by all Contract Obligors under
all Contracts exceeds $300,000.00, Borrower shall promptly notify Bank thereof
and shall, at Bank's option, (a) deliver to Bank all originals in Borrower's
possession of an Contracts and all modifications, extensions and renewals
thereof, and/or (b) place the following legend on all originals and copies in
Borrower's possession of all Contracts and all modifications, extensions and
renewals thereof: "ALL RIGHTS, TITLE AND INTERESTS OF MLC GROUP, INC. UNDER
THIS DOCUMENT HAVE BEEN ASSIGNED TO FIRST UNION NATIONAL BANK OF VIRGINIA."
6.16 FINANCIAL COVENANTS.
The Borrower shall at all times maintain a maximum recourse debt to
worth ratio of 6.5 to 1 and a minimum Consolidated Tangible Net Worth of
S1,500,000. The recourse debt to worth ratio shall be calculated by comparing
all recourse liabilities of Borrower and its Subsidiaries, if any, including
capitalized leases and all reserves for deferred taxes and other deferred sums
appearing on the liabilities side of the balance sheet of the Borrower and its
Subsidiaries, in accordance with GAAP (that is, the "Consolidated Total
Recourse Liabilities") with the total consolidated assets of the Borrower and
its Subsidiaries, minus consolidated total liabilities, after subtracting
therefrom the aggregate amount of any intangible assets of the Borrower and its
Subsidiaries, including, without limitation, goodwill, franchises, licenses,
patents, trademarks, trade names, copyrights, service marks and brand names
(that is, the "Consolidated Tangible Net Worth'").
6.17 PRIMARY BANK ACCOUNTS.
The Borrower shall maintain its primary bank accounts at the Bank.
6.18 LANDLORD'S WAIVERS.
The Borrower shall use its best efforts (and shall provide written
evidence of such best efforts) to provide to Bank with 45 days following
Closing a written agreement of the owner and landlord of each Business Premises
and, each storage location maintained by Borrower which is not owned by
Borrower consenting to Bank's security interest and the enforcement of Bank's
rights in connection therewith.
7. NEGATIVE COVENANTS
Borrower covenants and agrees with Bank that, until (a) all
Obligations have been paid in full, and (b) there exists no commitment by Bank
which could give rise to any Obligations, Borrower will not, directly or
indirectly, without Bank's prior written consent:
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<PAGE> 38
7.01 INDEBTEDNESS.
Create, incur, assume or permit to exist any Indebtedness except
(a) Indebtedness to Bank,
(b) current Indebtedness incurred in the ordinary course
of business,
(c) existing Indebtedness disclosed herein or previously
disclosed by Borrower to Bank in writing,
(d) nonrecourse Indebtedness incurred in connection with
the refinancing of Inventory or Contracts in an Ordinary Course Sale or
Refinancing, and
(e) Indebtedness which shad be consented to by Bank in
writing in advance, in Bank's sole discretion and, if required by Bank,
subordinated to the Obligations by a written agreement satisfactory to Bank in
form and substance.
Borrower further agrees that without the prior written consent of Bank it will
not refinance on a recourse or a secured basis the Indebtedness evidenced by
the Metropolitan Note, or cause or permit the Indebtedness of Borrower to any
holder of such Note to be increased (other than as a result of the accrual of
interest at the rate and in the manner specified in such Note).
7.02 LIENS.
Create, incur, assume or permit to exist, directly or indirectly, any
Lien upon any of Borrower's properties or assets, now owned or hereafter
acquired by Borrower, other than Permitted Liens.
7.03 MERGER, SALE OF ASSETS, ETC.
Enter into or be a party to any merger, consolidation or share
exchange, or suffer or permit to occur any merger, consolidation or share
exchange to which any Subsidiary or any Other Obligor is a party, or suffer or
permit any of Borrower's or any Subsidiary's business, assets, operations or
books and records to be merged, consolidated or commingled with any business,
assets, operations or books and records of any other person; sell, assign,
transfer, convey or lease any interest in all or any substantial part of its
property except for Ordinary Course Sales and Refinancings; purchase or
otherwise acquire, or suffer or permit the purchase or acquisition by any
Subsidiary or any Other Obligor of, all or substantially all of the assets of
any other person, any assets of any other person in a transaction which is
subject to the Bulk Transfers Title of the Uniform Commercial Code of any
jurisdiction, or any shares of stock of, or similar interest in, any other
person; or enter into any transaction with any Affiliate except for
transactions with Affiliates entered into in the ordinary course of Borrower's
business on terms no less favorable to Borrower than would apply in a
comparable arm's length transaction with a person that is not an Affiliate.
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<PAGE> 39
7.04 GUARANTIES.
Except as otherwise permitted under this Subsection 7.04, guarantee or
otherwise in any way become or be responsible for obligations or Indebtedness
of any other person, whether by agreement to purchase the Indebtedness of any
other person, by agreement for the furnishing of funds to any other person for
the purchase of goods, supplies or services, or by way of stock purchase,
capital contribution, advance or loan for the purpose of paying or discharging
Indebtedness of any other person, or otherwise, except that Borrower may
endorse negotiable drafts for collection in the ordinary course of business.
Notwithstanding the foregoing, provided no Default or Event of Default shall
have occurred, Bank agrees that it shall not unreasonably withhold its consent
to the guarantee by Borrower of Indebtedness or obligations of MLC Federal,
Inc., a Virginia corporation, or to the guarantee of Indebtedness or
obligations of Pilot Associates, Inc., a Pennsylvania corporation which may be
subsequently reincorporated in Virginia ("Pilot Associates"); provided,
however, that the aggregate liability of Borrower under all such guarantees
shall not at any time exceed $100,000.00.
7.05 INVESTMENTS.
Make any capital contribution to any other person or purchase or
acquire a beneficial interest in any stock, securities or evidences of
Indebtedness of, or make any investment or acquire any interest in, any other
person, except investments in federally insured certificates of deposit or in
direct obligations of the United States of America maturing within one year
from the date of acquisition. Notwithstanding the foregoing, Bank consents to
the acquisition by Borrower of not less than all of the issued and outstanding
stock of Pilot Associates provided
(a) the total consideration paid or payable by Borrower
in connection therewith (including the assumption or guaranteeing of any
present or future obligations or liabilities of Pilot Associates) shall not
exceed $40,000.00, and
(b) Pilot Associates shall be a wholly-owned Subsidiary
of Borrower.
7.06 FISCAL YEAR.
Change Borrower's fiscal year.
7.07 LOANS.
Make or permit to exist any loan to any person, not including advances
for travel and the like made to officers and employees in the ordinary course
of business.
7.08 SUBSIDIARIES.
Except as otherwise permitted under Subsection 7.05 hereof, form or
acquire any Subsidiary.
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<PAGE> 40
7.09 CHANGE OF NAME.
Change the name of Borrower or permit any Subsidiary to change such
Subsidiary's name.
7.10 TRADE NAMES.
Use any trade name other than Borrower's true corporate name or permit
any Subsidiary to use any trade name other than such Subsidiary's true
corporate name.
7.11 ISSUANCE OF CAPITAL STOCK.
Issue any shares of capital stock of Borrower or permit any Subsidiary
to issue any shares of capital stock of such Subsidiary.
7.12 EMPLOYEE PENSION PLANS.
With respect to any Retirement Plan:
(a) engage, or knowingly permit any party in interest (as
defined in Section 3(14) of ERISA) or any disqualified person (as defined in
Section 4975(e)(2) of the Code) to engage, in any prohibited transaction;
(b) knowingly incur, or permit any Subsidiary to
knowingly incur, any accumulated funding deficiency under Section 302 of ERISA
or Section 412 of the Code, whether or not waived;
(c) terminate, or permit any Subsidiary to terminate, any
Retirement Plan in a manner which could result in the imposition of a Lien on
any property of Borrower or any Subsidiary pursuant to Section 4068 of ERISA;
or
(d) take, or permit any Subsidiary to take, any action
which would adversely affect the qualification of any Retirement Plan.
7.13 SALE-LEASEBACK.
Except for leases in existence on the date hereof and previously
disclosed to Bank in writing, and renewals or extensions thereof, become or be,
or suffer or permit any Subsidiary or any Other Obligor to become or be, liable
as lessee with respect to any lease of any property (real, personal or mixed)
which has been or is to be sold or transferred by Borrower, such Subsidiary or
such Other Obligor or to any person or which Borrower, such Subsidiary or such
Other Obligor intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by Borrower to any
person in connection with such lease.
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<PAGE> 41
7.14 STOCK REDEMPTIONS.
Purchase, redeem, retire or otherwise acquire for value any shares of
Borrower's capital stock or any other equity interest in Borrower, or suffer or
permit any Subsidiary to purchase, redeem or otherwise acquire or retire for
value any shares of such Subsidiary's capital stock or any other equity
interest in such Subsidiary.
7.15 DIVIDENDS.
Directly or indirectly declare or pay any dividend on, or make any
other distribution with respect to (whether by reduction of capital or
otherwise), any shares of its capital stock.
7.16 FUNDED DEBT.
Redeem, call for redemption, purchase or otherwise acquire or retire,
directly or indirectly, or make any optional prepayment of principal on, any
Funded Debt, or amend, alter or otherwise modify the provisions relating to any
Funded Debt, if the effect of such amendment, alteration or other modification
would or might be to accelerate such Funded Debt. For purposes of this
Subsection, "Funded Debt" shall include any obligation of Borrower to any
person other than Bank payable more than one year from the date of its creation
which, under GAAP, is shown on the balance sheet as a liability (excluding
reserves for deferred income taxes and other reserves to the extent that such
reserves do not constitute an obligation).
7.17 CONTRACT MODIFICATION.
Enter into or permit to occur any amendment, modification, extension,
renewal or compromise of any obligations of any person under or in connection
with any Contract.
8. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
(a) Any representation or information previously or
hereafter made or supplied to Bank by or on behalf of Borrower, any Subsidiary
or any Other Obligor, including, without limitation, any representation or
information previously or hereafter made or supplied to Bank pursuant to or in
connection with this Agreement or any of the Other Agreements or any
transaction involving or affecting Borrower, any Subsidiary or any Other
Obligor, shall prove to have been, when made or supplied, false or misleading
in any respect deemed material by Bank in good faith.
(b) Failure of Borrower to pay any of the Obligations,
including, without limitation, any sum due Bank under this Agreement or any of
the Other Agreements, when and as the same shall become due, whether at the due
date thereof, by demand, by acceleration or otherwise.
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<PAGE> 42
(c) Occurrence of a default or event of default by
Borrower, any Subsidiary or any Other Obligor with respect to, or acceleration
or demand for payment prior to maturity of, any Indebtedness of Borrower, any
Subsidiary or any Other Obligor to any person which is deemed material by Bank
in good faith, or with respect to any Lien securing any Indebtedness of
Borrower, any Subsidiary or any Other Obligor to any person which is deemed
material by Bank in good faith.
(d) Failure of Borrower, any Subsidiary or any Other
Obligor to observe or perform any warranty, covenant, condition or agreement to
be observed or performed by Borrower or such other person under this Agreement
or any of the Other Accounts.
(e) Borrower, any Subsidiary or any Other Obligor shall
(i) admit in writing its insolvency or its inability to pay its debts as they
mature, (ii) make a general assignment for the benefit of creditors, whether
conditional or unconditional and whether or not such assignment is filed in
court and whether or not any court assumes jurisdiction thereof, (iii) commence
a case under or otherwise seek to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation
law, statute or proceeding, or (iv) by any act indicate its consent to,
approval of or acquiescence in any such proceeding or the appointment of any
receiver of or trustee for Borrower, any Subsidiary or any such Other Obligor
or a substantial part of its property, or suffer any such receivership,
trusteeship or proceeding to continue undismissed for a period of 30 days.
(f) Borrower, any Subsidiary or any Other Obligor shall
become a debtor in any case under any chapter of the United States Bankruptcy
Code.
(g) Dissolution of, or entry of any order, judgment,
award or decree for the dissolution of, Borrower, any Subsidiary or any Other
Obligor that is not a natural person.
(h) Entry of any unstayed judgment, order, award or
decree against Borrower, any Subsidiary or an Other Obligor or which is
uninsured to an extent deemed material by Bank in good faith, or which Bank
determines in good faith, when aggregated with all other judgments, orders,
awards and decrees outstanding against Borrower, Subsidiaries and Other
Obligors, could have a material adverse effect on the business assets,
operations, business prospects or financial condition of Borrower, any
Subsidiary or any Other Obligor, or on any rights of Bank with respect to any
of the Collateral or any of the Obligations, or on the prospect for full and
punctual payment and performance of all of the Obligations.
(i) Injunction or restraint of Borrower, any Subsidiary
or any Other Obligor in any manner from conducting its business in whole or in
part deemed material by Bank in good faith.
(j) Any assets of Borrower, any Subsidiary or any Other
Obligor shall be attached, levied upon, seized or repossessed or come into the
possession of a trustee, receiver or other custodian.
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<PAGE> 43
(k) An adverse change deemed material by Bank in good
faith shall occur with respect to the business, assets, operations, business
prospects or financial condition of Borrower, any Subsidiary or any Other
Obligor, or otherwise with respect to the risks to Bank attending the
Collateral, any commitments of Bank which could give rise to any Obligations or
the prospect for payment in fun of the Obligations, whether or not such adverse
change otherwise constitutes an Event of Default.
(l) The death of any Other Obligor that is an individual.
(m) Borrower, any Subsidiary or any Other Obligor shall
be or become insolvent (as defined in Section 101(31) of the United States
Bankruptcy Code) or unable to pay its debts as they mature.
(n) Termination or cancellation, without Bank's prior
written consent, of any lease or sublease of Borrower, any Subsidiary or any
Other Obligor of any business premises of Borrower, any Subsidiary or any Other
Obligor which Bank in good faith deems material to the conduct of the business
of Borrower, any subsidiary or any Other Obligor, including expiration of any
such lease or sublease without renewal or extension, or the occurrence of any
event or condition which could result in the termination or cancellation of any
such lease or sublease unless such event or condition is waived by all parties
to the lease or sublease and all other appropriate parties, or cured by
Borrower, such Subsidiary or such Other Obligor, as the case may be, in
accordance with the provisions of such lease or sublease.
(o) Termination of any contract, franchise, license,
permit, authorization, certificate or right of Borrower, any Subsidiary or any
Other Obligor which Bank in good faith deems material to its business, assets,
operations, business prospects or financial condition.
(p) Suspension or revocation of any license, permit,
certification, approval or the like required to be held by Borrower, my
Subsidiary or any Other Obligor that is not an individual by federal, State,
local or foreign laws.
(q) Occurrence of any change in Borrower's management
personnel which Bank determines in good faith could materially adversely affect
the business, assets, operations, business prospects or financial condition of
Borrower.
(r) Without Bank's prior written consent, the
stockholders of Borrower on the date of this Agreement shall for any reason,
including death, not own capital stock of Borrower sufficient to elect all of
the Directors of Borrower and to approve any action of Borrower, including
extraordinary actions, required to be approved by stockholders of Borrower
under applicable law or under the Charter or Bylaws of Borrower. For purposes
of this clause (r), (i) J.A.P. Investment Group L.P., a Virginia limited
partnership ("Investment"), shall no longer be considered to be a stockholder
of Borrower if the partners of Investment on the date of this Agreement shall
for any reason, including death, not own all of the partnership interests
therein, and (ii) J.A.P., Inc., a Virginia corporation shall no longer be
considered to be a partner of
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<PAGE> 44
Investment if Patricia Norton and/or any guarantor of the Obligations shall for
any reason, including death, not own all of the issued and outstanding capital
stock thereof.
(s) Occurrence of any debt or event of default under or
as defined in any of the Other Agreements.
(t) Borrower, any Other Obligor or any other person shall
revoke or terminate, or attempt to revoke or terminate, or notify Bank of
revocation or termination of, any continuing obligations or agreements of
Borrower, such Other Obligor or such other person relating in any way to any of
the Obligations, including, without limitation, any continuing obligations or
agreements of Borrower, such Other Obligor or such other person under any
guaranty or subordination agreement
(u) Borrower or any Other Obligor shall be convicted of
an offense punishable under any domestic or foreign criminal statute or law, or
Borrower or any Other Obligor shall be subjected to charges under any domestic
or foreign law for which forfeiture of property is a potential penalty.
9. RIGHTS AND REMEDIES
9.01 RIGHTS AND REMEDIES OF BANK.
Upon the occurrence of an Event of Default described in Subsections
8(e), 8(f) or 8(g) of this Agreement, all of the Obligations shall
automatically and immediately be due and payable. Upon and after the occurrence
of an Event of Default described in Subsections 8(b) and 8(1), Bank may,
without notice or demand, exercise in any jurisdiction in which enforcement
hereof is sought, the rights and remedies set forth below, in addition to the
rights and remedies available to Bank under the Other Agreements, the rights
and remedies of a secured party under the Uniform Commercial Code and all other
rights and remedies available to Bank under applicable law, all such rights and
remedies being cumulative and enforceable alternatively, successively or
concurrently. Upon and after the occurrence of an Event of Default other than
described in Subsections 8(b), 8(c), 8(f), 8(g) or 8(l) of this Agreement, Bank
may, after giving notice of the Event of Default to the Borrower, and the
Borrower having failed to cure the Event of Default within ten (10) days
following notice of the Event of Default, exercise in any jurisdiction in which
enforcement hereof is sought, the rights and remedies set forth below, in
addition to the rights and remedies available to Bank under the Other
Agreements, the rights and remedies of a secured party under the Uniform
Commercial Code and all other rights and remedies available to Bank under
applicable law, all such right's and remedies being cumulative and enforceable
alternatively, successively or concurrently.
(a) Declare the Note, all interest accrued and unpaid
thereon, and all other Obligations to be immediately due and payable and the
same shall thereupon become immediately due and payable without presentment,
demand for payment, protest or notice of any kind, all of which are hereby
expressly waived.
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<PAGE> 45
(b) Enforce the Liens granted to Bank hereunder and under
the Other Agreements by collecting or liquidating all or any part of the
Collateral or selling, assigning, leasing, renting, licensing or otherwise
disposing of all or any part of the Collateral or any interest therein, in one
or more parcels, at the same or different times, at public or private sale or
disposition, or otherwise.
(c) Establish and maintain at Bank, subject to Bank's
customary arrangements and charges therefor as established by Bank from time to
time, a repayment account, which shall be under the exclusive control of and
subject to the sole order of Bank, and require Borrower to deposit in the
repayment account, not later than the first Banking Day following the day on
which the same are received by Borrower, as a tender of payment of the
Obligations or as security for any contingent or future Obligations, all cash,
checks, drafts, money orders and other items of payment constituting
Collateral, collections or other proceeds of Collateral.
(d) Institute any proceeding or proceedings to enforce
the Obligations and any Liens of Bank.
(e) Notify postal authorities to change the address for
delivery of mall addressed to Borrower to such address as Bank may designate
and receive, open and dispose of all mail addressed to Borrower.
(f) Endorse Borrower's name on any promissory notes or
other instruments, acceptances, checks, drafts, money orders or other items of
payment constituting Collateral, or collections or other proceeds of
Collateral, that may come into Bank's possession or control from time to time.
(g) Sign Borrower's name on any invoices to, drafts
against and other notices and documents to account debtors or other obligors of
Borrower and requests for verification of accounts and other amounts which may
be due to Borrower.
(h) Execute proofs of claim and loss on behalf of
Borrower.
(i) Apply all Collateral and proceeds of Collateral
delivered to Bank or coming into Bank's possession or control from time to time
to any of the Obligations, or hold the same as security for any contingent or
future Obligations.
(j) At Borrower's expense, continue or complete, or cause
to be continued or completed, performance of Borrowers obligations under any
contracts of Borrower.
(k) Use, operate, manage, control and exercise all rights
of Borrower relating to, the Collateral and any other assets of Borrower, and
collect all income and revenues therefrom.
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<PAGE> 46
(l) Stop and retract the making of any Advance or the
making of any other extension of credit hereunder or under any of the Other
Agreements which may have been requested by Borrower.
(m) Terminate, or cease extending credit under, any or
all outstanding commitments or credit accommodations of Bank to Borrower, any
Subsidiary or any Other Obligor.
(n) At any time and from time to time reduce the Maximum
Line of Credit Amount.
(o) Take exclusive possession of any or all of the
Collateral from time to time and/or place a custodian in exclusive possession
of any or all of the Collateral from time to time and, so far as Borrower may
give authority therefor, enter upon any premises on which any of the Collateral
may be situated and remove the same therefrom, Borrower hereby waiving any and
all rights to prior notice and to judicial hearing with respect to repossession
of Collateral, and/or require Borrower, at Borrower's expense, to assemble and
deliver any or all of the Collateral to such place or places as Bank may
reasonably request.
(p) With respect to any accounts, notes, instruments,
chattel paper, tax refunds, contract rights, general intangibles or other debts
or liabilities payable to Borrower securing the Obligations, notify any account
debtors and other obligors thereon to make payments thereon directly to Bank,
take control of the cash and noncash proceeds thereof, demand, collect, sue for
and receive any money or property at any time due, payable or receivable on
account thereof, compromise and settle with any person liable thereon, and
extend the time of payment or otherwise change the terms thereof, without
incurring liability or responsibility therefor to Borrower or any Other
Obligor.
Notwithstanding the foregoing, Bank agrees that at no time may Bank enforce any
claim against Phillip G. Norton and Patricia A. Norton by obtaining a lien,
judicial or otherwise, on their real property located at 1019 Basil Road,
McLean, Virginia 22102 (the "Real Property"), or by selling at judicial sale
the Real Property. Bank further agrees that it shall have no recourse to the
Real Property or the Net Sale Proceeds (as defined below) of the Real Property.
Bank further agrees that any confessed judgment in favor of Bank and against
Phillip G. Norton and Patricia A. Norton shall not become a lien on the Peal
Property or the Net Sale Proceeds, in whatever form. The Real Property and the
Net Sale Proceeds, in whatever form, shall be totally exempt from execution by
the Bank. The Net Sale Proceeds shall mean the gross sale proceeds of the Real
Property, less normal and customary expenses of sale, and less the total amount
due as of the date of the execution of this Agreement of any mortgages, deeds
of trust or other encumbrances on the Real Property. In the event of a sale of
the Real Property, Phillip G. Norton and Patricia A. Norton shall promptly
deliver to the Bank a copy of the settlement sheet showing the Net Sale
Proceeds.
- 46 -
<PAGE> 47
9.02 DISPOSITION OF COLLATERAL.
Borrower agrees that commercial reasonableness and good faith require
Bank to give Borrower no more than ten days prior written notice of the time
and place of any public disposition of Collateral or of the time after which
any private disposition or any other intended disposition is to be made. All
sales or other dispositions of Collateral may be made for cash, upon credit or
for future delivery. In no event shall Borrower be credited with any part of
the proceeds of liquidation, sale or other disposition of any Collateral until
Bank has received final payment thereon in immediately available funds, and
Bank shall have no obligation to delay any liquidation, sale or other
disposition because the same may result in the imposition of any forfeiture,
premium or penalty.
9.03 COSTS AND EXPENSES.
Borrower agrees to pay to Bank, upon written demand by Bank from time
to time, the amount of all expenses, including attorneys' fees and expenses,
paid or incurred by Bank
(a) after any of the Obligations are not paid when due
(whether by demand, stated maturity, acceleration or otherwise) or a default or
an Event of Default under, or as defined in, this Agreement or any of the Other
Agreements shall occur, in exercising or enforcing or consulting with counsel
concerning any of its rights hereunder, under the Other Agreements or under
law, or
(b) in defending any and all non-meritorious or
previously waived demands, claims, counterclaims, cross-claims, causes of
action, litigation and proceedings of every kind and nature asserted, commenced
or instituted against Bank, or any of Bank's officers, directors or employees,
by Borrower, any Subsidiary of any Other Obligor on account of, as a result of
or relating to, any action taken or not taken by Bank in connection with the
Line of Credit, any other of the Obligations, the Collateral or the enforcement
or exercise by Bank of any rights or remedies of Bank under this Agreement,
under any of the Other Agreements or under law.
Borrower also agrees to pay to Bank, upon written demand by Bank from
time to time, interest on the, outstanding amount of such expenses paid by
Bank, from the date of Bank's demand for payment of such expenses until the
same are paid in full, at the highest rate and calculated in the manner
provided in the Note.
10. MISCELLANEOUS
10.01 PERFORMANCE FOR BORROWER.
Borrower agrees and hereby authorizes that Bank may, in Bank's
sole discretion, but Bank shall not be obligated to, whether or not an Event of
Default shall have occurred, and regardless of the Maximum Line of Credit
Amount make a Compliance Advance, without prior notice to Borrower, in order to
insure Borrower's compliance with any covenant, warranty,
- 47 -
<PAGE> 48
representation or agreement of Borrower made in or pursuant to this Agreement
or any of the Other Agreements, to continue or complete, or cause to be
continued or completed, performance of Borrower's obligations under any
contracts of Borrower, to cover overdrafts in any checking or other accounts of
Borrower at Bank or to preserve or protect any right or interest of Bank in the
Collateral or under or pursuant to this Agreement or any of the Other
Agreements, including, without limitation, the payment of any insurance
premiums or taxes and the satisfaction or discharge of any judgment or any Lien
upon the Collateral or other property or assets of Borrower and compliance by
Borrower with Environmental Laws; provided, however, that the making of any
such Advance by Bank shall not constitute a waiver by Bank of any Event of
Default with respect to which such advance is made nor relieve Borrower of any
such Event of Default. Any cost, expense or liability incurred by Bank or
imposed upon Bank arising out of or in connection with the noncompliance by
Borrower with the provisions of any Environmental Laws shall be treated as an
advance of funds on behalf of Borrower under this Subsection 10.01, and
Borrower shall indemnify, defend and save harmless Bank from and against any
such cost, expense or liability. Borrower shall pay to Bank upon demand all
Compliance Advances made by Bank under this Subsection 10.01 with interest
thereon at the highest rate and calculated in the manner provided in the Note.
All such advances shall be deemed to be included in the Obligations and secured
by the security interest granted Bank hereunder; provided, however, that the
provisions of this Subsection shall survive the termination of this Agreement
and Bank's security interest hereunder and the payment of all other
Obligations.
10.02 EXPENSES.
Whether or not any of the transactions contemplated hereby shall be
consummated, Borrower agrees to pay to Bank, upon written demand by Bank from
time to time, the amount of all expenses, including attorneys' fees and
expenses, paid or incurred by Bank in connection with the preparation, or the
amendment, modification, extension, renewal, refinancing, supplementation,
replacement, waiver, release or termination, of this Agreement or any of the
Other Agreements or any terms or condition as hereof or thereof or any rights
or interests of Bank, Borrower or any other person relating to any of the
foregoing, or otherwise in connection with the extension of credit hereunder
and preparing for the extension of credit hereunder. Borrower agrees to pay
all expenses in connection with the filing or recordation of all financing
statements and other documents as may be required by Bank at the time of, or
subsequent to, the execution of this Agreement, including, without limitation,
all documentary stamps, recordation and transfer taxes, filing fees and other
costs and taxes incident to recordation of any document in connection herewith,
and, if any such expenses shall be paid or incurred by Bank, to pay to Bank
upon written demand the amount of such expenses. Borrower also agrees to pay to
Bank, upon written demand by Bank from time to time, interest on the
outstanding amount of all expenses paid by Bank referred to in this Subsection,
from the date of Bank's demand for payment of such expenses until the same are
paid in full, at the highest rate and calculated in the manner provided in the
Note. Borrower also agrees to indemnify, protect and defend Bank, and save
Bank harmless, from and against any and all claims, demands, damages, losses,
liabilities, obligations, penalties, litigation, defenses, judgments, suits,
actions, proceedings, costs and expenses (including, without limitation,
attorneys fees, and expenses and experts' fees and expenses) of
- 48 -
<PAGE> 49
any kind or nature whatsoever which may at any time be imposed upon, paid or
incurred by or asserted or awarded against Bank relating to, resulting from or
arising out of
(a) the use of any property owned, leased, subleased,
occupied, used or operated by Borrower or any Subsidiary for the manufacture,
generation, production, processing, distribution, use, treatment, storage,
disposal, transport or handling of any Hazardous Substances,
(b) the presence of any Hazardous Substances in or upon
any such property, or
(c) any violation of any Environmental Law.
10.03 APPLICATIONS OF COLLATERAL.
Except as may be otherwise specifically provided in this Agreement,
all Collateral and proceeds of Collateral coming into Bank's possession may be
applied by Bank to any of the Obligations, whether matured or unmatured, as
Bank shall determine in its sole discretion.
10.04 FURTHER ASSURANCES, POWER OF ATTORNEY.
Borrower agrees promptly to do, make, execute and deliver all such
additional and further acts, things, deeds, assurances, instruments and
documents as Bank may request in good faith to vest in and assure to Bank its
rights hereunder or under any of the Other Agreements or in any of the
Collateral. Borrower hereby appoints Bank and its designees as
attorney-in-fact of Borrower, irrevocably and with power of substitution, with
authority to execute and deliver from time to time, in the name and stead of
Borrower, all documents which Borrower is required to, but has failed or
refused to, execute and deliver to Bank pursuant to this Agreement or any of
the Other Agreements, and with authority to take all of the actions from time
to time on behalf of Borrower, and in the name and stead of Borrower, which
Bank is authorized to take under this Agreement and the Other Agreements or
which Bank in its good faith discretion deems necessary or advisable in order
to cause Borrower to be in compliance with any of the terms of this Agreement
or any of the Other Agreements or in order to carry out and enforce this
Agreement and the Other Agreements. The attorney or designee shall not be
liable for any acts of commission or omission nor for any error of judgment or
mistake of fact or law which does not arise from its gross negligence or
willful misconduct. This power of attorney is coupled with an interest and is
irrevocable so long as any of the Obligations remain unpaid or unperformed or
there exists any commitment by Bank which could give rise to any Obligations.
10.05 WAIVER OF TRIAL BY JURY.
Borrower and Bank each agrees that any action, suit or proceeding
involving any claim, counterclaim or cross-claim arising out of or in any way
relating, directly or indirectly, to this Agreement or the Other Agreements, or
any liabilities, rights or interests of Borrower, Bank or any other person
arising out of or in any way relating, directly or indirectly, to any of the
foregoing, shall be tried by a court and not by a jury. Borrower and Bank each
hereby waives any right to trial by jury in any such action, suit or
proceeding, with the understanding and
- 49 -
<PAGE> 50
agreement that this waiver constitutes a waiver of trial by jury of all claims,
counterclaims and cross-claims against all parties to such actions, suits or
proceedings, including claims, counterclaims and cross-claims against parties
who are not parties to this Agreement or the Other Agreements. This waiver is
knowingly, willingly and voluntarily made by Borrower and Bank, and Borrower
and Bank each acknowledges and agrees that this waiver of trial by jury is a
material aspect of the agreements between Borrower and Bank and that no
representations of fact or opinion have been made by any person to induce this
waiver of trial by jury or to modify, limit or nullify its effect.
10.06 ADDITIONAL WAIVERS BY BORROWER.
Borrower hereby waives, to the extent the same may be waived under
applicable law:
(a) notice of acceptance by Bank of this Agreement;
(b) all claims, causes of action and rights of Borrower
against Bank on account of actions taken or not taken by Bank in the exercise
of Bank's rights or remedies hereunder or under any of the Other Agreements, or
under law, provided that the same did not arise from Bank's gross negligence or
willful misconduct;
(c) all claims and causes of action of Borrower against
Bank for punitive, exemplary or other non-compensatory damages;
(d) all rights of redemption of Borrower with respect to
any of the Collateral;
(e) in the event Bank seeks to repossess any or all of
the Collateral by judicial proceedings, any bonds or demands for possession
which otherwise may be required;
(f) all rights of Borrower to have marshaled the
Collateral or any other security for any of the Obligations;
(g) presentment, protest, notice of protest and notice of
nonpayment with respect to all of the Obligations;
(h) settlement, compromise or release of the obligations
of any Other Obligor or any other person primarily or secondarily liable upon
or obligated with respect to any of the Obligations;
(i) substitution, impairment, exchange or release of any
direct or indirect security for any of the Obligations; and
(j) any duty or obligation of Bank to disclose to
Borrower any information concerning any other customer or client, or
prospective customer or client, of Bank.
Borrower agrees that Bank may exercise any or all of its rights and/or
remedies hereunder, under the Other Agreements and under law without resorting
to, without regard to,
- 50 -
<PAGE> 51
and regardless of the adequacy of, any security or other sources of liability
with respect to any of the Obligations.
10.07 WAIVERS BY BANK.
Neither any failure nor any delay on the part of Bank in exercising
any right, power or remedy hereunder, under any of the Other Agreements or
under applicable law shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right power or remedy. Without limitation of the
foregoing, the failure or delay of Bank to accrue interest on the outstanding
Advances at the Default Rate of Interest following the occurrence of an Event
of Default shall not operate as a waiver of such Event of Default or of Bank's
right at any time thereafter to accrue interest on the Loans at the Default
Rate of Interest.
10.08 PAYMENTS, SETOFF.
All payments required to be made by Borrower hereunder shall be made
by Borrower without setoff, counterclaim or deduction and shall be made to Bank
in lawful money of the United States of America at Bank's principal office (or
at such other address as Bank may specify to Borrower in writing from time to
time). If any payment required to be made by Borrower hereunder shall be due
on any day that is not a Business Day, such payment may be made by Borrower
without default on the next succeeding Business Day but any interest-bearing
portions of such payment shall continue to accrue interest during such
extension of time. Bank shall have the right from time to time to charge and
deduct from any deposit accounts of Borrower at Bank any amounts credited to
such accounts and apply the same to pay principal amounts, interest charges,
service charges, fees, expenses or any other sums or charges due and unpaid
under this Agreement or any of the Other Agreements. Bank shall have the
right, in addition to all other rights and remedies available to it, to set off
against any Obligations due and unpaid any sums or property owing to Borrower
by Bank or held or controlled by Bank for Borrower. Borrower hereby confirm
Bank's right to a banker's lien and setoff, and nothing in this Agreement or
any of the Other Agreements shall be deemed to replace, supersede, limit, waive
or prohibit Bank's right of banker's lien and setoff.
10.09 CONFESSION OF JUDGMENT.
Subject to the provisions of this Subsection 10.09, Borrower hereby
authorizes any clerk of court or any attorney-at-law to appear for Borrower
before any court, having jurisdiction, within the United States or elsewhere,
and, after one or more complaints filed, confess judgment against Borrower as
of any time after any other Obligations are due (whether by demand, stated
maturity, acceleration or otherwise) for the unpaid balance of the Obligations,
including principal, interest, fees, court costs, late charges and expenses,
together with attorneys' fees equal to fifteen percent (15%) of the amount of
such Obligations, for collection and release of all errors, and without stay of
execution, and inquisition and extension upon any levy on real estate is hereby
waived and condemnation agreed to, and the exemption of personal property from
levy and sale is also hereby expressly waived, and, no benefit of exemption
shall be claimed under any
- 51 -
<PAGE> 52
exemption law now in force or which may be hereafter adopted. If judgment is
to be entered in the Commonwealth of Virginia, Borrower hereby duly constitutes
and appoints each of James P. Steck, Gregory A. Baugher or David S. Musgrave
its true and lawful attorney-in-fact, in the name, place and stead of Borrower,
and after any of the Obligations are due, to confess judgment against Borrower
in the Circuit Court of Fairfax County, Virginia, or in any other court of
record in the Commonwealth of Virginia, for the unpaid balance of the
Obligations, including principal, interest, fees, court costs, late charges and
expenses, together with attorneys' fees equal to fifteen percent (15%) of the
amount of such Obligations, Borrower hereby ratifying and confirming the acts
of said attorney-in-fact as fully as if done by Borrower, and Borrower
expressly waiving benefit of any homestead or other exemption laws. The
foregoing authorities and powers to confess judgment shall not be exhausted by
one or more exercises of any of them or by any imperfect exercise of any of
them, shall not be extinguished by any judgment entered because of any of them
and may be exercised before, during or after sale, liquidation or other
disposition by Bank of any property directly or indirectly securing any of the
Obligations or the exercise or enforcement by Bank of any other right or remedy
of Bank with respect to the Obligations. Borrower agrees that any agreements
of Borrower contained in this Agreement or any of the Other Agreements to pay
any costs or expenses, including attorneys' fees and expenses, paid or incurred
by Bank shall not be merged into, or otherwise impaired by, any such judgment
by confession, but Bank shall not be entitled to recover on account of such
costs or expenses any amount in excess of the greater of (a) such costs or
expenses included in any judgments by confession (without duplication), or (b)
such costs or expenses actually paid or incurred by Bank. Notwithstanding the
foregoing, (y) if the actual and reasonable attorneys' fees incurred by Bank
are less than 15% of the Obligations and all Obligations owed to Bank by
Borrower have been paid, Bank shall refund (to the extent actually collected)
to Borrower an amount equal to the difference between 15% of the Obligations
and the amount of such actual and reasonable attorneys' fees, and (z) if the
actual and reasonable attorneys' fees incurred by Bank exceed 15% of the
Obligations, whether by reason of judgment being contested or otherwise,
Borrower will pay to Bank on demand the amount of such excess.
10.10 MODIFICATIONS.
No modification or waiver of any provision of this Agreement or any of
the Other Agreements, and no consent by Bank to any failure of Borrower or any
other person to comply with any provision of this Agreement or any of the Other
Agreements, shall in any event be effective unless the same shall be in writing
signed by the person against whom enforcement is sought, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. No notice to or demand upon Borrower in any case shall entitle
Borrower to any other or further notice or demand in the same, similar other
circumstances.
10.11 NOTICES.
Any notice or other communication in connection with this Agreement,
including demands for payment by Bank, shall be deemed to have been given when
hand delivered to the party to whom directed, or, if transmitted by telex,
facsimile transmission or by mail (whether or
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<PAGE> 53
not registered or certified), when telexed, transmitted by facsimile
transmission or deposited in the mail postage prepaid, respectively, provided
that any such notice or communication shall be hand delivered or transmitted to
a party hereto as provided below (or at such other address as such party shall
specify in writing to the other parties hereto):
(a) if to Borrower, at 11150 Sunset Hills Road, Suite
110, Reston, Virginia 22090 (Fax: (703)834-5718), attention: President; and
(b) if to Bank, at 1970 Chain Bridge Road, McLean,
Virginia 22102, attention: Portfolio Management.
10.12 DISCLOSURE OF INFORMATION.
Borrower consents and agrees that Bank may issue press releases
concerning, and otherwise publicly announce or publicize, financings provided
by Bank to Borrower or Subsidiaries. Borrower hereby authorizes Bank to
disclose to any subsidiary or affiliate of Bank, to any fiduciary institution
or to any banking institution, credit union or savings and loan association
organized under the laws of any State, and hereby authorizes all subsidiaries
and affiliates of Bank, all fiduciary institutions and all banking
institutions, credit unions and savings and loan associations organized under
the laws of any State to disclose to Bank, all financial records of Borrower.
10.13 LAW, JURISDICTION, TRANSFERS OF INTERESTS AND
UNENFORCEABILITY.
The performance and construction of this Agreement and the Other
Agreements shall be governed by the internal laws of the Commonwealth of
Virginia (exclusive of principles of conflicts of laws). Borrower agrees that
any suit, action or proceeding instituted by Bank with respect to any of the
Obligations, the Collateral, this Agreement or any of the Other Agreements may
be brought in any State or federal court located in the Commonwealth of
Virginia (in addition to such other courts in which jurisdiction and venue may
be appropriate), and Borrower consents to the in personam jurisdiction of such
courts. Borrower irrevocably waives any objection to, and any right of
immunity from, the jurisdiction of such courts or the execution of judgments
resulting therefrom, on the grounds of venue or the convenience of the forum.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, and each reference in this
Agreement to any of the parties hereto shall be deemed to include the
successors and assigns of such party, including, in the case of Borrower, the
debtor in possession or trustee in any case under any chapter of the United
States Bankruptcy Code in which Borrower is debtor. Borrower may not assign
this Agreement or any of its rights hereunder without Banks prior written
consent. Bank may at any time, in its discretion, assign, transfer or pledge
to any person, or grant to any person a Lien in, this Agreement, any of the
Other Agreements or any of its rights hereunder or thereunder. In addition,
Bank may sell, in such amounts, upon such terms and to such persons as Bank may
determine, participations in its interests under this Agreement and/or any of
the Other Agreements. In the case of each such assignment, transfer, pledge
grant or sale, Bank may from time to time provide to the assignee, transferee,
pledgee, secured party or participant, any
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<PAGE> 54
information and documents (or copies thereof) relating to this Agreement and
the Other Agreements and related transactions, and relating to the business,
assets, operations, business prospects or financial condition of Borrower,
Subsidiaries and Other Obligors. If any term, provision or condition, or any
part thereof, of this Agreement or any of the Other Agreements shall for any
reason be found or held invalid or unenforceable by any court or governmental
agency, such invalidity or unenforceability shall not affect the remainder of
such term, provision or condition, nor any other term, provision or condition,
and this Agreement and the Other Agreements shall survive and be construed as
if such invalid or unenforceable term, provision or condition had not been
contained herein or therein; provided, however, that if any rate of interest
provided under this Agreement does or shall exceed the maximum interest rate
which Borrower is permitted by law to contract or agree to pay, then such rate
of interest shall immediately be deemed to be reduced to such maximum rate and
all previous payments of interest in excess of the maximum rate shall be deemed
to have been payments in reduction of principal and not of interest. All books
and records of Bank and statements of account rendered by Bank to Borrower
relating to the Obligations shall be presumed to be accurate, absent manifest
error.
10.14 Changes in Laws.
In the event that, at any time or from time to time after the date of
this Agreement, the implementation of, or any change in, any law or regulation,
or any guideline or directive (whether or not having the force of law), or the
interpretation or administration thereof by any central bank or other authority
charged with the administration thereof, imposes, modifies or deems applicable
any capital adequacy, reserve or similar requirement (including without
limitation, a request or requirement which affects the manner in which Bank
allocates capital resources to its commitments and extensions of credit,
including, without limitation, its extensions of credit hereunder), and, as a
result thereof, in the sole opinion of Bank, the rate of return on Bank's
capital as a consequence of its extensions of credit hereunder, is reduced to a
level below that which Bank could have achieved but for such circumstances,
then, in each such case, within 10 days after written demand by Bank from time
to time, Borrower shall pay to Bank such additional amount or amounts, as shall
compensate Bank for such reduction in rate of return. A certificate of Bank as
to any such additional amount or amounts, in the absence of manifest error,
shall be final and conclusive. In determining such amount or amounts, Bank may
use any reasonable averaging and attribution methods.
10.15 SURVIVAL.
All covenants, conditions, agreements, representations and warranties
made herein and in the Other Agreements shall survive the execution and
delivery hereof and thereof, shall survive Closing and shall continue in full
force and effect until all Obligations have been paid in full and there exists
no commitment by Bank which could give rise to any Obligations.
10.16 MERGER AND INTEGRATION.
This Agreement and the attached Exhibits contain the entire agreement
of the parties hereto with respect to the matters covered and the transactions
contemplated hereby, and no other
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<PAGE> 55
agreement, statement or promise made by any party hereto, or by any employee,
officer, agent or attorney of any party hereto, which is not contained herein,
shall be valid or binding.
10.17 COUNTERPARTS.
This Agreement my be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which, when so
executed and delivered, shall be an original, but all such counterparts shall
together constitute one and the same instrument.
10.18 HEADINGS.
The headings and subheadings contained in the titling of this
Agreement are intended to be used for convenience only and shall not be used or
deemed to limit or diminish any of the provisions hereof.
10.19 RECITALS.
The Recitals hereto are hereby incorporated into and made a part of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.
<TABLE>
<S> <C>
ATTEST/WITNESS: MLC GROUP, INC.
/s/ PHILLIP G. NORTON By: /s/ BRUCE M. BOWEN (SEAL)
- -------------------------------- -------------------------------------
Bruce M. Bowen
President
BORROWER
FIRST UNION NATIONAL BANK OF VIRGINIA
/s/ JEANNE M. MCKEE By: /s/ JAMES P. STECK (SEAL)
- -------------------------------- -------------------------------------
James P. Steck
Vice President
BANK
</TABLE>
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<PAGE> 56
STATE OF VIRGINIA, TO WIT:
I HEREBY CERTIFY that on this 3rd day of October, 1995, before me, the
subscriber, a Notary Public of the State aforesaid, personally appeared Bruce
M. Bowen, who acknowledged himself to be the President of MLC Group, Inc., and
that he, as such President, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing in my presence the
name of the corporation by himself as President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ LYNETTE M. HALL
-------------------------------
Notary Public
My Commission Expires:
Embossed Hereon & [illegible]
Commonwealth of Virginia Notary Public Seal
My Commission Expires October 31, 19[illegible]
LYNETTE M. HALL
- -----------------------------------------------
STATE OF VIRGINIA, TO WIT:
I HEREBY CERTIFY that on this 5 day of October, 1995, before me, the
subscriber, a Notary Public of the State aforesaid, personally appeared James
P. Steck, who acknowledged himself to be the Vice President of First Union
National Bank of Virginia, and that he, as such Vice President, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained, by signing in my presence the name of the corporation by himself as
Vice President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ DELORES GEORGE LEPAGE
--------------------------------------
Notary Public
My Commission Expires:
1/31/99
- ------------------------------
- 56 -
<PAGE> 57
CAPITAL STOCK EXHIBIT
<TABLE>
<CAPTION>
Name No. of Shares
- ---- -------------
<S> <C>
Bruce M. Bowen 160 shares
Kevin M. Norton 100 shares
Patrick J. Norton, Jr. 100 shares
William J. Slayton 100 shares
Daniel Bowen 10 shares
Sarah Bowen 10 shares
Margaret Bowen 10 shares
J.A.P. Investment Group, L.P. 510 shares
</TABLE>
All shares are common stock, one class.
- 57 -
<PAGE> 58
PERMITTED LIENS EXHIBIT
[None].
- 58 -
<PAGE> 59
EXHIBIT NO. 1
- 59 -
<PAGE> 1
EXHIBIT 10.14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
dated as of
July 18, 1996
-------
between
MLC Group, Inc.,
Borrower,
and
NationsBanc Leasing Corporation,
Lender.
Up to $2,000,000 of Lease-Collateralized Loans
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. DEFINITIONS; USAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 -- Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------
1.02 -- Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-----
2. PURCHASE OF NOTES; PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.01 -- Purchase of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
------------------
2.02 -- Procedure for Purchase of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-------------------------------
2.03 -- Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
----------------
3. SECURITY FOR BORROWER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.01 -- Security Interest in Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-------------------------------
3.02 -- Set-Off Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
--------------
4. PAYMENTS BY BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.01 -- How Payments Are Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------------------
4.02 -- Right to Prepay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------------
4.03 -- Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------------------
4.04 -- Interest on Past Due Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------------------------
4.05 -- Limit on Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-------------------------
4.06 -- Payment of Partial Recourse Notes Upon Lease
--------------------------------------------
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-------
5. BORROWER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.01 -- Corporate Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-------------------
5.02 -- Corporate Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------------
5.03 -- Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--------------
5.04 -- Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------
5.05 -- Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--------------------
5.06 -- Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-----
5.07 -- Location of Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-------------------
5.08 -- Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
---------------------
5.09 -- Absence of ERISA Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---------------------------
5.10 -- Investment Company Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------------------------
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.01 -- Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------------------
6.02 -- Inspection of Collateral and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
------------------------------------
6.03 -- Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
--------------------
6.04 -- Merger, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----------
6.05 -- Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
----------------------
6.06 -- Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-----------------
6.07 -- Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
------------------------
6.08 -- Maintenance of Property and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
--------------------------------------
6.09 -- Lease Status Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
--------------------
6.10 -- Notice of Lease Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------------------
6.11 -- Verification of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----------------------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
7. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.01 -- Conditions to Purchase of Initial Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
--------------------------------------
7.02 -- Conditions to Purchase of All Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------------------------------
8. EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.01 -- Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
------------------
8.02 -- Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
--------
9. BORROWER'S INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.01 -- Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------
10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.01 -- No Waivers: Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------------------------------
10.02 -- Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-------
10.03 -- Transaction Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
---------------------
10.04 -- Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------
10.05 -- Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
----------------------
10.06 -- Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------------
10.07 -- Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------
10.08 -- Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------------------------
10.09 -- Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------
10.10 -- Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
------------
10.11 -- Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
------------------
10.12 -- Commercial Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------------------
10.13 -- Time is of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------------------
10.14 -- Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
----------------
10.15 -- Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-----------------------
10.16 -- Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-----------------------
</TABLE>
Exhibit A-1 Form of Floating Rate Note (Full Recourse)
Exhibit A-2 Form of Floating Rate Note (Partial Recourse)
Exhibit A-3 Form of Fixed Rate Note (Full Recourse )
Exhibit A-4 Form of Fixed Rate Note (Partial Recourse)
Exhibit B Form of Security Agreement
Exhibit C Form of opinion of Borrower's counsel
ii
<PAGE> 4
CREDIT AGREEMENT
This Credit Agreement is entered into as of July 18, 1996 by and
between MLC Group, Inc. ("Borrower") and NationsBanc Leasing Corporation
("Lender").
Borrower and Lender agrees as follows:
1. DEFINITIONS; USAGE
1.01 -- Definitions. The following terms, when capitalized as below,
have the following meanings in this Agreement:
"Agreement": this Credit Agreement.
"Basic Documents": this Agreement, the Security Agreement, and each
Note and Supplement as executed and delivered.
"Business Day": any day, other than a Saturday or Sunday, on which
commercial banks are generally open for business in McLean, Virginia, and
Atlanta, Georgia, and Lender is open for business in Atlanta, Georgia.
"Collateral": the "Collateral" under the Security Agreement.
"Commitment": Lender's commitment to purchase Notes, for an aggregate
amount of up to $2,000,000.
"Default": any event or condition that would become an Event of
Default upon the giving of notice or lapse of time or both, or any Event of
Default.
"Dollars" and "$": United States dollars.
"Equipment Cost": Borrower's purchase price for an Equipment Portion.
"Equipment Portion": the equipment leased to a Lessee under a
particular Lease.
"ERISA": defined in Section 5.09.
"Event of Default": defined in Section 8.01.
"Event of Loss": defined in the Security Agreement.
"Financed Amount" for a Lease: (a) the present value (discounted at
the Interest Rate for the related Note) of the scheduled rental payments due
under that Lease after the Funding
<PAGE> 5
Date for that Note, or (b) if less, the Equipment Cost for that Lease.
"Fixed Interest Rate": an interest rate equal to the Index Rate plus
(i) 2.95% per 365-day period for any Full Recourse Note, and (ii) 2.5% per
365-day period for any Partial Recourse Note.
"Fixed Rate Notes": Notes bearing interest at the Fixed Interest
Rate, which shall be in the form of Exhibits A-3 or A-4, or a note issued in
exchange or replacement for such a note.
"Floating Interest Rate": an interest rate equal to the Prime Rate
plus 1% per 365-day period.
"Floating Rate Notes": Notes bearing interest at the Floating Rate,
which shall be in the form of Exhibits A-1 or A-2, or a note issued in
exchange or replacement for such a note.
"Full Recourse Notes": Notes issued by Borrower and purchased by
Lender where (a) the Lessee under the related Lease has a Moody's bond rating
of less than Baa or a Standard & Poor's Corporation bond rating of less than
BBB or (b) the total Financed Amount with respect to such Lessee is greater
than $300,000.
"Funding Date": a date on which Lender purchases a Note.
"GAAP": generally accepted accounting principles as in effect in the
United States and applied on a basis consistent with that used in the
preparation of the financial statements referred to in Section 5.05, except
for changes therein with which Borrower's independent public accountants concur
that are disclosed in the notes to the relevant financial statements.
"Guarantors": Phillip G. Norton and Bruce M. Bowen, shareholders of
Borrower.
"Indemnitee": Lender, or any agent, employee, director, successor, or
permitted assign of Lender.
"Index Rate": the 3-year Treasury Constant Maturities Yield derived
from the column under the heading "Week Ending" (for the more recent week) set
forth in the Federal Reserve Statistical Release H.15 (519) issued for the
week before the relevant Funding Date.
"Interest Rate": an interest rate equal to (i) for any Fixed Rate
Note, the Index Rate plus (a) 2.95% per 365-day period for any Full Recourse
Note, and (b) 2.5% per 365-day period for any Partial Recourse Note, and (ii)
for any Floating Rate Note, the Prime Rate plus 1% per 365-day period, in all
cases computed on the basis of actual days elapsed.
2
<PAGE> 6
"Lease": a lease by Borrower, financed by Lender under this Agreement,
of computer or medical equipment, owned by Borrower, to be located in the
continental United States (excluding Alaska).
"Lease Default": a Lessee's failure to pay any rental or other
payment due under a Lease, in full, within 90 days after its due date, or any
filing by or against a Lessee of any bankruptcy, insolvency, or similar
proceeding.
"Lessee": the lessee under a Lease.
"Liabilities": defined in Section 9.01.
"Lien": any mortgage, pledge, assignment, encumbrance, lien
(statutory or other), or other security interest of any kind or nature
whatsoever (including any conditional sale or other title retention agreement,
or any lease in the nature thereof).
"Monthly Payment Date": for a Note: each monthly "anniversary" of
the Funding Date for that Note (or the last day of the month, if there is no
such "anniversary" date in a month); except that any Monthly Payment Date
that falls on a day which is not a Business Day shall instead occur on the
following Business Day.
"Monthly Period" for a Note: each period beginning on a Monthly
Payment Date for that Note (or, for the first Monthly Period for a Note,
beginning on the Funding Date for that Note) and ending on (but excluding, for
the purpose of computing interest payable) the following Monthly Payment Date
for that Note.
"Note": Borrower's promissory note, which shall be either a Fixed
Rate Note or a Floating Rate Note, or a note issued in exchange or replacement
for such a note.
"Officer's Certificate": a certificate signed in the name of Borrower
(or, with respect to Section 6.04(c), of the Successor) by the chairman of the
board, the president, a vice president, or the treasurer of Borrower (or the
Successor).
"Partial Recourse Notes": Notes issued by Borrower and purchased by
Lender where (a) :he Lessee under the related Lease has a Moody's bond rating
of Baa or better or a Standard & Poor's Corporation bond rating of BBB or
better or the Lender, in its sole discretion, considers the Lessee, where no
ratings exist, to have an equivalent rating, and (b) the total Financed Amount
with respect to such Lessee is less than or equal to $300,000.
"Permitted Lessee": defined in the Security Agreement.
"Permitted Lien": defined in the Security Agreement.
3
<PAGE> 7
"Person": any individual, corporation, limited liability company,
partnership, joint venture, or other legal or governmental entity.
"Prepayment Fee": for a Fixed Rate Note: 1% of the principal amount
being prepaid times the number of years or partial years originally scheduled
(without regard to any prepayment) to be remaining in the term of that Note.
There is no Prepayment Fee for a Floating Rate Note. For example, a
prepayment made when 15 originally-scheduled monthly payments remain on a Fixed
Rate Note would trigger a Prepayment Fee of 2 % of the principal amount being
prepaid. However, no Prepayment Fee shall be payable for the prepayment of a
Note that it is prepaid because of an Event of Loss or Lease Default relating
to that Note.
"Prime Rate": the rate of interest publicly announced from time to
time by NationsBank, N.A. (South), or its successor, as its "prime rate".
"Regulatory Change": any change after the date of this Agreement in
federal, state, or foreign law or regulations or the adoption or making after
such date of any interpretations or directives applying to a class of banks or
bank holding companies or their affiliates including NationsBank, N.A. or
Lender of or under any federal, state, or foreign law or mandatory regulations
by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Security Agreement": the document by that name, between Borrower and
Lender, substantially in the form of Exhibit B.
"Successor": defined in Section 6.04(a).
"Supplement": defined in Section 3.01.
"Taxes" defined in the last sentence of Section 9.02(a).
"Taxing Authorities": defined in the first sentence of Section
9.02(a).
"Termination": defined in the Security Agreement.
1.02 -- Usage. Any agreement or instrument referred to in Section
1.01 means such agreement or instrument as from time to time supplemented and
amended. References to sections, exhibits, and the like refer to those in or
attached to this Agreement unless otherwise specified. "Including" means
"including but not limited to". "Or" means one or more, or all, of the
alternatives listed or described. "Herein", "hereof", "hereunder", etc. mean
in, of, under, etc. this Agreement (and not merely in, of, under, etc. the
section or provision where the reference appears).
4
<PAGE> 8
2. PURCHASE OF NOTES; PAYMENTS
2.01 -- Purchase of Notes. Subject to the satisfaction of the
conditions precedent set forth in Section 7, and on the terms and conditions
set forth in this Section 2, on the Funding Date for each Lease, Borrower
shall issue the related Note to Lender and Lender shall purchase that Note
from Borrower. The Financed Amount for each Lease shall be at least $25,000.
At no time shall the aggregate Financed Amount for Partial Recourse Notes
exceed $1,000,000. Each Note shall be purchased for its face amount, which
shall equal the Financed Amount for the related Lease. Borrower shall give
Lender written notice of its election of either the Fixed Interest Rate or the
Floating Interest Rate. Each Note shall bear interest at its relevant Interest
Rate, taking into account whether such Note is a Full Recourse Note or a
Partial Recourse Note. Each Note shall have level monthly
principal-and-interest (mortgage-style) amortization, payable for the lesser
of (a) 60 months, or (b) the number of months as there are remaining scheduled
monthly rental payments in that Lease. Unless terminated under Section 8.02,
Lender's Commitment to purchase Notes pursuant to this Agreement shall expire
at 2:00 p.m., Atlanta time, on January 31, 1997.
2.02 -- Procedure for Purchase of Notes. Borrower shall notify
Lender, by 10:00 a.m. (Atlanta time) at least two Business Days before a
proposed Funding Date, of (a) the date proposed for that Funding Date, (b) the
Equipment Cost, rent, and rent payment dates for each Lease to be financed on
that Funding Date, (c) a description (by type) of each Equipment Portion to be
financed on that Funding Date, and (d) whether the Note for the proposed Lease
is to bear interest at the Fixed Interest Rate or the Floating Interest Rate.
Borrower shall include with each such notice a copy of each lease proposed to
be financed, together with a copy of the related lease application, credit
approval report, credit bureau report, invoice(s), bill(s) of sale, and other
documentation requested by Lender. With respect to Full Recourse Notes,
Borrower shall also provide Lender with the financial statements of the Lessee
under the related Lease, and with any other information Lender might request
with respect to such Lessee. If Lender approves such lease as a basis for a
loan hereunder, which approval shall be at Lender's sole discretion, then, at
Lender's offices at 2300 Northlake Centre Drive, Tucker, Georgia 30084 (or such
other location as the parties hereto agree upon), not later than 2:00 p m.
(Atlanta time) on the appropriate Funding Date, upon fulfillment of the
conditions set forth in Section 7, Lender will purchase the related Note from
Borrower, with general corporate funds, pursuant to Section 2.01.
2.03 -- Unused Line Fee. Borrower shall pay Lender an unused line
fee of .25 % per annum of the amount by which the average outstanding
aggregate Financed Amount hereunder for the quarter are less than $2,000,000.
The unused line fee shall be payable
5
<PAGE> 9
quarterly in arrears on the first day of each May, August, November and
February.
3. SECURITY FOR BORROWER'S OBLIGATIONS
3.01 -- Security Interest in Collateral. To secure Borrower's
obligations to Lender under each Note and the other Basic Documents to which
Borrower is or becomes a party, Borrower shall execute and deliver to Lender,
on each Funding Date, a supplement to the Security Agreement (a "Supplement") ,
substantially in the form of Schedule A to the Security Agreement, specifically
granting to Lender a security interest in each Lease and Equipment Portion
being financed on such Funding Date.
3.02 -- Set-Off Rights. If Borrower becomes insolvent, or any Event
of Default occurs, any indebtedness that Lender or any of its affiliates then
owes to Borrower, and any other property of Borrower that Lender or any of its
affiliates then holds, may be offset and applied toward the payment of any
obligation of Borrower to Lender under the Basic Documents, whether or not any
such other obligations is then due.
4. PAYMENTS BY BORROWER
4.01 -- How Payments Are Made. Borrower shall make its payments and
prepayments of principal and interest due on the Notes, and all other amounts
payable by Borrower to Lender under the Basic Documents, to Lender at P.O. Box
4431, Atlanta, Georgia 30302, Reference: MLC Group (or at such other place in
the United States as Lender from time to time specifies to Borrower) , by
check (or, of requested by Lender, in immediately available funds) and in
Dollars, on the date when due. If any payment due under the Basic Documents
comes due on a day which is not a Business Day, such payment shall instead be
made on the following Business Day, and interest shall accrue at the applicable
rate to the day of payment.
4.02 -- Right to Prepay. Unless a Default exists, Borrower shall
have the right to prepay the outstanding principal amount of any Note at any
time in whole or in part. Borrower shall give to Lender at least 10 days'
prior written notice (which notice shall be irrevocable) of the date and
principal amount of any such prepayment. Upon any prepayment of any Note under
this Section 4.02, Borrower shall pay all accrued and unpaid interest on the
prepaid principal of such Note to the date of prepayment, plus any applicable
Prepayment Fee. Partial prepayments shall be applied against principal
installments in their inverse order of maturity.
4.03 -- Mandatory Prepayments. If a Lease Default, Event of Loss,
or Termination exists for a Lease for which no replacement has
6
<PAGE> 10
been made under Section 7.03 of the Security Agreement, Borrower shall at
Lender's election prepay the Note executed in connection with that Lease in
accordance with Section Section 7.01 and 7.02 of the Security Agreement, and no
Prepayment Fee shall be due. Upon acceleration of the Notes pursuant to
Section 8.02, Borrower shall prepay such Notes, plus any applicable Prepayment
Fee.
4.04 -- Interest on Past Due Amounts. The interest rate on any
amounts that are past due (by acceleration or otherwise) and at any time
outstanding under any Note or from Borrower under any other Basic Document
shall (to the extent permitted by law) be increased, from the due date until
payment in full, to a rate equal to 3% per annum above the Prime Rate, payable
on demand.
4.05 -- Limit on Interest Payable. The amount of interest due or
payable under this Agreement or any Note shall not in any event exceed the
maximum allowable by applicable law, and this sentence shall override any
contrary provision in this Agreement or any Note.
4.06 -- Payment of Partial Recourse Notes Upon Lease Default. If the
underlying Lease for a Partial Recourse Note is more than 90 days past due,
Borrower shall immediately notify Lender, and Borrower shall stop making
payments under that Partial Recourse Note. In the event the Lessee under the
Lease related to the Partial Recourse Note for which a Lease Default has
occurred does not remit the past due rental payments to Borrower within 15 days
following Borrower's notification, Lender shall reimburse Borrower for the
lesser of (a) 3 months of past due rental payments under the related Lease, or
(b) the actual payments made to Lender under the Partial Recourse Note for
which no rental payments were received by Borrower under the related Lease.
5. BORROWER'S REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.01 -- Corporate Standing. Borrower is a duly organized
corporation existing in good standing under the laws of Virginia, has the
corporate power and legal authority to own or lease its properties and to carry
on its business as now conducted and as now proposed to be conducted, and is
duly qualified to do business in all jurisdictions wherein the failure to
qualify could have any adverse effect on Borrower's financial condition or
ability to perform its obligations to Lender.
5.02 -- Corporate Powers. Borrower's execution, delivery, and
performance of the Basic Documents to which it is (or is to become) a party are
within Borrower's corporate powers; and the Basic Documents to which it is (or
is to become) a party have been duly authorized by all necessary corporate
action on Borrower's part, and do not contravene, result in a breach of, or
require any consent
7
<PAGE> 11
under any law, judgment, decree, order, or contractual restriction binding on
Borrower or any agreement or instrument to which Borrower is a party or to
which it or any of its property is subject.
5.03 -- Binding Effect. The Basic Documents to which Borrower is (or
is to become) a party are (or will be when executed and delivered) legal,
valid, and binding obligations of Borrower enforceable against Borrower in
accordance with their terms, except as may be limited by bankruptcy,
insolvency, or other similar laws affecting enforcement of creditors' rights
generally.
5.04 -- Litigation. There are no pending or (to the best of
Borrower's knowledge after due inquiry) threatened actions or proceedings
before any court or administrative agency which may be expected to have a
materially adverse effect on Borrower's business or financial condition or
which seek to question or set aside any of the transactions herein
contemplated.
5.05 -- Financial Statements. To Borrower's best knowledge, the
audited balance sheet as of March 31, 1995, as certified by Deloitte Touche
Tohmatsu International or Borrower and its consolidated subsidiaries, and the
related results of operations for the year then ended, have been prepared in
accordance with GAAP and fairly present Borrower's financial condition as of
such date and results of operations for such period, and since March 31, 1995,
there has been no materially adverse change in Borrower's business, assets,
operations, or condition (financial or otherwise).
5.06 -- Taxes. Borrower has filed all tax returns which it is or was
required to file, and has paid all taxes shown to be due and payable on those
returns or on any assessment received by it, except such taxes of Borrower, if
any, as are being contested diligently in good faith, and by appropriate
proceedings, and as to which adequate reserves have been provided in accordance
with GAAP.
5.07 -- Location of Offices. Borrower's chief executive office and
principal place of business, and the place where Borrower keeps its financial
records concerning the Collateral, is located at its address set forth in
Section 10.02.
5.08 -- Governmental Consents. Neither the execution, delivery, and
performance of any of the Basic Documents, nor the consummation of any of the
transactions contemplated thereby, requires the consent or approval of, giving
of notice to, registration with, or taking of any other action in respect of
any federal, state, or foreign governmental authority or agency (including any
judicial body) except for the filing of UCC-1 financing statements for each
Lease with the Virginia Corporation Commission and the necessary filings
(including in each case Borrower's assignment to Lender) against each Lessee.
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5.09 -- Absence of ERISA Liability. Each employee pension benefit
plan (as defined in Section 3 (2) of the Employee Retirement Income Security
Act of 1974, as from time to time amended ("ERISA")) of Borrower is in
compliance with the applicable provisions of ERISA and of the Internal Revenue
Code of 1986, as from time to time amended, in all respects, except to the
extent that noncompliance would not be materially adverse to Borrower's
business, assets, financial condition, or ability to perform its obligations
under the Basic Documents.
5.10 -- Investment Company Status. Borrower is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
6. AFFIRMATIVE COVENANTS
So long as any Note, or any amount owed by Borrower under any other
Basic Document, remains outstanding or unpaid or Lender has any Commitment
hereunder:
6.01 -- Financial Statements. In addition to the reports required by
Section Section 6.09 and 6.10, Borrower shall furnish to Lender:
(a) within 45 days after the end of each of the first three
quarters in each fiscal year, consolidated statements of operations of
Borrower and its consolidated subsidiaries for the period from the
beginning of the then-current fiscal year to the end of such quarterly
period, and balance sheets of Borrower and its consolidated
subsidiaries, on a consolidated basis, as, of the end of such quarter
prepared in accordance with GAAP and setting forth in each case in
comparative form figures for the corresponding period in the preceding
year, all in reasonable detail and certified by Borrower's chief
financial officer (to his or her best knowledge), subject to changes
resulting from year-end adjustments;
(b) within 120 days after the end of each fiscal year,
consolidated statements of operations of Borrower and its consolidated
subsidiaries, for such year, and the balance sheets of Borrower and
its consolidated subsidiaries, on a consolidated basis, as of the end
of such year, setting forth in each case in comparative form
corresponding figures from the preceding annual audit, all in
reasonable detail, and certified to Borrower by its independent
certified public accountants and to Lender by a financial officer of
Borrower (to his or her best knowledge) , as presenting fairly the
financial position and results of operations of Borrower and its
consolidated subsidiaries and as having been prepared in accordance
with GAAP;
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(c) within 120 days after the end of each fiscal year,
personal financial statements of each Guarantor;
(d) within two Business Days after any officer of Borrower
obtains knowledge of any Default, an Officer's Certificate specifying
its nature, the period of its existence, and what action Borrower
proposes to take with respect to it; and
(e) promptly upon request, such other data or information
(financial or otherwise) regarding Borrower or the Collateral as
Lender from time to time reasonably requests.
6.02 -- Inspection of Collateral and Records. Borrower shall permit
(and shall cause each Lessee to permit) any person(s) from time to time
designated in writing by Lender, at Lender's expense (or at Borrower's expense
if a Default exists at the time), to visit and inspect any of the Collateral
and Borrower's (or any Lessee's) records with respect to the Collateral, at
such times as Lender reasonably requests, and to discuss Borrower's affairs,
finances, and accounts with Borrower's officers. No such inspection shall
unreasonably interfere with Borrower's (or any Permitted Lessee's) operations
or maintenance. Lender shall have no duty to make any such inspection and
shall not incur any liability or obligation by reason of not making any such
inspection. Borrower agrees to reimburse Lender for the costs and expenses
incurred by Lender in connection with up to 2 audits each fiscal year, not to
exceed a maximum amount of $2,500 for each such audit.
6.03 -- Corporate Existence. Except as permitted by Section 6.04,
Borrower shall maintain its corporate existence in good standing in the
jurisdiction of its incorporation and in all jurisdictions where qualification
is necessary (except in any jurisdiction in which the failure to qualify would
have no materially adverse effect on its business or on its ability to carry
out its obligations under the Basic Documents to which it is (or is to become)
a party). Borrower shall preserve and renew its rights (charter and
statutory) , patents, and franchises, unless Borrower determines in good faith
that the preservation thereof is no longer necessary or desirable in the
conduct of its business and that the loss thereof will not adversely affect
Lender's rights or Borrower's business, assets, operations, condition
(financial or otherwise).
6.04 -- Merger, etc. Borrower shall not consolidate or merge with any
other Person, or convey, transfer, or lease all or substantially all of its
assets as an entirety to any Person, without Lender's prior written consent,
unless:
(a) the corporation formed by such consolidation or the
Person who acquires by conveyance, transfer, or lease all or
substantially all of Borrower's assets as an entirety (the
"Successor") or, in the case of a merger, Borrower (as the
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<PAGE> 14
surviving corporation), (i) executes and delivers to Lender an
agreement, in form and substance satisfactory to Lender, containing an
assumption by the Successor of the due and punctual performance and
observance of Borrower's obligations under the Basic Documents to
which Borrower is then a party, and (ii) makes such filings and
recordings as are necessary or desirable to preserve Lender's rights
under the Basic Documents after such consolidation, merger,
conveyance, transfer, or lease with or to the Successor;
(b) immediately after giving effect to such transaction, (i)
no Default exists and (ii) Borrower's or the Successor's, as the case
may be, business, assets, operations, condition (financial or
otherwise), and financial and other ability to perform its obligations
under the Basic Documents will not be adversely affected by such
transaction in any material respect; and
(c) Borrower or the Successor delivers to Lender, promptly
upon consummation of such transaction, an Officer's Certificate
stating that the conditions precedent set forth in Section 6.04(a)
have been complied with and an opinion of counsel for Borrower or for
the Successor, in form and substance satisfactory to Lender, stating
that the agreements entered into to effect such consolidation, merger,
conveyance, transfer, or lease and such assumption agreements have
been duly authorized, executed, and delivered by the Successor (or in
the case of a merger, by Borrower) and that they (and the Basic
Documents so assumed) constitute legal, valid, and binding,
obligations of the Successor (or in the case of a merger, of Borrower)
, enforceable in accordance with their terms (to the same extent as
the Basic Documents so assumed were enforceable against Borrower
immediately before such transaction); and that all conditions
precedent which are legal in nature provided for in this Agreement and
relating to such transaction have been fulfilled.
Upon any such consolidation, merger, conveyance, transfer, or lease,
the Successor shall succeed to, shall be substituted for, and may exercise
every right and power of Borrower under the Basic documents to which Borrower
is a party, with the same effect as if the Successor had been named as Borrower
therein. No such conveyance, transfer, or lease of substantially all
Borrower's assets as an entirety shall have the effect of releasing Borrower
(or any Successor) from its liability under the Basic Documents to which it is
a party. Nothing in this section shall prevent Borrower from leasing equipment
to lessees in the ordinary course of Borrower's business.
6.05 -- Compliance with ERISA.
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(a) Borrower will, at all times, make prompt payment of
contributions that it is required to make to any employee benefit plan
to which it is a party as are necessary to meet the minimum funding
standards for such an employee benefit plan, as required by ERISA.
(b) Within two Business Days after the occurrence of any
event or circumstance (including any event which is classified as a
"Reportable Event" under ERISA) that might constitute grounds for
termination of an employee benefit plan to which Borrower is a party
by the Pension Benefit Guaranty Corporation or might result in the
appointment of a trustee by a United States District Court under
Section 4042 of ERISA to administer such employee benefit plan,
Borrower will provide Lender with an Officer's Certificate describing
the event or circumstance, stating the reasons (to the extent then
known to Borrower) for any such action by the Pension Benefit Guaranty
Corporation or a United States District Court, and specifying the
action Borrower proposes to take (or tentatively proposes to take)
with respect thereto. Borrower shall update such reasons and proposed
course of action upon Lender's request from time to time.
6.06 -- Payment of Taxes. Borrower shall pay and discharge all
taxes, assessments, and governmental charges upon it, its income, and its
properties before the date on which penalties attach thereto, except to the
extent being contested diligently and in good faith by appropriate
proceedings, and provided that Borrower maintains reasonable reserves on its
books therefor.
6.07 -- Maintenance of Insurance. In addition to the requirements
imposed on Borrower with respect to insurance in the Security Agreement,
Borrower shall maintain insurance with responsible insurance companies on such
of its properties, in such amounts, and against such risks as is customarily
maintained by prudent businesses operating a similar field, but in any event to
include loss, damage, windstorm, fire, theft, extended coverage, and product
liability insurance in amounts satisfactory to Lender, which insurance shall
not be cancelled or reduced by Borrower unless with the prior written consent
of Lender, or by Borrower's insurer unless with at least 30 days' advance
written notice to Lender thereof. Borrower shall file with Lender upon its
request a detailed list of such insurance then in effect stating the names of
the insurance companies, the amounts and rates of insurance, the date of
expiration thereof, the properties and risks covered thereby, and the
insured(s) with respect thereto, and, within 30 days after notice in writing
from Lender obtain such additional insurance as Lender may reasonably request.
6.08 -- Maintenance of Property and Management. Borrower shall
maintain its property in good working condition and its management reasonably
satisfactory to Lender.
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6.09 -- Lease Status Reports. Borrower shall, monthly, within 30
days of the end of each month, furnish to Lender a current schedule of the
Leases which shall include, with respect to each Lease: (a) the name of the
Lessee, (b) the amount and aging of the monthly payment(s) due under the Lease,
(c) the total of the remaining lease payments, and (d) any then-existing
default(s).
6.10 -- Notice of Lease Default. Promptly, upon its obtaining
knowledge thereof, Borrower will notify Lender orally, confirmed promptly in
writing, of the occurrence of any default under any Lease, except that any
default in making scheduled rental payments shall be sufficiently disclosed if
reflected in the following monthly report under Section 6.09.
6.11 -- Verification of Lease. If a Default exists, Lender may, at
any time in its sole discretion, contact any or all Lessees in order to verify
the validity and status of the Leases. Upon Lender's request from time to
time, Borrower shall deliver to Lender a current list of addresses and
telephone numbers of all Lessees.
7. CONDITIONS PRECEDENT
7.01 -- Conditions to Purchase of Initial Note. Lender's obligation
to purchase the initial Note on the first Funding Date is subject to the
satisfaction (or Lender's waiver) of the following conditions precedent and
Lender's receipt on or before such initial Funding Date of the following, in
form and substance satisfactory to Lender:
(a) a certificate of Borrower's secretary, dated on or before
the Funding Date, certifying attached copies of the resolutions of
Borrower's board of directors evidencing approval of the transactions
contemplated by the Basic Documents to which it is (or is to become) a
party, and showing the names and specimen signature(s) (or copies
thereof) of Borrower's officer(s) authorized to sign this Agreement
and the related documents to which it is (or is to become) a party,
(b) an executed Security Agreement,
(c) an opinion from Borrower's counsel, substantially in
the form of Exhibit C, and
(d) an executed UCC-l financing statement, covering all the
Collateral generally, executed by Borrower as debtor in favor of
Lender as secured party.
7.02 -- Conditions to Purchase of All Notes. Lender's obligation to
purchase each Note (including the initial Note) is subject to the additional
conditions precedent that:
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<PAGE> 17
(a) Lender shall have received the following, each dated as
of the pertinent Funding Date, in form and substance satisfactory to
Lender:
(1) the Note for the related Lease,
(2) an executed Supplement for that Lease,
(3) the original chattel paper counterpart of that
Lease, with a certificate of an officer of Borrower
certifying that it is the only chattel paper counterpart of
that Lease, that there are no amendments, modifications,
waivers, or consents pertaining to that Lease (other than
those, if any, attached to that certificate), and that to
Borrower's knowledge, no Lease Default exists and no Event of
Loss has occurred to any equipment included in the related
Equipment Portion,
(4) a certificate of insurance describing in
reasonable detail the insurance maintained with respect to the
Equipment Portion(s) pertaining to that Funding Date, and
(5) such additional opinion(s) and other
document(s) as Lender reasonably requests;
(b) Borrower's representations and warranties in the Basic
Documents shall be true and accurate as though made on and as of such
Funding Date;
(c) no Default shall exist or shall result from Lender's
purchase of such Note;
(d) all filings, recordings, and other actions necessary to
establish, protect, preserve, and perfect Lender's interests under
the Security Agreement (including assignments in favor of Lender, of
filings by each Lessee in favor of Borrower, under each Lease then
being financed) shall have been duly made or taken;
(e) all necessary consents, approvals, licenses, permits,
declarations, or registrations then required in connection with the
execution, delivery, performance, validity, and enforceability of the
Basic Documents and the transactions contemplated thereby shall have
been obtained;
(f) Lender shall have received evidence satisfactory to it
that Borrower has good title to each Equipment Portion under each
Lease then being financed, free of any Lien other than the Lien of
this Agreement and any Permitted Lien not of record;
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(g) in Lender's reasonable judgment, since December 31, 1995,
no materially adverse change shall have occurred to Borrower's
business, financial condition, or operations;
(h) no Regulatory Change shall have occurred since December
31, 1995 that, in Lender's judgment, imposes or modifies any reserve,
special deposit, minimum capital, capital ratio, or similar
requirements relating to any extensions of credit or other assets of
or any deposits with or other liabilities of Lender or any of its
affiliates, or the manner in which Lender or any of its affiliates
funds (or allocates funds, on its books, for) investments in any of
the Notes; and
(i) the lease proposed to be funded by that Note is
satisfactory to Lender in its sole discretion (and Borrower agrees
that Lender has the right not to advance against any particular
lease).
8. EVENTS OF DEFAULT; REMEDIES
8.01 -- Events of Default. Each of the following shall constitute
an "Event of Default":
(a) Borrower fails to make any payment due from Borrower on
any Note (excluding, for avoidance of doubt, any payment for which
Lender's recourse is limited to the Collateral) or under any other
Basic Document within five days after it becomes due;
(b) any representation or warranty made by Borrower in the
Basic Documents, or in any certificate or other document that it
furnishes pursuant to the Basic Documents, is incorrect in any
material respect when made;
(c) Borrower fails to maintain any insurance required of it
by the terms of the Security Agreement;
(d) Borrower fails to provide Lender with the Officer's
Certificate required by Section 6.01(c) or 6.05(b) within two
Business Days after any of Borrower's officers obtains notice of a
Default or the ERISA related event or circumstance occurs,
respectively;
(e) Borrower fails to perform any other covenant or agreement
in the Basic Documents, and (if remediable) such failure to perform
continues for 30 days after Borrower's receipt of notice of such
default from Lender;
(f) Borrower (1) applies for or consents to the appointment
of, or the taking of possession by, a receiver, custodian, trustee, or
liquidator of itself or of all or a majority of its property, (2)
makes a general assignment for
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the benefit of its creditors, (3) commences a voluntary case under the
federal Bankruptcy Code (as now or hereafter in effect), (4) files a
petition seeking to take advantage (as debtor) of any other law
relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts, or (5) fails to controvert in a
timely manner, or acquiesces in writing to, any petition filed against
it in an involuntary case under the federal Bankruptcy Code;
(g) a proceeding or case is commenced, without Borrower's
application or consent, in any court of competent jurisdiction,
seeking (1) its liquidation, reorganization, dissolution, or
winding-up, or the composition or readjustment of its debts, (2) the
appointment of a trustee, receiver, custodian, liquidator, or the like
of Borrower or of all or a majority of its assets, or (3) similar
relief in respect of Borrower under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment
of debts, and such proceeding or case continues undismissed, or an
order, judgment, or decree approving or ordering any of the foregoing
is entered and continues unstayed and in effect, for a period of 60
days; or an order for relief against Borrower is entered in an
involuntary case under the federal Bankruptcy Code;
(h) loan, lease, or deferred purchase obligations of Borrower
to any Person other than Lender or any affiliate of Lender's and
totaling more than $250,000, or to Lender or any affiliate of Lender's
in any amount, are in default after the expiration of any applicable
grace period, if the effect of such default is to permit such
obligations to be accelerated or otherwise declared to be due and
payable prior to their stated maturity, or Borrower defaults in the
payment when due of more than $250,000 of loan, lease, or deferred
purchase obligations to any Person other than Lender or any affiliate
of Lender's, or any amount of such obligations to Lender or any
affiliate of Lender's;
(i) one or more judgment(s) is/are rendered by one or more
court(s) of competent jurisdiction against Borrower for a total of
more than $100,000 and is/are not stayed or discharged, or fully
bonded against, within 30 days of the date of entry; or
(j) any "Reportable Event" under ERISA shall have occurred,
or any finding or determination shall be made with respect to an
employee benefit plan to which Borrower is a party under Section
4041(c) or (e) of ERISA, or any fact or circumstance shall occur with
respect to an employee benefit plan to which Borrower is a party,
that, in Lender's opinion, provides grounds for the commencement of
any proceeding under Section 4042 of ERISA, or any proceeding shall
be commenced under Section
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4042 of ERISA with respect to an employee benefit plan to which
Borrower is a party.
(k) any event of the types described in clauses f, g, h, i,
and j occurs with respect to Guarantor, or Guarantor repudiates,
denies liability under, or defaults under the Guarantee, or the
Guarantee for any reason fails or ceases to be an enforceable
agreement of Guarantor's.
8.02 -- Remedies. If an Event of Default (other than under
Section 8.01 (f) or (g)) exists, Lender may declare all Notes to be immediately
due and payable, whereupon all Notes shall become and be immediately due and
payable without presentment, demand, protest, or other notice of any kind, all
of which Borrower hereby waives, and the Commitment shall terminate; provided,
however, Borrower shall not be required to make payment on any Note beyond the
amount which is recourse to Borrower. If an Event of Default under Section
8.01(f) or (g) occurs, all Notes automatically shall become immediately due and
payable and the Commitment automatically shall immediately terminate, without
presentment, demand, protest, or notice of any kind, all of which Borrower
hereby waives; provided, however, Borrower shall not be required to make
payment on any Note beyond the amount which is recourse to Borrower.
9. BORROWER'S INDEMNITIES
9.01 -- Indemnity. Borrower assumes liability for, and agrees to
indemnify each Indemnitee against, and on written demand to pay, or to
reimburse each Indemnitee for the payment of, any and all Liabilities.
"Liabilities" means any and all liabilities, obligations, losses,
damages, taxes, penalties, claims, and expenses, including legal fees and
expenses, of whatsoever kind and nature imposed on, incurred by, or asserted
against any Indemnitee relating to or arising out of any Lease, any Equipment
Portion, any Basic Document, or the enforcement against Borrower of any of the
terms of the Basic Documents.
However, this Section 9.01 shall not require Borrower to pay or
indemnify any Indemnitee under this section (i) for any Liability to the
extent resulting from such Indemnitee's acts of gross negligence or willful
misconduct; (ii) for any cost or expense relating to the preparation,
execution, delivery, or enforcement of the Basic Documents (Borrower's duties
in respect of such costs and expenses being set forth in Section 10.03); (iii)
for any Liability that such Indemnitee incurs to the extent resulting from such
Indemnitee's breach of any of its representations, warranties, or covenants in
any Basic Document, or from its disturbance of any Permitted Lessee's rights
under any Lease (except to the extent permitted by that Lease); or (iv) for
any Liability with respect to transfer
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taxes or other expenses payable with respect to the transfer of any Note, other
than a transfer after the occurrence of an Event of Default.
If any Indemnitee becomes aware of any claim or liability required to
be indemnified against under this Section 9.01, such Indemnitee shall promptly
notify Borrower, but the failure to do so shall not relieve Borrower from any
liability that it otherwise would have to such Indemnitee under this section
except to the extent that such failure (x) materially adversely affects
Borrower's defense rights or (y) increases Borrower's liability. Upon an
Indemnitee's request, the defense of any Liability for which Borrower would be
required to indemnify such Indemnitee hereunder shall be conducted by
Borrower, with counsel selected by Borrower and reasonably satisfactory to
Lender. However, if the defense of any such Liability is conducted by Lender,
Lender shall select the counsel to conduct it, but shall consult with Borrower
as to such selection; provided, that the decision as to which counsel to select
shall be and remain Lender's.
Borrower shall be obligated under this Section 9.01 irrespective of
whether the Indemnitee is also indemnified with respect to the same matter
under any other Basic Document or other document by any other Person, and the
Indemnitee may proceed directly against Borrower under this Section 9.01
without first resorting to any such rights of indemnification. Upon the
payment in full of any indemnities due and owing under this Section 9.01,
Borrower shall be subrogated to any right of the Indemnitee in respect of the
matter against which indemnity has been given. Borrower's indemnities in this
section shall survive expiration or termination of the Security Agreement and
payment in full of the Notes.
Any payment or indemnity pursuant to this Section 9.01 shall include
the amount, if any, necessary, to hold the Indemnitee harmless on an after-tax
basis from all taxes required to be paid by such recipient with respect to such
payment or indemnity under laws of any federal, state, or local government or
taxing authority in the United States or by any foreign government or any
political subdivision or taxing authority thereof. The amount of any payment
or indemnity required under this section shall be determined by the Indemnitee
reasonably and in good faith, and that determination shall be conclusive. Upon
Borrower's request and at Borrower's expense, the Indemnitee will provide
Borrower with a summary explanation of the basis for the Indemnitee's
computations.
10. MISCELLANEOUS
10.01 -- No Waivers: Cumulative Remedies. No failure or delay in
exercising any power or right under any Basic Document shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power preclude other or further
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<PAGE> 22
exercise thereof or the exercise of any other right or power under any Basic
Document. No notice to or demand on any party in any case shall, of itself,
entitle such party to any other or further notice or demand in similar or other
circumstances.
10.02 -- Notices. All communications and notices provided for under
this Agreement shall be in writing (including telecopy), shall be in English,
and shall be mailed by certified mail (return receipt requested) or otherwise
delivered to the parties at the following addresses:
if to Lender: NationsBanc Leasing Corporation
2300 Northlake Centre Drive
Tucker, Georgia 30084
Attention: Jack S. Rives
Fax: (770) 270-8441
if to Borrower: MLC Group, Inc.
11150 Sunset Hills Road, Suite 110
Reston, Virginia 22090
Attention: Kleyton Parkhurst
Fax: (770) 834-5718
or, as to each party, at such other address as it designates by notice to each
other party. Each such notice shall be effective upon delivery.
10.03 -- Transaction Expenses. Borrower will pay on demand all
out-of-pocket expenses reasonably incurred in connection with the preparation,
execution, delivery, administration, and enforcement of the Basic Documents,
or in connection with any scheduled closing that is postponed or canceled,
including (i) all fees and expenses of Troutman Sanders LLP, special counsel to
Lender; (ii) all UCC filing and lien search fees; (iii) all fees and expenses
(including legal fees and expenses) of Lender in connection with actual or
proposed amendments, waivers, or consents to or under this Agreement or the
other Basic Documents; and (iv) all fees and expenses (including legal fees and
expenses) of Lender in connection with the actual or proposed enforcement of
any Basic Document against Borrower during the existence of any Default.
10.04 -- Amendments. Any provision of the Basic Documents may be
amended, terminated, waived, or otherwise modified only in writing by Borrower
and Lender.
10.05 -- Successors and Assigns. This Agreement shall bind and
benefit Lender and Borrower and their successors and assigns, except that
Borrower may not assign or transfer its rights under this Agreement without
Lender's prior written consent. Lender may at any time sell, assign, grant
participation(s) in, or otherwise transfer any Note and Lender's rights
relating to such Note, in whole or in part.
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10.06 -- Governing Law. This Agreement shall be governed by the
laws of Georgia (excluding any conflict-of-laws rule that would apply the
laws of any other jurisdiction).
10.07 -- Headings. Section headings used in this Agreement are for
convenience only and are not a substantive part of this Agreement.
10.08 -- Execution in Counterparts. This Agreement may be executed
in separate counterparts.
10.09 -- Survival. All representations, warranties, and covenants in
this Agreement or made in writing in connection with this Agreement shall
survive the execution and delivery of this Agreement and the Security
Agreement, and shall continue until all Notes have been fully and finally paid,
all Borrower's other obligations to Lender under this Agreement or the Security
Agreement have been fully and finally discharged, and Lender has terminated
this Agreement in writing.
10.10 -- Severability. If any part of any provision contained in
this Agreement, or any document contemplated hereby, is or becomes invalid or
unenforceable under applicable law, that part shall be ineffective to the
extent of such invalidity only, without in any way affecting the remaining
parts of that provision or the remaining provisions.
10.11 -- Further Assurances. Borrower shall duly execute and deliver
(or cause to be duly executed and delivered) any instrument, invoice, document,
waiver, consent, or other writing that Lender deems necessary or appropriate to
carry out the terms of this Agreement or any of the other Basic Documents.
10.12 -- Commercial Transactions . Borrower hereby acknowledges that
its obligations hereunder arise out of a "commercial transaction" (as defined
in O.C.G.A. Section 44-14-260(1), concerning foreclosure of interests in
personal property), and agrees that after any Event of Default, Lender shall
have the right to an immediate writ of possession without notice or hearing.
BORROWER KNOWINGLY AND INTELLIGENTLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO
ANY NOTICE OR POSTING OF A BOND BY LENDER PRIOR TO SEIZURE BY LENDER (OR
LENDER'S TRANSFEREES, ASSIGNS, OR SUCCESSORS IN INTEREST) OF THE COLLATERAL OR
ANY PORTION THEREOF. This is intended by Borrower as a "waiver" as defined in
O.C.G.A. Section 44-14-260(3) (relating to foreclosure of interests in personal
property).
10.13 -- Time is of the Essence. Time is of the essence of this
Agreement.
10.14 -- Entire Agreement. This Agreement and the Security Agreement
(and, when executed and delivered, each Note and Supplement) shall embody the
entire agreement and understanding
20
<PAGE> 24
between the parties hereto and supersede all prior agreements and
understandings relating to the subject matter hereof.
10.15 -- Consent to Jurisdiction. BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT SITTING
IN ATLANTA, GEORGIA, in any action or proceeding arising out of or relating to
this Agreement or any of the other documents or agreements described or
contemplated herein, and Borrower hereby irrevocably agrees that all claims in
respect of such action or proceeding may be heard and determined in any such
United States federal or state court. Service of copies of the summons on
Borrower in any such action or proceeding may be made by mailing or delivering
a copy of such process to Borrower in accordance with Section 10.02.
10.16 -- Waiver of Trial by Jury. BORROWER AND LENDER EACH WAIVE ALL
RIGHTS TO A TRIAL BY JURY in any action or proceeding relating to transactions
arising out of or relating to this Agreement or any of the other documents
described or contemplated herein.
21
<PAGE> 25
IN WITNESS WHEREOF, Borrower and Lender have executed this Credit
Agreement.
[Seal] MLC Group, Inc.
Attest:
/s/ KLEYTON L. PARKHURST By: /s/ BRUCE M. BOWEN
SECRETARY --------------------------------
- ---------------------------------- BRUCE M. BOWEN
Secretary Title: PRESIDENT
-----------------------------
NATIONSBANC LEASING CORPORATION
By: /s/ JACK RIVES
--------------------------------
Title: Vice President
-----------------------------
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries
MLC Group, Inc., a Commonwealth of Virginia corporation, a wholly owned
subsidiary
MLC Capital, Inc., a Virginia corporation, a wholly owned subsidiary
MLC/GATX Leasing Corporation, a Colorado corporation, a 50% owned subsidiary
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of MLC Holdings, Inc.
on Form S-1 of our report, dated September 1, 1996, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/
Deloitte & Touche LLP
Washington, D.C.
September 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1997
<PERIOD-END> MAR-31-1996 JUN-30-1996
<CASH> 357,881 445,981
<SECURITIES> 0 0
<RECEIVABLES> 1,364,564 3,008,255
<ALLOWANCES> 0 0
<INVENTORY> 86,280 67,267
<CURRENT-ASSETS> 0 0
<PP&E> 415,138 419,182
<DEPRECIATION> (134,670) (153,583)
<TOTAL-ASSETS> 29,836,215 27,521,420
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 40,000 40,000
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 29,836,215 27,521,420
<SALES> 34,841,823 10,412,026
<TOTAL-REVENUES> 42,800,201 12,895,952
<CGS> 31,202,228 9,894,315
<TOTAL-COSTS> 40,308,792 12,096,753
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 2,491,409 799,199
<INCOME-TAX> 881,000 245,000
<INCOME-CONTINUING> 1,610,409 554,199
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,610,409 554,199
<EPS-PRIMARY> 0.40 0.14
<EPS-DILUTED> 0.40 0.14
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONSENT TO ELECT AS DIRECTOR
OF
MLC HOLDINGS, INC.
I, Jonathan J. Ledecky, hereby consent to my election as Director of
MLC Holdings, Inc. effective upon the closing of its initial public offering.
I further consent to the inclusion in the company's registration statement on
Form S-1 of my name as a future director of the company.
/s/ JONATHAN J. LEDECKY
- --------------------------- ------------------------------
Date JONATHAN J. LEDECKY
<PAGE> 1
EXHIBIT 99.2
CONSENT TO ELECT AS DIRECTOR
OF
MLC HOLDINGS, INC.
I, Terrence O'Donnell, hereby consent to my election as Director of
MLC Holdings, Inc. effective upon the closing of its initial public offering.
I further consent to the inclusion in the company's registration statement on
Form S-1 of my name as a future director of the company.
/s/ TERRENCE O'DONNELL
- --------------------------- ------------------------------
Date TERRENCE O'DONNELL
<PAGE> 1
EXHIBIT 99.3
CONSENT TO ELECT AS DIRECTOR
OF
MLC HOLDINGS, INC.
I, Carl J. Rickersten, hereby consent to my election as Director of
MLC Holdings, Inc. effective upon the closing of its initial public offering.
I further consent to the inclusion in the company's registration statement on
Form S-1 of my name as a future director of the company.
/s/ CARL J. RICKERSTEN
- --------------------------- ------------------------------
Date CARL J. RICKERSTEN
