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FORM 10-K/A#1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-28926
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MLC Holdings, Inc.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 54-1817218
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
11150 Sunset Hills Rd., Suite 110, Reston, VA 20190-5321
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(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code (703) 834-5710
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.01 par value Nasdaq National Market
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Company, computed by reference to the price at which the stock was sold as of
June 18, 1997 was $14,689,530.
The number of shares of Common Stock outstanding as of June 18, 1997, was
5,150,000.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 was an
executive officer, director or significant employee as of June 30, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION CLASS
- ---- --- -------- -----
<S> <C> <C> <C>
Phillip G. Norton**....... 53 Chairman of the Board,
President, and Chief
Executive Officer III
Thomas B. Howard, Jr...... 50 Vice President; Executive
Vice President, and Chief
Operating Officer of MLC Group
Bruce M. Bowen ........... 45 Director and Executive Vice
President III
Steven J. Mencarini ...... 41 Senior Vice President,
and Chief Financial Officer
Jonathan J. Ledecky....... 39 Director I
Terrence O'Donnell........ 52 Director II
Carl J. Rickertsen........ 37 Director II
Kleyton L. Parkhurst...... 34 Secretary and Treasurer
Barbara J. Simmonds....... 37 Vice President and Controller
Kevin M. Norton**......... 41 Vice President of Brokerage
Operations
William J. Slaton......... 49 Vice President of Marketing
Thomas K. McNamara........ 52 Vice President
</TABLE>
**All references to a Mr. Norton contained herein refer to Mr. Phillip G.
Norton unless otherwise indicated.
The name and business experience during the past five years of each
director, executive officer and key employee of the Company are described
below.
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Phillip G. Norton joined the Company in March, 1993 and has served
since then as its Chairman of the Board and Chief Executive Officer. Since
September 1, 1996, Mr. Norton has served as President of the Company. From
October, 1990 through March, 1993, Mr. Norton was an investor and devoted the
majority of his time to managing his personal investments. From October, 1992
to March, 1993, Mr. Norton served as a consultant to the Company and engaged in
private investment activity. 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 and Executive Vice President of the Company, and from September 1,
1996 to June 18, 1997, he served as Chief Financial Officer. 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.
Thomas B. Howard, Jr. joined the Company in January of 1997 as Vice
President and Chief Operating Officer. Prior to joining the Company, Mr.
Howard was President of Allstate Leasing, Inc., a third party lessor, from 1995
to January, 1997. Mr. Howard has spent over 20 years in the banking industry,
having served as President of Signet Leasing and a Senior Vice President of
Signet Bank. As President of Signet Leasing, Mr. Howard directed all of the
capital equipment financing and leasing products for commercial, federal and
municipal accounts at the leasing Company. He oversaw a staff of 60 people
and effectively led the Company's growth from approximately $25 million in
assets to approximately $650 million in assets in nine years, while
maintaining loan loss ratios which were less than industry standards. Mr.
Howard trained and motivated sales teams which greatly increased business
volumes and led the leasing division through three major reorganizations in
five years, and to increased profitability each year. Mr. Howard began his
career at Signet in 1975 as an Assistant Vice President at Union Trust Bancorp,
one of its predecessor banks, and is a Certified Public Accountant in the State
of Maryland. Mr. Howard is a 1970 graduate of the University of Maryland and
received an MBA in Finance from Loyola College of Maryland.
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Steven J. Mencarini joined the Company in June of 1997 as Senior Vice
President and Chief Financial Officer. Prior to joining the Company, Mr.
Mencarini was Controller of the Technology Management Group of Computer
Sciences Corporation, a New York Stock Exchange company and one of the nation's
three largest information technology outsourcing organizations. At CSC, Mr.
Mencarini supervised 72 people and was responsible for all financial and tax
reporting, financial review of MIS systems, financial planning and approval for
a $150 million capital annual budget, tax research, sales and personal property
tax, asset management of owned and leased equipment, and the review and
analysis of proposed work for outsourcing contracts which included costing,
pricing, residual analysis, lease financing, and equipment liquidation. Mr.
Mencarini joined CSC in 1991 as Director of Finance and was promoted to
Controller in 1996. Prior to working at CSC, Mr. Mencarini was the Vice
President-Finance of PacifiCorp Capital from 1981 to 1991, and was Senior
Auditor at Deloitte & Touche from 1979 to 1981. Mr. Mencarini is a 1976
graduate of the University of Maryland and has a Masters of Taxation from
American University.
Jonathan J. Ledecky joined the Company's Board of Directors upon the
completion of the Company's Offering. Mr. Ledecky is the founder of U.S.
Office Products Company, a Nasdaq National Market Company, and has 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., an
investment management firm, 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, an investment management firm,
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 joined the Company's Board of Directors upon the
completion of the Company's 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 which
manufactures and markets a broad range of animal health products used in
poultry production and pet care. IGI also markets cosmetics, consumer products
and human pharmaceuticals. 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.
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Carl J. Rickertsen joined the Company's Board of Directors upon the
completion of the Company's Offering. Mr. Rickertsen is a partner in Thayer
Capital Partners, a $364 million institutional private equity fund based in
Washington, D.C. Mr. Rickertsen has been with Thayer Capital Partners since
September 1994. Prior to his tenure at Thayer Capital Partners, Mr. Rickertsen
acted as a private financial consultant from 1993 through 1994 and was a
partner of Hancock Park Associates, a private equity investment firm, from 1989
through 1993. Prior to that, Mr. Rickertsen was associated with Brentwood
Associates from 1987 through 1989 and was a Financial Analyst with Morgan
Stanley & Co., Incorporated from 1983 through 1985. Mr. Rickertsen 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, 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. In 1989, Mr.
McNamara co-founded and was responsible for sales at
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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.
Each officer of the Company is chosen by the Board of Directors and
holds his or her office until his or her successor shall have been duly chosen
and qualified or until his or her death or until he or she shall resign or be
removed as provided by the By-Laws.
There are no material proceedings to which any director, officer or
affiliate of the Company, any owner of record or beneficially of more than five
percent of any class of voting securities of the Company, or any associate of
any such director, officer, affiliate of the Company or security holder is a
party adverse to the Company or any of its subsidiaries or has a material
interest adverse to the Company or any of its subsidiaries.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The audit committee of the Board of Directors (the
"Audit Committee") is 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 Terrence O'Donnell and Carl
J. Rickertsen.
Compensation Committee. The compensation committee of the Board of
Directors (the "Compensation Committee") is 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 Terrence O'Donnell,
Jonathan J. Ledecky and Carl J. Rickertsen. 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. Since compensation for Mr. Norton and Mr. Bowen was established
prior to the Company's initial public offering in November, 1996, the
compensation committee did not meet during the fiscal year ending March 31,
1997.
Stock Incentive Committee. The stock incentive committee of the Board
of Directors (the "Stock Incentive Committee") is authorized to awards stock,
and various stock options and rights and other stock based compensation grants
under the Company's Master Stock Incentive Plan (formerly the 1996 Stock
Incentive Plan prior to an amendment and restatement effective May 14, 1997
which has been adopted by the Board of Directors but which is subject to
stockholder ratification) and its component plans, which include the Amended
and Restated Incentive Stock Option Plan (formerly the 1996 Incentive Stock
Option Plan prior to an amendment and restatement effective May 14, 1997 which
has been adopted by the Board of Directors but which is subject to
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stockholder ratification), the Amended and Restated Outside Director Stock
Option Plan (formerly the 1996 Outside Director Stock Option Plan prior to an
amendment and restatement effective May 14, 1997 which has been adopted by the
Board of Directors but which is subject to stockholder ratification), the
Amended and Restated Nonqualified Stock Option Plan (formerly the 1996
Nonqualified Stock Option Plan prior to an amendment and restatement effective
May 14, 1997 which has been adopted by the Board of Directors but which is
subject to stockholder ratification), and the Employee Stock Purchase Plan
(approved by the Board of Directors but which is not effective until
stockholder ratification). See "Item 11, Executive Compensation -- 1996 Stock
Incentive Plan." The members of the Stock Incentive Committee presently are
Phillip G. Norton and Bruce M. Bowen. Except for options granted to Mr.
Norton and Mr. Bowen under the employment agreements described in this report,
formula plan grants to the outside directors, under the Amended and Restated
Outside Director Stock Option Plan (subject to stockholder approval of
amendments, including the May 14, 1997 amendment and restatement) 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.
The Company has no nominating committee or any committee serving a
similar function.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership of equity
securities of the Company with the Securities and Exchange Commission ("SEC").
Officers, directors, and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
that they file.
Based solely upon a review of Forms 3 and Forms 4 furnished to the
Company pursuant to Rule 16a-3 under the Exchange Act during its most recent
fiscal year and Forms 5 with respect to its most recent fiscal year, the
Company believes that all such forms required to be filed pursuant to Section
16(a) of the Exchange Act were timely filed, as necessary, by the officers,
directors, and security holders required to file the same during the fiscal
year ended March 31, 1997, except that Forms 3 were filed late by Thomas B.
Howard and Steven J. Mencarini.
ITEM 11. EXECUTIVE COMPENSATION
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, 1997. Certain columns have been omitted from this summary compensation
table as they are not applicable.
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<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------
Other
Bonus/ Annual All Other
Name and Principal Position Year Salary Commission Compensation Compensation
--------------------------- ---- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Phillip G. Norton 1997 $67,265 $ $348 $90,000(1)
Chairman, Chief Executive 1996 984 -- -- 120,000(1)
Officer and President 1995 376 -- -- --
Bruce M. Bowen 1997 130,000 10,000 12,729(2)(3) --
Director, Chief Financial 1996 120,000 40,000 13,206(2)(3) 1,000(4)
Officer, Executive Vice 1995 120,000 16,000 11,500(2)(3) 1,000(4)
President
Kevin M. Norton 1997 30,000(5) 249,015 1,500(2) --
Vice President of 1996 -- 347,023 3,087(2) --
Brokerage Operations 1995 -- 348,944 1,068(2) --
Kleyton L. Parkhurst 1997 40,000(5) 117,567 1,500(2) --
Secretary and Treasurer 1996 -- 169,352 1,356(2) --
1995 -- 237,153 1,500(2) --
Thomas K. McNamara 1997 42,000 351,781 -- 1,109
Vice President 1996 42,000 98,257 3,234(2) --
1995 42,000 335,699 1,500(2) --
Thomas B. Howard, Jr. 1997 27,083(6) 20,000 -- --
Executive Vice President, 1996 N/A N/A N/A N/A
Chief Operating Officer 1995 N/A N/A N/A N/A
</TABLE>
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(1) Represents guarantee fees paid to Mr. Norton's spouse, Patricia
Norton. See "Item 13, Certain Relationships and Related Transactions
-- Guarantee Fees."
(2) Employer 401(k) plan match.
(3) Includes $11,229 in fiscal year 1997 and $10,000 in fiscal years 1996
and 1995, respectively, of interest paid on loans by Mr. Bowen to the
Company; the balance represents employer 401(k) plan match amounts.
(4) Represents the personal use of the Company's country club membership.
(5) Until December 1, 1996 Kevin M. Norton and Kleyton L. Parkhurst were
paid on a commission basis and thereafter, pursuant to their
employment agreements, received base salaries plus bonus. See
"--Compensation Arrangements and Employment Agreements".
(6) Mr. Howard commenced employment in January 1997. See "--Compensation
Arrangements and Employment Agreements".
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to
options granted during the last fiscal year to the Named Executive Officers in
the above Summary Compensation Table.
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<TABLE>
<CAPTION>
Potential Realizable Value at
Percent of Assumed Annual Rates of Stock Price
Number of Total Appreciation for Option
Securities Options/SARS Term (6)
Underlying Granted to Exercise or --------
Options/SARS Employees in Base Price Expiration
Name Granted (#) Fiscal Year(5) ($/Sh) Date 5% ($) 10% ($)
---- ----------- -------------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Phillip G. Norton 130,000(1) 36.7% $8.75 11/19/2006 715,390 1,812,850
Bruce M. Bowen 15,000(1) 4.2% $8.75 11/19/2006 82,545 209,175
Kevin M. Norton ---- --- --- --- --- ---
Kleyton L. Parkhurst 100,000(2) 28.3% $6.40 11/19/2006 785,300 1,629,500
Thomas K. McNamara 5,000(3) 1.4% $8.75 11/19/2006 27,515 69,725
5,000(4) 1.4% $10.75 01/07/2007 17,515 59,725
Thomas B. Howard --- --- --- --- --- ---
</TABLE>
- ----------------------
(1) The options were granted to Mr. Norton and Mr. Bowen on November 20,
1996 concurrent with closing of the Company's initial public offering
with an exercise price equal to the initial public offering price.
These options are nonqualified options and were not issued as part of
the Company's Stock Incentive Plan. They become exercisable in four
annual increments beginning on the date of the initial public offering.
(2) The options were granted to Mr. Parkhurst on September 1, 1996 under
an employment agreement. These options are nonqualified options and
were not issued as part of the Company's Stock Incentive Plan. They
become exercisable in four annual increments beginning on the date of
the initial public offering.
(3) The options were granted to Mr. McNamara on November 20, 1996 under
the 1996 Incentive Stock Option Plan, a component plan of the
Company's Stock Incentive Program. These options become exercisable
in four increments beginning one year after grant. See Note 11 of
the Company's financial statements appearing elsewhere in the Annual
Report on Form 10-K for further discussion of the Company's Stock
Incentive Plan.
(4) The options were granted to Mr. McNamara on January 7, 1997 under the
1996 Incentive Stock Option Plan, a component plan of the Company's
Stock Incentive Program. These options become exercisable in four
installments beginning one year after grant. See Note 11 of the
Company's financial statements appearing elsewhere in the Annual
Report on Form 10-K for further discussion of the Company's Stock
Incentive Plan.
(5) Based on options to purchase an aggregate of 353,800 shares granted
during fiscal 1997 to certain employees of the Company.
(6) Potential realizable value is calculated based on an assumption that
the price of the Company's Common Stock will appreciate at the assumed
annual rates shown (5% and 10%), compounded annually, from the date of
grant of the option until the end of the option term (10 years). The
5% and 10% assumed rates of appreciation are required by the rules of
the SEC and do not represent the Company's estimate of future market
prices of the Common Stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth certain information with respect to
options exercised during the Company's fiscal year ended March 31, 1997 by the
Named Executive Officers in the Summary Compensation Table, and with respect to
unexercised options held by such persons at the end of fiscal year 1997.
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<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised in the
Acquired On Value Underlying Unexercised Money Options/SARs at
Name Exercise (#) Realized $ Options/SARS at FY-End (#) FY-End ($)(1)
---- ------------ ---------- -------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Philip G. Norton --- --- 32,500 97,500 105,625 316,875
Bruce M. Bowen --- --- 3,750 11,250 12,188 36,562
Kevin M. Norton --- --- --- --- --- ---
Kleyton L. Parkhurst --- --- 25,000 75,000 140,000 420,000
Thomas K. McNamara --- --- --- 10,000 --- 22,500
Thomas B. Howard, Jr. --- --- --- --- --- ---
</TABLE>
- -------------
(1) Based on a closing bid price of $12.00 per share as of the close of
business on March 31, 1997
Director Compensation. Directors who are also employees of the
Company do not currently receive any compensation nor other services as
members of the Board of Directors. Prior to May 14, 1997, the outside
directors were paid $500 per meeting. On May 14, 1997, the Board of Directors
adopted a revised outside director compensation program which provides for
each outside directors to receive a $10,000 annual retainer, and $500 for each
special committee meeting. The $500 fee for regular Board meetings was
terminated. All directors will be reimbursed for their out-of-pocket expenses
incurred to attend board or committee meetings. The Company has adopted the
Amended and Restated Outside Director Stock Option Plan (formerly the 1996
Outside Director Stock Option Plan prior to an amendment and restatement
effective May 14, 1997 which has been adopted by the Board of Directors but
which is subject to stockholder ratification), which provides for the award
and exercise of certain options to nonemployee directors on a formula basis
based upon length of service. In November 1996, under the 1996 Outside
Director Stock Option Plan, the Company granted options to its nonemployee
directors to purchase an aggregate of 30,000 shares of Common Stock at an
exercise price equal to $8.75 per share, 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 Amended and Restated Outside Director Stock Option Plan made the options
granted in November, 1996 immediately exercisable (subject to stockholder
ratification) and also provides for the grant of options for 10,000 shares of
common stock to each nonemployee director on the anniversary of each year of
service as a director at an exercise price equal to the market price as of the
date of grant, with each option being subject to a one-year vesting
requirement. See "Item 11, Executive Compensation -- 1996 Stock Incentive
Plan" for a description of option grants to nonemployee directors.
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, with Thomas B. Howard, Jr. effective as of April 1, 1997 and with Steven
J. Mencarini effective as of June 19, 1997. 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,
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the employee began to receive, commencing with the first day of the first
calendar month after closing the Offering (November 20, 1996), an annual base
salary ($200,000 in the case of Phillip G. Norton; $150,000 in the case of
Bruce M. Bowen; $120,000 in the case of Kleyton L. Parkhurst and William J.
Slaton; $125,000 in the case of Thomas B. Howard, Jr. and Steven J. Mencarini)
and are eligible for commissions or performance bonuses. The performance bonus
for Phillip G. Norton for each fiscal year is 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 is 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, William J. Slaton, Thomas B.
Howard, Jr. and Steven J. Mencarini are paid based upon performance criteria
established by Phillip G. Norton and Bruce M. Bowen, not to exceed $80,000 each
per fiscal year as to Kleyton L. Parkhurst and William Slaton and not to exceed
$100,000 for Thomas B. Howard, Jr. and not to exceed $25,000 for Steven J.
Mencarini. 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 receives 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, Slaton, Howard and Mencarini 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 are 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 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 $8.75
per share. These options have a ten year term, and became exercisable and
vested 25% on November 20, 1996, and the balance will be exercisable and vest
in 25% increments over three years on November 20, 1997, November 27, 1998, and
November 20, 1999, respectively, subject to acceleration upon certain
conditions. The Company had paid 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 and First Union Facilities. This fee was terminated when these
credit facilities were terminated and the guarantee released. See "Item 13,
Certain Relationships and Related 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 $8.75 per share.
These options have a ten year term, and became exercisable and vested 25% on
November 20, 1996, and the balance will be exercisable and vest in 25%
increments over three years on November 20, 1997, November 27, 1998, and
10
<PAGE> 12
November 20, 1999, respectively, 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 became exercisable
and vested 25% on November 20, 1996, and the balance will become exercisable
and vest in 25% increments over three years on November 20, 1997, November 20,
1998, and November 20, 1999, respectively, subject to acceleration upon certain
conditions.
In connection with his employment, Thomas B. Howard, Jr. was granted
incentive stock options to acquire 30,000 shares of Common Stock at a price
equal to $11.00 per share. See "Item 11, Executive Compensation -- Master
Stock Incentive Plan." These options have a ten year term, and will be
exercisable and vest 20% at the end of each year of service over five years,
and are subject to acceleration upon certain conditions.
In connection with his employment, Steven J. Mencarini was granted
incentive stock options to acquire 16,200 shares of Common Stock at a price
equal to $12.75 per share. See "Item 11, Executive Compensation -- Master
Stock Incentive Plan." These options have a ten year term, and will be
exercisable and vest 20% at the end of each year of service over five years,
and are 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.
Master Stock Incentive Plan. The Company has established a stock
incentive program (the "Master Stock Incentive Plan")(formerly the 1996 Stock
Incentive Plan prior to amendment and restatement effective May 14, 1997 which
has been adopted by the Board of Directors but which is subject to stockholder
ratification) 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 Master 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 under a series of component plans. These component plans include
tax advantaged incentive stock options for employees under the Incentive Stock
Option Plan (formerly the 1996 Incentive Stock Option Plan prior to amendment
and restatement effective May 14, 1997 which is subject to stockholder
ratification ), formula length of service based nonqualified options to
nonemployee directors under the Outside Director Stock Plan (formerly the 1996
Outside Director Stock Option Plan prior to amendment and restatement effective
May 14, 1997 subject to stockholder ratification), nonqualified stock options
under the Nonqualified Stock Option Plan
11
<PAGE> 13
(formerly the 1996 Nonqualified Stock Option Plan prior to amendment and
restatement effective May 14, 1997 subject to stockholder ratification), a
program for employee purchase of Common Stock of the Company at 85% of fair
market value under a tax advantaged Employee Stock Purchase Plan (approved by
the Board of Directors but which is not effective until stockholder
ratification), as well as other restrictive stock and performance based stock
awards and programs which may be established by the Board of Directors. The
Company anticipates that the above described amendments and restatements and
the Employee Stock Purchase Plan (collectively the May 14, 1997 Amendments")
which require stockholder ratification will be submitted for stockholder
approval at the next annual meeting of the Company. Prior to the May 14, 1997
Amendments which are subject to stockholder ratification, the Company had
reserved a total of 155,000 shares of Common Stock for issuance upon exercise
of options under: (i) the 1996 Incentive Stock Option Plan (under which
options for an aggregate of 58,800 shares were granted on November 20, 1996,
options for an aggregate of 15,000 shares were granted on January 8, 1997,
options for 30,000 were granted to Thomas B. Howard, Jr. on April 25, 1997, and
options for 16,200 shares were granted to Steven J. Mencarini on June 19,
1997); (ii) the 1996 Outside Director Stock Plan (under which options for an
aggregate of 75,000 shares of Common Stock were reserved for grant under a
formula plan based upon length of service, which reserved number was reduced to
30,000 shares which were transferred to the Incentive Stock Option Plan by the
Board of Directors on May 14, 1997, subject to stockholder approval of the
amendment and restatement of that plan and under which options for 30,000
shares of Common Stock were granted on November 20, 1996); and (iii) the 1996
Nonqualified Stock Option Plan (under which options for an aggregate of 5,000
shares of Common Stock were granted on January 8, 1997). The May 14, 1997
Amendments increase the aggregate number of shares reserved for grant under all
plans which are a part of the Master Stock Incentive Plan to a floating number
equal to 20% of the issued and outstanding stock of the Company (after giving
effect to pro forma assumed exercise of all outstanding options and purchase
rights). The number that may be subject to options granted under the Incentive
Stock Option Plan is also further capped at a maximum of 4,000,000 shares to
comply with IRS requirements for a specified maximum. As of June 30, 1997,
based on 5,150,000 shares outstanding and 400,000 shares of Common Stock for
which options have been granted, this 20% number would be 1,110,000 shares.
The Stock Incentive Plan is administered by the Stock Incentive
Committee, which is 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 is also 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 is eligible to participate in future grants of
options in the Stock Incentive Plan.
Incentive stock options issued under the 1996 Incentive Stock Option
Plan are designed to comply with the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and are subject to restrictions contained in the
Code, including a requirement that exercise prices be equal to
12
<PAGE> 14
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.
Nonqualified stock options issued under the 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 Outside Director Stock Option Plan, each of the three
nonemployee directors were granted options, on November 20, 1996, to purchase
an aggregate of 30,000 shares of Common Stock, which, as amended, became
immediately exercisable in May 1997. The Outside Director Stock Option Plan
also provides for the grant of options for 10,000 shares to each nonemployee
director (30,000 annually in the aggregate) on each anniversary of service, at
an exercise price equal to the market price as of the date of grant, with each
option being exercisable on the first anniversary of grant.
In May 1997, the Board of Directors adopted a resolution to approve an
Employee Stock Purchase Plan, subject to shareholder vote and ratification.
Under the plan, employees will be eligible to purchase up to $2,500 of stock
each calendar quarter, subject to a $10,000 annual maximum, by committing to
the number of shares desired at the beginning of each plan period and
purchasing the shares at the end of the plan period at a price equal to 85% of
the lesser of (a) the Fair Market Value of a share of Common Stock on the first
day of the calendar quarter or (b) the Fair Market Value of a share of Stock on
the last day of the calendar quarter.
Compensation Committee Interlocks and Insider Participation. For the
year ended March 31, 1997, all decisions regarding executive compensation were
made by the Compensation Committee when applicable or by Mr. Norton 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 "Item 13,
Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of July 18,
1997, regarding the beneficial ownership of the Common Stock, 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.
13
<PAGE> 15
<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Name and Address of Beneficial Owner Number Percent
------------------------------------ ------ -------
<S> <C> <C>
Phillip G. Norton(2) 2,825,500 53.2%
1019 Basil Road
McLean, Virginia 22101
Bruce M. and Elizabeth D. Bowen(3) 763,750 14.4%
10895 Lake Windermere Drive
Great Falls, Virginia 22066
William J. Slaton 400,000 7.5%
1850 Maple Glen
Sacramento, California 95864
Kevin M. Norton(4) 376,500 7.1%
5920 Royal Palm
Plano, Texas 75093
Patrick J. Norton(4) 376,500 7.1%
705 Brookfield Road
Raleigh, North Carolina 27615
Kleyton L. Parkhurst(5) 68,000 1.3%
605 Abbott Lane
Falls Church, Virginia 22046
Jonathan J. Ledecky 10,000 *
1400 34th Street, N.W.
Washington, D.C. 20007
Thomas K. McNamara 10,000 *
420 Weldon Drive
Westchester, PA 19380
Thomas B. Howard, Jr. -0- *
11565 Embers Court
Reston, VA 20191
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Name and Address of Beneficial Owner Number Percent
------------------------------------ ------ -------
<S> <C> <C>
Terrence O'Donnell 10,000 *
5133 Yuma Street, N.W.
Washington, D.C. 20016
Carl J. Rickertsen 10,000 *
4016 Linnean Avenue, N.W.
Washington, D.C. 20008
Barbara J. Simmonds 1,880 *
3053 N. Peary Street
Arlington, VA 22207
Laifer Capital Management(6) 474,000 9.2%
114 West 47th Street
New York, NY 10036
All directors and named officers as a group
4,119,130 77.6%
</TABLE>
- ----------------------------------
*less than 1%
- ------------
(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 report 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 report have been exercised.
(2) 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 of J.A.P., Inc.
and Phillip G. Norton is the sole 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 "Item 12, Security Ownership of Certain
Beneficial Owners and Management -- Irrevocable 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 vested upon
completion of the Offering and which are immediately exercisable and
excludes 97,500 options to acquire shares of Common Stock which are
not vested and not immediately exercisable. See "Item 12, Security
Ownership of Certain Beneficial Owners and Management -- Irrevocable
Proxy and Stock Rights Agreement" and "Item 11, Executive Compensation
-- Compensation Arrangements and Employment Agreements."
15
<PAGE> 17
(3) 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 and excludes 11,250 options to acquire Common Stock which are
not vested and not immediately exercisable. See "Item 11, Executive
Compensation -- Compensation Arrangements and Employment Agreements."
(4) 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 "Item 12, Security Ownership of Certain Beneficial
Owners and Management -- Irrevocable Proxy and Stock Rights
Agreement."
(5) Includes 13,000 shares held by Kleyton L. Parkhurst, 30,000 shares
held by three minor children of Kleyton L. Parkhurst, Charlotte A.
Parkhurst, Madeline M. Parkhurst, and Kleyton L. Parkhurst, Jr., all
of which are voted by Kleyton L. Parkhurst, Custodian, under the
Virginia Uniform Gift to Minors Act and 25,000 shares of Common Stock
that Kleyton L. Parkhurst has option rights to acquire, and excludes
75,000 options to acquire Common Stock which are not vested and not
immediately exercisable. See "Item 11, Executive Compensation --
Compensation Arrangements and Employment Agreements."
(6) On May 28, 1997, a Schedule 13D was filed by Laifer Capital
Management, Inc. According to the filing, Laifer Capital Management,
Inc. is the beneficial owner of 474,000 shares, or 9.2%. The 474,000
shares of Common Stock beneficially owned by Laifer Capital
Management, Inc. includes: (i) 267,500 shares of Common Stock
beneficially owned by Laifer Capital Management, Inc. in its capacity
as General Partner and investment advisor to Hilltop Partners, L.P.;
and (ii) 206,500 shares of Common Stock beneficially owned by Laifer
Capital Management, Inc. in its capacity as investment advisor to
various other clients. These clients include: (a) various Wolfson
family entities ("Wolfson"), with an address at One State Street
Plaza, New York, New York 10004-1505, and (b) Hilltop Offshore
Limited, a Cayman Islands company, with an address c/o Consolidated
Fund Management Limited, P.O. Box HM 2257, Par La Ville Place, 14 Par
La Ville Road, Hamilton HMJX, Bermuda (collectively, the "Clients").
Lance Laifer, as president, sole director and principal stockholder of
Laifer Capital Management, Inc., is deemed to have the same beneficial
ownership as Laifer Capital Management, Inc.
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 in the event of his death or mental incapacity, then to Patricia A.
Norton, if then living, or upon the sale or transfer to a third party of the
shares of Common Stock subject thereto 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, or if sold for less, for a period of three years from November
20, 1996 (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.
16
<PAGE> 18
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GUARANTEES OF NATIONSBANK FACILITY
Through December 1996, the NationsBank Facility was guaranteed by
Phillip G. Norton, Patricia A. Norton, Bruce M. Bowen, Elizabeth D. Bowen,
William J. Slaton, Margaret Newton, Kevin M. Norton, Brianna Norton and Patrick
J. Norton. In addition, this line was secured by a pledge of approximately
$1.5 million of cash collateral pledged by Phillip G. Norton and his spouse
Patricia A. Norton. See "Item 1, Business -- Financing." The Company
terminated the NationsBank Facility on December 31, 1996, at which time all
stockholders' personal guarantees were removed and collateral pledges released.
GUARANTEES OF FIRST UNION FACILITY
Through June 10, 1997, the First Union Facility was 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, the facility was secured by
cash and securities having a value of approximately $1.2 million, 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 "Item
1, Business -- Financing." Upon termination of the line on June 10, 1997, all
stockholders' personal guarantees were removed and collateral pledges released.
GUARANTEES OF NATIONSBANC LEASING FACILITY
Through January 31, 1997, the NationsBanc Leasing Facility was
guaranteed by Phillip G. Norton and Bruce M. Bowen. See "Item 1, Business --
Financing." The Company terminated the Facility, at which time all
stockholders' personal guarantees were removed.
STOCKHOLDER LOANS
During November 1996, the Company repaid a total of $275,000 in
outstanding borrowings from stockholders ($175,000 from Bruce M. Bowen and
$100,000 from William J. Slaton) with a portion of proceeds received from the
Offering. Each of these loans was evidenced by a promissory note dated March
1, 1995, bearing interest at the rate of 10% per annum, and due March 1, 1998.
The Company paid $17,500 and $10,000 in interest for fiscal year 1996, and
$11,229 and $6,417 in interest for fiscal year 1997 to Messrs. Bowen and
Slaton, respectively.
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
17
<PAGE> 19
expiration or other termination of the lease. The Company recognized revenue
for such transactions of approximately $1.3 million for the year ended March
31, 1996, and the basis of the equipment sold was approximately $1.6 million.
During the year ended March 31, 1997, the Company received remarketing fees
from New Energy in the amount of $224,126. 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 relates are slated to expire
in 1999. The Company does not intend to enter into any further lease sale
transactions with New Energy.
MLC FEDERAL OBLIGATIONS
Marcella A. Dilworth and Donna O'Hear, sister-in-law of Phillip G.
Norton, two of the Company's employees, own 51% and 49%, respectively, of MLC
Federal, Inc., a woman-owned small business which was purchased from the
Company in 1992. The Company and MLC Federal have entered into a Servicing
Agreement which sets forth cost and profit sharing and reimbursement for
transactions which are jointly originated, serviced, or financed by MLC
Federal and/or the Company. The Company expects to continue this relationship
to originate various federal government contracts and financing arrangements.
In July, 1997, Marcella Dilworth gave notice of her resignation from the
Company but may continue to work with the Company as an outside contractor.
As of March 31, 1996 and 1997, $152,606 and $72,000, respectively, was
receivable from MLC Federal, the payment of which is unlikely. As of March 31,
1997, the Company fully reserved for the receivable from MLC Federal.
GUARANTEE FEES
From April 1, 1995 through December 31, 1996, the Company paid a total
of $210,000 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.
ADVANCES AND LOANS TO EMPLOYEES AND STOCKHOLDERS
The Company has, in the past, provided loans and advances to employees
and certain stockholders. Such balances are to be repaid from commissions
earned by the employees/stockholders on successful sales or financing
arrangements obtained on behalf of the Company. Loans and advances totaled
$47,812, $76,349, and $14,353 as of March 31, 1997, 1996, and 1995,
respectively. The aggregate amount of these advances equals $12,193, $139,500
and $61,583 for years ended March 31, 1997, 1996 and 1995, respectively.
Amounts of $53,941, $82,612 and $80,505 were repaid during the years ended
March 31, 1997, 1996 and 1995, respectively.
18
<PAGE> 20
LOANS TO STOCKHOLDERS
In 1994, the Company loaned $40,000 to Kevin M. Norton, an officer and
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 $74,115 to William J. Slaton, an officer
and 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 and
interest of $3,193 and principal payments of $14,507 during fiscal year 1997.
The Company's loan to Patrick J. Norton had balances of $31,101 and $45,608 as
of the end of March 31, 1997 and 1996, respectively.
BROKERAGE FEE
During the year ended March 31, 1997, the Company recognized $250,000
in income from broker fees for providing advisory services to a company which
is owned in part by Carl J. Rickertsen, one of the Company's outside directors.
INDEMNIFICATION AGREEMENTS
The Company has entered 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 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 be
taken 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 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
19
<PAGE> 21
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.
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 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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MLC Holdings, Inc.
By: /s/ PHILLIP G. NORTON
------------------------------------
Phillip G. Norton, Chairman of the Board,
President and Chief Executive Officer
Date: July 29, 1997
By: /s/ STEVEN J. MENCARINI
------------------------------------
Steven J. Mencarini, Senior Vice President and
Chief Financial Officer
Date: July 29, 1997
By: /s/ BRUCE M. BOWEN
------------------------------------
Bruce M. Bowen, Director and
Executive Vice-President
Date: July 29, 1997
20
<PAGE> 22
By:
-------------------------------------
Jonathan J. Ledecky, Director
Date: July__, 1997
By:
-------------------------------------
Terrence O'Donnell, Director
Date: July__, 1997
By: /s/ CARL J. RICKERTSEN
-------------------------------------
Carl J. Rickertsen, Director
Date: July 29, 1997
By: /s/ Kleyton L. Parkhurst
-------------------------------------
Kleyton L. Parkhurst, Secretary and
Treasurer
Date: July 29, 1997
By: /s/ BARBARA J. SIMMONDS
-------------------------------------
Barbara J. Simmonds, Vice President and
Controller
Date: July 29, 1997
21
