<PAGE> 1
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission File Number 0-28926
MLC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1817218
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11150 Sunset Hills Road, Suite 110, Reston, VA
20190-5321 (Address of principal executive offices) (Zip Code)
(703) 834-5710
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Registrant's common stock outstanding September 30, 1997
was 6,071,305.
<PAGE> 2
2
MLC HOLDINGS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
September 30, 1997 (Unaudited) and March
31, 1997 (Unaudited) 3
Condensed Consolidated Statements of Earnings,
Three month periods ended September 30, 1997
(Unaudited) and 1996 (Unaudited) 4
Condensed Consolidated Statements of Earnings, Six
month periods ended September 30, 1997 (Unaudited)
and 1996 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows,
Six month periods ended September 30, 1997
(Unaudited) and 1996 (Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II. Other Information:
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
</TABLE>
<PAGE> 3
3
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,839,310 $ 6,654,209
Accounts receivable 13,031,809 8,846,426
Notes receivable 4,446,931 2,154,250
Employee advances 95,918 70,612
Inventories 1,625,496 1,253,694
Investment in direct financing and
sales-type leases - net 18,590,416 17,473,069
Investment in operating lease
equipment - net 8,799,124 11,065,159
Property and equipment - net 1,029,857 765,194
Other assets 1,858,340 740,925
----------- -----------
TOTAL ASSETS $57,317,201 $49,023,538
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable - equipment $ 6,766,488 $ 4,946,422
Accounts payable - trade 4,237,264 2,152,841
Salaries and commissions payable 335,361 671,899
Accrued expenses and other
liabilities 3,779,240 2,256,884
Income taxes payable ----- 930,587
Recourse notes payable 4,763,664 1,293,100
Nonrecourse notes payable 16,134,240 19,705,060
Deferred taxes 590,000 590,000
----------- -----------
Total liabilities 36,606,257 32,546,793
----------- -----------
COMMITMENTS AND CONTINGENCIES ----- -----
Stockholder's 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;
6,071,305 and 5,909,976 shares
issued and outstanding at September
30, 1997 and March 31, 1997,
respectively 60,713 59,100
Additional paid-in capital 11,356,710 9,346,214
Retained earnings 9,293,521 7,071,431
----------- -----------
Total stockholders' equity 20,710,944 16,476,745
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $57,317,201 $49,023,538
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
4
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
REVENUES:
Sales of equipment $10,360,696 $11,188,472
Sales of leased equipment 12,046,271 3,472,413
----------- -----------
Total sales 22,406,967 14,660,885
Lease revenues 3,378,087 2,119,145
Fee and other income 1,468,285 1,244,776
----------- -----------
Total other revenue 4,846,372 3,363,921
----------- -----------
TOTAL REVENUES 27,253,339 18,024,806
----------- -----------
COSTS AND EXPENSES:
Cost of sales of equipment 8,104,931 9,472,187
Cost of sales of leased equipment 11,667,934 3,340,522
----------- -----------
Total cost of sales 19,772,865 12,812,709
Direct lease costs 1,622,521 915,955
Professional and other fees 244,612 91,655
Salaries and benefits 2,399,029 1,883,871
General and administrative expenses 986,677 707,373
Interest and financing costs 509,480 406,792
Non-recurring acquisition costs 183,453 -----
----------- -----------
Total expenses 5,945,772 4,005,646
----------- -----------
TOTAL COSTS AND EXPENSES 25,718,637 16,818,355
----------- -----------
EARNINGS BEFORE INCOME TAXES 1,534,702 1,206,451
Provision for income taxes 411,820 322,000
----------- -----------
NET EARNINGS $ 1,122,882 $ 884,451
=========== ===========
NET EARNINGS PER COMMON SHARE $ 0.19 $ 0.19
=========== ===========
PRO FORMA NET EARNINGS (See Note 4) $ 974,536 $ 776,338
=========== ===========
PRO FORMA NET EARNINGS PER COMMON SHARE $ 0.16 $ 0.16
=========== ===========
WEIGHTED AVERAGE COMMON SHARES 6,069,551 4,754,390
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
5
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
REVENUES:
Sales of equipment $25,493,028 $22,343,509
Sales of leased equipment 32,186,511 9,707,396
----------- -----------
Total sales 57,679,539 32,050,905
Lease revenues 7,218,351 3,910,603
Fee and other income 2,819,166 2,263,282
----------- -----------
Total other revenue 10,037,517 6,173,885
----------- -----------
TOTAL REVENUES 67,717,056 38,224,790
----------- -----------
COSTS AND EXPENSES:
Cost of sales of equipment 20,085,389 18,764,709
Cost of sales of leased equipment 31,579,951 9,590,999
----------- -----------
Total cost of sales 51,665,340 28,355,708
Direct lease costs 3,330,971 1,696,743
Professional and other fees 440,874 231,789
Salaries and benefits 4,784,885 3,647,597
General and administrative expenses 2,154,786 1,415,412
Interest and financing costs 975,264 793,867
Non-recurring acquisition costs 183,453
----------- -----------
Total expenses 11,870,233 7,785,408
----------- -----------
TOTAL COSTS AND EXPENSES 63,535,573 36,141,116
----------- -----------
EARNINGS BEFORE INCOME TAXES 4,181,483 2,083,674
Provision for income taxes 872,133 606,000
----------- -----------
NET EARNINGS $ 3,309,350 $ 1,477,674
=========== ===========
NET EARNINGS PER COMMON SHARE $ 0.55 $ 0.31
=========== ===========
PRO FORMA NET EARNINGS (See Note 4) $ 2,696,089 $ 1,341,841
=========== ===========
PRO FORMA NET EARNINGS PER COMMON SHARE $ 0.45 $ 0.28
=========== ===========
WEIGHTED AVERAGE COMMON SHARES 5,990,200 4,754,390
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
6
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1997 1996
(UNAUDITED) (UNAUDITED)
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 3,309,350 $ 1,477,674
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation & amortization 2,328,955 1,111,827
Decrease in provision for credit losses (30,000) -----
Gain on sale of operating lease equipment (313,295) (44,172)
Adjustment of basis to fair market value
of early returned operating lease
equipment 231,000 299,403
Payments from lessees directly to lenders (992,838) (794,668)
Gain on disposal of property and equipment ----- (8,740)
Deferred taxes ----- 21,000
Compensation to outside directors-stock
options 12,109 -----
Changes in:
Accounts receivable (4,613,259) (3,167,299)
Notes receivable (2,292,681) (1,036,993)
Employee advances (25,806) (16,507)
Inventories (351,452) (757,017)
Other assets (429,216) 612,823
Accounts payable - equipment 1,820,066 6,985,881
Accounts payable - trade 1,435,326 (200,927)
Salaries & commissions payable (332,997) 87,365
Accrued expenses and other liabilities 1,328,335 239,807
Income taxes payable (940,100) 418,824
----------- ------------
Net cash provided by operating
activities $ 143,497 $ 5,228,281
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of operating lease
equipment $ 579,813 $ 1,290,311
Purchase of operating lease equipment (1,163,208) (10,653,298)
Increase in investment in direct financing and
sales-type leases (3,166,666) (3,515,521)
Proceeds from sale of property and equipment ----- 8,740
Purchase of property and equipment (327,366) (20,968)
(Increase)/decrease in other assets (223,671) 147,270
----------- ------------
Net cash used in investing
activities $(4,301,098) $(12,743,466)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings:
Nonrecourse $ 2,356,775 $ 12,998,838
Recourse 109,972 -----
Repayments:
Nonrecourse (2,246,963) (597,629)
Recourse (110,812) (761,046)
Borrowings (Repayments) on lines of credit 4,321,000 (1,139,195)
Proceeds from sale of stock 2,000,000 -----
Distributions to shareholders of combined
companies prior to business combination (1,087,270) (308,938)
----------- ------------
Net cash provided by financing
activities $ 5,342,702 $ 10,192,030
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 1,185,101 $ 2,676,845
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,654,209 651,149
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,839,310 $ 3,327,994
=========== ============
</TABLE>
(Continued on next page)
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7
MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued from previous page)
<TABLE>
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 206,266 $ 15,439
========== ========
Income taxes paid $1,812,233 $108,176
========== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 8
8
MLC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of March 31, 1997, the condensed
consolidated statements of earnings for the three and six month periods ended
September 30, 1996, and the condensed consolidated statement of cash flows for
the six month period ended September 30, 1996 have been restated to include the
accounts and results of operations of the Company's two newly acquired
subsidiaries which were accounted for under the pooling-of-interests method.
Although the balance sheets of the Company as of March 31, 1997 (prior to
re-statement) and of ECCI as of March 31, 1997 have been audited, the condensed
consolidated balance sheets as of September 30 and March 31, 1997, the condensed
consolidated statements of earnings for the three and six month periods ended
September 30, 1997 and 1996, and the condensed consolidated statements of cash
flows for the six months ended September 30, 1997 and 1996 have been prepared by
the Company, without audit.
The quarterly financial information is submitted in response to the requirements
of Form 10-Q and does not purport to be financial statements prepared in
accordance with generally accepted accounting principles. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. They therefore do not include all disclosures which might be associated
with such statements.
In the opinion of management, the accompanying unaudited financial statements
include all adjustments, consisting only of normal recurring accruals, necessary
to present fairly the Company's financial position at September 30 and March 31,
1997, the results of operations for the three and six month periods ending
September 30, 1997 and 1996, and the cash flows for the six month periods ended
September 30, 1997 and 1996. These condensed consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
for the year ended March 31, 1997 included in the Company's Annual Report on
Form 10-K (No. 0-28926).
2. INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES
The Company's investment in direct finance leases consists of the following
components:
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
-------- --------
(In thousands)
<S> <C> <C>
Minimum lease payments $ 17,493 $ 18,752
Estimated unguaranteed residual value 3,482 1,271
Initial direct costs - net of amortization 846 1,237
Less: Unearned lease income (3,195) (3,721)
Reserve for credit losses (36) (66)
-------- --------
Investment in direct financing lease and
sales-type lease - net $ 18,590 $ 17,473
======== ========
</TABLE>
<PAGE> 9
9
3. INVESTMENT IN OPERATING LEASE EQUIPMENT
The components of the net investment in operating lease equipment are as
follows:
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
-------- --------
(In thousands)
<S> <C> <C>
Cost of equipment under operating leases $ 13,771 $ 14,519
Initial direct costs 42 42
Accumulated depreciation and amortization (5,014) (3,496)
-------- --------
Investment in operating leases - net $ 8,799 $ 11,065
======== ========
</TABLE>
4. UNAUDITED PRO FORMA INCOME TAX INFORMATION
The following unaudited pro forma income tax information is presented in
accordance with Statement of Financial Accounting Standard No. 109, "Accounting
for Income Taxes," as if the pooled companies, which were subchapter S
corporations prior to their business combinations with the Company, had been
subject to federal income taxes throughout the periods presented.
<TABLE>
<CAPTION>
Three months ended Six months ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
-------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Net income before pro forma
adjustment, per the
consolidated income
statement $ 1,123 $ 884 $ 3,309 $ 1,478
Additional provision for
income taxes 148 108 613 136
-------------------------------------------------------------------
Pro forma net income $ 975 $ 776 $ 2,696 $ 1,342
===================================================================
</TABLE>
5. BUSINESS COMBINATIONS
On July 24, 1997, the Company, through a new wholly owned subsidiary, MLC
Network Solutions, Inc., issued 260,978 common shares, valued at $3,384,564, in
exchange for all outstanding common shares of Compuventures of Pitt County, Inc.
("Compuventures"), a value-added reseller of PC's and related network equipment
and software products and provides various support services to its customers
from facilities located in Greenville, Raleigh and Wilmington, North Carolina.
On September 29, 1997, the Company issued 498,998 common shares, valued at
$7,092,000, in exchange for all outstanding common shares of Educational
Computer Concepts, Inc. (dba "ECC Integrated")("ECCI"), a network systems
integrator and computer reseller serving customers in eastern Pennsylvania, New
Jersey and Delaware.
These business combinations have been accounted for as pooling-of-interests, and
accordingly, the consolidated financial statements for periods prior to the
combinations have been restated to include the accounts and results of
<PAGE> 10
10
operations of the pooled companies. The results of operations previously
reported by the Company and the pooled companies and the combined amounts
presented in the accompanying unaudited consolidated financial statements are
presented below.
<TABLE>
<CAPTION>
Three months ended Six months ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
-----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Revenues:
MLC Holdings, Inc. $ 18,210 $ 11,705 $ 44,975 $ 24,601
Pooled companies 9,043 6,320 22,742 13,624
-----------------------------------------------------------
Combined $ 27,253 $ 18,025 $ 67,717 $ 38,225
===========================================================
Net Income:
MLC Holdings, Inc. $ 658 $ 580 $ 1,582 $ 1,095
Pooled companies 465 304 1,727 383
-----------------------------------------------------------
Combined $ 1,123 $ 884 $ 3,309 $ 1,478
===========================================================
</TABLE>
6. NEW SUBSIDIARY
In September 1997, the Company established MLC Federal, Inc., a wholly owned
subsidiary of MLC Holdings, Inc. The new subsidiary will concentrate on the
origination of leases to federal, state, and local government entities.
7. PRIVATE PLACEMENT OF EQUITY
On July 1, 1997, the Company issued 161,329 shares of stock to a single investor
in a private placement for cash consideration of $2,000,000 (per share price at
$12.40). The stock was priced, per a Stock Purchase Agreement dated June 18,
1997, at a per share price equal to one-twentieth (1/20) of the sum of the
closing price per share of the Company's common stock as reported on the NASDAQ
National Market at the close of each of the last twenty business days
immediately prior to the closing date (June 4 to July 1), multiplied by (.95).
8. NEW ACCOUNTING PRONOUCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 125 ("SFAS
No. 125"), Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities as of January 1, 1997. SFAS No. 125 has changed
the manner in which the Company determines and recognizes the gain recorded upon
the transfer of its interest in finance contracts subsequent to December 31,
1996. Additionally, SFAS No. 125 requires the Company to record gains or losses
with respect to transfers of its interest in leases previously accounted for as
direct finance leases. SFAS No. 125 has also altered the presentation in the
Company's consolidated financial statements of revenues, expenses and certain
assets and liabilities associated with finance contracts sold. As a result,
certain aspects of the Company's financial statements as of September 30, 1997,
and for the three-month and six-month periods, may not be directly comparable to
the prior period financial statements.
9. SUBSEQUENT EVENT
On October 22, 1997, the Company formed MLC Leasing, S.A. de C.V., a wholly
owned subsidiary of MLC Group, Inc. and MLC Network Solutions, Inc., based in
Mexico City, Mexico. To date, no business has been conducted through the new
subsidiary.
<PAGE> 11
11
MLC HOLDINGS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations relate to the accompanying condensed consolidated balance
sheets, statements of earnings, and statements of cash flow, as restated to
include the accounts and results of operations of the Company's two newly
acquired subsidiaries which were accounted for under the pooling-of-interests
method. Although the condensed and consolidated balance sheets of the Company as
of March 31, 1997 (prior to re-statement) and of ECCI as of March 31, 1997 have
been audited, the condensed consolidated balance sheets as of September 30 and
March 31, 1997, as restated, the condensed consolidated statements of earnings
for the three and six month periods ended September 30, 1997 and 1996, as
restated, and the condensed consolidated statements of cash flows for the six
months ended September 30, 1997 and 1996, as restated, have been prepared by the
Company, without audit.
RESULTS OF OPERATIONS - Three and Six Months Ended September 30, 1997
(Unaudited) Compared to Three and Six Months Ended September 30, 1996
(Unaudited)
The following discussion and analysis of the Company's results of operations
should be read in conjunction with the accompanying unaudited condensed
consolidated statements of earnings for the three and six month periods ended
September 30, 1997 and 1996, as restated.
Total revenues generated by the Company during the three month period ended
September 30, 1997 were, $27,253,339, compared to revenues of $18,024,806 during
the comparable period in the prior year, an increase of 51.2%. During the six
month period ended September 30, total revenues were $67,717,056 and $38,224,790
in 1997 and 1996, respectively, an increase of 77.2%. The Company's revenues are
composed of sales and other revenue, and may vary considerably from period to
period (See "POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS" and Note 8
of the Notes to Condensed Consolidated Financial Statements).
Sales revenue, which includes sales of equipment and sales of leased equipment,
increased 52.8% to $22,406,967 during the three month period in 1997, as
compared to the corresponding 1996 period. For the six month period ended
September 30, 1997 sales increased 80.0% to $57,679,539 over the corresponding
period in the prior year. These increases are largely attributable to the 246.9%
and 231.6% increases (three month and six months, respectively) in sales of
leased equipment. Historically, the majority of sales of leased equipment have
been to one of the Company's two institutional equity partners. During the three
months ended September 30, 1997 and 1996 sales to MLC/CLC, LLC, an institutional
equity partner of the Company, accounted for 81.2% and 48.7% of sales of leased
equipment, respectively. During the six month periods ended September 30, sales
to MLC/CLC, LCC accounted for 86.1% and 66.9% of 1997 and 1996 sales of leased
equipment, respectively. Sales to these entities require the consent of the
relevant joint venture partner. While management expects the continued
availability of equity financing through these joint ventures, if such consent
is withheld, or financing from these entities otherwise becomes unavailable, it
could have a material adverse effect upon the Company's business, financial
condition and results of operations until other equity financing arrangements
are secured.
Sales of equipment, both new and used, are generated through the Company's
equipment brokerage and re-marketing activities, and through its newly acquired
valued added-reseller ("VAR") subsidiaries. For the three months ended September
30, equipment sales decreased slightly (7.4%) to $10,360,696, while for the
fiscal year to date through September 30, equipment sales increased 14.1% to
$25,493,028. The Company's brokerage and re-marketing activities accounted for
18.0% and 46.2% of equipment sales during the three month period in 1997 and
1996, respectively. During the six month periods
<PAGE> 12
12
ended September 30, 1997 and 1996, brokerage and re-marketing activities
generated 15.8% and 41.8% of equipment sales revenue, respectively. Brokerage
and re-marketing revenue can vary significantly from period to period, depending
on the volume and timing of transactions, and the availability of equipment for
sale. VAR sales accounted for the remaining portion of equipment sales.
The Company's lease revenues increased 59.4% to $3,378,087 for the three month
period ended September 30, 1997, compared with the corresponding period in 1996.
For the fiscal year to date through September 30, lease revenues increased 84.6%
to $7,218,351 for the 1997 period compared to the same period in 1996. These
increases reflect increased rental revenues due to a higher average investment
in operating lease equipment. In addition, lease revenue includes the gain or
loss on the sale of certain financial assets, as required under the provisions
of Financial Accounting Standard No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which was
required to be in effect as of January 1, 1997.
For the three and six months ended September 30, 1997, fee and other income
increased 18.0% and 24.6% over the comparable periods in the prior year. These
increases are attributable to increases in revenues from adjunct services and
fees, including support fees, warranty reimbursements, and learning center
revenues, generated by the Company's VAR subsidiaries.
The Company's cost of sales have increased approximately in proportion with the
increase in total revenues. In comparing the three and six month periods ended
September 30, 1997, cost of sales increased 54.3% and 82.2%, respectively, while
total revenues increased 51.2% and 77.2%, respectively, during the same periods.
The Company's direct lease costs increased 77.1% and 96.3% during the three and
six month periods ended September 30, 1997, as compared to the same periods in
the prior year. The largest component of direct lease costs is depreciation on
operating lease equipment. The increase in direct lease costs is consistent with
the Company's higher average investment in operating lease equipment for the
three and six month periods in 1997 as compared to the same periods in prior
year.
Professional and other fees incurred by the Company during the three and six
month periods ended September 30, 1997 were $244,612 and $440,874, reflecting
increases of 166.9% and 90.2% over the comparable periods in 1996, respectively.
These increases are attributable to increases in the volume of broker fees which
the Company pays on certain transactions, and the increased legal and
professional fees associated with the Company's securities being publicly
traded.
Salaries and benefits and general and administrative ("G&A") costs increased
27.4% and 39.5%, during the three month period in 1997 over the same period in
prior year. For the fiscal year to date through September 30, 1997, salaries and
G&A costs had increased 31.2% and 52.2% over the prior year, respectively. These
increases are the result of additional personnel and administrative costs
associated with the increased volume of leasing transactions the Company has
generated in comparison to the corresponding periods in the prior year.
Interest and financing costs incurred by the Company for the three and six
months ended September 30, 1997 amounted to $509,480 and $975,264, respectively,
and relate to interest costs on the Company's lines of credit and notes payable.
Interest costs on the majority of non-recourse and certain recourse notes are
typically remited directly to the lender by the leasee.
The Company recognized non-recurring acquisition costs of $183,453 during the
three months ended September 30, 1997 in conjunction with business combinations
accounted for under the pooling-of-interests method. These non-recurring
acquisition costs included accounting and legal fees, and various other
acquisition related costs. Generally accepted accounting principles require the
Company to expense all acquisition costs (both those paid by the Company and
those paid by the sellers of the acquired companies) related to business
combinations accounted for under the pooling-of-interests method. The
<PAGE> 13
13
Company expects to incur similar non-recurring costs in the future, as the
Company anticipates completing additional acquisitions accounted for under the
pooling-of-interests method.
The Company's provision for income taxes increased to $411,820 for the three
months ended September 30, 1997 from $322,000 for the three months ended
September 30, 1996, reflecting effective income tax rates of 26.8% and 26.7%,
respectively. For the six months ended September 30, 1997, the Company's
provision for income tax was $872,133, as compared to $606,000 during the
comparable period in prior year, reflecting effective income tax rates of 20.9%
and 29.1%, respectively. The low effective income tax rates, compared to the
federal statutory rate of 35.0%, was primarily due to the inclusion of the net
earnings of businesses acquired by the Company, which prior to their combination
with the Company had elected subchapter S corporation status, and as such were
not previously subject to federal income tax.
The foregoing resulted in a 27.0% and 124.0% increase in net earnings for the
three and six month periods ended September 30, 1997, respectively, as compared
to the same periods in prior year. Earnings per common share were $.19 for the
three months ended September 30, 1997 as well as the three months ended
September 30, 1996, based on weighted average common shares outstanding of
6,069,551 and 4,754,390, respectively. For the fiscal year to date through
September 30, the Company's earnings per share were $.55 in 1997, as compared to
$.31 in 1996, based on weighted average common shares outstanding of 5,990,200
and 4,754,390, respectively.
LIQUIDITY AND CAPITAL RESOURCES - September 30, 1997 (Unaudited) Compared to
March 31, 1997 (Unaudited)
During the six month period ended September 30, 1997, the Company generated cash
flows from operations of $143,497, and cash flows from financing activities of
$5,342,702. Cash used in investing activities amounted to $4,301,098 during the
same period. The net effect of these cash flows was to increase cash and cash
equivalents by $1,185,101 during the six month period. During the same period,
the Company's total assets increased $8,293,663, or 16.9%, primarily the result
of increases in accounts receivable arising from equipment purchased on behalf
of leasees but not yet placed under an equipment schedule, and notes receivable
arising from the equity sale of unfunded leases to MLC/CLC, LLC.
The financing necessary to support the Company's leasing activities has
principally been provided from nonrecourse and recourse borrowings.
Historically, the Company has obtained recourse and nonrecourse borrowings from
money centers, regional banks, insurance companies, finance companies and
financial intermediaries.
Prior to the permanent financing of its leases, interim financing has been
obtained through short-term, secured, recourse facilities. On June 5, 1997, the
Company entered into the CoreStates Facility, which is available through June 5,
1998, bears interest at LIBOR+110 basis points, or, at the Company's option,
Prime minus one percent. On September 5, 1997, the Company's CoreStates Facility
was increased to a maximum limit of $25 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. As of September 30, 1997, the Company
had an outstanding balance on the CoreStates Facility of $3.5 million. The
CoreStates facility is made to MLC Group, Inc., and guaranteed by MLC Holdings,
Inc.
The Company's newly acquired subsidiaries, MLC Network Solutions, Inc. and ECCI,
both have separate credit sources to finance their working capital
<PAGE> 14
14
requirements for inventories and accounts receivable, which the Company has
guaranteed. Their traditional business as value-added resellers of PC's and
related network equipment and software products is financed through agreements
known as "floor planning" financing where interest expense for the first thirty
days is charged to the supplier/distributor but not the reseller. These floor
plan liabilities are recorded under accounts payable as they are normally repaid
within the 30 day time frame as they represent an assigned accounts payable
originally generated with the supplier/distributor. If the 30 day obligation is
not timely liquidated, interest is then assessed at stated contractual rates. As
of September 30, 1997 MLC Network Solutions, Inc., has floor planning
availability of $1,400,000 through Deutsche Financial, Inc. and $300,000 from
IBM Credit Corporation. The outstanding balances to these respective suppliers
were $595,033 and $25,786 as of September 30, 1997. ECCI has floor planning
availability of $1,500,000 from AT&T Credit Corporation, $1,000,000 through IBM
Credit Corporation, and $100,000 through Deutsche Financial, Inc. The
outstanding balances to these respective suppliers were $522,713, $470,454 and
$6,048 as of September 30, 1997. ECCI additionally has a line of credit in
place, expiring on April 30, 1998, with PNC Bank, N.A. to provide an asset based
credit facility. The line has a maximum credit limit of $2,500,000 and interest
is based on the bank's prime rate. The outstanding balance was $931,000 as of
September 30, 1997.
In March 1997, the Company established the Heller Facility, a $10,000,000
partial recourse credit facility agreement, with Heller Financial, Inc., Vendor
Finance Division. Under the terms of the Heller Facility, a maximum amount of
$10 million is available to the Company, provided, that each draw is subject to
the approval of Heller. As of September 30, 1997, the principal balance due
under the Heller Facility was $941,187.
Through MLC/GATX Limited Partnership I and MLC/CLC, LLC, the Company has formal
joint venture agreements with two institutional investors which provide the
equity investment financing for certain of the Company's transactions. GATX, an
unaffiliated company which beneficially owns 90% of MLC/GATX Limited Partnership
I, is a publicly held company with stockholders' equity in excess of $774
million, as of December 31, 1996. Cargill Leasing Corporation, an unaffiliated
investor which owns 95% of MLC/CLC, LLC, is affiliated with Cargill, Inc., a
privately held business that was reported by Forbes Magazine to have 1995
earnings in excess of $900 Million. These joint ventures arrangements enable the
Company to invest in a significantly greater portfolio of business than its
limited capital base would otherwise allow. A significant portion of the
Company's revenue generated by the sale of leased equipment is attributable to
sales to either MLC/CLC, LLC or MLC/GATX Limited Partnership I (See "RESULTS OF
OPERATIONS").
The Company's debt financing activities typically provide approximately 80% to
100% of the purchase price of the equipment purchased by the Company for lease
to its customers. Any balance of the purchase price (the Company's equity
investment in the equipment) must generally be financed by cash flow from its
operations, the sale of the equipment lease to one of its institutional
partnerships with GATX or Cargill, or other internal means of financing.
Although the Company expects that the credit quality of its leases and its
residual return history will continue to allow it to obtain such financing, no
assurances can be given that such financing will be available, at acceptable
terms, or at all.
The Company anticipates that its current cash on hand, cash flow from operations
and additional financing available under the Company's credit facilities will be
sufficient to meet the Company's liquidity requirements for its operations
through the remainder of the fiscal year. However, the Company is currently, and
intends to continue, pursuing additional acquisitions, which are expected to be
funded through a combination of cash and the issuance by
<PAGE> 15
15
the Company of shares of its common stock. To the extent that the Company elects
to pursue acquisitions involving the payment of significant amounts of cash (to
fund the purchase price of such acquisitions and the repayment of assumed
indebtedness), the Company is likely to require additional sources of financing
to fund such non-operating cash needs.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's future quarterly operating results and the market price of its
stock 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 Company's 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 companies or major customers or vendors of the
Company.
The Company's quarterly results of operations are susceptible to fluctuations
for a number of reasons, including, without limitation, as a result of sales by
the Company of equipment it leases to its customers. Such sales of leased
equipment, which are an ordinary but not predictable part of the Company's
business, will have the effect of increasing revenues, and, to the extent sales
proceeds exceed net book value, net income, during the quarter in which the sale
occurs. Furthermore, any such sale may result in the reduction of revenue, and
net income, otherwise expected in subsequent quarters, as the Company will not
receive lease revenue from the sold equipment in those quarters.
In addition, the Company's business is subject to seasonal influences. As the
Company's mix of businesses evolves through future acquisitions, these seasonal
fluctuations may continue to change. Quarterly results also may be materially
affected by the timing of acquisitions, the timing and magnitude of costs
related to such acquisitions, variations in the prices paid by the Company for
the products it sells, the mix of products sold, general economic conditions,
and the retroactive restatement of the Company's consolidated financial
statements for acquisitions accounted for under the pooling-of-interests method.
Given the possibility of such fluctuations, the Company believes that
comparisons of the results of its operations to immediately succeeding quarters
are not necessarily meaningful and that such results for one quarter should not
be relied upon as an indication of future performance.
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations during first two quarters of fiscal 1998.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The future operating results of the Company may be affected by a number of
factors, including the matters discussed below:
The Company strategy depends upon acquisitions and organic growth to increase
its earnings. There can be no assurance that the Company will complete
acquisitions in a manner that coincides with the end of its fiscal quarters. The
failure to complete acquisitions on a timely basis could have a material adverse
effect on the Company's quarterly results. Likewise, delays in implementing
planned integration strategies and cross selling activities also could adversely
affect the Company's quarterly earnings.
In addition, there can be no assurance that acquisitions will occur at the
<PAGE> 16
16
same pace as in prior periods or be available to the Company on favorable terms,
if at all. If the Company is unable to use the Company's common stock as
consideration in acquisitions, for example, because it believes that the market
price of the common stock is too low or because the owners of potential
acquisition targets conclude that the market price of the Company's common stock
is too volatile, the Company would need to use cash to make acquisitions, and,
therefore, would be unable to negotiate acquisitions that it would account for
under the pooling-of-interests method of accounting (which is available only for
all-stock acquisitions). This might adversely affect the pace of the Company's
acquisition program and the impact of acquisitions on the Company's quarterly
results. In addition, the consolidation of the equipment leasing business has
reduced the number of companies available for sale, which could lead to higher
prices being paid for the acquisition of the remaining domestic, independent
companies. The failure to acquire additional businesses or to acquire such
businesses on favorable terms in accordance with the Company's growth strategy
could have a material adverse impact on future sales and profitability.
There can be no assurance that companies that have been acquired or that may be
acquired in the future will achieve sales and profitability levels that justify
the investment therein. Acquisitions may involve a number of special risks that
could have a material adverse effect on the Company's operations and financial
performance, including adverse short-term effects on the Company's reported
operating results; diversion of management's attention; difficulties with the
retention, hiring and training of key personnel; risks associated with
unanticipated problems or legal liabilities; and amortization of acquired
intangible assets.
The Company has increased the range of products and services it offers through
acquisitions of companies offering products and services that are complementary
to the core financing and equipment brokering services that the Company has
offered since it began operations. The Company's ability to manage an aggressive
consolidation program in markets other than domestic equipment financing has not
yet been fully tested. The Company's efforts to sell additional products and
services to existing customers are in their early stages and there can be no
assurance that such efforts will be successful. In addition, the Company expects
that certain of its products and services will not be easily cross-sold and may
be marketed and sold independently of other products and services.
The Company's acquisition strategy has resulted in a significant increase in
sales, employees, facilities and distribution systems. While the Company's
decentralized management strategy, together with operating efficiencies
resulting from the elimination of duplicative functions and economies of scale,
may present opportunities to reduce costs, such strategies may initially
necessitate costs and expenditures to expand operational and financial systems
and corporate management administration. The various costs and possible
cost-savings strategies may make historical operating results not indicative of
future performance. There can be no assurance that the Company's executive
management group can continue to oversee the Company and effectively implement
its operating or growth strategies in each of the markets that it serves. In
addition, there can be no assurance that the pace of the Company's acquisitions,
or the diversification of its business outside of its core leasing operations,
will not adversely affect the Company's efforts to implement its cost-savings
and integration strategies and to manage its acquisitions profitability.
The Company operates in a highly competitive environment. In the markets in
which it operates, the Company generally competes with a large number of
smaller, independent companies, many of which are well-established in their
markets. Several of its large competitors operate in many of its geographic
<PAGE> 17
17
and product markets, and other competitors may choose to enter the Company's
geographic and product markets in the future. No assurances can be give that
competition will not have an adverse effect on the Company's business.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The statements contained in this Report which are not historical facts may be
deemed to contain forward-looking statements with respect to events, the
occurrence of which involve risks and uncertainties, including, without
limitation, demand and competition for the Company's lease financing services
and the products to be leased by the Company, the continued availability to the
Company of adequate financing, the ability of the Company to recover its
investment in equipment through remarketing, the ability of the Company to
manage its growth, and other risks or uncertainties detailed in the Company's
Securities and Exchange Commission filings, including the Prospectus.
<PAGE> 18
18
MLC HOLDINGS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Under Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security-Holders
On September 30, 1997, the Company held its Annual Meeting of
Stockholders.
1. At the Annual Meeting, Jonathan J. Ledecky was elected to the
Board of Directors as a Class I director to hold office for three
years and until his successor has been duly elected and shall
qualify, with votes cast and withheld as follows:
For Withheld
------------------------
5,188,647 383,660
In addition, the Company's stockholders approved the following
proposals at the Annual Meeting, with votes for and against,
abstentions and broker non-votes as follows:
2. To approve and adopt an amendment to the Company's Certificate
of Incorporation to increase the number of shares of authorized
stock of the Company from 12 million shares (10 million shares of
common stock, par value $0.01, and 2 million preferred shares) to
27 million shares (25 million shares of common stock, par value
$0.01, and 2 million preferred shares).
For Against Abstain Broker Non-Votes
-------------------------------------------------------------
5,146,547 42,100 0 383,660
3. To approve amendments to the MLC Holdings, Inc. Master Stock
Incentive Plan (formerly the 1996 Stock Incentive Plan).
For Against Abstain Broker Non-Votes
-------------------------------------------------------------
4,311,931 0 0 1,260,376
4. To approve adoption of the MLC Holdings, Inc. Employee Stock
Purchase Plan (a component plan of the Master Stock Incentive
Plan).
For Against Abstain Broker Non-Votes
-------------------------------------------------------------
4,311,931 0 0 1,260,376
5. To approve amendments to the MLC Holdings, Inc. Amended and
Restated Outside Director Stock Plan (formerly the 1996 Outside
Director Stock Option Plan).
For Against Abstain Broker Non-Votes
-------------------------------------------------------------
4,310,631 1,300 0 1,260,376
<PAGE> 19
19
6. To approve amendments to the MLC Holdings, Inc. Amended and
Restated Incentive Stock Option Plan (formerly the 1996 Incentive
Stock Option Plan).
For Against Abstain Broker Non-Votes
-------------------------------------------------------------
4,310,631 1,300 0 1,260,376
7. To approve amendments to the MLC Holdings, Inc. Amended and
Restated Nonqualified Stock Option Plan (formerly the 1996
Nonqualified Stock Option Plan).
For Against Abstain Broker Non-Votes
-------------------------------------------------------------
4,310,631 1,300 0 1,260,376
8. To ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the Company's fiscal year ending
March 31, 1998.
For Against Abstain Broker Non-Votes
-------------------------------------------------------------
5,188,647 0 0 383,660
Item 5. Other Information.
Educational Computer Concepts, Inc. Acquisition
Effective September 29, 1997 (the "Closing Date"), MLC Holdings, Inc.
(the "Company") acquired Educational Computer Concepts, Inc. ("ECCI").
The acquisition was effected through the merger of MLC Acquisition
Corp. ("MAC"), a wholly-owned subsidiary of the Company, with and into
ECCI, pursuant to an Agreement and Plan of Merger dated September 29,
1997 (the "Merger Agreement") among the Company, MAC, ECCI and the
shareholders of ECCI (the "Shareholders"). ECCI is network systems
integrator and computer reseller which was founded in 1986.
In accordance with the Merger Agreement, consideration in the amount
of $7,092,000 was paid to the Shareholders in the form of 499,085
shares of the Company's common stock valued at $14.21 per share. The
per share value was based on the price of a share of the Company's
common stock, rounded to the nearest cent, which was the average
closing price for a share of the Company's common stock as reported on
the Nasdaq National Market over the 15 trading days immediately
preceding the Closing Date. Of the shares issued, 49,900 have been
deposited in escrow pursuant to an Escrow Agreement to fund
indemnification for any breach of representation and warranty or
non-fulfillment of or failure to perform any of the covenants,
agreements or undertakings of the Stockholders or ECCI.
The amount and nature of such consideration was based on arms-length
negotiations between the parties. There were no material relationships
between ECCI and any of the Shareholders and the Company or any of its
affiliates, any officers or directors of the Company or MAC or any
associate of any such director or officer prior to the occurrence or
consummation of the transactions reported herein.
On September 29, 1997, the Company entered into a three year
Employment Agreement with Vince Marino, the founder, President and a
principal shareholder of ECCI. The employment agreement provides that
the Company or its subsidiaries will employ Mr. Marino at a salary
commensurate with his positions and duties, and contains non-compete
and confidentiality provisions.
<PAGE> 20
20
The foregoing is only a summary of the terms of the Merger Agreement
and related transaction documents, and is subject to, and supplemented
and qualified by, the text of such agreement which is attached hereto
as Exhibit 2.2, and incorporated herein by this reference.
Amendment to CoreStates Credit Agreement
On September 5, 1997, MLC Group, Inc. ("MLC"), a wholly-owned
subsidiary of the Company, entered into Amendment No. 1 (the
"Amendment") dated September 5, 1997 to Credit Agreement (the "Credit
Agreement") dated June 5, 1997 between it and CoreStates Bank, N.A.
("CoreStates"). The Amendment increases the Loan Commitment from
$15,000,000 to $25,000,000 and increases the amount of Investment
Grade Paper which may qualify as Eligible Leases from $10,000,000 to
$15,000,000 (as such terms are defined in the Credit Agreement). In
connection with the Amendment, MLC made and delivered to CoreStates a
$25,000,000 note (the "Note") dated September 5, 1997 to replace the
$15,000,000 note existing under the Credit Agreement.
The foregoing is only a summary of certain terms of the Amendment and
is subject to, and supplemented and qualified by, the copy of the text
of the Amendment which is attached hereto as Exhibit 10.26 and
incorporated herein by this reference, and the copy of the text of the
Credit Agreement which is attached as Exhibit 10.18 to the Company's
annual report on Form 10-K for the fiscal year ended March 31, 1997
filed as of June 30, 1997 with the Securities and Exchange Commission
and incorporated herein by this reference.
Sprint Corporation Selection of MLC Group, Inc.
Subsequent to September 30, 1997, MLC Group, Inc. was notified of its
selection to continue and expand its asset management and PC/desktop
equipment leasing services to Sprint's domestic local and long
distance companies. MLC Group, Inc. has been providing such services
over the last fourteen months to a limited number of Sprint operating
companies, and this service period may continue for an additional
thirty six months. However, there are no guaranteed volumes under this
award.
<PAGE> 21
21
Item 6(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE NUMBER
- ----------- ------------------------------------------------------------------------- ---------------
<S> <C> <C>
2.2 Agreement and Plan of Merger dated September 29, 1997 by and among MLC
Holdings, Inc., MLC Acquisition Corp., Educational Computer Concepts,
Inc. and the Stockholders of Educational Computer Concepts, Inc.
3.1 Certificate of Incorporation of the Company, as amended
10.21 Material Contracts - MLC Master Stock Incentive Plan
10.22 Material Contracts - Amended and Restated Incentive Stock Option Plan
10.23 Material Contracts - Amended and Restated Outside Director Stock Option Plan
10.24 Material Contracts - Amended and Restated Nonqualified Stock Option Plan
10.25 Material Contracts - 1997 Employee Stock Purchase Plan
10.26 Amendment No. 1 dated September 5, 1997 to Credit Agreement dated June
5, 1997 between MLC Group, Inc. and CoreStates Bank, N.A.
27 Financial Data Schedule
</TABLE>
Item 6(b) Reports on Form 8-K
During the second fiscal quarter covered by this report, the Company
filed the following Current Reports on Form 8-K:
Form 8-K Dated July 24, 1997 and filed with the Commission on August
8, 1997, reporting information regarding the acquisition of
Compuventures of Pitt County. No financial statements were included.
<PAGE> 22
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, 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, President and Chief Executive Officer
By: /s/ Steven J. Mencarini
-------------------------
Steven J. Mencarini
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
DATE: November 13, 1997
----------------------
<PAGE> 1
Exhibit 2.2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MLC HOLDINGS, INC.
AND
MLC ACQUISITION CORP.
AND
EDUCATIONAL COMPUTER CONCEPTS, INC.
AND
THE STOCKHOLDERS OF EDUCATIONAL COMPUTER CONCEPTS, INC.
SEPTEMBER 29, 1997
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is entered into as
of this 29th day of September, 1997, by and among MLC Holdings, Inc., a Delaware
corporation ("MLC"), MLC Acquisition Corp., a Pennsylvania corporation and
wholly-owned subsidiary of MLC ("MAC"), and Educational Computer Concepts, Inc.
d/b/a ECC Integrated, Inc., a Pennsylvania corporation ("ECC"), and Vincent W.
Marino, Ralph E. Marcellus, Rodney Garnet, David Winans, Lucille DeFrancesco
and Matthew McBride, the sole stockholders of ECC (collectively, the
"Stockholders"). MLC, MAC, ECC and the Stockholders are referred to
collectively herein as the "Parties" and individually as a "Party."
RECITALS:
WHEREAS, the Parties hereto desire to consummate a merger (the
"Merger") whereby MAC will be merged with and into ECC and ECC will be the
surviving corporation in the Merger, upon the terms and subject to the
conditions of this Agreement and in accordance with the Pennsylvania Business
Corporation Law of 1988, as amended (the "Pennsylvania BCL"); and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization under Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"),
pursuant to which each issued and outstanding share of ECC common stock shall
be converted into the right to receive shares of MLC common stock.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
ARTICLE 1 DEFINITIONS
1.1 Terms Defined in this Agreement. As used in this Agreement,
the following terms shall have the respective meanings set forth below:
"AAA Account" has the meaning set forth in Section 4.2(c) below.
"Actual EBT" has the meaning set forth in Section 4.2(c) below.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504, or any similar group defined under a similar provision of
state, local or foreign law.
"Agreement" has the meaning set forth in the preface above.
<PAGE> 3
"Articles of Merger" has the meaning set forth in Section 2.2 below.
"Average Share Price" has the meaning set forth in Section 4.2(b)
below.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms the basis for any specified
consequence.
"Closing" has the meaning set forth in Section 2.3 below.
"Closing Date" has the meaning set forth in Section 2.3 below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of ECC or MLC, if any, that is not already generally
available to the public.
"Disclosure Schedule" has the meaning set forth in the first paragraph
of Article 7 below.
"ECC" has the meaning set forth in the preface above.
"ECC Common Shares" means the shares of the common stock, no par value,
of ECC.
"ECC Common Share Certificates" has the meaning set forth in Section
4.1 below.
"Effective Time" has the meaning set forth in Section 2.2 below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) tax-qualified defined contribution retirement plan or
arrangement which is an Employee Pension Benefit Plan, (c) tax-qualified
defined benefit retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare
Benefit Plan or material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings,
and charges thereunder) of federal, state, local, and foreign governments (and
all agencies thereof) concerning pollution or protection of the environment,
public health and safety, or employee health and safety, including laws
relating to emissions, discharges, releases, or
- 2 -
<PAGE> 4
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Estimated Tax Liability" has the meaning set forth in Section 4.5
below.
"Extremely Hazardous Substance" has the meaning set forth in Section
302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Final Tax Liability" has the meaning set forth in Section 4.5 below.
"Financial Statements" has the meaning set forth in Section 7.7 below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all
trade secrets and confidential business information (including ideas, research
and development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies
and tangible embodiments thereof (in whatever form or medium).
"Knowledge" means the collective knowledge of all of the Stockholders
and ECC after reasonable investigation. For the purposes of this Agreement,
the knowledge of one Stockholder shall be attributed to the other Stockholders
and ECC.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
- 3 -
<PAGE> 5
"MAC" has the meaning set forth in the preface above.
"MAC Common Shares" shall mean the shares of common stock, par value
$0.01, of MAC.
"MLC" has the meaning set forth in the preface above.
"MLC Common Shares" shall mean the shares of common stock, par value
$0.01, of MLC.
"Material Adverse Effect" means, as to any Party, a material adverse
effect on the business, properties, operations, condition or future prospects
(financial or otherwise) of such Party.
"Merger" shall mean the merger of MAC with and into ECC in accordance
with the terms of this Agreement.
"Merger Consideration" has the meaning set forth in Section 4.2(b)
below.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
7.7 below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 7.7
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 7.7
below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"Party" or "Parties has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pennsylvania BCL" has the meaning set forth in the first paragraph of
the Recitals above.
"Permitted Distribution" has the meaning set forth in Section 4.5
below.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
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"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Purchase Price" has the meaning set forth in Section 4.2(a) below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Representative" has the meaning set forth in Section 12.3 below.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes
that the taxpayer is contesting in good faith through appropriate proceedings,
(c) purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"Stockholders" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Surviving Corporation" has the meaning set forth in Section 2.1 below.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 12.4 below.
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ARTICLE 2
MERGER; EFFECTIVE TIME; CLOSING
2.1 Merger. Subject to the terms and conditions of this Agreement
and the Pennsylvania BCL, at the Effective Time, MAC and ECC shall consummate
the Merger in which (i) MAC shall be merged with and into ECC and the separate
corporate existence of MAC shall thereupon cease, (ii) ECC shall be the
successor or surviving corporation in the Merger and shall continue to be
governed by the laws of the Commonwealth of Pennsylvania and (iii) the separate
corporate existence of MAC with all its rights, privileges, immunities, powers
and franchises shall continue unaffected by the Merger. The corporation
surviving the Merger is sometimes hereinafter referred to as the "Surviving
Corporation." The Merger shall have the effects set forth in the Pennsylvania
BCL.
2.2 Effective Time. On the Closing Date, subject to the terms and
conditions of this Agreement, MAC and ECC shall (i) cause to be executed an
Articles of Merger in the form required by the Pennsylvania BCL (the "Articles
of Merger"), and (ii) cause the Articles of Merger to be filed with the
Secretary of the Commonwealth of Pennsylvania as provided in the Pennsylvania
BCL. The Merger shall become effective at (i) such time as the Articles of
Merger has been duly filed with the Secretary of the Commonwealth of
Pennsylvania or (ii) such other time as is agreed upon by the Representative
and MLC and specified in the Articles of Merger. Such time is hereinafter
referred to as the "Effective Time."
2.3 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Shaw, Pittman,
Potts & Trowbridge, 2300 N Street, N.W., Washington, D.C. 20037, commencing at
9:00 a.m. local time on such date as within five (5) business days following
the fulfillment or waiver of the conditions set forth in Article 10 (other than
conditions which by their nature are intended to be fulfilled at the Closing)
or such other place or time or on such other date as MLC and the Representative
may agree or as may be necessary to permit the fulfillment or waiver of the
conditions set forth in Article 10 (the "Closing Date").
ARTICLE 3
ARTICLES OF INCORPORATION; BY-LAWS; AND
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
3.1 Articles of Incorporation. The articles of incorporation of ECC,
as in effect immediately prior to the Effective Time, shall be the articles of
incorporation of ECC until thereafter amended as provided therein and under the
Pennsylvania BCL.
3.2 By-Laws. The by-laws of ECC, as in effect immediately prior to
the Effective Time, shall be the by-laws of the Surviving Corporation.
3.3 Directors and Officers. The directors and officers of MAC
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation from and after the Effective Time until their
successors have been duly elected, appointed or qualified or until
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their earlier death, resignation or removal in accordance with the articles of
incorporation and by-laws of the Surviving Corporation. In addition to the
officers of the Surviving Corporation discussed above, Vincent W. Marino shall
be an officer of the Surviving Corporation holding the titles set forth in his
employment agreement more particularly described in Section 10.1(f) below.
ARTICLE 4
MERGER CONSIDERATION; PAYMENT OF MERGER CONSIDERATION
4.1 Merger Consideration; Conversion or Cancellation of ECC Common
Shares in Merger. At the Effective Time, by virtue of the Merger and without
any action by the Parties, (A) all of the outstanding ECC Common Shares (i)
shall be converted into the right to receive the Merger Consideration set forth
in Section 4.2(b), (ii) shall cease to be outstanding, and (iii) shall be
canceled and retired and shall cease to exist, and each Stockholder, as the
holder of certificates representing such ECC Common Shares (the "ECC Common
Share Certificates"), shall cease to have any rights with respect thereto,
except the right to receive Merger Consideration therefor upon the surrender of
such certificates in accordance with this Section 4.1 and cash in lieu of
fractional MLC Common Shares as set forth in Section 4.3, and (B) each
outstanding MAC Common Share shall be converted into one share of common stock
of the Surviving Corporation, as such shares of common stock are constituted
immediately following the Effective Time.
4.2 Determination of Purchase Price and Merger Consideration;
Payment of Merger Consideration.
(a) The purchase price for the Merger payable by MAC and MLC shall be
$7,092,000, the ("Purchase Price").
(b) The Purchase Price will be payable in the form of MLC Common
Shares (the "Merger Consideration"). The number of MLC Common Shares
representing the Merger Consideration shall be determined by dividing the
Merger Consideration by the price of a MLC Common Share, rounded to the nearest
cent, which is the average closing price for a MLC Common Share as reported on
the Nasdaq National Market over the 15 trading days immediately preceding the
date prior to the Closing Date (the "Average Share Price").
(c) At the Closing, upon surrender to MLC of ECC Common Share
Certificates by the Stockholders for cancellation, together with any other
required documents, the Stockholders shall receive the Merger Consideration,
pro rata based on their relative equity interests in ECC as of the Closing
Date.
4.3 Fractional MLC Common Shares. No certificates representing
fractional MLC Common Shares shall be issued upon surrender of any ECC Common
Share Certificates. In lieu of any fractional MLC Common Shares, there shall
be paid to each holder of ECC Common Shares who otherwise would be entitled to
receive a fractional MLC Common Share an amount of cash (without interest)
determined by multiplying such fraction by the Average Share Price.
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4.4 Transfer of ECC Common Shares. No transfers of ECC Common Shares
shall be made on the stock transfer books of ECC after the date of this
Agreement, and each Stockholder agrees not to transfer any ECC Common Shares
after the date of this Agreement and before the Closing Date.
4.5 Certain Distributions. During the period from January 1, 1997
through the Closing Date (the "1997 Pre-Merger Period") the amount of cash
distributed by ECC to its Stockholders in the form of dividends or
distributions shall not exceed a total of $964,307 (the "Permitted
Distribution"), which amount is consistent with ECC's existing and historical
corporate policy. The Parties have agreed that $778,506 of the Permitted
Distribution (the "Estimated Tax Liability") represents amounts to satisfy the
Stockholders' income tax liability with respect to the premerger S corporation
income produced by ECC's operations during the 1997 Pre-Merger Period assuming
an individual tax rate of 41.9%. The Estimated Tax Liability is based on an
estimate of the premerger S corporation income for the 1997 Pre-Merger Period.
Within 45 days subsequent to the Closing, MLC shall prepare or have prepared an
income statement for the 1997 Pre-Merger Period, together with a calculation of
the Stockholders' tax liability (the "Final Tax Liability") based on the
earnings reflected therein using the assumed tax rate of 41.9%. In the event
the Final Tax Liability is higher than the Estimated Tax Liability, the
difference shall be paid to the Stockholders' and in the event the Final Tax
Liability is lower than the Estimated Tax Liability, then the difference shall
be refunded by the Stockholders to MLC. Such difference shall, in either
event, be paid in MLC Common Shares valued at the Average Share Price.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE INDIVIDUAL STOCKHOLDERS
Each of the Stockholders, severally, but not jointly, represents and
warrants to MAC and MLC that the statements contained in this Article 5 are
correct and complete as of the date hereof with respect to himself:
5.1 Authorization of Transaction. Each of the Stockholders has full
power and authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of each of the Stockholders, enforceable in accordance with its
terms and conditions. None of the Stockholders need give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement, except in connection with federal securities
laws and any applicable "Blue Sky" or state securities laws.
5.2 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any Stockholder is subject, or (B)
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement,
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<PAGE> 10
contract, lease, license, instrument, or other arrangement to which the any
Stockholder is a party or by which he or she is bound or to which any of his or
her assets are subject.
5.3 Investment. Each of the Stockholders (A) understands that the
MLC Common Shares acquired by such Stockholder pursuant to this Agreement have
not been registered under the Securities Act, or under any state securities
laws, and are being exchanged in reliance upon federal and state exemptions for
transactions not involving a public offering, (B) is acquiring the MLC Common
Shares solely for his or her own account for investment purposes, and not with
a view towards the distribution thereof, (C) is a sophisticated investor with
knowledge and experience in business and financial matters, (D) has received
certain information concerning MLC, including, without limitation, (i) the
most recent annual report on Form 10-K, (ii) the three most recent quarterly
reports on Form 10-Q, (iii) any current reports on Form 8-K since December 31,
1996, in each case as filed by MLC under the Securities Exchange Act, and (iv)
the most recent annual report to stockholders of MLC, and has had the
opportunity to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding MLC Common Shares, and (E) is able
to bear the economic risk and lack of liquidity inherent in holding MLC Common
Shares which have not been registered under the Securities Act.
5.4 ECC Common Shares. Each of the Stockholders holds of record and
owns beneficially the number of ECC Common Shares set forth next to his name in
Section 7.2 of the Disclosure Schedule, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. Except for the
agreements set forth on Section 5.4 of the Disclosure Schedule, none of the
Stockholders is a party to any option, warrant, purchase right, or other
contract or commitment that could require one or more Stockholders to sell,
transfer, or otherwise dispose of any ECC Common Shares (other than pursuant to
this Agreement) or is a party to any voting trust, proxy, or other agreement
or understanding with respect to the voting of any of ECC Common Shares.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF MAC AND MLC
MAC and MLC jointly and severally represent and warrant to the
Stockholders and ECC that the statements contained in this Article 6 are
correct and complete as of the date hereof:
6.1 Organization of MAC. MAC is a corporation duly organized,
validly existing, and in good standing under the laws of the Commonwealth of
Pennsylvania.
6.2 Organization of MLC. MLC is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
6.3 Capital Stock of MLC. The authorized capital stock of MLC
consists of 10,000,000 shares of common stock, $.01 par value (the "MLC Common
Shares"), of which 5,572,307 shares are outstanding as of July 31, 1997, and
2,000,000 shares of preferred stock, $.01 par value, of which no shares are
outstanding. Since July 31, 1997, MLC has not issued any
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shares of capital stock except pursuant to the exercise of options outstanding
on such date to purchase MLC Common Shares. All outstanding MLC Common Shares
are, and all MLC Common Shares issuable under stock option plans of MLC, will
be when issued in accordance with the terms thereof, duly authorized, validly
issued, fully paid and nonassessable. Except for the 400,000 MLC Common Shares
reserved for issuance pursuant to stock option plans of MLC which amount MLC is
currently seeking stockholder approval to increase, and except for a proposed
employee stock purchase plan for which MLC is currently seeking stockholder
approval, there are outstanding on the date hereof no options, warrants, calls,
rights, commitments or any other agreements of any character to which MLC is a
party or by which it may be bound, requiring it to issue, transfer, sell,
purchase, register, redeem or acquire any shares of capital stock or any
securities or rights convertible into, exchangeable for or evidencing the right
to subscribe for or acquire any shares of its capital stock.
6.4 Authorization for Common Stock. The Merger Consideration will,
when issued, be duly authorized, validly issued, fully paid and nonassessable,
and no stockholder of MLC will have any preemptive right or similar rights of
subscription or purchase in respect thereof. The Merger Consideration will,
subject to the accuracy of the Stockholders' representations contained in
Section 5.3 hereof, be exempt from registration under the Securities Act and
will be registered or exempt from registration under all applicable state
securities laws. The Share Consideration will, when issued, be approved for
listing on the Nasdaq National Market, subject to official notice of issuance.
6.5 Authorization of Transaction. Each of MAC and MLC has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its respective obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of each of
MAC and MLC, enforceable in accordance with its terms and conditions. Neither
MAC nor MLC need give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement, except in
connection with federal securities laws and any applicable "Blue Sky" or state
securities laws.
6.6 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which either MAC or MLC is subject or any
provision of its articles of incorporation or by-laws or (B) result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which either MAC or MLC is a party or by which it is bound or to
which any of its assets is subject.
6.7 Brokers' Fees. Neither MAC nor MLC has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
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6.8 Nasdaq National Market. MLC is in compliance in all material
respects with its Nasdaq National Market Listing Agreement.
6.9 Disclosure. MLC is in compliance in all material respects with
its obligation under the Securities Exchange Act to publicly disclose material
information in a timely fashion.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES CONCERNING ECC
The Stockholders and ECC represent and warrant to MAC and MLC that the
statements contained in this Article 7 are correct and complete as of the date
hereof, except as set forth in the disclosure schedule delivered by the
Stockholders and ECC to MAC and MLC on the date hereof (the "Disclosure
Schedule"). Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, however,
unless the Disclosure Schedule identifies the exception with particularity and
describes the relevant facts in reasonable detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). The
Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Article 7.
7.1 Organization, Qualification, and Corporate Power. ECC is a
corporation duly organized, validly existing, and in good standing under the
laws of the Commonwealth of Pennsylvania. ECC is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the failure to so qualify or obtain
authorization would not have a Material Adverse Effect on ECC. Except as set
forth in Section 7.1(a) of the Disclosure Schedule, ECC has full corporate
power and authority and all licenses, permits, and authorizations necessary to
carry on the businesses in which it is engaged and to own and use the
properties owned and used by it. Section 7.1(b) of the Disclosure Schedule
lists the directors and officers of ECC. The Stockholders have delivered to MAC
and MLC correct and complete copies of the articles of incorporation and
by-laws of ECC (as amended to date). The minute books (containing the records
of meetings of the stockholders, the board of directors, and any committees of
the board of directors), the stock certificate books, and the stock record
books of ECC are correct and complete. ECC is not in default under or in
violation of any provision of its articles of incorporation or by-laws.
7.2 Capitalization. The entire authorized capital stock of ECC (the
"ECC Common Shares") consists of 3,000 shares of common stock, no par value, of
which 536 shares are issued and outstanding. A total of ten (10) ECC Common
Shares are held in treasury. All of the issued and outstanding ECC Common
Shares have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by the respective Stockholders as set
forth in Section 7.2 of the Disclosure Schedule. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
ECC to issue, sell, or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom
stock,
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profit participation, or similar rights with respect to ECC. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of ECC Common Shares.
7.3 Authorization of Transaction. ECC has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of ECC, enforceable in accordance with
its terms and conditions. ECC is not required give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement, except in connection with federal securities
laws and any applicable "Blue Sky" or state securities laws.
7.4 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which ECC is subject or any provision of the
charter or bylaws of ECC or (ii) result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
ECC is a party or by which it is bound or to which any of its assets is subject
(or result in the imposition of any Security Interest upon any of its assets).
7.5 Title to Assets. ECC has good title to, or a valid leasehold
interest in, the properties and assets used by it, located on its premises, or
shown on the Most Recent Balance Sheet or acquired after the date thereof, free
and clear of all Security Interests, except for properties and assets disposed
of in the Ordinary Course of Business since the date of the Most Recent Balance
Sheet.
7.6 Subsidiaries. ECC does not have any Subsidiaries, operating or
otherwise.
7.7 Financial Statements. ECC has delivered (collectively, the
"Financial Statements") to MLC its (i) balance sheets and statements of income,
changes in stockholders' equity, and cash flow as of and for the fiscal years
ended December 31, 1995, and December 31, 1996 (the "Most Recent Fiscal Year
End") which have been reviewed by Herbein and Company, Inc.; and (ii) unaudited
balance sheets and statements of income, changes in stockholders' equity, and
cash flow (the "Most Recent Financial Statements") as of and for the seven
months ended July 31, 1997 (the "Most Recent Fiscal Month End"). The Financial
Statements (including the notes thereto) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
present fairly the financial condition of ECC as of such dates and the results
of operations of ECC for such periods, and are consistent with the books and
records of ECC (which books and records are correct and complete in all
material respects)
7.8 Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any Material Adverse Effect in the
business, financial condition,
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operations, results of operations, or future prospects of ECC. Without limiting
the generality of the foregoing, since that date:
(a) ECC has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
(b) ECC has not entered into any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and licenses)
either involving more than $25,000 or outside the Ordinary Course of Business;
(c) no party (including ECC) has accelerated, terminated, modified,
or canceled any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) to which ECC is a party or by
which it is bound;
(d) ECC has not imposed any Security Interest upon any of its assets,
tangible or intangible;
(e) ECC has not made any capital expenditure (or series of related
capital expenditures) either involving more than $25,000 or outside the
Ordinary Course of Business;
(f) ECC has not made any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other Person (or series of
related capital investments, loans, and acquisitions;
(g) ECC has not issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any indebtedness for borrowed money
or capitalized lease obligation;
(h) ECC has not delayed or postponed the payment of accounts payable
and other Liabilities outside the Ordinary Course of Business;
(i) ECC has not canceled, compromised, waived, or released any right
or claim (or series of related rights and claims) outside the Ordinary Course
of Business;
(j) ECC has not granted any license or sublicense of any rights under
or with respect to any Intellectual Property;
(k) there has been no change made or authorized in the articles of
incorporation or by-laws of ECC;
(l) ECC has not issued, sold, or otherwise disposed of any of its
capital stock, or granted any options, warrants, or other rights to purchase or
obtain (including upon conversion, exchange, or exercise) any of its capital
stock;
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(m) except for the Permitted Distribution to the Stockholders, ECC
has not declared, set aside, or paid any dividend or made any distribution with
respect to its capital stock (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its capital stock;
(n) ECC has not experienced any material damage, destruction, or loss
(whether or not covered by insurance) to its property;
(o) ECC has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside the
Ordinary Course of Business;
(p) ECC has not entered into any employment contract or collective
bargaining agreement, written or oral, or modified the terms of any such
existing contract or agreement;
(q) ECC has not granted any increase in the base compensation of any
of its directors, officers, and employees outside the Ordinary Course of
Business;
(r) ECC has not adopted, amended, modified, or terminated any bonus,
profit-sharing, incentive, severance, or other plan, contract, or commitment
for the benefit of any of its directors, officers, and employees (or taken any
such action with respect to any other Employee Benefit Plan);
(s) ECC has not made any other change in employment terms for any of
its directors, officers, and employees outside the Ordinary Course of Business
or in the terms of its agreements with any independent contractors;
(t) ECC has not made or pledged to make any charitable or other
capital contribution outside the Ordinary Course of Business;
(u) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving ECC; and
(v) ECC is not under any legal obligation, whether written or oral,
to do any of the foregoing.
7.9 Undisclosed Liabilities. ECC does not have any Liability (and
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against it giving rise to
any Liability), except for (i) Liabilities set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) and (ii) Liabilities
which have arisen after the Most Recent Fiscal Month End in the Ordinary Course
of Business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
7.10 Legal Compliance. ECC has complied in all material respects with
all applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies
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thereof), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against it
alleging any failure so to comply.
7.11 Tax Matters.
(a) ECC has filed all Tax Returns that it was required to file,
including, without limitation, any Tax Returns required to be filed with any
state. All such Tax Returns were correct and complete in all respects. All
Taxes owed by ECC (whether or not shown on any Tax Return) have been paid. ECC
currently is not the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by an authority in a jurisdiction
where ECC does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets of ECC
that arose in connection with any failure (or alleged failure) to pay any Tax.
(b) ECC has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c) No Stockholder expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no dispute
or claim concerning any Tax Liability of ECC either (A) claimed or raised by
any authority in writing or (B) as to which any of the Stockholders has
Knowledge. Section 7.11(c) of the Disclosure Schedule lists all federal, state,
local, and foreign income Tax Returns filed with respect to ECC for taxable
periods ended on or after December 31, 1991, indicates those Tax Returns that
have been audited, and indicates those Tax Returns that currently are the
subject of audit. The Stockholders have delivered to MAC and MLC correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by ECC since December
31, 1991.
(d) ECC has not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) ECC has not filed a consent under Code Section 341(f) concerning
collapsible corporations. ECC has not made any payments, is not obligated to
make any payments, or is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G. ECC has not been a United States real
property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). ECC
has disclosed on its federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income Tax
within the meaning of Code Section 6662. ECC is not a party to any Tax
allocation or sharing agreement. ECC (A) has not been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other than a
group the common parent of which was ECC) or (B) has any Liability for the
Taxes of any Person (other than ECC) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
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<PAGE> 17
(f) ECC has been a subchapter S corporation for federal income taxes
since January 24, 1986 and has made all requisite filings under the Code.
7.12 Real Property. Section 7.12(a) of the Disclosure Schedule lists
and describes briefly all real property owned, leased or subleased to ECC. The
Stockholders have delivered to MAC and MLC correct and complete copies of the
leases and subleases listed in Section 7.12(b) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in Section
7.12(b) of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable, and
in full force and effect;
(b) no consent is required with respect to any lease or sublease as a
result of this Agreement, and the actions contemplated by this Agreement will
not result in the change of any terms of any lease or sublease or otherwise
affect the ongoing validity of any lease or sublease;
(c) no party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default or permit termination, modification, or acceleration
thereunder;
(d) no party to the lease or sublease has repudiated any provision
thereof;
(e) there are no disputes, oral agreements, or forbearance programs
in effect as to the lease or sublease;
(f) with respect to each sublease, the representations and warranties
set forth in subsections (a) through (e) above are true and correct with
respect to the underlying lease;
(g) ECC has not assigned, transferred, conveyed, mortgaged, deeded in
trust, or encumbered any interest in the leasehold or subleasehold;
(h) all facilities leased or subleased thereunder have received all
approvals of governmental authorities (including licenses and permits) required
by ECC in connection with the operation thereof and have been operated and
maintained by ECC in accordance with applicable laws, rules, and regulations;
and
(i) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities.
7.13 Intellectual Property.
(a) ECC owns or has the right to use pursuant to license, sublicense,
agreement, or permission all Intellectual Property used in the operation of the
businesses of ECC as presently conducted. Each item of Intellectual Property
owned or used by ECC immediately prior to the Closing hereunder will be owned
or available for use by the Surviving Corporation on identical
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<PAGE> 18
terms and conditions immediately subsequent to the Closing hereunder. ECC has
taken all necessary action to maintain and protect each item of Intellectual
Property that it owns or uses.
(b) ECC has not interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of third
parties, and none of the Stockholders and the directors and officers (and
employees with responsibility for Intellectual Property matters) of ECC has
ever received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that ECC must license or refrain from using any Intellectual Property rights of
any third party). No third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of ECC.
(c) ECC has no patent or registration which has been issued to ECC
with respect to any of its Intellectual Property.
(d) Section 7.13(d) of the Disclosure Schedule identifies each
item of Intellectual Property owned by ECC or each item of Intellectual
Property that any third party owns and that ECC uses pursuant to license,
sublicense, agreement, or permission. The Stockholders have delivered to MAC
and MLC correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date).
(e) Nothing will interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its business as presently
conducted.
7.14 Tangible Assets. ECC owns or leases all buildings, machinery,
equipment, and other tangible assets used in the conduct of its business as
presently conducted and as presently proposed to be conducted. Each such
tangible asset is free from all defects (patent and latent), has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), and is suitable for the
purposes for which it presently is used. The Most Recent Balance Sheet sets
forth all of the assets necessary to conduct ECC' business as it is currently
being conducted and as it is contemplated to be conducted in the future.
7.15 Contracts. Section 7.15 of the Disclosure Schedule lists the
following contracts and other agreements to which ECC is a party:
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in excess
of $25,000 per annum;
(b) any agreement concerning a partnership or joint venture;
(c) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed money,
or any capitalized lease obligation or under which it has imposed a Security
Interest on any of its assets, tangible or intangible;
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<PAGE> 19
(d) any agreement concerning confidentiality or noncompetition;
(e) any agreement with any of the Stockholders and their Affiliates
(other than ECC);
(f) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
(g) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $30,000 or providing severance benefits;
(h) any agreement under which it has advanced or loaned any amount to
any of its directors, officers, and employees outside the Ordinary Course of
Business;
(i) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect.
The Stockholders have delivered to MAC and MLC a correct and complete copy of
each written agreement listed in Section 7.15 of the Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and conditions
of each oral agreement referred to in Section 7.15 of the Disclosure Schedule.
With respect to each such agreement: (A) the agreement is legal, valid,
binding, enforceable, and in full force and effect; (B) the agreement will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (D) no
party has repudiated any provision of the agreement.
7.16 Notes and Accounts Receivable. All notes and accounts receivable
of ECC are reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims, and are current and collectible in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of ECC.
7.17 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of ECC.
7.18 Insurance. Section 7.18 of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which ECC has been a party, a named insured,
or otherwise the beneficiary of coverage at any time within the past five
years: (i) the name, address, and telephone number of the agent; (ii) the name
of the insurer, the name of the policyholder, and the name of each covered
insured; (iii) the policy
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<PAGE> 20
number and the period of coverage; (iv) the scope (including an indication of
whether the coverage was on a claims made, occurrence, or other basis) and
amount (including a description of how deductibles and ceilings are calculated
and operate) of coverage; and (v) a description of any retroactive premium
adjustments or other loss-sharing arrangements. With respect to each such
insurance policy: (A) the policy is legal, valid, binding, enforceable, and in
full force and effect; (B) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby; (C) neither ECC nor
any other party to the policy is in breach or default (including with respect
to the payment of premiums or the giving of notices), and no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default, or permit termination, modification, or acceleration, under the
policy; and (D) no party to the policy has repudiated any provision thereof.
ECC has been covered during the past five years by insurance in scope and
amount customary and reasonable for the businesses in which it has engaged
during the aforementioned period. Section 7.18 of the Disclosure Schedule
describes any self-insurance arrangements affecting ECC.
7.19 Litigation. Section 7.19 of the Disclosure Schedule sets forth
each instance in which ECC (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or is threatened
to be made a party to any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. None
of the actions, suits, proceedings, hearings, and investigations set forth in
Section 7.19 of the Disclosure Schedule could result in any Material Adverse
Effect on ECC. None of the Stockholders has any Basis to believe that any such
action, suit, proceeding, hearing, or investigation may be brought or
threatened against ECC.
7.20 Officers, Directors and Employees. All officers, directors and
employees of ECC are listed by title or position in the Disclosure Schedule.
No officer, director, employee or stockholder of ECC is entitled to any
indemnification from ECC, has any substantial financial interest, direct or
indirect, in any supplier, customer, lessor or lessee of ECC, is indebted to
ECC on account of loans or advances of any kind, or has in his possession or
under his control any property or assets belonging to ECC. All transactions,
commitments, contracts and agreements between ECC and any supplier, customer or
any other business entity in which any officer, director, employee or
stockholder of ECC has a financial interest are on arms-length terms and at
reasonable market prices. To the Knowledge of the Stockholders and ECC, no
executive, key employee, or group of employees currently has any plans to
terminate employment with ECC or as a result of this Agreement. ECC has not
committed any unfair labor practice. None of the Stockholders or ECC has any
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of ECC.
7.21 Employee Benefits.
(a) Section 7.21 of the Disclosure Schedule lists each Employee
Benefit Plan that ECC maintains or to which ECC contributes.
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<PAGE> 21
(b) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all respects
with the applicable requirements of ERISA, the Code, and other applicable laws.
(c) All required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, and Summary Plan Descriptions) have been filed
or distributed appropriately with respect to each such Employee Benefit Plan.
The requirements of Part 6 of Subtitle B of Title 1 of ERISA and of Code
Section 4980B have been met with respect to each such Employee Benefit Plan
which is an Employee Welfare Benefit Plan.
(d) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
such Employee Benefit Plan which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the Closing Date which are not
yet due have been paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of ECC. All premiums or other
payments for all periods ending on or before the Closing Date have been paid
with respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(e) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code Section
401(a) and has received, within the last two years, a favorable determination
letter from the Internal Revenue Service.
(f) The market value of assets under each such Employee Benefit Plan
which is an Employee Pension Benefit Plan (other than any Multiemployer Plan),
subject to Title IV of ERISA, equals or exceeds the present value of all vested
and nonvested Liabilities thereunder determined in accordance with PBGC
methods, factors, and assumptions applicable to an Employee Pension Benefit
Plan terminating on the date for determination.
(g) The Stockholders have delivered to MAC and MLC correct and
complete copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue Service, the
most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each such
Employee Benefit Plan.
(h) With respect to each Employee Benefit Plan that ECC maintains or
ever has maintained or to which it contributes, ever has contributed, or ever
has been required to contribute:
(i) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan), subject to Title IV of ERISA,
has been completely or partially terminated or been the subject of a Reportable
Event as to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been instituted or threatened.
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<PAGE> 22
(ii) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee Benefit Plan.
No action, suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit
Plan (other than routine claims for benefits) is pending or threatened. None
of the Stockholders has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
(iii) ECC has not incurred, and none of the Stockholders and the
directors and officers (and employees with responsibility for employee benefits
matters) of ECC has any Basis to expect that ECC or the Surviving Corporation
will incur, any Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal Liability) or under
the Code with respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(i) ECC does not contribute to, ever has contributed to, or ever has
been required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal Liability) under any Multiemployer Plan.
(j) ECC does not maintain or ever has maintained or contributes, ever
has contributed, or ever has been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated employees,
their spouses, or their dependents (other than in accordance with Code Section
4980B).
7.22 Guaranties. ECC is not a guarantor or otherwise is liable for
any Liability or obligation (including indebtedness) of any other Person.
7.23 Environment, Health, and Safety.
(a) ECC has complied with all Environmental, Health, and Safety Laws,
and no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against it alleging any
failure so to comply. Without limiting the generality of the preceding
sentence, ECC has obtained and been in compliance with all of the terms and
conditions of all permits, licenses, and other authorizations which are
required under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health, and Safety Laws.
(b) ECC does not have any Liability and has not handled or disposed
of any substance, arranged for the disposal of any substance, exposed any
employee or other individual to any substance or condition, or owned or
operated any property or facility in any manner that could form the Basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against ECC giving rise to any Liability for damage
to any site, location, or body of water (surface or subsurface), for any
illness of or personal injury to any employee or other individual, or for any
reason under any Environmental, Health, and Safety Law.
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<PAGE> 23
(c) All properties and equipment used in the business of ECC has been
free of asbestos, PCB's, methylene chloride, trichloroethylene,
1,2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
7.24 Customers. The names and addresses of all customers of ECC
during fiscal year 1996 and all customers known as of the Closing Date who will
be customers during fiscal 1997 are listed in the Disclosure Schedule. All
contracts and agreements with such customers are valid, effective and
enforceable and the Disclosure Schedule sets forth all customers who have
account balances that are in excess of 90 days past due. ECC knows of no
written or oral communication, fact, event or action which exists or has
occurred within 120 days prior to the date of this Agreement which would
indicate that any of the following shall terminate or materially reduce its
business with ECC:
(i) any current customer of ECC which accounted for over 1% of
total net sales of ECC for its most recently completed fiscal year; or
(ii) any current supplier to ECC of items essential to the
conduct of the business, which items cannot be replaced at comparable cost and
the loss of which would have an Material Adverse Effect on ECC.
Since the Most Recent Balance Sheet Date, (A) ECC has retained all
sales personnel employed in connection with the operation of the business and
(B) no customer (or group of customers) purchasing in the aggregate of $25,000
in products and services on a yearly basis has terminated its relationship with
ECC.
7.25 Related Party Agreements. The Disclosure Schedule sets forth all
indebtedness to ECC of the Stockholders or the officers, directors or employees
of ECC. All of such indebtedness has been or will be repaid on or before the
Closing Date. All credit cards issued for the account of ECC shall be canceled
prior to the Closing Date and, upon cancellation, paid in full by the
Stockholders.. The Disclosure Schedule sets forth all agreements between (i)
ECC and its employees and (ii) ECC and the Stockholders.
7.26 Product Liability. ECC has no liability (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand against ECC giving rise to any liability)
arising out of any injury to individuals or property as a result of the
ownership, possession or use of any product manufactured, sold, leased or
delivered by ECC.
7.27 Bank Accounts. The Disclosure Schedule sets forth all bank
accounts and marketable securities (both debt and equity) of ECC.
7.28 Change in Control. ECC is not a party to any contract or
arrangement, which contains a "change in control," "potential change in
control" or similar provision, and the consummation of the Merger shall not
(either alone or upon the occurrence of additional acts or events) result in
any payment or payments becoming due from ECC to any person or give any person
the right to terminate or alter the provisions of any agreement to which ECC is
a party.
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7.29 Inventory. The inventory of ECC is in good and marketable
condition and is capable of being sold in the ordinary course of business
without discounts to the FIFO purchase cost at which such inventory is recorded
on the books and records of ECC.
7.30 Brokers' Fees. The Disclosure Schedule sets forth any Liability
or obligation of ECC to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
7.31 Disclosure. The representations and warranties contained in this
Article 7 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 7 not misleading.
ARTICLE 8
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing.
8.1 General. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Article 10 below).
8.2 Notices and Consents. ECC shall give any notices to third parties
and shall use its reasonable best efforts to obtain any third party consents
that MAC and MLC may reasonably request in connection with the matters referred
to in Section 7.3 above. Each of the Parties shall give any notices to, make
any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 5.1, Section
6.4, and Section 7.3 above.
8.3 Maintenance of Business; Prohibited Acts. During the period from
the date of this Agreement to the Effective Time, the Stockholders will not,
and will not cause ECC to, take any action that adversely affects the ability
of ECC (i) to pursue its business in the ordinary course, (ii) to seek to
preserve intact its current business organizations (iii) to keep available the
service of its current officers and employees and (iv) preserve its
relationships with customers, suppliers and others having business dealings
with it; and the Stockholders will not allow ECC to, without MLC's prior
written consent:
(a) issue, deliver, sell, dispose of, pledge or otherwise encumber,
or authorize or propose the issuance, delivery, sale, disposition or pledge or
other encumbrances of (i) any additional shares of its capital stock of any
class (including ECC Common Shares), or any securities or rights convertible
into, exchangeable for or evidencing the right to subscribe for any shares of
its capital stock, or any rights, warrants, options, calls, commitments or any
other agreements of any character to purchase or acquire any shares of its
capital stock or any other securities or rights convertible into, exchangeable
for or evidencing the right to subscribe for any
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shares of its capital stock, or (ii) any other securities in respect of, in
lieu of or in substitution for ECC Common Shares outstanding on the date
hereof;
(b) redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of its outstanding securities (including ECC
Common Shares);
(c) split, combine, subdivide or reclassify any shares of its capital
stock or otherwise make any payments to the Stockholders in their capacities as
stockholders of ECC; provided, however, that nothing shall prohibit: the
payment of any ordinary distribution or dividend in respect of its capital
stock consistent with Section 4.5 hereof;
(d) (i) grant any increases in the compensation of any of its
directors, officers or executives or grant any increases in compensation to any
of its employees, (ii) pay or agree to pay any pension retirement allowance or
other employee benefit not required or contemplated by any Employee Benefit
Plan as in effect on the date hereof to any such director, officer or employee,
whether, past or present, (iii) enter into any new or amend any existing
employment or severance agreement with any such director, officer or employee,
except as approved by MLC in its sole discretion, (iv) pay or agree to pay any
bonus to any director, officer or employee (whether in the form of cash,
capital stock or otherwise), or (v) except as may be required to comply with
applicable law, amend any existing, or become obligated under any new Employee
Benefit Plan, except in the case of (i) through (v) inclusive, under and
pursuant to the employment agreements referred to in Section 10.1(f);
(e) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
(other than the Merger);
(f) make any acquisition, by means of merger, consolidation or
otherwise, of any direct or indirect ownership interest in or assets comprising
any business enterprise or operation;
(g) adopt any amendments to its articles of incorporation or by-laws;
(h) incur any indebtedness for borrowed money or guarantee such
indebtedness or agree to become contingently liable, by guaranty or otherwise,
for the obligations or indebtedness of any other person or make any loans,
advances or capital contributions to, or investments in, any other corporation,
any partnership or other legal entity or to any other persons, except for bank
deposits and other investments in marketable securities and cash equivalents
made in the ordinary course of its business;
(i) engage in the conduct of any business the nature of which is
materially different from the business in which ECC is currently engaged;
(j) enter into any agreement providing for acceleration of payment or
performance or other consequence as a result of a change of control of ECC;
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<PAGE> 26
(k) forgive any indebtedness owed to ECC or convert or contribute by
way of capital contribution any such indebtedness owed;
(l) authorize or enter into any agreement providing for management
services to be provided by ECC to any third-party or an increase in management
fees paid by any third-party under existing management agreements;
(m) mortgage, pledge, encumber, sell, lease or transfer any material
assets of ECC except with the prior written consent of MLC or as contemplated
by this Agreement,
(n) authorize or announce an intention to do any of the foregoing, or
enter into any contract, agreement, commitment or arrangement to do any of the
foregoing; or
(o) perform any act or omit to take any action that would make any of
the representations made above inaccurate or materially misleading as of the
Effective Time.
8.4 Full Access. ECC shall permit representatives of MAC and MLC to
have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of ECC to all premises,
properties, personnel, books, records (including Tax records), contracts, and
documents of or pertaining to ECC.
8.5 Notice of Developments. Each of the Stockholders and ECC shall
give prompt written notice to MAC and MLC of any material adverse development
causing a breach of any of the representations and warranties in Article 7
above. Each Party will give prompt written notice to the others of any material
adverse development causing a breach of any of his own representations and
warranties in Articles 5 and 6 above. No disclosure by any Party pursuant to
this Section 8.5, however, shall be deemed to amend or supplement the
Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
8.6 Tax Matters. Each of the Stockholders, ECC and MLC agrees to
report the Merger on all Tax Returns and, if applicable, other filings as a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code to the
extent permitted by law.
8.7 Reorganization. From and after the date hereof and prior to the
Effective Time, except for the transactions contemplated or permitted herein,
none of ECC, the Stockholders or MLC shall knowingly take any action that would
be inconsistent with the representations and warranties made by it herein,
including, but not limited to, knowingly taking any action, or knowingly
failing to take any action, that is known to cause disqualification of the
Merger as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
8.8 ECC Stockholder Approval. Each of the Stockholders hereby agrees
to vote, at the ECC Stockholders Meeting, the ECC Common Shares owned by such
Stockholder in favor of the Agreement and the transactions contemplated hereby.
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8.9 Exclusivity. None of the Stockholders or ECC shall (i) solicit,
initiate, or encourage the submission of any proposal or offer from any Person
relating to the acquisition of any capital stock or other voting securities or
any substantial portion of the assets of ECC (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. None of the
Stockholders shall vote their ECC Common Shares in favor of any such
acquisition structured as a merger, consolidation, or share exchange. The
Stockholders and ECC shall notify MLC immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
8.10 Pooling of Interests. None of the Stockholders, ECC, MAC or MLC
shall take any action which would prevent the transactions contemplated by this
Agreement from being accounted for as a pooling of interests for financial
reporting purposes.
ARTICLE 9
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing:
9.1 General. In the event that at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Article 12 below). The Stockholders acknowledge and agree that
from and after the Closing, the Surviving Corporation and MLC will be entitled
to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to ECC.
9.2 Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving ECC, each of the other Parties will cooperate
with him and his counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Article 12
below).
9.3 Transition. None of the Stockholders will take any action that
is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of ECC from
maintaining the same business relationships with the Surviving Corporation
after the Closing as it maintained with ECC prior to the Closing.
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9.4 Confidentiality. Each of the Stockholders will treat and hold as
such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to MLC or destroy, at the request and option of MLC, all tangible
embodiments (and all copies) of the Confidential Information which are in his
possession. In the event that any of the Stockholders is requested or required
(by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, the Stockholders will notify
MLC promptly of the request or requirement so that MLC may seek an appropriate
protective order or waive compliance with the provisions of this Section 9.4.
If, in the absence of a protective order or the receipt of a waiver hereunder,
any of the Stockholders is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt,
then the Stockholders may disclose the Confidential Information to such
tribunal; provided, however, that the disclosing Stockholder shall use his best
efforts to obtain, at the request of MLC, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as MLC shall designate. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
9.5 Covenant Not to Compete. After the Closing Date, the
Stockholders will not engage directly or indirectly in any business that the
Surviving Corporation or MLC conducts as of the Closing Date including, without
limitation, computer equipment and peripheral leasing and financing, computer
equipment resales and servicing (the "Non-Compete Covenant") for the term and
in the geographic area set forth below. The term and geographic proximity of
the Non-Compete Covenant shall be as follows: four years and nationally for
Vincent W. Marino, Ralph E. Marcellus and Rodney Gamet; two years and within a
radius of 100 miles from ECC's current place of business for Lucille
DeFrancesco; one year and within a radius of 100 miles from ECC's current place
of business for David Winans; and six months and within a radius of 75 miles
from ECC's current place of business for Matthew McBride. If the final
judgment of a court of competent jurisdiction declares that any term or
provision of this Section 9.5 is invalid or unenforceable, the Parties agree
that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area of the term or provision,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
9.6 Non-Solicitation. For a period of seven years from and after the
Closing Date, each Stockholder and any entity controlled by any Stockholder or
with which any Stockholder is associated (as the terms "control" and
"associate" are defined under the Securities Exchange Act) shall not, directly
or indirectly, (i) solicit, interfere with, induce or entice away any person or
entity that is or was a client, customer or agent of ECC or any Affiliate
during the twenty-four (24) month period prior to the date hereof, or (ii) in
any manner persuade or attempt to persuade any such person or entity (A) to
discontinue a business relationship with ECC or the Surviving
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Corporation or such Affiliate, or (B) to enter into a business relationship
with any other entity or person which would be detrimental to ECC or the
Surviving Corporation in any respect.
9.7 MLC Common Shares. Each certificate issued to the Stockholders
representing the MLC Common Shares will be imprinted with a legend
substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), IN
RELIANCE UPON THE EXEMPTION FROM REGISTRATION CONTAINED IN SECTION 4(2)
OF THE 1933 ACT AND REGULATION D OF THE RULES AND REGULATIONS
PROMULGATED UNDER THE 1933 ACT, AND IN RELIANCE UPON THE REPRESENTATION
BY THE HOLDER THAT THEY HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND NOT WITH A VIEW TO RESALE OR FURTHER DISTRIBUTION. SUCH SHARES MAY
NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, HYPOTHECATED, NOR
WILL ANY ASSIGNEE OR ENDORSEE HEREOF BE RECOGNIZED AS AN OWNER HEREOF
BY THE ISSUER FOR ANY PURPOSE, UNLESS A REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH SHARES
SHALL THEN BE IN EFFECT OR UNLESS THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION SHALL BE ESTABLISHED TO THE REASONABLE SATISFACTION OF
COUNSEL OF THE ISSUER.
Each Stockholder desiring to transfer any of the MLC Common Shares received in
connection with the Merger, other than in a registered offering or pursuant to
a sale which counsel for MLC confirms is in compliance with Rule 144 of the
Securities Act, must first furnish MLC with (i) a written opinion satisfactory
to MLC in form and substance from counsel reasonably satisfactory to MLC to the
effect that such Stockholder may transfer the MLC Common Shares as desired
without registration under the Securities Act and (ii) a written undertaking
executed by the desired transferee reasonably satisfactory to MLC in form and
substance agreeing to be bound by the restrictions on transfer contained
herein.
9.8 Pooling of Interests. None of the Stockholders or MLC shall take
any action which would prevent the transactions contemplated by this Agreement
from being accounted for as a pooling of interests for financial reporting
purposes.
9.9 Continuity of Interest. The Stockholders as a group shall not
dispose of any of the MLC Common Shares received in the transaction in a manner
that would cause the transaction to violate the continuity of stockholder
interest requirement set forth in Treas. Reg. Section 1.368-1(b). Any
Stockholder wishing to dispose of any MLC Common Shares received in the
transaction shall provide MLC written notice, not less than 15 days prior to
the intended date of disposition, specifying the number of shares which such
Stockholder proposes to dispose of and an opinion of counsel reasonably
satisfactory to MLC that such transfer or disposition will not violate the
continuity of stockholder interest requirement set forth in Treas. Reg. Section
1.368-1(b).
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9.10 Listing. MLC shall use its best efforts to effect, at or before
the issuance of any MLC Common Shares issued as Merger Consideration pursuant
to Article 4, authorization for listing or quotation of such MLC Common Shares
on the Nasdaq National Market, subject to official notice of issuance.
9.11 Termination of Personal Guarantees. MLC shall use its best
efforts to cause the termination of any personal guarantees of the Stockholders
relating to the business of ECC within 30 days after the Closing Date and from
the Closing Date until such time as the personal guarantees are terminated, MLC
agrees to indemnify the Stockholders against any personal liability arising
from such personal guarantees.
ARTICLE 10
CONDITIONS TO OBLIGATION TO CLOSE
10.1 Conditions to Each Party's Obligation. The respective
obligations of MLC, MAC, ECC and the Stockholders to consummate the
transactions contemplated by this Agreement are subject to the fulfillment at
or prior to the Closing Date of each of the following conditions, which
conditions may be waived upon the written consent of MLC and the Stockholders:
(a) MAC and MLC Board Approval. The Boards of Directors of MAC and
MLC shall have approved the Merger in accordance with applicable law and
approved the issuance of the Merger Consideration pursuant to the terms of this
Agreement.
(b) ECC Board and Stockholder Approval. The Board of Directors of
ECC and the Stockholders shall have approved the Merger in accordance with
applicable law.
(c) Governmental Approvals. The Parties shall have received all
other authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 5.1, Section 6.4, and Section 7.3 above.
(d) No Injunction or Proceedings. There shall not be in effect any
action, suit, or proceeding pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge that would, in the
reasonable judgment of MLC or ECC, (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of MLC to own the capital stock of the Surviving
Corporation, or (D) affect adversely the right of the Surviving Corporation to
own its assets and to operate its businesses (and no such injunction, judgment,
order, decree, ruling, or charge is in effect).
(e) No Suspension of Trading, Etc. At the Effective Time, there
shall be no suspension of trading in MLC Common Shares on the Nasdaq National
Market, declaration of a banking moratorium by federal or state authorities or
any suspension of payments by banks in the United States (whether mandatory or
not) or of the extension of credit by lending institutions
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<PAGE> 31
in the United States, or commencement of war or other international, armed
hostility or national calamity directly or indirectly involving the United
States, which war, hostility or calamity (or any material acceleration or
worsening thereof), in the sole judgment of MLC, would have a Material Adverse
Effect on ECC or, in the sole judgment of the Stockholders, would have a
Material Adverse Effect on MLC.
(f) Employment Agreements. Vincent W. Marino shall have entered into
an employment agreement with MLC in substantially the form attach hereto as
Exhibit A.
(g) Escrow Agreement. MLC and the Stockholders shall have executed
and delivered counterparts of the Escrow Agreement in the form attached hereto
as Exhibit B, together with any counterparts signed by the Escrow Agent and
blank stock powers executed by each of the Stockholders with respect to the MLC
Common Shares to be held in the Escrow Deposit.
10.2 Conditions to Obligation of MAC and MLC. The obligations of MAC
and MLC to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(a) the Stockholders and ECC shall have delivered to MAC and MLC a
certificate to the effect that:
(i) the representations and warranties set forth in Article 5
and Article 7 above are true and correct in all material respects at and as of
the Closing Date;
(ii) the Stockholders and ECC have performed and complied with
all of their covenants hereunder in all material respects at and as of the
Closing Date;
(iii) ECC has procured all of the third party consents specified
in Sections 7.3 and 7.4 above; and
(iv) no action, suit, or proceeding is pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge that would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation, (C) affect adversely the right of MLC to
own the capital stock of the Surviving Corporation, or (D) affect adversely the
right of the Surviving Corporation to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or charge
is in effect);
(b) MAC and MLC shall have received an opinion dated as of the
Closing Date from Binder, Kalis & Proctor, P.C., counsel to the Stockholders
and ECC, addressed and in form satisfactory to MAC and MLC;
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<PAGE> 32
(c) MAC and MLC shall have received an opinion dated as of the
Closing Date from Herbein and Company, Inc. certified public accountants and
independent accountants for the Stockholders and ECC, addressed to MAC and MLC,
that Herbein and Company, Inc. is not aware of any circumstance related to ECC
that would prohibit the Merger from being accounted for as a pooling of
interests for financial reporting purposes;
(d) MAC and MLC shall have received an opinion dated as of the
Closing Date from Deloitte & Touche LLP, certified public accountants and
independent accountants for MAC and MLC, addressed to MAC and MLC, to the
effect that the Merger shall be accounted for as a pooling of interests for
financial reporting purposes;
(e) MLC shall have received the resignations, effective as of the
Closing, of each director and officer of ECC, other than those officers
specified in Section 3.3 who shall continue as officers of the Surviving
Corporation;
(f) MLC shall have received satisfactory evidence that all bonus
plans under which officers, directors or employees of ECC are beneficiaries
have been terminated as of the Closing Date;
(g) As of the Closing Date, there has been no event shall have
occurred and no circumstance shall exist that has or could have a Material
Adverse Effect on ECC; and
(h) MLC shall have received a satisfactory pooling letter form each
of the Stockholders. MLC may waive any condition specified in this Section
10.2 if it executes a writing so stating at or prior to the Closing.
10.3 Conditions to Obligation of the Stockholders and ECC. The
obligation of the Stockholders and ECC to consummate the transactions to be
performed by them in connection with the Closing is subject to satisfaction of
the following conditions:
(a) MAC and MLC shall have delivered to Stockholders and ECC a
certificate to the effect that:
(i) the representations and warranties set forth in Article 6
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) MAC and MLC shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing; and
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
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<PAGE> 33
Agreement or (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(b) MLC shall have delivered to the Stockholders the Merger
Consideration pursuant to Section 4.2; and
(c) the Stockholders shall have received an opinion dated as of the
Closing Date from Shaw, Pittman, Potts & Trowbridge, counsel to MAC and MLC,
addressed and in form satisfactory to the Stockholders.
The Stockholders may waive any condition specified in this Section 10.3 if they
execute a writing so stating at or prior to the Closing.
ARTICLE 11
TERMINATION
11.1 Termination by Mutual Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, before
or after the approval by the Stockholders or the sole stockholder of MAC,
respectively, by the mutual written consent of MLC and the Representative .
11.2 Termination by Either MLC or ECC. This Agreement may be
terminated and the Merger may be abandoned (a) by action of the Board of
Directors of MLC in the event of a failure of a condition to the obligations of
MLC or MAC set forth in Section 10.2 of this Agreement; (b) by majority vote of
the Stockholders in the event of a failure of a condition to the obligations of
the Stockholders or ECC set forth in Section 10.3 of this Agreement; (c) by MLC
in its sole discretion in the event that the Average Share Price is less than
$8.00; (d) if a United States federal or state court of competent jurisdiction
or United States federal or state governmental agency shall have issued an
order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and such other, decree, ruling or other action shall have become
final and non-appealable; or (e) the Effective Time has not occurred by
September 30, 1997; and provided, in the case of a termination pursuant to
clause (a), (b) or (e) above, that the terminating party shall not have
breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the occurrence of the failure
referred to in said clause.
11.3 Effect of Termination and Abandonment. In the event of
termination of this Agreement and abandonment of the Merger pursuant to this
Article 11, no party hereto (or any of its directors or officers) shall have
any liability or further obligation to any other party to this Agreement,
except that nothing herein will relieve any party from liability for any breach
of this Agreement.
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ARTICLE 12
INDEMNIFICATION
12.1 Indemnity Obligations of the Stockholders. Subject to Section
12.5 and Section 12.6, each of the Stockholders hereby jointly and severally
agrees to indemnify and hold MLC and MAC harmless from, and to reimburse MLC
and MAC for, any MLC Indemnity Claims arising under the terms and conditions of
this Agreement. For purposes of this Agreement, the term "MLC Indemnity Claim"
shall mean any loss, damage, deficiency, claim, liability, obligation, suit,
action, fee, cost or expense of any nature whatsoever resulting from (i) any
breach of any representation and warranty of the Stockholders or ECC which is
contained in this Agreement or any Schedule, Exhibit or certificate delivered
pursuant thereto; (ii) any breach or non-fulfillment of, or any failure to
perform, any of the covenants, agreements or undertakings of the Stockholders
or ECC which are contained in or made pursuant to this Agreement; and (iii)
all interest, penalties and costs and expenses (including, without limitation,
all reasonable fees and disbursements of counsel) arising out of or related to
any indemnification made under this Section 12.1.
12.2 Indemnity Obligations of MLC and MAC. MLC and MAC hereby jointly
and severally agree to indemnify and hold each of the Stockholders harmless
from, and to reimburse each of the Stockholders for, any Stockholder Indemnity
Claims arising under the terms and conditions of this Agreement. For purposes
of this Agreement, the term "Stockholder Indemnity Claim" shall mean any loss,
damage, deficiency, claim, liability, suit, action, fee, cost or expense of any
nature whatsoever incurred by the Stockholders resulting from (i) any breach of
any representation and warranty of MLC or MAC which is contained in this
Agreement or any Schedule, Exhibit or certificate delivered pursuant thereto;
(ii) any breach or non-fulfillment of, or failure to perform, any of the
covenants, agreements or undertakings of MLC or MAC which are contained in or
made pursuant to the terms and conditions of this Agreement; and (iii) all
interest, penalties, costs and expenses (including, without limitation, all
reasonable fees and disbursements of counsel) arising out of or related to any
indemnification made under this Section 12.2.
12.3 Appointment of Representative. Each of the Stockholders hereby
appoints Vincent W. Marino as its exclusive agent to act on its behalf with
respect to any and all Stockholder Indemnity Claims and any and all MLC
Indemnity Claims arising under this Agreement or such other representative as
may be hereafter appointed by a majority in interest of the Stockholders. Such
agent is hereinafter referred to as the "Representative." The Representative
shall take, and the Stockholders agree that the Representative shall take, any
and all actions which the Representative believes are necessary or appropriate
under this Agreement for and on behalf of the Stockholders, as fully as if such
parties were acting on their own behalf, including, without limitation,
asserting Stockholder Indemnity Claims against MLC, defending all MLC Indemnity
Claims, consenting to, compromising or settling all Stockholder Indemnity
Claims and MLC Indemnity Claims, conducting negotiations with MLC and its
representatives regarding such claims, dealing with MLC and the Escrow Agent
under the Escrow Agreement referred to in Section 12.6(a) below with respect to
all matters arising under the Escrow Agreement, taking any and all other
actions specified in or contemplated by this Agreement and engaging counsel,
accountants or other representatives in connection with the foregoing matters.
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MLC shall have the right to rely upon all actions taken or omitted to be taken
by the Representative pursuant to this Agreement, all of which actions or
omissions shall be legally binding upon the Stockholders. The Representative,
acting pursuant to this Section 12.3, shall not be liable to any other
Stockholder for any act or omission, except in connection with any act or
omission that was the result of the Representative's bad faith or gross
negligence.
12.4 Notification of Claims. Subject to the provisions of Section
12.5 and Section 12.6, in the event of the occurrence of an event which any
party asserts constitutes a MLC Indemnity Claim or a Stockholder Indemnity
Claim, as applicable, such party shall provide the indemnifying party with
prompt notice of such event and shall otherwise make available to the
indemnifying party all relevant information which is material to the claim and
which is in the possession of the indemnified party. If such event involves
the claim of any third party (a "Third-Party Claim"), the indemnifying party
shall have the right to elect to join in the defense, settlement, adjustment or
compromise of any such Third-Party Claim, and to employ counsel to assist such
indemnifying party in connection with the handling of such claim, at the sole
expense of the indemnifying party, and no such claim shall be settled, adjusted
or compromised, or the defense thereof terminated, without the prior consent of
the indemnifying party unless and until the indemnifying party shall have
failed, after the lapse of a reasonable period of time, but in no event more
than 30 days after written notice to it of the Third-Party Claim, to join in
the defense, settlement, adjustment or compromise of the same. An indemnified
party's failure to give timely notice or to furnish the indemnifying party with
any relevant data and documents in connection with any Third-Party Claim shall
not constitute a defense (in part or in whole) to any claim for indemnification
by such party, except and only to the extent that such failure shall result in
any material prejudice to the indemnifying party. If so desired by any
indemnifying party, such party may elect, at such party's sole expense, to
assume control of the defense, settlement, adjustment or compromise of any
Third-Party Claim, with counsel reasonably acceptable to the indemnified
parties, insofar as such claim relates to the liability of the indemnifying
party, provided that such indemnifying party shall obtain the consent of all
indemnified parties before entering into any settlement, adjustment or
compromise of such claims, or ceasing to defend against such claims, if as a
result thereof, or pursuant thereto, there would be imposed on an indemnified
party any material liability or obligation not covered by the indemnity
obligations of the indemnifying parties under this Agreement (including,
without limitation, any injunctive relief or other remedy). In connection with
any Third-Party Claim, the indemnified party, or the indemnifying party if it
has assumed the defense of such claim pursuant to the preceding sentence, shall
diligently pursue the defense of such Third-Party Claim.
12.5 Survival. All representations and warranties, and, except as
otherwise provided in this Agreement, all covenants and agreements of the
parties contained in or made pursuant to this Agreement, and the rights of the
parties to seek indemnification with respect thereto, shall survive the
Closing. Such representations and warranties, and the rights of the parties to
seek indemnification with respect thereto, shall expire on the earlier of (i)
the date of issuance of the report of MLC's independent accountants with
respect to the audited consolidated financial statements of MLC for the fiscal
year ending March 31, 1998 or (ii) the first anniversary of the Closing Date.
No claim shall be made after the applicable survival period.
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12.6 Escrow.
(a) The Stockholders shall deposit into escrow, with the Escrow Agent
named in the Escrow Agreement, such number of MLC Common Shares issued in
connection with the Merger having an aggregate value (based on the Average
Share Price) of ten percent of the Merger Consideration (such deposit being
referred to as the "Escrow Deposit"). Until such time as the aggregate amount
of MLC Indemnity Claims which have been definitively resolved to be payable in
favor of MLC or MAC shall equal or exceed the amount of the Deemed Escrow Value
(as hereinafter defined), all MLC Indemnity Claims shall be satisfied first out
of the MLC Common Shares held in the Escrow Deposit, as further provided under
the terms of the Escrow Agreement. For purposes hereof, all MLC Common Shares
returned to MLC in settlement of any MLC Indemnity Claims under the Escrow
Agreement shall be valued at the Average Share Price. At such time as the
aggregate amount of MLC Indemnity Claims which have been definitively resolved
to be payable in favor of MLC or MAC shall exceed the Deemed Escrow Value, each
of the Stockholders shall thereafter be jointly and severally liable to MLC or
MAC for such claims. To the extent not inconsistent with pooling of interests
restrictions, the liability of the Stockholders for payable MLC Indemnity
Claims in excess of the Deemed Escrow Value may be satisfied, at the election
of each Stockholder, through (i) the delivery of MLC Common Shares to MLC, such
shares to be valued at the Average Share Price, (ii) the payment of cash or
(iii) any combination of such MLC Common Shares valued at the Average Share
Price and cash. With respect to any MLC Common Shares to be returned to the
MLC by the Stockholders in settlement of MLC Indemnity Claims pursuant to this
Section 12.6, any dividends previously paid in respect of such returned MLC
Common Shares (whether paid in cash, MLC Common Shares or other property) shall
also be returned to MLC, provided that the value of such dividends shall not be
taken into account for purposes of determining the value of such returned MLC
Common Shares, as contemplated under paragraph 47g of Accounting Principles
Board Opinion No. 16 (Interpretation No. 121).
(b) For purposes of this Agreement, the term "Deemed Escrow Value"
shall mean the value of the MLC Common Shares to be transferred by the
Stockholders into the Escrow Deposit, determined by multiplying such number of
MLC Common Shares times the Average Share Price.
12.7 MLC Payment of Stockholder Indemnity Claims. Notwithstanding
anything to the contrary herein, any liability of MAC and MLC under this
Agreement for Stockholder Indemnity Claims (other than pursuant to item (iii)
of Section 12.2) shall be satisfied solely through the issuance of additional
MLC Common Shares, such additional MLC Common Shares to be valued at the
Average Share Price and to be issued on a pro rata basis to the Stockholders
based on their relative equity interests in ECC immediately prior to the
consummation of the Merger.
ARTICLE 13
MISCELLANEOUS
13.1 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the
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Closing without the prior written approval of MLC and the Representative;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Parties prior to making the
disclosure).
13.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
13.3 Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
13.4 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his rights, interests, or obligations hereunder without the prior
written approval of MLC and the Representative; provided, however, that MLC may
(i) assign any or all of its rights and interests hereunder to one or more of
its Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases MLC nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
13.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
13.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.7 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to ECC or the Stockholders:
Educational Computer Concepts, Inc.
130 Futura Drive
POB 479
Pottstown, PA 19464
Attn: Vincent W. Marino, President
Telecopy: (610) 495-2800
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<PAGE> 38
With copy to:
Binder, Kalis & Proctor, P.C.
13 Armand Hammer Boulevard
Pottstown, PA 19464
Attn: Howard E. Kalis, Esq.
Telecopy: (610) 970-2082
If to MLC and MAC:
Kleyton L. Parkhurst
Secretary and Treasurer
MLC Holdings, Inc.
11150 Sunset Hills Road
Suite 110
Reston, Virginia
Telecopy: (703) 834-5710
With copy to:
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Attn: John M. McDonald, Esq.
Telecopy: (202) 663-8007
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
13.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF DELAWARE WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE
OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
13.9 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by MLC
and the Representative. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
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<PAGE> 39
13.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
13.11 Expenses. Each of the Parties will bear his, her or its own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Stockholders
agree that ECC has not borne or will bear any of the Stockholders' costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
13.12 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any federal, state,
local, or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
13.13 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
13.14 Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 13.15 below), in addition to any other remedy to which they
may be entitled, at law or in equity.
13.15 Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in the State of Delaware or
the Commonwealth of Virginia, in any action or proceeding arising out of or
relating to this Agreement and agrees that all claims in respect of the action
or proceeding may be heard and determined in any such court.
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<PAGE> 40
13.16 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
MLC:
MLC HOLDINGS, INC.
By:
----------------------------------------
Its:
----------------------------------------
MAC:
MLC ACQUISITION CORP.
By:
-----------------------------------------
Its:
-----------------------------------------
ECC:
EDUCATIONAL COMPUTER CONCEPTS, INC.
By:
-----------------------------------------
Its:
-----------------------------------------
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<PAGE> 41
STOCKHOLDERS:
---------------------------------------------
Vincent W. Marino
---------------------------------------------
Ralph E. Marcellus
---------------------------------------------
Rodney Gamet
---------------------------------------------
David Winans
---------------------------------------------
Lucille DeFrancesco
---------------------------------------------
Matthew McBride
- 40 -
<PAGE> 42
CLOSING CERTIFICATE
This Closing Certificate is being entered into in connection with that
certain Agreement and Plan of Merger dated as of September 29, 1997 ("Merger
Agreement") by and among MLC Holdings, Inc. ("MLC") a Delaware corporation, MLC
Acquisition Corp., a Pennsylvania corporation, and Educational Computer
Concepts, Inc. ("ECC"), a Pennsylvania corporation and Vincent W. Marino, as
the representative ("Representative") of the shareholders of ECC (the
"Shareholders"). The undersigned hereby acknowledge and agree that "Average
Share Price" for purposes of calculating the number of shares of common stock
of MLC to be issued in the Merger contemplated in the Merger Agreement shall be
$14.21, as calculated in the attached schedule and that Section 4.2(b) of the
Merger Agreement is amended accordingly.
DATED: September 29, 1997
MLC HOLDINGS, INC.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
MLC ACQUISITION CORP.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
EDUCATIONAL COMPUTER CONCEPTS,
INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
REPRESENTATIVE
------------------------------------------
Vincent W. Marino
<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 twenty-seven million(27,000,000)
shares consisting of twenty-five million (25,000,000) 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").
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<PAGE> 2
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 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
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<PAGE> 3
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.
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.
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<PAGE> 4
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.
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
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<PAGE> 5
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.
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,
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<PAGE> 6
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.*
-------------------------
*Pursuant to Item 601(b)(3)(i) of Regulation S-K, this exhibit is a
complete copy of the Certificate of Incorporation, and includes the amendment
dated September 30, 1997 which restated Article "FOURTH" in its entirety.
6 of 6
<PAGE> 1
EXHIBIT 10.21
MLC MASTER STOCK INCENTIVE PLAN
(Amendment and Restatement of 1996 Stock Incentive Plan)
This MLC Master Stock Incentive Plan (the "Plan" or the "Master Stock
Incentive Plan") of MLC Holdings, Inc., a Delaware corporation (the "Company"),
is made effective as of May 14, 1997. The effective date of the Plan was
September 1, 1996, and the effective date of this Amendment and Restatement
shall be May 14, 1997, the date on which the Board adopted this Plan, subject
to approval by the Shareholders. No Options granted prior to Shareholder
approval of the Plan shall be exercisable unless and until the Shareholders of
the Company approve this Plan.
RECITALS
WHEREAS, the Company has established the 1996 Stock Incentive Plan, 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;
WHEREAS, the Company desires that the Plan encompass a broad variety
of stock compensation alternatives to be governed and administered as
hereinafter provided; and
WHEREAS, the Company desires to increase the aggregate number of
shares allocated to the Plan and its component plans, and to add an employee
stock purchase program as a component plan, and to this end hereby amends,
restates, and renames the 1996 Stock Incentive Plan.
ARTICLE 1
STOCK PLANS
1.1 The Master Stock Incentive Plan shall be comprised of the
following independent plans, the terms of which are incorporated herein in
their entirety:
A. Amended and Restated Incentive Stock Option Plan;
B. Amended and Restated Nonqualified Stock Option Plan;
C. Amended and Restated Outside Director Stock Option
Plan;
D. MLC Employee Stock Purchase Plan; and
E. Such other restricted stock and performance-based
stock awards and programs as shall be establishedby
the Board of Directors of the Company.
<PAGE> 2
ARTICLE 2
ADMINISTRATION
2.1 The Master Stock Incentive Plan shall be administered by an
incentive stock plan committee (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 Master 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
Master 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 and, subject to the provisions of the Master
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 Master 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 Master 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 Master 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 Master 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.
2
<PAGE> 3
ARTICLE 4
STOCK SUBJECT TO PLAN
4.1 There are reserved for issuance under the component stock
plans included within the Master Stock Incentive Plan, a number of shares of
the common stock of MLC Holdings, Inc. equal to twenty percent (20%) of the
total number of shares of Common Stock outstanding from time to time, as
determined immediately after giving pro forma effect to the assumed exercise of
all option or purchase rights under all of the component plans of the Master
Stock Incentive Plan ("Reserved Shares"). The Board of Directors may, in its
discretion reserve and allocate a portion of this aggregate number of shares
for issuance under one of the component plans of the Master Stock Incentive
Plan, otherwise such Reserves Shares shall be considered reserved for and
available under any of the component plans.
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 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
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<PAGE> 4
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 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.
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<PAGE> 5
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 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 10.22
AMENDED AND RESTATED INCENTIVE STOCK OPTION PLAN
(Amendment and Restatement of 1996 Incentive Stock Option Plan)
The Amended and Restated 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.
RECITALS
WHEREAS, the Company has previously established the 1996 Incentive
Stock Option Plan, a stock incentive program to provide an opportunity for all
employees of the Company to participate in ownership of the Company;
WHEREAS, the 1996 Incentive Stock Option Plan is a component Plan of
the 1996 Stock Incentive Plan;
WHEREAS, the Company's Board had adopted, and recommended to the
shareholders for ratification, certain amendments to the 1996 Stock Incentive
Plan (amended, restated and renamed as the MLC "Master Stock Incentive Plan")
and its component plans, including the 1996 Incentive Stock Option Plan;
WHEREAS, the amendments increase the aggregate number of shares
allocated to the Master Stock Incentive Plan and its component plans, and to
add an employee stock purchase program as a component plan,
WHEREAS, the Company desires to make coordinating amendments to the
1996 Incentive Stock Option Plan to increase the number of shares for which
options may be granted under the Plan, subject, however, to a specified
aggregate maximum number, and to this end hereby amends, restates and renames
the 1996 Incentive Stock Option Plan as the Amended and Restated Incentive
Stock Option Plan.
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 Amended and Restated Incentive Stock Option Plan, the singular shall
include the plural, the masculine gender shall include the feminine, and vice
versa:
<PAGE> 2
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 MLC Master 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 MLC Holdings, Inc. Amended and Restated
Incentive 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 The effective date of the Plan was September 1, 1996, and the
effective date of this Amendment and Restatement shall be May 14, 1997, the
date on which the Board adopted this Plan, subject to approval by the
Shareholders. No Options granted prior to Shareholder approval of the Plan
shall be exercisable unless and until the Shareholders of the Company approve
this Plan.
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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 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 full and part-time 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,
together with shares that may be issued under all other component plans of the
Company's Master Stock Incentive Plan, a number of shares of the common stock
of MLC Holdings, Inc. equal to twenty percent (20%) of the
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<PAGE> 4
total number of shares of Common Stock outstanding from time to time, as
determined immediately after giving pro forma effect to the assumed exercise of
all option or purchase rights under all of the component plans of the Master
Stock Incentive Plan ("Reserved Shares"). Provided, that notwithstanding the
foregoing or any other provision of this Plan or the Master Stock Incentive
Plan, the aggregate number of shares which may be issued pursuant to options
granted under this Plan shall not exceed 4,000,000. 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 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 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
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<PAGE> 5
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. In the event the Common Stock is not 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. For so long as 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.
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<PAGE> 6
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 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
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<PAGE> 7
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 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 necessary to comply with applicable law, without Shareholder
approval.
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<PAGE> 8
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 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.
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<PAGE> 9
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 10.23
MLC HOLDINGS, INC.
AMENDED AND RESTATED OUTSIDE DIRECTOR STOCK OPTION PLAN
(Amendment and Restatement of the 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.
RECITALS
WHEREAS, the Company has previously established the 1996 Outside
Director Stock Option Plan, a stock incentive program designed to offer the
Company a means to attract qualified individuals to serve on the Board of the
Company and to provide an opportunity for outside nonemployee directors of the
Company to participate in ownership of the Company;
WHEREAS, the 1996 Outside Director Stock Option Plan is a component
Plan of the 1996 Stock Incentive Plan;
WHEREAS, the Company's Board had adopted, and recomended to the
shareholders for ratification, certain amendments to the 1996 Stock Incentive
Plan (amended, restated and renamed as the MLC "Master Stock Incentive Plan")
and its component plans, including the 1996 Outside Director Stock Option Plan;
WHEREAS, the amendments increase the aggregate number of shares
allocated to the Master Stock Incentive Plan and its component plans, and to
add an employee stock purchase program as a component plan,
WHEREAS, the Company desires to make coordinating amendments to the
1996 Outside Director Stock Option Plan to increase the number of shares for
which options may be granted under the Plan, and to this end hereby amends,
restates and renames the 1996 Outside Director Stock Option Plan as the
Amended and Restated Outside Director Stock Option Plan.
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 Amended and Restated Outside
<PAGE> 2
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.
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. Amended and Restated
Outside Director Stock Option Plan.
1:08 "SEC" means the United States Securities and Exchange
Commission.
2
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ARTICLE 2
EFFECTIVE DATE OF THE PLAN
2:01 This Plan, as amended and restated, shall be effective as
of May 14, 1997, the date on which the Board adopted this Plan, subject
however, to approval by the Shareholders.
ARTICLE 3
AUTHORIZED GRANTS
3.01 Upon the effective date of this Plan, all existing
Options (for 10,000 shares for each outside director, 30,000 total) shall be
immediately exercisable.
3.02 An Option for ten thousand (10,000) 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, with such option
being exercisable one year after the date of grant.
3:03 Options shall be granted only after execution of an
Option Agreement.
ARTICLE 4
PARTICIPATION IN THE PLAN
4:01 Participation in the Plan shall be limited to
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,, together with shares that may be issued under all other component plans
of the Company's Master Stock Incentive Plan, a number of shares of the common
stock of MLC Holdings, Inc. equal to twenty percent (20%) of the total number
of shares of Common Stock outstanding from time to time, as determined
immediately after giving pro forma effect to the assumed exercise of all option
or purchase rights under all of the component plans of the Master Stock
Incentive Plan ("Reserved Shares"). 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.
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<PAGE> 4
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 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 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.
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<PAGE> 5
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 fair market value of a 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 at any time and from time to time with respect to all of the shares
covered thereby after the expiration of one (1) year from the date of grant and
prior to the termination of the Option; provided, however, that all current
Options granted under the Company's 1996 Outside Director Stock Option Plan
prior to the effective date of this Amended and Restated 1996 Outside Director
Stock Option Plan shall, as of such effective date, immediately be exercisable
at any time and from time to time with respect to all of the shares covered
thereby.
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 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.
5
<PAGE> 6
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.
7:03 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
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<PAGE> 7
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.
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.
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<PAGE> 1
EXHIBIT 10.24
AMENDED AND RESTATED NONQUALIFIED STOCK OPTION PLAN
(Amendment and Restatement of Nonqualified Stock Option Plan)
The Amended and Restated 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.
RECITALS
WHEREAS, the Company has previously established the 1996
Nonqualified Stock Option Plan, a stock incentive program to provide an
opportunity for all employees of the Company to participate in ownership of the
Company;
WHEREAS, the 1996 Nonqualified Stock Option Plan is a component
Plan of the 1996 Stock Incentive Plan;
WHEREAS, the Company's Board had adopted, and recomended to the
shareholders for ratification, certain amendments to the 1996 Stock Incentive
Plan (amended, restated and renamed as the MLC "Master Stock Incentive Plan")
and its component plans, including the 1996 Nonqualified Stock Option Plan;
WHEREAS, the amendments increase the aggregate number of shares
allocated to the Master Stock Incentive Plan and its component plans, and to
add an employee stock purchase program as a component plan,
WHEREAS, the Company desires to make coordinating amendments to the
1996 Nonqualified Stock Option Plan to increase the number of shares for which
options may be granted under the Plan, and to this end hereby amends,
restates and renames the 1996 Nonqualified Stock Option Plan as the Amended
and Restated Nonqualified Stock Option Plan.
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 MLC Holdings, Inc. Nonqualified Stock Option Plan, the singular shall
include the plural, the masculine gender shall include the feminine, and vice
versa:
<PAGE> 2
1:01 "Board" means the Board of Directors of MLC Holdings,
Inc., a Delaware corporation.
1:02 "Committee" means the stock incentive committee appointed
by the Board to administer the Amended and Restated 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 this Amended and Restated 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 The effective date of the Plan was September 1, 1996, and
the effective date of this Amendment and Restatement shall be May 14, 1997, the
date on which the Board adopted this Plan, subject to approval by the
Shareholders. No Options granted prior to Shareholder approval of the Plan
shall be exercisable unless and until the Shareholders of the Company approve
this Plan.
2
<PAGE> 3
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.
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
3
<PAGE> 4
5:01 There are reserved for the granting of Options under the
Plan, together with shares that may be issued under all other component plans
of the Company's Master Stock Incentive Plan, a number of shares of the common
stock of MLC Holdings, Inc. equal to twenty percent (20%) of the total number
of shares of Common Stock outstanding from time to time, as determined
immediately after giving pro forma effect to the assumed exercise of all option
or purchase rights under all of the component plans of the Master Stock
Incentive Plan ("Reserved Shares"). 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 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 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.
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<PAGE> 5
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 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.
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<PAGE> 6
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 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
6
<PAGE> 7
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 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.
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<PAGE> 8
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 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
8
<PAGE> 9
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.
9
<PAGE> 1
EXHIBIT 10.25
MLC HOLDINGS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The MLC Holdings, Inc. Employee Stock
Purchase Plan (the "PLAN") is established effective as of the date of approval
of this Plan by the stockholders (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to provide Eligible
Employees of the Participating Company Group with an opportunity to acquire a
proprietary interest in the Company through the purchase of Stock. The Company
intends that the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments or replacements of such
section), and the Plan shall be so construed.
1.3 TERM OF PLAN. The Plan shall continue in effect until
the earlier of its termination by the Board or the date on which all of the
shares of Stock available for issuance under the Plan have been issued.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the Plan
but defined for purposes of Section 423 of the Code shall have the same
definition herein. Whenever used herein, the following terms shall have their
respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified
by the Board. Unless the powers of the Committee have been specifically
limited, the Committee shall have all of the powers of the Board granted
herein, including, without limitation, the power to amend or terminate the Plan
at any time, subject to the terms of the Plan and any applicable limitations
imposed by law.
(d) "COMPANY" means MLC Holdings, Inc., a Delaware
corporation, or any successor corporation thereto.
(e) "COMPENSATION" means, with respect to any Offering
Period, a Participant's total compensation (base salary, commissions and
overtime) payable in cash during such Offering Period before deduction for any
contributions to any plan maintained by a Participating Company and described
in Section
1
<PAGE> 2
401(k) or Section 125 of the Code. Compensation shall not include
reimbursements of expenses, allowances, long-term disability, workers'
compensation or any amount deemed received without the actual transfer of cash
or any amounts directly or indirectly paid pursuant to the Plan or any other
stock purchase or stock option plan.
(f) "ELIGIBLE EMPLOYEE" means an Employee who meets
the requirements set forth in Section 5 for eligibility to participate in the
Plan.
(g) "EMPLOYEE" means a person treated as an employee
of a Participating Company for purposes of Section 423 of the Code. A
Participant shall be deemed to have ceased to be an Employee either upon an
actual termination of employment or upon the corporation employing the
Participant ceasing to be a Participating Company. For purposes of the Plan,
an individual shall not be deemed to have ceased to be an Employee while such
individual is on a military leave, sick leave or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event an
individual's leave of absence exceeds ninety (90) days, the individual shall be
deemed to have ceased to be an Employee on the ninety-first (91st) day of such
leave unless the individual's right to reemployment with the Participating
Company Group is guaranteed either by statute or by contract. The Company
shall determine in good faith and in the exercise of its discretion whether an
individual has become or has ceased to be an Employee and the effective date of
such individual's employment or termination of employment, as the case may be.
All such determinations by the Company shall be, for purposes of an
individual's participation in or other rights under the Plan as of the time of
the Company's determination, final, binding and conclusive, notwithstanding
that the Company or any governmental agency subsequently makes a contrary
determination.
(h) "FAIR MARKET VALUE" means, as of any date, if
there is then a public market for the Stock, the closing sale price of a share
of Stock (or the mean of the closing bid and asked prices if the Stock is so
quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap
Market or such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in The Wall Street
Journal or such other source as the Company deems reliable. If the relevant
date does not fall on a day on which the Stock has traded on such securities
exchange or market system, the date on which the Fair Market Value shall be
established shall be the last day on which the Stock was so traded prior to the
relevant date, or such other appropriate day as shall be determined by the
Board, in its sole discretion. If there is then no public market for the
Stock, the Fair Market Value on any relevant date shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse. Notwithstanding the foregoing, the Fair Market Value
per share of Stock on the Effective Date shall be deemed to be the public
offering price set forth in the final prospectus filed with the Securities and
Exchange Commission in connection with the initial public offering of the
Stock.
(i) "OFFERING" means an offering of Stock as provided
in Section 6.
(j) "OFFERING DATE" means, for any Offering Period,
the first day of such Offering Period.
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<PAGE> 3
(k) "OFFERING PERIOD" means a period established in
accordance with Section 6.1.
(l) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(m) "PARTICIPANT" means an Eligible Employee who has
become a participant in an Offering Period in accordance with Section 7 and
remains a participant in accordance with the Plan.
(n) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation designated by the Board as a
corporation the Employees of which may, if Eligible Employees, participate in
the Plan. The Board shall have the sole and absolute discretion to determine
from time to time which Parent Corporations or Subsidiary Corporations shall be
Participating Companies.
(o) "PARTICIPATING COMPANY GROUP" means, at any point
in time, the Company and all other corporations collectively which are then
Participating Companies.
(p) "PURCHASE DATE" means, for any Offering Period (or
Purchase Period if so determined by the Board in accordance with Section 6.2),
the last day of such period.
(q) "PURCHASE PERIOD" means a period, if any,
established in accordance with Section 6.2.
(r) "PURCHASE PRICE" means the price at which a share
of Stock may be purchased under the Plan, as determined in accordance with
Section 9.
(s) "PURCHASE RIGHT" means an option granted to a
Participant pursuant to the Plan to purchase such shares of Stock as provided
in Section 8, which the Participant may or may not exercise during the Offering
Period in which such option is outstanding. Such option arises from the right
of a Participant to withdraw any accumulated payroll deductions of the
Participant not previously applied to the purchase of Stock under the Plan and
to terminate participation in the Plan or any Offering thereunder at any time
during an Offering Period.
(t) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
(u) "SUBSCRIPTION AGREEMENT" means a written agreement
in such form as specified by the Company, stating an Employee's election to
participate in the Plan and authorizing payroll deductions under the Plan from
the Employee's Compensation.
(v) "SUBSCRIPTION DATE" means the last business day
prior to the Offering Date of an Offering Period or such earlier date as the
Company shall establish.
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<PAGE> 4
(w) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are
for convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular.
Use of the term "or" is not intended to be exclusive, unless the context
clearly requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board, including any duly appointed Committee of the Board.
All questions of interpretation of the Plan, of any form of agreement or other
document employed by the Company in the administration of the Plan, or of any
Purchase Right shall be determined by the Board and shall be final and binding
upon all persons having an interest in the Plan or the Purchase Right. Subject
to the provisions of the Plan, the Board shall determine all of the relevant
terms and conditions of Purchase Rights granted pursuant to the Plan; provided,
however, that all Participants granted Purchase Rights pursuant to the Plan
shall have the same rights and privileges within the meaning of Section
423(b)(5) of the Code. All expenses incurred in connection with the
administration of the Plan shall be paid by the Company.
3.2 AUTHORITY OF OFFICERS. Any officer of the Company shall
have the authority to act on behalf of the Company with respect to any matter,
right, obligation, determination or election that is the responsibility of or
that is allocated to the Company herein, provided that the officer has apparent
authority with respect to such matter, right, obligation, determination or
election.
3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY. The
Company may, from time to time, consistent with the Plan and the requirements
of Section 423 of the Code, establish, change or terminate such rules,
guidelines, policies, procedures, limitations, or adjustments as deemed
advisable by the Company, in its sole discretion, for the proper administration
of the Plan, including, without limitation, (a) a minimum payroll deduction
amount required for participation in an Offering, (b) a limitation on the
frequency or number of changes in the rate of payroll deduction during an
Offering, (c) an exchange ratio applicable to amounts withheld in a currency
other than United States dollars, (d) a payroll deduction greater than or less
than the amount designated by a Participant in order to adjust for the
Company's delay or mistake in processing a Subscription Agreement or in
otherwise effecting a Participant's election under the Plan or as advisable to
comply with the requirements of Section 423 of the Code, and (e) determination
of the date and manner by which the Fair Market Value of a share of Stock is
determined for purposes of administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock
that may be issued under the Plan,
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together with all other shares that may be issued under all other component
plans of the Company's Master Stock Incentive Plan, shall be a number of shares
of the common stock of MLC Holdings, Inc. equal to twenty percent (20%) of the
total number of shares of Common Stock outstanding from time to time, as
determined immediately after giving pro forma effect to the assumed exercise of
all option or purchase rights under all of the component plans of the Master
Stock Incentive Plan ("Reserved Shares"). Provided, that notwithstanding the
foregoing or any other provision of this Plan or the Master Stock Incentive
Plan, the aggregate number of shares which may be issued pursuant to options
granted under this Plan shall not exceed 4,000,000. If an outstanding Purchase
Right for any reason expires or is terminated or canceled, the shares
of Stock allocable to the unexercised portion of such Purchase Right shall
again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the
event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification or similar change in the
capital structure of the Company, or in the event of any merger (including a
merger effected for the purpose of changing the Company's domicile), sale of
assets or other reorganization in which the Company is a party, appropriate
adjustments shall be made in the number and class of shares subject to the Plan
and each Purchase Right and in the Purchase Price. If a majority of the shares
which are of the same class as the shares that are subject to outstanding
Purchase Rights are exchanged for, converted into, or otherwise become (whether
or not pursuant to an Ownership Change Event) shares of another corporation
(the "NEW SHARES"), the Board may unilaterally amend the outstanding Purchase
Rights to provide that such Purchase Rights are exercisable for New Shares. In
the event of any such amendment, the number of shares subject to, and the
Purchase Price of, the outstanding Purchase Rights shall be adjusted in a fair
and equitable manner, as determined by the Board, in its sole discretion.
Notwithstanding the foregoing, any fractional share resulting from an
adjustment pursuant to this Section 4.2 shall be rounded down to the nearest
whole number, and in no event may the Purchase Price be decreased to an amount
less than the par value, if any, of the stock subject to the Purchase Right.
The adjustments determined by the Board pursuant to this Section 4.2 shall be
final, binding and conclusive.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Each Employee of a
Participating Company is eligible to participate in the Plan and shall be
deemed an Eligible Employee, except the following:
(a) Any Employee who is customarily employed by the
Participating Company Group for twenty (20) hours or less per week; and
(b) Any Employee who is customarily employed by the
Participating Company Group for not more than five (5) months in any calendar
year.
5.2 EXCLUSION OF CERTAIN SHAREHOLDERS. Notwithstanding any
provision of the Plan to the contrary, no Employee shall be granted a Purchase
Right under the Plan if, immediately after such grant, such Employee would own
or hold options to purchase stock of the Company or of any Parent Corporation
or Subsidiary Corporation possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of such corporation, as
determined in accordance with Section 423(b)(3) of the Code. For purposes of
this Section 5.2, the attribution
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rules of Section 424(d) of the Code shall apply in determining the stock
ownership of such Employee.
6. OFFERINGS.
6.1 OFFERING PERIODS. Except as otherwise set forth below,
the Plan shall be implemented by sequential semi-annual Offerings of six (6)
months duration or such other duration as the Board shall determine. The first
Offering Period shall commence on the first day of the first calendar quarter
occuring on or after the Effective Date (the "INITIAL OFFERING PERIOD").
Subsequent Offering Periods shall commence on or about January 1, and July
1, of each year and end on or about the last business day of each
such six month period, respectively. Notwithstanding the foregoing, the Board
may establish a different term for one or more Offerings or different
commencing or ending dates for such Offerings; provided, however, that no
Offering may exceed a term of twenty-seven (27) months. If the first or last
day of an Offering Period is not a day on which the national securities
exchanges or Nasdaq Stock Market are open for trading, the Company shall
specify the trading day that will be deemed the first or last day, as the case
may be, of the Offering Period.
6.2 PURCHASE PERIODS. If the Board so determines, in its
discretion, each Offering Period may consist of two (2) or more consecutive
Purchase Periods having such duration as the Board shall specify, and the last
day of each such Purchase Period shall be a Purchase Date. If the first or
last day of a Purchase Period is not a day on which the national securities
exchanges or Nasdaq Stock Market are open for trading, the Company shall
specify the trading day that will be deemed the first or last day, as the case
may be, of the Purchase Period.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee may become a
Participant in an Offering Period by delivering a properly completed
Subscription Agreement to the Company's payroll office or other office
designated by the Company not later than the close of business for such office
on the Subscription Date established by the Company for such Offering Period.
An Eligible Employee who does not deliver a properly completed Subscription
Agreement to the Company's payroll office or other designated office on or
before the Subscription Date for an Offering Period shall not participate in
the Plan for that Offering Period or for any subsequent Offering Period unless
such Eligible Employee subsequently delivers a properly completed Subscription
Agreement to the appropriate office of the Company on or before the
Subscription Date for such subsequent Offering Period. An Employee who becomes
an Eligible Employee after the Offering Date of an Offering Period shall not be
eligible to participate in such Offering Period but may participate in any
subsequent Offering Period provided such Employee is still an Eligible Employee
as of the Offering Date of such subsequent Offering Period.
7.2 CONTINUED PARTICIPATION. A Participant shall
automatically participate in the next Offering Period commencing immediately
after the final Purchase Date of each Offering Period in which the Participant
participates provided that such Participant remains an Eligible Employee on the
Offering Date of the new Offering Period and has not either (a) withdrawn from
the Plan
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pursuant to Section 12.2 or (b) terminated employment as provided in Section 13.
A Participant who may automatically participate in a subsequent Offering Period,
as provided in this Section 7.2, is not required to deliver any additional
Subscription Agreement for the subsequent Offering Period in order to continue
participation in the Plan. However, a Participant may deliver a new Subscription
Agreement for a subsequent Offering Period in accordance with the procedures set
forth in Section 7.1 if the Participant desires to change any of the elections
contained in the Participant's then effective Subscription Agreement. Eligible
Employees may not participate simultaneously in more than one Offering if the
Company establishes concurrent Offerings.
8. RIGHT TO PURCHASE SHARES.
8.1 GRANT OF PURCHASE RIGHT. Except as set forth below, on
the Offering Date of each Offering Period, each Participant in such Offering
Period shall be granted automatically a Purchase Right consisting of an option
to purchase that number of whole shares of Stock determined by dividing the
lesser of (i) Five Thousand Dollars ($5,000) or (ii) ten percent (10%) of the
Participant's Compensation for such Offering Period by eighty-five percent
(85%) of the Fair Market Value of a share of Stock on the Offering Date of the
Offering Period. No Purchase Right shall be granted on an Offering Date to any
person who is not, on such Offering Date, an Eligible Employee.
8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. Notwithstanding
the provisions of Section 8.1, if the Board establishes an Offering Period of
less than five and one-half (5 1/2) months or more than six and one-half (6
1/2) months in duration, the number of shares of Stock subject to a Purchase
Right shall be the lesser of (i) Eight Hundred Thirty-Three and Thirty-Three
One Hundredths Dollars ($833.33) multiplied by the number of months (rounded
to the nearest whole month) in the Offering Period or (ii) ten percent (10%)
of the Participant's Compensation for such Offering Period divided by
eighty-five percent (85%) of the Fair Market Value of a share of Stock on the
Offering Date of the Offering Period and rounding the result to the nearest
whole share.
8.3 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding any
provision of the Plan to the contrary, no Purchase Right shall entitle a
Participant to purchase shares of Stock under the Plan at a rate which, when
aggregated with such Participant's rights to purchase shares under all other
employee stock purchase plans of a Participating Company intended to meet the
requirements of Section 423 of the Code, exceeds Twenty-Five Thousand Dollars
($25,000) in Fair Market Value (or such other limit, if any, as may be imposed
by the Code) for each calendar year in which such Purchase Right has been
outstanding at any time. For purposes of the preceding sentence, the Fair
Market Value of shares purchased during a given Offering Period shall be
determined as of the Offering Date for such Offering Period. The limitation
described in this Section 8.3 shall be applied in conformance with applicable
regulations under Section 423(b)(8) of the Code.
9. PURCHASE PRICE. The Purchase Price at which each share of Stock
may be acquired in an Offering Period upon the exercise of all or any portion
of a Purchase Right shall be established by the Board; provided, however, that
the Purchase Price shall not be less than eighty-five percent (85%) of the
lesser of (a) the Fair Market Value of a share of Stock on the Offering Date of
the Offering Period or (b) the Fair Market Value of a share of Stock on the
Purchase Date. Unless otherwise provided by the Board prior to the
commencement of an Offering Period, the Purchase
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Price for that Offering Period shall be eighty-five percent (85%) of the lesser
of (a) the Fair Market Value of a share of Stock on the Offering Date of the
Offering Period, or (b) the Fair Market Value of a share of Stock on the
Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION.
Shares of Stock acquired pursuant to the exercise of all or any portion of a
Purchase Right may be paid for either (i) in cash, or (ii) by means of payroll
deductions from the Participant's Compensation accumulated during the Offering
Period for which such Purchase Right was granted, subject to the following:
10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise
provided herein, the amount to be deducted under the Plan from a Participant's
Compensation on each payday during an Offering Period shall be determined by
the Participant's Subscription Agreement. The Subscription Agreement shall set
forth the percentage of the Participant's Compensation to be deducted on each
payday during an Offering Period in one percent (1%) increments not exceeding
ten percent (10%) of the Participant's Compensation on such payday.
Notwithstanding the foregoing, the amount deducted from a Participant's
Compensation during each Offering Period shall not exceed Five Thousand
Dollars ($5,000); provided, however, that if the Board establishes an
Offering Period of less than two and one-half (2 1/2) months or more than six
and one-half (6 1/2) months in duration, the such dollar limit shall be
determined by multiplying Eight Hundred Thirty- Three and Thirty-Three One
Hundredths Dollars ($833.33) by the number of months (rounded to the nearest
whole month) in the Offering Period and rounding the product to the nearest
whole dollar. The Board may change the foregoing limits on payroll deductions
effective as of any future Offering Date.
10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions
shall commence on the first payday following the Offering Date and shall
continue to the end of the Offering Period unless sooner altered or terminated
as provided herein.
10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS. During an
Offering Period, a Participant may elect to increase or decrease the rate of or
to stop deductions from his or her Compensation by delivering to the Company's
payroll office or other designated office an amended Subscription Agreement
authorizing such change on or before the "Change Notice Date." The "CHANGE
NOTICE DATE" shall initially be the seventh (7th) day prior to the end of the
first pay period for which such election is to be effective. However, the
Company may change the Change Notice Date from time to time. A Participant who
elects to decrease the rate of his or her payroll deductions to zero percent
(0%) shall nevertheless remain a Participant in the current Offering Period
unless such Participant withdraws from the Offering or from the Plan as
provided in Section 12.1 or 12.2, respectively.
10.4 PARTICIPANT ACCOUNTS. Individual bookkeeping accounts
shall be maintained for each Participant. All payroll deductions from a
Participant's Compensation shall be credited to such Participant's Plan account
and shall be deposited with the general funds of the Company. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose.
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10.5 NO INTEREST PAID. Interest shall not be paid on sums
deducted from a Participant's Compensation pursuant to the Plan.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Offering and
whose participation in the Offering has not terminated on or before such
Purchase Date shall automatically acquire pursuant to the exercise of the
Participant's Purchase Right the number of whole shares of Stock determined by
dividing (a) the total amount of the Participant's payroll deductions
accumulated in the Participant's account during the Offering Period and not
previously applied toward the purchase of Stock by (b) the Purchase Price.
However, in no event shall the number of shares purchased by the Participant
during an Offering Period exceed the number of shares subject to the
Participant's Purchase Right. No shares of Stock shall be purchased on a
Purchase Date on behalf of a Participant whose participation in the Offering or
the Plan has terminated on or before such Purchase Date.
11.2 LIMIT ON NUMBER OF SHARES PURCHASABLE IN OFFERING PERIOD.
Any provision herein to the contrary notwithstanding, the Board may establish,
effective for any future Offering Period, a limit on the aggregate number of
shares of Stock which may be purchased under the Plan by all Participants
during such Offering Period.
11.3 PRO RATA ALLOCATION OF SHARES. In the event that the
number of shares of Stock which might be purchased by all Participants in the
Plan on a Purchase Date exceeds the number of shares of Stock available in the
Plan as provided in Section 4.1 or the aggregate limit established by the Board
pursuant to Section 11.2, the Company shall make a pro rata allocation of the
remaining shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable.
11.4 DELIVERY OF CERTIFICATES. As soon as practicable after
each Purchase Date, the Company shall arrange the delivery to each Participant,
as appropriate, of a certificate representing the shares acquired by the
Participant on such Purchase Date; provided that the Company may deliver such
certificates to a broker that holds such certificates in street name for the
benefit of each Participant. Shares to be delivered to a Participant under the
Plan shall be registered in the name of the Participant, or, if requested by
the Participant, in the name of the Participant and his or her spouse, or, if
applicable, in the names of the heirs of the Participant.
11.5 RETURN OF CASH BALANCE. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to the
Participant as soon as practicable after such Purchase Date. However, if the
cash to be returned to a Participant pursuant to the preceding sentence is an
amount less than the amount that would have been necessary to purchase an
additional whole share of Stock on such Purchase Date, the Company may retain
such amount in the Participant's Plan account to be applied toward the purchase
of shares of Stock in the subsequent Purchase Period or Offering Period, as the
case may be.
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11.6 TAX WITHHOLDING. At the time a Participant's Purchase
Right is exercised, in whole or in part, or at the time a Participant disposes
of some or all of the shares of Stock he or she acquires under the Plan, the
Participant shall make adequate provision for the foreign, federal, state and
local tax withholding obligations of the Participating Company Group, if any,
which arise upon exercise of the Purchase Right or upon such disposition of
shares, respectively. The Participating Company Group may, but shall not be
obligated to, withhold from the Participant's compensation the amount necessary
to meet such withholding obligations.
11.7 EXPIRATION OF PURCHASE RIGHT. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the
Offering Period to which the Purchase Right relates shall expire immediately
upon the end of the Offering Period.
11.8 REPORTS TO PARTICIPANTS. Each Participant who has
exercised all or part of his or her Purchase Right shall receive, as soon as
practicable after the Purchase Date, a report of such Participant's Plan
account setting forth the total payroll deductions accumulated prior to such
exercise, the number of shares of Stock purchased, the Purchase Price for such
shares, the date of purchase and the cash balance, if any, remaining
immediately after such purchase that is to be refunded or retained in the
Participant's Plan account pursuant to Section 11.5.
12. WITHDRAWAL FROM OFFERING OR PLAN.
12.1 VOLUNTARY WITHDRAWAL FROM AN OFFERING. A Participant may
withdraw from an Offering by signing and delivering to the Company's payroll
office or other designated office a written notice of withdrawal on a form
provided by the Company for such purpose. Such withdrawal may be elected at
any time prior to the end of an Offering Period; provided, however, if a
Participant withdraws after a Purchase Date, the withdrawal shall not affect
shares of Stock acquired by the Participant on such Purchase Date. Unless
otherwise indicated by the Participant, withdrawal from an Offering shall not
result in the Participant's withdrawal from the Plan or any succeeding Offering
therein. Following a Participant's withdrawal from an Offering, the
Participant is prohibited from again participating at any time in the same
Offering. The Company may impose, from time to time, a requirement that the
notice of withdrawal from an Offering be on file with the Company's payroll
office or other designated office for a reasonable period prior to the
effectiveness of the Participant's withdrawal.
12.2 VOLUNTARY WITHDRAWAL FROM THE PLAN. A Participant may
withdraw from the Plan by signing and delivering to the Company's payroll
office or other designated office a written notice of withdrawal on a form
provided by the Company for such purpose. A Participant's withdrawal made
after a Purchase Date shall not affect shares of Stock acquired by the
Participant on such Purchase Date. A Participant who voluntarily withdraws
from the Plan is prohibited from resuming participation in the Plan in the same
Offering from which he or she withdrew, but may participate in any subsequent
Offering by again satisfying the requirements of Sections 5 and 7.1. The
Company may impose, from time to time, a requirement that the notice of
withdrawal from the Plan be on file with the Company's payroll office or other
designated office for a reasonable period prior to the effectiveness of the
Participant's withdrawal.
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12.3 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's
voluntary withdrawal from an Offering or the Plan pursuant to Sections 12.1 or
12.2, respectively, the Participant's accumulated payroll deductions which have
not been applied toward the purchase of shares of Stock shall be returned as
soon as practicable after the withdrawal, without the payment of any interest,
to the Participant, and the Participant's interest in the Offering or the Plan,
as applicable, shall terminate. Such accumulated payroll deductions may not be
applied to any other Offering under the Plan.
13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY. Upon a Participant's
ceasing to be an Employee of the Participating Company Group for any reason,
including retirement, disability or death, or the failure of a Participant to
remain an Eligible Employee, the Participant's participation in the Plan shall
terminate immediately. In such event, the payroll deductions credited to the
Participant's Plan account since the last Purchase Date shall, as soon as
practicable, be returned to the Participant or, in the case of the
Participant's death, to the Participant's legal representative, and all of the
Participant's rights under the Plan shall terminate. Interest shall not be
paid on sums returned pursuant to this Section 13. A Participant whose
participation has been so terminated may again become eligible to participate
in the Plan by again satisfying the requirements of Sections 5 and 7.1.
14. TRANSFER OF CONTROL.
14.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company: (i)
the direct or indirect sale or exchange in a single or series of related
transactions by the shareholders of the Company of more than fifty percent
(50%) of the voting stock of the Company; (ii) a merger or consolidation in
which the Company a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
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14.2 EFFECT OF TRANSFER OF CONTROL ON PURCHASE RIGHTS. In the
event of a Transfer of Control, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"ACQUIRING CORPORATION"), shall assume the Company's rights and obligations
under the Plan. If the Acquiring Corporation elects not to assume the
Company's rights and obligations under outstanding Purchase Rights, the
Purchase Date of the then current Offering Period, or Purchase Period, as the
case may be, shall be accelerated to a date before the date of the Transfer of
Control specified by the Board, but the number of shares of Stock subject to
outstanding Purchase Rights shall not be adjusted. All Purchase Rights which are
neither assumed by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control.
15. NONTRANSFERABILITY OF PURCHASE RIGHTS. A Purchase Right may not
be transferred in any manner otherwise than by will or the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant.
16. RESTRICTION ON ISSUANCE OF SHARES. The issuance of shares under
the Plan shall be subject to compliance with all applicable requirements of
foreign, federal or state law with respect to such securities. A Purchase
Right may not be exercised if the issuance of shares upon such exercise would
constitute a violation of any applicable foreign, federal or state securities
laws or other law or regulations or the requirements of any securities exchange
or market system upon which the Stock may then be listed. In addition, no
Purchase Right may be exercised unless (a) a registration statement under the
Securities Act of 1933, as amended, shall at the time of exercise of the
Purchase Right be in effect with respect to the shares issuable upon exercise of
the Purchase Right, or (b) in the opinion of legal counsel to the Company, the
shares issuable upon exercise of the Purchase Right may be issued in accordance
with the terms of an applicable exemption from the registration requirements of
said Act. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares under the Plan shall
relieve the Company of any liability in respect of the failure to issue or sell
such shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of a Purchase Right, the Company may require the
Participant to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation, and to make any
representation or warranty with respect thereto as may be requested by the
Company. The issuance of shares shall also be subject to the limitation upon the
maximum number of shares that may be issued under the Plan and under other plans
adopted under the Company's Amended and Restated Stock Incentive Plan, as
amended from time to time.
17. RIGHTS AS A SHAREHOLDER AND EMPLOYEE. A Participant shall have
no rights as a shareholder by virtue of the Participant's participation in the
Plan until the date of the issuance of a certificate for the shares purchased
pursuant to the exercise of the Participant's Purchase Right (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company). No adjustment shall be made for dividends,
distributions or other rights for which the record date is prior to the date
such certificate is issued, except as provided in Section 4.2. Nothing herein
shall confer upon a Participant any right to continue in the employ of the
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Participating Company Group or interfere in any way with any right of the
Participating Company Group to terminate the Participant's employment at any
time.
18. LEGENDS. The Company may at any time place legends or other
identifying symbols referencing any applicable foreign, federal or state
securities law restrictions or any provision convenient in the administration
of the Plan on some or all of the certificates representing shares of Stock
issued under the Plan. The Participant shall, at the request of the Company,
promptly present to the Company any and all certificates representing shares
acquired pursuant to a Purchase Right in the possession of the Participant in
order to carry out the provisions of this Section. Unless otherwise specified
by the Company, legends placed on such certificates may include but shall not
be limited to the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN
EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE
REGISTERED HOLDER HEREOF MADE ON OR BEFORE____________________. THE
REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN THE
REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS
DATE."
19. NOTIFICATION OF SALE OF SHARES. The Company may require the
Participant to give the Company prompt notice of any disposition of shares
acquired by exercise of a Purchase Right within two years from the date of
granting such Purchase Right or one year from the date of exercise of such
Purchase Right. The Company may require that until such time as a Participant
disposes of shares acquired upon exercise of a Purchase Right, the Participant
shall hold all such shares in the Participant's name (or, if elected by the
Participant, in the name of the Participant and his or her spouse but not in
the name of any nominee) until the lapse of the time periods with respect to
such Purchase Right referred to in the preceding sentence. The Company may
direct that the certificates evidencing shares acquired by exercise of a
Purchase Right refer to such requirement to give prompt notice of disposition.
20. NOTICES. All notices or other communications by a Participant
to the Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
21. INDEMNIFICATION. In addition to such other rights of
indemnification as they may have as members of the Board or officers or
employees of the Participating Company Group, members of the Board and any
officers or employees of the Participating Company Group to whom authority to
act for the Board is delegated shall be indemnified by the Company against all
reasonable expenses, including attorneys' 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
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with the Plan, or any right granted hereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by independent
legal counsel selected by the Company) 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
person is liable for gross negligence, bad faith or intentional misconduct in
duties; provided, however, that within sixty (60) days after the institution of
such action, suit or proceeding, such person shall offer to the Company, in
writing, the opportunity at its own expense to handle and defend the same.
22. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time
amend or terminate the Plan, except that (a) such termination shall not affect
Purchase Rights previously granted under the Plan, except as permitted under
the Plan, and (b) no amendment may adversely affect a Purchase Right previously
granted under the Plan (except to the extent permitted by the Plan or as may be
necessary to qualify the Plan as an employee stock purchase plan pursuant to
Section 423 of the Code or to obtain qualification or registration of the
shares of Stock under applicable foreign, federal or state securities laws).
In addition, an amendment to the Plan must be approved by the shareholders of
the Company within twelve (12) months of the adoption of such amendment if such
amendment would authorize the sale of more shares than are authorized for
issuance under the Plan or would change the definition of the corporations that
may be designated by the Board as Participating Companies.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing MLC Holdings, Inc. 1997 Employee Stock Purchase Plan was
duly adopted by the Board of Directors of the Company on May 14, 1997, and the
Shareholders of the Company on __________, 1997.
/s/
---------------------------------
Secretary
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Exhibit 10.26
[CORESTATES LOGO]
AMENDMENT NO. 1
TO
CREDIT AGREEMENT
Amendment No. 1, dated September 5, 1997, (the "AMENDMENT") to
Credit Agreement, dated June 5, 1997, (the "AGREEMENT") by and between MLC
GROUP, INC., a Virginia corporation ("MLC") and CORE-STATES BANK, N.A., a
national banking association ("CORE-STATES BANK," "CORE-STATES" or the "BANK").
All capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Agreement.
PRELIMINARY STATEMENT
WHEREAS, MLC has requested that CoreStates Bank increase the
Loan Commitment from $15,000,000 to $25,000,000 and increase the amount of
Investment Grade Paper which may qualify as Eligible Leases from $10,000,000 to
$15,000,000.
WHEREAS, CoreStates Bank is willing to agree to such request
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and promises
hereinafter set forth and intending to be legally bound hereby, the parties
hereto agree as follows:
1. SECTION 1.1 OF THE AGREEMENT. The dollar amount of the
limitation with respect to Investment Grade Credits set forth in clause (i) of
the second sentence of the definition of "Eligible Lease" in Section 1.1 of the
Agreement as "10,000,000" is hereby deleted and it shall be and is hereby
replaced by the dollar amount of $15,000,000."
2. SECTION 2.1 OF THE AGREEMENT. The dollar amount of the
Loan Commitment set forth in Section 2.1 of the Agreement as "$15,000,000" is
hereby deleted and it shall be and is hereby replaced by the dollar amount of
"$25,000,000".
3. SECTION 2.2 OF THE AGREEMENT. The dollar amount set
forth in the first paragraph of Section 2.2 of the Agreement as "FIFTEEN
MILLION DOLLARS ($15,000,000)" is hereby deleted and shall be and it is hereby
replaced by the dollar amount of "TWENTY FIVE MILLION DOLLARS ($25,000,000)."
4. EXHIBIT A TO THE CREDIT AGREEMENT. Exhibit A to the
Agreement shall be and is hereby amended and restated in its entirety to be as
set forth in Exhibit A attached hereto. Upon delivery of the $25,000,000 Note,
dated September 5, 1997, to the Bank, the Bank shall mark the $15,000,000 Note,
dated June 5, 1997, "canceled and replaced by $25,000,000 Note, dated September
5, 1997."
<PAGE> 2
5. REPRESENTATIONS AND WARRANTIES. MLC hereby restates the
representations and warranties made in the Agreement, including but not limited
to Article 3 thereof, on and as of the date hereof as if originally given on
this date.
6. COVENANTS. MLC hereby represents and warrants that it is
in compliance and has complied with each and every covenant set forth in the
Agreement, including but not limited to Articles 5 and 6 thereof, on and as of
the date hereof.
7. CORPORATION AUTHORIZATION AND DELIVERY OF DOCUMENTS.
CoreStates shall have received copies, certified as of the date hereof, of all
action taken by MLC and any other necessary Person to authorize this Amendment
and such other papers as CoreStates shall require.
8. AFFIRMATION. MLC hereby affirms its absolute and
unconditional promise to pay to CoreStates Bank the Loans and all other amounts
due under the Agreement and any other Loan Document on the maturity date(s)
provided in the Agreement or any other Loan Document, as such documents may be
amended hereby.
9. EFFECT OF AMENDMENT. This Amendment amends the Agreement
only to the extent and in the manner herein set forth, and in all other
respects the Agreement is ratified and confirmed.
10. COUNTERPARTS. This Amendment may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have each caused this
Amendment to be duly executed by their duly authorized representatives as of
the date first above written.
MLC GROUP, INC.
By
---------------------------------
Name: Phillip G. Norton
Title: Chairman, CEO, and President
CORESTATES BANK, N.A.
By
---------------------------------
Michael J. Labrum
Vice President
ACKNOWLEDGED AND AGREED AS GUARANTOR:
MLC HOLDINGS, INC.
By
---------------------------------
Name: Phillip G. Norton
Title: Chairman, CEO, and President
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