SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 25, 2000
EPLUS INC.
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(Exact name of registrant as specified in its charter)
Delaware 000-28926 54-1817218
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
400 Herndon Parkway, Herndon, Virginia 20176
(Address, including zip code, of principal executive office)
(703) 834-5710
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(Registrant's telephone number, including area code)
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Item 5. Other Events
On February 25, 2000, ePlus inc. (formerly MLC Holdings, Inc.) ("ePlus")
announced by press release, which is attached hereto as Exhibit 99.1 and
incorporated herein by reference, that it had filed a registration statement
(the "Registration Statement") with the U.S. Securities and Exchange Commission
("SEC") for a proposed underwritten public offering of 2,500,000 shares of its
common stock (the "Offering"). Of the shares to be offered, 2,000,000 shares are
to be sold by ePlus, 400,000 shares by TC Plus, LLC (formerly TC Leasing, LLC)
("TC Plus"), an affiliate of Thayer Capital Partners, and 100,000 shares by
Centura Banks, Inc. ("Centura"). Certain stockholders of ePlus will also grant
the underwriters an over-allotment option to purchase an additional 375,000
shares of common stock.
On March 6, 2000, ePlus filed Amendment No. 1 to the Registration
Statement. In the section of the Registration Statement entitled "Business," as
amended by Amendment No. 1 and which is attached hereto as Exhibit 99.2 and
incorporated herein by reference, ePlus, a provider of Internet-based,
business-to-business supply chain management solutions for information
technology and other operating resources, described the introduction of its
remotely-hosted electronic commerce solution, ePlusSuite. ePlus has been in the
business of selling, leasing, financing, and managing information technology and
other assets for nearly ten years and currently derives most of its revenues
from such activities. The introduction of ePlusSuite reflects its transitioning
to a business-to-business electronic commerce solutions provider from its
historical sales and financing business. Over time, ePlus plans to use its
ePlusSuite platform to facilitate sales and financing transactions between its
customers and third parties rather than originate these transactions as
principal. As a result, it expects its electronic commerce revenues to
substantially increase and represent a greater portion of its total revenues.
In connection with the Offering, ePlus entered into an agreement with TC
Plus, dated February 25, 2000 (the "Agreement), which is attached hereto as
Exhibit 99.3 and incorporated herein by reference. Previously, on October 23,
1998, ePlus had (1) sold 1,111,111 shares of its common stock to TC Plus at a
price of $9.00 per share pursuant to a stock purchase agreement dated October
23, 1998, by and between MLC Holdings, Inc. and TC Leasing LLC (the "Stock
Purchase Agreement") and (2) issued a warrant dated October 23, 1998, to acquire
an additional 1,090,909 shares of its common stock at an exercise price of
$11.00 per share, subject to certain anti-dilution adjustment (the "Warrant"),
for total consideration of $10 million. In connection with Stock Purchase
Agreement and the Warrant, ePlus also entered into a stockholders agreement,
dated as of October 23, 1998, by and between MLC Holdings, Inc., TC Leasing,
LLC, Phillip G. Norton, Bruce M. Bowen, J.A.P. Investment Group, L.P., Kevin M.
Norton, and Patrick J. Norton, Jr. (the "Stockholders Agreement").
The Warrant gave ePlus the right to require TC Plus to exercise the Warrant
if its common stock closed at or above $11.00 per share for 20 consecutive days.
On December 23, 1999, this condition was satisfied, and ePlus gave notice to TC
Plus, LLC to require exercise.
The Stock Purchase Agreement imposed certain super-majority voting
requirements on ePlus' board of directors and restricted ePlus' ability to
engage in mergers or other material transactions. The Stockholders Agreement
provided for restrictions on transfers of shares, restriction on the issuance of
shares, board representation, the forced sale of ePlus by TC Plus in certain
circumstances and registration rights. The Stock Purchase Agreement, the Warrant
and the Stockholders Agreement were filed as exhibits to ePlus' Current Report
on Form 8-K filed on November 13, 1998.
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Under the terms of the Agreement, ePlus agreed to allow TC Plus to defer
its exercise the Warrant and to permit TC Plus, LLC to exercise the Warrant at
the time of the Offering on a cashless basis at an exercise price of $11.88 per
share in exchange for a commitment by TC Plus to waive certain provisions of the
Stock Purchase Agreement and to amend the Stockholders Agreement.
The Agreement provides that the waiver of the provisions of the Stock
Purchase Agreement and the amendment of the Stockholders Agreement are
contingent upon TC Plus being permitted to sell in a public offering at least
(1) the greater of (a) 320,000 shares (b) 80% of the shares sold by stockholders
selling in the offering and (c) 16% of the shares to be sold by us and the
selling stockholders, including TC Plus LLC, in the offering, and (2) 40% of the
shares being sold pursuant to exercise of the underwriters' over-allotment
option in such offering.
The Agreement provides for the waiver of all super-majority voting
requirements and restrictions on mergers and material transactions contained in
the Stock Purchase Agreement. The Stockholders Agreement, as amended, which is
Exhibit A to the Agreement and incorporated herein by reference, will provide as
follows:
o ePlus' board of directors will continue to have six members with two
directors designated by TC Plus, two directors designated by the management
stockholders party to the Stockholders Agreement and two directors
designated by a nominating committee comprised of one individual designated
by TC Plus and one individual designated by the management stockholders
party to the Stockholders Agreement. The two directors named by TC Plus
will continue to be Carl J. Rickertsen, who has served as a director since
November 1996, and Paul G. Stern. Phillip G. Norton and Bruce M. Bowen
serve as the directors designated by the management stockholders.
o TC Plus has the right to have the shares of ePlus' common stock that it has
purchased and that it has acquired through exercise of the warrant included
in ePlus' shelf registration statement. If those shares are not included in
the shelf registration statement or if the shelf registration statement is
not effective, TC Plus has the right to demand registration of its shares
on three separate occasions. TC Plus also has the right to request
inclusion of its shares in any other registration by ePlus of its common
stock, such as the Offering. ePlus is responsible for all of the
registration expenses incurred in connection with TC Plus' exercise of its
registration rights. TC Plus has used its registration rights under the
Stockholders Agreement to register shares in the Offering.
o If ePlus agrees to purchase any shares of its common stock held by the
management stockholders party to the Stockholders Agreement, it must give
notice to TC Plus. If TC Plus wishes to participate, ePlus must purchase
its shares on the same terms and conditions.
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o Shares held by stockholders party to the Stockholders Agreement will no
longer be subject to the terms of the Stockholders Agreement, as amended,
when they are transferred in a registered offering or pursuant to Rule 144
under the Securities Act of 1933.
o All rights and obligations under the Stockholders Agreement, as amended,
terminate when TC Plus no longer holds 5% of ePlus' outstanding stock and
shall remain terminated even if TC Plus later acquires 5% or more of ePlus'
outstanding stock.
Under the terms of the Agreement, if for any reason the Offering is not
completed, TC Plus has agreed to exercise the Warrant pursuant to its original
terms within 30 days of receiving notice from ePlus that the Offering will not
be consummated in the next six months.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Exhibit
Number Exhibit Description
99.1 Press Release
99.2 Business Section from Amendment No. 1 to the Registration Statement on
Form S-3 (No. 333-31102)
99.3 Agreement, dated as of February 25, 2000, by and between ePlus inc. and
TC Plus, LLC.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ePlus inc.
Dated March 8, 2000 By: /s/ Phillip G. Norton
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Phillip G. Norton
Chairman, President and
Chief Executive Officer
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Exhibit Index
Exhibit
Number Exhibit Description
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99.1 Press Release
99.2 Business Section from Amendment No. 1 to the
Registration Statement on Form S-3 (No. 333- 31102)
99.3 Agreement, dated as of February 25, 2000, by
and between ePlus inc. and TC Plus, LLC.
Exhibit 99.1
Company Press Release
ePlus Files Registration Statement for Follow-On Common Stock Offering
HERNDON, Va.--(BUSINESS WIRE)--Feb. 25, 2000--ePlus inc. (NASD NM: PLUS) today
announced it has filed a registration statement with the U.S. Securities and
Exchange Commission (SEC) for a proposed underwritten public offering of
2,500,000 shares of its Common Stock.
Of the shares to be offered, 2,000,000 shares are to be sold by ePlus, 400,000
shares by TC Plus, LLC, an affiliate of Thayer Capital Partners, and 100,000
shares by Centura Banks. Certain shareholders of ePlus will also grant the
underwriters an over-allotment option to purchase an additional 375,000 shares
of common stock. ePlus will not receive any proceeds from the sale of common
stock by Thayer, Centura, or the over-allotment.
J.P. Morgan & Co. is the lead manager and sole bookrunner for the offering. U.S.
Bancorp Piper Jaffray, First Union Securities, Inc. and Friedman, Billings,
Ramsey & Co., Inc. are acting as co-managers. A preliminary prospectus relating
to these securities may be obtained from J.P. Morgan Securities Inc., 60 Wall
Street, New York, N.Y 10206, attention: Syndicate Department, or from ePlus
Investor Relations.
A registration statement relating to these securities has been filed with the
SEC but has not yet become effective. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This press release shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
About ePlus
ePlus inc. provides Internet based business to business supply chain management
solutions with an integrated suite of products for the procurement, management,
financing and disposition of operating resources. Its remotely hosted
application, ePlusSuite, covers the customer's total ownership experience,
beginning with the end-user order and ending with the asset disposition.
ePlusSuite consists of four modules that can be operated independently or
integrated seamlessly: Procure+, Manage+, Finance+ and Service+. ePlusSuite
provides a comprehensive outsourcing solution that includes workflow management,
procurement, order tracking and verification, asset management, tracking and
reporting, financing, sales, property and use tax compliance and payment,
software license compliance, technology rollout and upgrades, technical and
maintenance services, and asset disposition. The company, which was founded in
1990, is headquartered in Herndon, Va., and has 16 locations in the United
States.
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ePlus inc. has applied to register the service marks ePlus inc., ePlusSuite,
Procure+, Manage+, Finance+ and Service+.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: The statements contained in this release which are not historical facts
may be deemed to contain forward-looking statements. Actual results may vary due
to the following risks and uncertainties, including, without limitation, general
economic conditions; fluctuations in operating results; its ability to
effectively manage future growth, to retain and efficiently integrate our
executive management team, and to identify, hire, train and retain, in a highly
competitive market, individuals highly skilled in the Internet and its rapidly
changing technology, the lack of long-term contracts in certain business units;
its ability to enter into, and retain its existing, strategic relationships;
market acceptance, rapid technological change, a decline in Internet usage, and
intense competition in its market; its ability to effectively integrate the
operational, managerial and financial aspects of future acquisitions; demand and
competition for the Company's lease financing and equipment sales and asset
management services, and the products to be leased or sold by the Company, the
continued availability to the Company of adequate financing in general and for
the companies mentioned in this release in particular, the ability of the
Company to recover its investment in equipment through remarketing, the
successful execution of its e-commerce strategy, the amount of equipment
ordered, purchased and/or leased by the companies in this release, and other
risks or uncertainties detailed in the Company's Securities and Exchange
Commission filings especially in the company's Registration Statement on Form
S-3 filed on February 24, 2000, as amended. Investors are cautioned that current
financial results may not be indicative of future results.
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Contact:
ePlus, Herndon
Kleyton L. Parkhurst (703) 709-1924 or (703) 675-0753
[email protected]
http://www.eplus.com
Exhibit 99.2
BUSINESS
OVERVIEW AND BACKGROUND OF THE COMPANY
We provide Internet-based, business-to-business supply chain management
solutions for information technology and other operating resources. On November
2, 1999, we introduced our remotely-hosted electronic commerce solution,
ePlusSuite, which combines Internet-based tools with dedicated customer service
to provide a comprehensive outsourcing solution for the automated procurement,
management, financing and disposition of operating resources.
The ePlusSuite solution consists of four modules which can be operated
independently or integrated to provide a full suite of services:
- Procure(+) is an electronic procurement and content management solution
which allows customers to automate their internal workflow procedures for
the procurement of operating resources.
- Manage(+) is an electronic infrastructure management solution which
provides asset management through an asset repository and tracking
database.
- Finance(+) facilitates automated financing solutions for assets procured
through Procure(+) or Manage(+).
- Service(+) provides implementation and customization services,
fulfillment and asset disposition.
We have been in the business of selling, leasing, financing, and managing
information technology and other assets for nearly ten years and currently
derive most of our revenues from such activities. The introduction of ePlusSuite
reflects our transition to a business-to-business electronic commerce solutions
provider from our historical sales and financing business. Over time, we plan to
use our ePlusSuite platform to facilitate sales and financing transactions
between our customers and third parties rather than originate these transactions
as principal. As a result, we expect our electronic commerce revenues to
substantially increase and represent a greater portion of our total revenues.
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INDUSTRY BACKGROUND
Growth of the Internet as a Platform for Efficient Business-to-Business
Electronic Commerce.
The Internet is rapidly becoming the preferred channel for business-to-business
transactions. It has fundamentally changed how companies of all sizes
communicate and share information. In the intensely competitive global business
environment, businesses have increasingly adopted the Internet to streamline
their business processes, lower costs and make their employees more productive.
Traditional Areas of Business Process Automation
Businesses have traditionally attempted to reduce costs through the automation
of internal processes. In particular, these efforts focused on the procurement
of direct goods such as raw materials and unfinished products. Similar efforts
have been made to improve the procurement process for operating resources, which
include information technology and telecommunications equipment, office
equipment and supplies, travel and entertainment, professional services and
other repeat purchase items. The purchase and sale of these goods comprise a
large portion of business-to-business transactions.
Many organizations conduct procurement and management of operating resources
through costly paper-based processes that require actions by many individuals
both inside and outside the organization. We estimate that replacing a
traditional paper-based procurement system with an Internet-based system can
reduce the cost of processing a purchase request by at least two-thirds.
Traditional processes also do not generally feature automated spending and
procurement controls and, as a result, may fail to direct spending to preferred
vendors and may permit spending on unapproved goods and services.
Many large companies have installed enterprise resource planning and supply
chain automation systems and software to increase their procurement efficiency
for operating resources. These systems are often complex and are designed to be
used by a relatively small number of sophisticated users. They may not provide
the necessary interactivity with the vendor. In addition, a variety of
point-to-point solutions such as electronic data interchange have been
developed. However, the expense and
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complexity associated with licensing, implementing and managing these solutions
can make them unsuitable for all but the largest organizations.
Certain providers of business-to-business electronic commerce solutions have
attempted to link purchasers and vendors of operating resources and services
into trading communities over the Internet. Their solutions are software-based
and enable development of marketplaces to operate among participants with
similar systems and primarily cater to larger firms.
Opportunity for Business-to-Business Electronic Commerce and Supply Chain
Management Solutions
We believe that an opportunity exists to provide Internet-based supply chain
management solutions which are remotely-hosted. Our end-to-end business process
solutions integrate the procurement and management of assets with financing,
fulfillment and other asset services. These solutions streamline processes
within an organization and provide integrated access to third-party content,
commerce and services. Our comprehensive approach also facilitates relationships
with preferred vendors.
Our target customers are primarily middle-market companies, with revenues
between $25 million and $1 billion per year. We believe there are over 60,000
customers in our target market.
Our target customer has one or more of the following business characteristics
that we believe make ePlusSuite a preferred solution:
- seeks a lower cost alternative to enterprise software solutions;
- will benefit from the cost savings and efficiency gains that can be
obtained from an Internet-based procurement solution;
- prefers to retain the flexibility to negotiate prices with designated
vendors or buying exchanges;
- wants to lower its total cost of ownership of information technology
assets by standardizing configurations and proactively managing its fixed
asset base over the life of the asset; and
- seeks a comprehensive solution for its entire asset management supply
chain.
THE ePLUS SOLUTION
We provide an integrated suite of Internet-based business-to-business supply
chain management solutions designed to improve productivity and enhance
operating efficiency on a company-wide basis. Our ePlusSuite currently includes
Internet-based applications for the procurement and management of operating
resources that can be integrated with financing and other asset services. In
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addition, our solution uses the Internet as a gateway between employees and
third-party content, commerce and service providers. We believe our solution
makes our customers' companies more efficient, while providing better
information to management.
ePlusSuite allows customers to automate and customize their existing business
rules and procurement processes using an Internet-based workflow tool. We offer
a remotely-hosted solution with a transaction-based fee structure that reduces
up-front costs for customers, facilitates quick adoption, and eliminates the
need for customers to maintain and update software. In addition, ePlusSuite
integrates effectively with existing legacy systems. We believe our solution can
be implemented faster with less customer training than many competing
software-based solutions.
STRATEGY
Our goal is to become a leading provider of Internet-based supply chain
management solutions. The key elements of our strategy include the following:
Convert our existing customer base to become users of ePlusSuite
We have an existing client base of approximately 1,500 customers. We believe our
years of experience in developing supply chain management solutions, including
financing, asset management and information technology sales and service, give
us significant advantages over our competitors. Consequently, we believe we are
well-positioned to offer a comprehensive Internet-based supply chain management
solution tailored to meet our customers' specific needs.
Since the introduction of ePlusSuite on November 2, 1999, we have implemented or
are in the process of implementing the EPlusSuite solution with 24 customers, 8
of which were our existing customers.
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Expand our sales force and marketing activities
We currently have approximately 68 salespersons in 16 locations, and we plan to
substantially increase the number of salespersons and locations in the next 12
months. We intend to expand our presence in locations that have a high
concentration of fast-growing middle market companies. In addition, we plan to
add sales staff to some of our existing offices. We will seek to hire
experienced personnel with established customer relationships and with
backgrounds in hardware and software sales, telecommunications sales, and supply
chain management. We also plan to create a national brand to increase market
awareness of ePlusSuite through advertising and public relations campaigns. We
may also selectively acquire companies that have attractive customer
relationships and skilled sales forces. For example, as a result of our recent
acquisition of CLG, Inc. we added 448 additional customers.
Expand the functionality of our Internet-based solutions
We intend to continue to modify ePlusSuite to expand its functionality to serve
customer needs. In addition, we intend to use the flexibility of our platform to
offer additional products and services through ePlusSuite. For example, we
believe that EPlusSuite can be expanded to include outsourcing of human
resources services and other non-core activities. As part of this strategy, we
may also acquire technology companies to expand and enhance the platform of
ePlusSuite to provide additional functionality and value added services.
Expand our strategic relationships to market and enhance ePlusSuite
We intend to expand and develop strategic relationships to accelerate market
acceptance of our electronic commerce business solutions. We believe these
strategic relationships will allow us to access a wider customer base and expand
the functionality of ePlusSuite. We recently entered into joint marketing
arrangements with finance subsidiaries of Chase Manhattan, Inc. and Wachovia
Corporation that enable them to market ePlusSuite to their customers. We believe
these marketing relationships can be a substantial source of growth.
Increase our role as intermediary in sales and financing transactions
Over time, we plan to use our ePlusSuite platform to facilitate sales and
financing transactions between our customers and third parties, rather than
originate these transactions as principal. We currently buy and sell information
technology assets and provide financing directly to our customers. We plan to
use our ePlusSuite platform to facilitate sales and financing transactions
between our customers and third parties rather than originate these transactions
as principal. We believe we can leverage our financing expertise and
relationships to arrange programs with specific institutions to provide
financing directly to our electronic commerce customers.
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DESCRIPTION OF ePLUSSUITE
ePlusSuite consists of four modules, Procure(+), Manage(+), Finance(+) and
Service(+). These components are fully integrated in that each component links
with and shares information with the other components. Procure(+) and Manage(+)
are remotely-hosted electronic commerce solutions, and Finance(+) and Service(+)
are services provided by us.
Procure(+). Procure(+) offers Internet-based procurement capabilities that
enable companies to reduce their purchasing costs while increasing their overall
supply chain efficiency. Cost reductions are achieved through user-friendly
application functionality designed to reduce off-contract, or unauthorized
purchases, automate unnecessary manual processes, improve leverage with
suppliers and provide links to a sophisticated asset information repository,
Manage(+). Procure(+) is a remotely-hosted solution with no applets or
executables to download. Its core technology is based on the Microsoft SQL
server and it uses XML and cXML software technology to permit scalability,
flexibility and open architecture standards.
Procure(+) provides the following features and functions for the customer:
- Electronic Catalogs--combines multiple vendor catalogs including
item pricing and availability information which can be updated as
required. Catalog content can be viewed in customized formats and can
include detailed product information.
- Workflow and Business Rules--graphically displays complex business
rules to build the internal workflow process to mirror the customer's
organization. Multiple business rules can be used, and changes can be
made by the customer or EPlus. Approval thresholds and routing rules
can be set by dollar amount, quantity, asset type or other criteria.
No coding or expensive programming is required.
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- Order Tracking--provides detailed information online about every
order, including date and time stamps from requestors, approvers,
purchasers, vendors and shippers enabling customers to track orders
and to create detailed order audit trails.
- Order Information--contains multiple data fields which can be easily
customized to provide complete information to the customer, such as
accounting codes, budget costs, cost center information, notes, and
shipping and billing information.
The key benefits of Procure(+) include:
- easy to use, Internet-based interface that requires limited
training;
- easy implementation without the assistance of consultants, no
upfront license fees and no ongoing maintenance or upgrade costs;
- integration of multiple vendor catalogs and advanced search,
filtering and viewing capabilities that allow the customer to control
views by user groups;
- an easily configured workflow module that automates and controls
each customer's existing business processes for requisition or order
routing, approval and preparation;
- order status reporting throughout the requisition process as well as
real-time connections to suppliers for pricing and availability and
other critical information; and
- controls unauthorized purchasing and enables usage of preferred
vendors for volume discounts.
Manage(+). Manage(+) offers Internet-based asset management capabilities that
are designed to provide customers with comprehensive asset information to enable
them to proactively manage their fixed assets and lower the total cost of
ownership of the assets. Assets procured using Procure(+) or from other sources
populate the Manage(+) database to provide a seamless link. Manage(+) is a
remotely-hosted solution with no applets or executables to download. Its core
technology is an Oracle relational database system.
Manage(+) provides the following information to the customer:
- Asset Information--contains descriptive information on each asset
including serial number, tracking number, purchase order number,
manufacturer number, model number, vendor, category, billing code,
order date, shipping date, delivery date, install date, equipment
status and, if applicable, lease number, lease schedule, lease start
date, lease end date, lease term, remaining term and information on
any options ordered with the equipment.
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- Location Information--provides asset location information including
an address, building or room number, or other information required by
the customer.
- Cost Center Information--invoices assets to cost center or budget
categories. One asset can be billed to multiple cost centers and all
information will be listed under that asset record.
- Maintenance Information--maintains a history of the asset. As
maintenance and warranty repairs are made, information may be updated.
The information includes the date, a description of the service
performed and the cost.
- Invoice Information--maintains information from the original invoice
on the asset for warranty and tracking purposes.
- Financial Information--tracks all financial information on the
asset, including purchase price or lease cost, software licensing
costs and warranty and maintenance information.
- Customized Information--user specific information can also be
maintained.
The key benefits of Manage(+) include:
- an easy to use Internet-based interface that requires limited
training;
- easy implementation without the assistance of consultants and
entails no upfront license fee or ongoing maintenance or upgrade
costs;
- providing the information necessary to proactively manage the fixed
asset base, including property and sales tax calculations, upgrade and
replacement planning, technological obsolescence and total cost of
ownership calculations;
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- automating invoice reconciliation to reduce errors and track vendor
performance, including evaluating scheduled delivery versus actual
delivery performance;
- management of warranty and maintenance information to reduce
redundant maintenance fees and charges on equipment no longer in use;
- tracking of all pertinent financial, contractual, location, cost
center, configuration, upgrade and usage information for each asset
enabling customers to calculate the return of their investment by
model, vendor, department or other factors; and
- reducing overruns and assists with application rollouts and the
annual budgeting process.
Finance(+). Finance(+) is a service that facilitates the financing of purchases
on terms previously negotiated by a customer with a financing provider while
automating the accumulation of data to assist in the financing process.
Finance(+) allows customers to order equipment when desired and aggregate an
unlimited number of orders onto one or more financing transactions at the end of
a pre-determined order period (usually one to three months). The transactions
can then be invoiced by location, division, or business unit if so desired by
the customer. Finance(+) helps a customer simplify the process thereby, lowering
costs and increasing productivity.
We can assist customers in structuring loans, leases, sales/leasebacks,
tax-exempt financing, vendor programs, private label programs, off-balance sheet
leases and federal government financing in order to meet their requirements.
Service(+) is our technology business unit which provides implementation and
customization services for the rapid implementation of ePlusSuite, as well as
fulfillment and asset disposition services. Service(+) allows customers to
obtain high-quality services which can be seamlessly linked with other
components of our ePlusSuite solution. Assets which are procured through
Procure(+) can be configured, imaged, staged, and installed by us on the
customer site. Our services also assist our customers in managing their existing
information technology asset base, including maintenance, reverse logistics,
engineering, and other technology services.
ePLUSSUITE CUSTOMERS
We have approximately 1,500 customers in all of our businesses. We formally
introduced our ePlusSuite solution on November 2, 1999, and, as of February 23,
2000, we had fully-implemented ePlusSuite with the following customers:
Aatlas Commerce, LLC National Railraod Passenger Corporation
BlueStone Software, Inc. (AMTRAK)
Dain Rausher Corporation OneSoft Corporation
Forte Systems, LLC Pharmaceutical Product Development, Inc.
Logicon, Inc. (a subsidiary of Proxicom, Inc.
Northrop Grumman Corporation) SAGA SOFTWARE, Inc.
Martin Marietta Materials, Inc. The Ellerbe Becket Company
MicroStrategy, Incorporated WebMethods, Inc.
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We are currently implementing ePlusSuite with the following customers:
Catalytica Pharmaceuticals, Inc. MBM Corporation
Christian Broadcasting Network, Inc. Promotions.com inc.
Corning Incorporated Serviceco LLC (dba Road Runner)
Interpath Communications, Inc. Robroy Industries, Inc.
Lincoln National Management Womble Carlyle Sandridge & Rice, PLLC
Corporation (a subsidiary
of Lincoln National Corporation)
TECHNOLOGY
General. Our Procure(+) and Manage(+) applications are fully standards-based,
designed for the Internet and built upon an underlying architecture that is
based on Microsoft's and Sybases' distributed Internet application frameworks.
These Internet-based frameworks provide access security, load balancing,
resource pooling, message queuing, distributed transaction processing and
reusable components and services. We use XML software to enhance the
business-to-business transfer of data and documents between multiple systems.
Our development strategy relies on object-oriented programming and stresses
modularity, inheritance and reuse when feasible.
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Our applications are designed to be scalable, due to our multi-tier architecture
employing thin client, multi-threaded application servers and relational
databases. We use standard software programming languages, packages and
protocols, including Visual Basic, PowerBuilder, PowerDynamo, JavaScript, ASP,
C++, HTTP, HOP, DCOM, CORBA, Native and OBDC Data constructs. Our applications
are provided to our customers over any standard Internet browser, and there are
no applets or executables to download.
We use a component-based application infrastructure composed of
readily-configurable business rules, a workflow engine, advanced data management
capabilities and an electronic cataloging system. Each of these core elements
plays a crucial role in deploying enterprise-wide solutions that can capture a
customer's unique policies and processes and manage key business functions.
Business Rules. Our business rules engine allows Procure(+) to be configured so
that our customers can effectively enforce their requisition approval policies
while providing flexibility so that the business rules can be edited and
modified as our customer's policies change. Users of the system are presented
with appropriate guidance to facilitate adherence to corporate policies. The
business rules dramatically reduce reworking of procedures, track and resolve
policy exceptions online and eliminate re-keying of data into back-end systems.
The business rules permit management by exception, in which items requiring
managerial attention are automatically highlighted.
Workflow Engine. Our workflow engine permits that information flows through the
organization in a timely, secure and efficient manner. For example, in addition
to incorporating policy-based business rules, it incorporates time-based
standards to reroute purchase requisitions if the original recipient does not
respond within the allocated performance timeframe. Robust enterprise
applications require database-driven workflow, with e-mail-based messaging, to
provide increased security and reliability, data and transaction integrity,
real-time availability, optimization for high performance and usage reporting.
Our application also provides e-mail notification to users of the status of a
procedure or of events requiring attention, alteration and action, such as
notifying the creator of a purchase requisition of its location in the
purchasing cycle or notifying a manager of a requisition requiring attention.
Content Management. Our electronic catalog allows multiple vendor information to
be linked to customized customer catalogs. Information can be updated when
required by the customer. Our electronic cataloging system accepts XML, EDI and
other industry data standards for information transfer.
Asset Management. Manage(+) is an Oracle-based data management system that is
designed to be scalable and can be easily customized to provide
customer-specific fields and data elements. New functionality can also be
assigned to existing controls, or new controls, with little application
modification and minimal programming.
ePlusSuite can integrate with enterprise systems such as ERP systems, financial
management systems, human resource systems (for user information and
organizational structure), project accounting systems and corporate credit card
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systems. These interfaces allow for the automatic exchange of data between
ePlusSuite and other enterprise systems and for the downloading of data managed
by these enterprise systems into ePlusSuite. These integration processes are
scheduled according to the needs of our customer's information services and
finance departments.
Data Accuracy. Data input from internal departments is quality controlled within
the entering department before it is released for use to other functions.
Customer input is also quality controlled before it is released for use to other
functions.
System Security. Our security design provides multiple layers of
security--ranging from the Portal level (initial user contact occurs) to the
database level where users and roles are authenticated to the socket/protocol
layer. On the browser side (customer access), our software makes use of SSL
connections and 128-bit encryption technology. We currently use Check Point
Security software to protect our internal network systems from unauthorized
access. Check Point Firewall-1 is a comprehensive, security suite providing:
access control, content security, authentication, network address translation,
auditing and state table synchronization.
RESEARCH AND DEVELOPMENT
To date, the majority of our software development has been outsourced to
third-party software companies. We have obtained perpetual license rights and
object code from these third-party software companies. Subject to certain
exceptions, we generally retain the object code and intellectual property rights
of the customized software. To accelerate the development of our EPlusSuite, we
are building an internal software development team. We have recently hired four
software developers, two of whom previously worked for the companies which
licensed the software to us. In addition, since December 1998, we have retained
a consultant who has worked full time in the capacity of Chief Technology
Officer.
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To successfully implement our business strategy, we have to provide hosted
software functionality and related services that meet the demands of our
customers and prospective customers. We expect that competitive factors will
create a continuing need for us to improve and add to our ePlusSuite. The
addition of new products and services will also require that we continue to
improve the technology underlying our applications. We intend to maintain our
competitive advantage by investing significantly greater resources in our
internal development efforts, including adding a significant number of in-house
software engineers, and executives. In addition, to complement our in-house
development efforts, we expect significant future expenditures on software
licenses and third-party software development and consulting costs.
SALES AND MARKETING
We focus our marketing efforts on achieving brand recognition, market awareness,
lead generation, and converting our existing customer base to our ePlusSuite
solution. The target market for our ePlusSuite is primarily middle market
companies with revenues between $25 million and $1 billion. We believe there are
over 60,000 customers in our target market. Our sales representatives are paid
on commission, with specific incentives for generating new ePlusSuite customers
and revenues.
We typically market to the senior financial officer or the senior information
officer in an organization. To date, the majority of our customers have been
generated from our direct sales. As part of our strategy to grow our electronic
commerce business, we intend to hire additional sales personnel and open new
sales locations. In the future, we plan to conduct public relations campaigns to
create brand and market awareness of product benefits, developments and major
initiatives. We anticipate that these will include advertising in business and
financial publications, Internet advertising, trade shows, seminars, and direct
mail. We also intend to develop strategic relationships to expand market
acceptance of our electronic commerce business solutions. We recently entered
into joint marketing arrangements with the finance subsidiaries of Chase
Manhattan, Inc. and Wachovia Corporation. We believe these strategic
relationships can be a substantial source of growth.
Our sales force is organized under three regional directors located in our
headquarters in Herndon, Virginia and our Pottstown, Pennsylvania and Raleigh,
North Carolina regional operating centers. We have sales locations in: Herndon,
Virginia; Dallas, Texas; Sacramento and San Diego, California; Greenville,
Wilmington and Raleigh, North Carolina; Pittsburgh, Pottstown and West Chester,
Pennsylvania; Golden, Colorado; and Baltimore, Maryland. As of March 2, 2000,
our sales organization included 68 direct sales representatives and additional
sales support personnel.
IMPLEMENTATION AND CUSTOMER SERVICE
We use a project management approach to the implementation of ePlusSuite with
each new ePlusSuite customer. Our multidisciplinary team consists of an
ePlusSuite implementation specialist, who is responsible for the customer audit
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and implementation of the solution, a customer relationship manager, who leads
the customer's long-term support team, and the appropriate Service(+) staff
members to provide technology services, if required, to the customer.
Our implementation of ePlusSuite is a multi-step process that requires, on
average, approximately four weeks and involves the following steps:
- We conduct an extensive operational audit to understand the
customer's business processes across multiple departments, existing
ERP and outsourced applications, future plans, procurement approval
processes and business rules and internal control structure.
- We design a customized procurement, management and service program
to fit the customer's organizational needs.
- We implement an Internet-based supply chain management system
including: customer workflow processes and business rules using our
graphical route-builder, custom catalogs linking to chosen vendors,
including ePlus, custom reporting and querying, and data capture
parameters for the Manage(+) asset repository.
- We beta test the site and train the customer's personnel.
We provide ePlusSuite as a service solution to our customers, and the ongoing
support of the customer and our commitment to the highest possible customer
satisfaction is fundamental to our strategy. We use a team approach to providing
customer care and assign each customer to a specific team so that they are able
to continue to interact with the same ePlus personnel who have experience and
expertise with the customer's specific business processes and requirements.
INTELLECTUAL PROPERTY RIGHTS
Our success depends in part upon proprietary business methodologies, and
technologies which we have licensed and modified. We rely on a combination of
copyright, service mark and trade secret protection, confidentiality and
nondisclosure agreements
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and licensing arrangements to establish and protect intellectual property
rights. We seek to protect our software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection.
We currently have no patents, although we have filed applications in the U.S.
Patent and Trademark Office to register the service marks ePlus, ePlusSuite,
Procure(+), Manage(+), Finance(+), Service(+), EPLUS LEASING, EPLUS ONLINE and
EPLUS.
ADVANTAGE. The applications for EPLUS LEASING, EPLUS ONLINE and EPLUS ADVANTAGE
are currently based on intent-to-use. The grant of registrations for these
intent-to-use marks is conditioned upon each mark being used in commerce,
assuming the mark is found to be allowable. We also may file provisional patent
applications with the U.S. Patent and Trademark Office relating to various
features and processes embodied in our applications. A provisional patent
application is a type of application under which a patent will not be issued,
but which provides a priority date for a regular patent application that is
filed within a one year period following the filing of the provisional patent
application. We cannot assure you that any regular patents will be filed based
on our provisional applications, or that any patents will issue on our pending
provisional applications from any such regular applications. Further, we cannot
provide any assurance that any patents, if issued, will prevent the development
of competitive products or that our patents will not be successfully challenged
by others or invalidated through administrative process or litigation.
We have entered into three software licensing agreements in connection with the
development of ePlusSuite. Each of these agreements grants us a perpetual
license to the object code or gives us the right to obtain such a license upon
payment of an additional fee. Each of these licenses is nonexclusive. The
agreements permit us to modify the software source code in conjunction with
normal use or upon payment of an additional fee. Generally, the agreements
provide that any software developed to interface with licensed software is our
property if such work is based on our proprietary information. The licensing
agreements provide the payment of initial and on going fees. In addition,
certain of our licensing agreements provide for additional fees based on
transaction volume. If we commit a material breach of any one of the agreements,
it may be terminated. These agreements do not provide any indemnification for
intellectual property infringement.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or to obtain and use information that we
regard as proprietary. Policing unauthorized use of our products is difficult,
and while we are unable to determine the extent to which piracy of our software
products exists, software piracy can be expected to be a persistent problem. Our
means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around our proprietary intellectual property.
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FINANCING AND SALES ACTIVITIES
We have been in the business of selling, leasing, financing, and managing
information technology and other assets for nearly ten years and currently
derive most of our revenues from such activities. Over time, we plan to use our
ePlusSuite platform to facilitate sales and financing transactions between our
customers and third parties rather than originate these transactions as
principal. We believe we can develop formal contractual arrangements with our
current as well as new financing sources to provide equipment financing and
leasing for our ePlusSuite customers.
Leasing and Financing. Our leasing and financing transactions generally fall
into three categories, direct financing, sales-type or operating leases. Direct
financing and sales-type leases transfer substantially all of the benefits and
risks of equipment ownership to the customer. Operating leases consist of all
other leases that do not meet the criteria to be direct financing or sales-type
leases. Our lease transactions include true leases and installment sales or
conditional sales contracts with corporations, not-for-profit entities and
municipal and federal government contracts. Substantially all of our lease
transactions are net leases with a specified non-cancelable lease term. These
non-cancelable leases have a provision which requires the lessee to make all
lease payments regardless of any lessee dissatisfaction with its equipment. A
net lease requires the lessee to make the full lease payment and pay any other
expenses associated with the use of equipment, such as maintenance, casualty and
liability insurance, sales or use taxes and personal property taxes.
In anticipation of the expiration of the initial term of a lease, we initiate
the remarketing process for the related equipment. Our goal is to maximize
revenues on the remarketing effort by either: (1) releasing or selling the
equipment to the initial lessee; (2) renting the equipment to the initial lessee
on a month-to-month basis; (3) selling or leasing the equipment to a different
customer; or (4) selling the equipment to equipment brokers or dealers. The
remarketing process is intended to enable us to recover or exceed the residual
value of the leased equipment. Any amounts received over the estimated residual
value less any commission expenses becomes profit margin to us and can
significantly impact the degree of profitability of a lease transaction.
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Our top ten commercial financing customers for the nine months ended December
31, 1999 were:
The American National Red Cross SAGA SOFTWARE, Inc.
BlueCross BlueShield of North Carolina Sandia Corporation
Burlington Industries, Inc. Sprint Communications Company, L.P.
Checkfree Corporation and its affiliates
Georgetown University U.S. Office Products Company
Hooper Holmes, Inc.
We aggressively manage the remarketing process of our leases to maximize the
residual values of our leased equipment portfolio. To date, we have realized a
premium over our original booked residual assumption. The majority of these
gains are attributable to early termination fees as a direct result of our
remarketing strategy.
Sales. We have been providing technology sales and services since 1997. We are
an authorized reseller or have the right to resell products and services from
over 150 manufacturers, distributors, resellers, content management solution
providers and sourcing organizations. Our largest vendor relationships include
Ingram Micro, Inc., Dell Computer Corporation, MicroSoft Corporation, and Sun
Microsystems, Inc. We expect the number of vendor relationships to grow
significantly as we expand Procure(+) beyond its traditional information
technology and telecommunications products. Our flexible platform and
customizable catalogs facilitate the addition of new vendors with little
incremental effort. Our value added reseller product transactions have varying
sales on account terms from net 45 days to collect on delivery, depending on the
customer's credit and payment term requirements.
Our top ten sales customers for the nine months ended December 31, 1999 were:
America Online, Inc. National Association of Securities Dealers,
AstraZeneca LP Inc.
Corning, Incorporated Pharmaceutical Products & Development, Inc.
DC Public Schools PSINet Inc.
Geico Corporation Serviceco LLC (dba Road Runner)
UUNet Technologies Incorporated
Financing and Bank Relationships. We have a number of bank and finance company
relationships which we use to provide working capital for all of our businesses
and long term financing for our lease financing businesses. Our finance
department is responsible for maintaining and developing relationships with a
diversified pool of regional commercial banks, money-center banks, finance
companies, insurance companies and financial intermediaries with varying terms
and conditions.
Working capital financing in our leasing business is provided by a $65 million
committed line of credit provided through First Union National Bank, N.A. This
line of credit has been in place since December 1998, was renewed for another
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one-year period on December 19, 1999, has full recourse to the company, and is
secured by a blanket lien against all of our assets. In addition, we have
entered into pledge agreements to pledge the common stock of each of our
wholly-owned subsidiaries. The interest rates charged under this facility are
LIBOR plus 1.5% or Prime minus .5%, depending on the term of the borrowing. The
facility expires on December 19, 2000.
In general, we use this facility to pay the cost of equipment to be put on
lease, and we repay borrowings from the proceeds of: (1) long-term,
non-recourse, fixed rate financing which we obtain from lenders after the
underlying lease transaction is finalized or (2) sales of leases to third
parties. The line is collateral based and our ability to borrow is limited to
the amount of eligible collateral at any given time. Collateral is eligible
under the line for up to a year. However, we generally finance the underlying
contracts on a non-recourse basis as soon as practical.
Non-recourse financings are loans whose repayment is the responsibility of a
specific customer, although we may make representations and warranties to the
lender regarding the specific contract or have ongoing loan servicing
obligations. Under a non-recourse loan, we borrow from a lender an amount based
on the present value of the contractually committed lease payments under the
lease at a fixed rate of interest, and the lender secures a lien on the financed
assets. When the lender is fully repaid from the lease payment, the lien is
released and all further rental or sale proceeds are ours. We are not liable for
the repayment of non-recourse loans unless we breach our representations and
warranties in the loan agreements. The lender assumes the credit risk of each
lease, and their only recourse, upon a default under a lease by the lessee, is
against the lessee and the specific equipment under lease.
Non-recourse debt and debt that is partially recourse is provided by various
lending institutions. We have formal programs with Heller Financial, Inc., Key
Corporate Capital, Inc., and Fleet Business Credit Corporation. These programs
require that each transaction is specifically approved and done solely at the
lender's discretion.
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We sell our leases to a number of financial institutions. In particular, through
MLC/CLC LLC, we have a formal joint venture arrangement with an institutional
investor, that purchases a substantial portion of our total equipment under
lease. Firstar Equipment Finance, a subsidiary of Firstar Corporation, a bank
holding company, is an unaffiliated investor that owns 95% of MLC/CLC LLC.
MLC/CLC LLC represented approximately $81.1 million of our leased equipment
sales of $84.4 million or 96.1% for the year ended March 31, 1999. It
represented approximately $17.0 million of our leased equipment sales of $44.9
million or 37.8% for the nine months ended December 31, 1999. We have received
notice that Firstar Equipment Finance Corporation intends to discontinue its
investment in new lease acquisitions effective May 2000.
When we sell a lease, we generally retain little or no residual risk, and we
usually preserve the right to share in remarketing proceeds of the equipment on
a subordinated basis after the investor has received an agreed-to return on its
investment.
We obtain working capital for the financing of accounts receivables and
inventory in our technology sales subsidiaries from various floor planning
agreements in place between the subsidiaries with BankAmerica Credit ($15
million), Finova Capital Corporation ($11.0 million), IBM Credit Corporation
($750,000), and PNC Banks, N.A. ($2.5 million). These facilities are fully
recourse to our subsidiary companies and have various levels of recourse to us.
Interest charges under the floor planning facilities are paid by the
manufacturers of the products through the distributor for up to 40 days after
the sale, and we are responsible for interest charges thereafter.
Risk Management and Process Controls. It is our goal to minimize our on-balance
sheet financial asset risk. To accomplish this goal we use and maintain
conservative underwriting policies and disciplined credit approval processes. We
also have strong internal control processes, including contract origination and
management, cash management, servicing, collections, remarketing and accounting.
Whenever possible, we use non-recourse financing for which we try to obtain
lender commitments before asset origination. We have over 35 non-recourse
financing sources that we use regularly, including GE Capital Corporation, Key
Corporate Capital, Inc., Fleet Business Credit Corporation, Citizens Banking
Corporation and BancOne Leasing Corporation.
Whenever possible and desirable we sell assets, including the residual portion
of leases, to third-parties rather than maintaining them on our balance sheet.
We try to obtain commitments for these asset sales before asset origination in a
financing transaction. We regularly sell assets to GE Capital Corporation,
Firstar Equipment Finance Company, Fleet Business Credit Corporation, Bombardier
Capital, Inc. and John Hancock Leasing Corp., among others. We also use agency
purchase orders to procure equipment as an agent, not a principal, and otherwise
take measures to minimize our inventory. Additionally, we use match funding to
reduce interest rate risk and issue proposals that adjust for material adverse
interest rate movements as well as material adverse changes of the customer.
We have an executive management review process and other internal controls in
place to protect against entering into lease transactions that may have
undesirable financial terms or unacceptable levels of risk. Our leases and sales
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contracts are reviewed by senior management for pricing, structure,
documentation and credit quality. Due in part to our strategy of focusing on a
few equipment categories, we have extensive product knowledge, historical
re-marketing information and experience on the products we lease, sell and
service. We rely on our experience in setting and adjusting our sale prices,
lease rate factors and the residual values.
Default and Loss Experience. During the first nine months of this fiscal year we
reserved for $385,000 in credit losses and incurred actual credit losses of
$72,473. During the fiscal year ended March 31, 1999, we reserved for $810,565
in credit losses and incurred actual credit losses of $12,452. Until the fiscal
year ended March 31, 1998, when we incurred a $17,350 credit loss, we had not
taken any write-offs due to credit losses with respect to lease transactions
since our inception.
During the quarter ended December 31, 1999, a customer of CLG, Inc., which we
recently acquired, filed for voluntary bankruptcy protection. During our due
diligence process prior to the acquisition, we had identified the customer,
Tultex, as well as several other potential problem credits, and we required
Centura Bank, the seller of CLG, Inc., to provide financing on a non-recourse
basis for a portfolio of identified bad credit customers. The interest costs and
principal for this non-recourse debt is paid solely from amounts collected from
customers, and the only costs to us are the costs of collection and managing the
accounts. Therefore, should these accounts need to be written-off, there would
be a corresponding write-off of the underlying non-recourse debt and there would
be no loss of income to us. The book value of Tultex is less than $52,000, and
the total non-recourse debt associated with these identified potential bad
credits is approximately $1,608,000.
During the fiscal year ended March 31, 1999, two customers filed for voluntary
bankruptcy protection. The largest was Allegheny Health, Education & Research
Foundation, or AHERF, which was a Pittsburgh based not-for-profit hospital
entity. As of December 31, 1999, our net book value of leases to AHERF was
approximately $415,000 and receivable balance was approximately $478,000. We
will probably sustain a loss, and have accordingly provided for such loss in the
statement of earnings for the year ended March 31, 1999.
The undetermined status of our claims in the bankruptcy court and amount and
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timing of such loss cannot be accurately estimated at this time due to the size
and nature of this bankruptcy. During the quarter ended December 31, 1998, PHP
Healthcare, Inc. a lessee of ours, was placed in receivership by the New Jersey
Insurance Commission which led to them filing for voluntary bankruptcy
protection. As of December 31, 1999, we have a net book value of assets totaling
approximately $421,000 at risk with this lessee. We believe that as of December
31, 1999, our reserves are adequate to provide for the potential losses
resulting from these customers.
COMPETITION
The market for our electronic commerce products is intensely competitive,
subject to rapid change and significantly affected by new product introductions
and other market activities of industry participants. Our primary source of
direct competition comes from independent software vendors of procurement
applications. We also face indirect competition from potential customers'
internal development efforts and have to overcome potential customers'
reluctance to move away from existing legacy systems and processes.
Our current and potential competitors in the electronic commerce market include,
among others, Ariba, Inc., Commerce One, Inc., Comdisco, Inc., Clarus
Corporation, Concur Technologies, Inc., Connect, Inc., Harbinger Corporation, i2
Technologies, International Business Machines Corporation, Intellisys Group,
Inc., Microsoft Corporation, Netscape Communications Corporation, Oracle
Corporation, PeopleSoft, Inc. and SAP Corporation Systems. In addition, there
are a number of companies developing and marketing business-to-business
electronic commerce solutions targeted at specific vertical markets. Some of
these competitors offer Internet-based solutions that are designed to enable an
enterprise to buy more effectively from its suppliers. Other competitors are
also attempting to migrate their technologies to an Internet-enabled platform.
Some of these competitors and potential competitors include ERP vendors, that
are expected to sell their procurement products along with their application
suites. These ERP vendors have a significant installed customer base and have
the opportunity to offer additional products to those customers as additional
components of their respective application suites.
We believe that the principal competitive factors for business-to-business
electronic commerce solutions are scalability, functionality, ease-of-use,
ease-of-implementation ability to integrate with existing legacy systems,
experience in business-to-business supply chain management and knowledge of a
business' asset management needs. We believe we compete favorably with our
competitors in these areas.
In addition, we expect to continue to compete in the information technology and
telecommunications equipment leasing and financing market. We compete directly
with various independent leasing companies, such as El Camino Resources, Ltd.,
Comdisco, Inc. and GE Capital Corporation as well as captive finance companies
such as IBM Credit Corporation. Many of these competitors are well established,
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have substantially greater financial, marketing, technical and sales support
than we do and have established reputations for success in the purchase, sale
and lease of computer-related products. In addition, many computer manufacturers
may sell or lease directly to our customers, and our continued ability to
compete effectively may be affected by the policies of such manufacturers.
EMPLOYEES AND FACILITIES
As of December 31, 1999, we employed 337 full-time and part-time employees who
operated through our 16 locations, including our principal executive offices and
regional sales offices. We believe our relationships with our employees are
good.
Our 12 leased offices are located in the following metropolitan and suburban
locations: Herndon, Virginia; Dallas, Texas; Sacramento and San Diego,
California; Greenville, Wilmington and Raleigh, North Carolina; Pittsburgh,
Pottstown and West Chester, Pennsylvania; Golden, Colorado; and Baltimore,
Maryland. All of our office facilities are leased, and our monthly rental for
all of our office space is approximately $65,925.
LITIGATION
We are not involved in any legal proceedings, and are not aware of any pending
or threatened legal proceedings, that would have a material adverse effect on
our business, operating results and financial condition.
Exhibit 99.3
AGREEMENT
THIS AGREEMENT (this "Agreement") is dated as of February 25, 2000, by
and between ePlus inc., formerly MLC Holdings, Inc., a Delaware corporation (the
"Company"), and TC Plus, LLC, formerly TC Leasing, LLC, a Delaware limited
liability company ("Thayer"). Capitalized terms used herein but not defined
herein shall have the meanings assigned thereto in that certain Stock Purchase
Warrant, dated October 23, 1998, by the Company in favor of Thayer (the
"Warrant").
The parties hereto agree as follows:
Section 1. Deferral of Put of Warrant. Notwithstanding the
Company'sdelivery to Thayer on December 23, 1999 of the " Requirement Notice"
pursuant to Section 6A of the Warrant, the obligation of Thayer and/or one or
more assignees of Thayer pursuant to the terms of the Warrant, as applicable
(collectively, the "Holder") (the "Thayer Exercise Obligation") to exercise the
purchase rights under the Warrant shall be deferred in accordance with the terms
of this Agreement. The Thayer Exercise Obligation shall be deferred until the
earlier of: (a) the date that the full "cashless exercise" of the Warrant is
fully consummated, as provided in Section 2 below, and (b) the later of (i) the
date that is thirty days after the date that the Holder receives a certificate
signed by the chief executive officer of the Company certifying that the Company
does not reasonably anticipate that a public offering (the "Public Offering")
registered under the Securities Act of 1933, as amended, (including the rules
and regulations promulgated thereunder, the "Securities Act") of shares of
common stock, par value $.01 per share, of the Company ("Common Stock") will
occur within six months after the date of such certificate, and (ii) such time
as the Holder and its affiliates are not prohibited from so exercising (and from
selling any Common Stock) pursuant to that certain Lock-up Agreement, dated
February 25, 2000, by Thayer in favor of J.P. Morgan Securities Inc., First
Union Securities, Inc., Friedman, Billings, Ramsey & Co., Inc. and U.S. Bancorp
Piper Jaffray Inc. or any other agreement entered into with the consent of the
Company, which consent shall not be unreasonably withheld. In addition, the
Thayer Exercise Obligation shall be further deferred to the extent necessary for
the Company and the Holder to make any filings in connection with the HSR Act
(and receive any other third party consents) required prior to or in connection
with the exercise of the Warrant; provided, however the Company and Thayer each
agrees to use its reasonable best efforts to make its filings in connection with
the HSR Act within four business days of the date hereof. The Company shall be
relieved of any and all obligations precedent to requiring the Holder to
exercise the Warrant pursuant to the terms of the Warrant, including, without
limitation, delivering to the Holder the certificate of the chief executive
officer of the Company described in Section 6B of the Warrant.
Section 2. Consent to Cashless Exercise of Warrant. Notwithstanding
anything in the Warrant to the contrary, to the extent that the Warrant has not
previously been exercised, the parties agree that the Holder must exercise the
Warrant in full on the date the Company executes an underwriting agreement in
connection with a Public Offering. Notwithstanding anything in the Warrant to
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the contrary, the Holder may exercise the Warrant, in its sole discretion, by
either (i) surrendering Common Stock to the Company having an aggregate price
(as determined by the closing sales price of Common Stock on NASDAQ on the
trading day on which the underwriting agreement in connection with the Public
Offering is executed) ("Market Price") equal to the aggregate Exercise Price (as
defined in Section 3 hereof) of the Common Stock issuable upon such exercise of
the Warrant (the "Warrant Stock"), or (ii) giving written notice to the Company
that the Holder is exercising the Warrant (or a portion thereof) and, in such
written notice, authorizing the Company to withhold from issuance a number of
shares of Warrant Stock issuable upon such exercise of the Warrant which when
multiplied by the Market Price of the Warrant Stock is equal to the aggregate
Exercise Price (and such withheld shares shall no longer be issuable under the
Warrant).
Section 3. Exercise Price in connection with a Cashless Exercise of
Warrant. Notwithstanding anything in the Warrant to the contrary, if and only if
the Holder is exercising the Warrant pursuant to Section 2 hereof, the parties
agree that the exercise price per share of Common Stock shall be $11.88 (108% of
$11.00) (subject to equitable adjustment from time to time to appropriately
account for any adjustments made pursuant to the terms of the Warrant of the
"Exercise Price" as defined in the Warrant.) In all other cases, the exercise
price per share of Common Stock under the Warrant shall remain $11.00 per share
of Common Stock (subject to adjustment from time to time pursuant to terms of
the Warrant).
Section 4. Amended and Restated Stockholders Agreement. Subject to Section
14 hereof, (a) Thayer and the Company each agrees to execute the Amended and
Restated Stockholders Agreement in the form attached hereto as Exhibit A at the
time the underwriting agreement in connection with the Public Offering is
executed, and (b) the Company agrees to use its reasonable best efforts to cause
the holders of at least a majority of the then-outstanding Management Shares (as
defined in that certain Stockholders Agreement, dated as of October 23, 1998,
among the Company, Thayer and the other stockholders parties thereto (the
"Stockholders Agreement")) to promptly execute same.
Section 5. Waiver of Breach of Stockholders Agreement. Subject to Section
14 hereof, Thayer agrees to waive any and all breaches of the Stockholders
Agreement in connection with the allocation of shares of Common Stock to be sold
by Thayer and the other stockholders of the Company in the Public Offering.
Section 6. Amendment to and Waiver of Rights under the Stock Purchase
Agreement. Subject to Section 14 hereof, Thayer and the Company each agrees that
the rights, obligations and preferences set forth in sections 4B(ii), 4E, 4H, 4I
and 4J of that certain Common Stock Purchase Agreement, dated October 23, 1998,
by and between the Company and Thayer (the "Stock Purchase Agreement") shall be
no longer be effective and that such party, on behalf of itself and its
successor and assigns, shall forever waive compliance with such sections of the
Stock Purchase Agreement.
Section 7. Successors and Assigns. This Agreement shall bind and inure to
the benefit of and be enforceable by the Company and Thayer and their respective
permitted successors and assigns.
2
<PAGE>
Section 8. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
Section 9. Headings; Interpretations. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a substantive
part of this Agreement. The use of the word "including" in this Agreement shall
be by way of example rather than by limitation.
Section 10. Governing Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits hereto shall be governed by, and construed in accordance with, the laws
of the State of Delaware, without giving effect to any choice of law or conflict
of law rules or provisions (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.
Section 11. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, on the day following the date on which the same shall have
been sent to the recipient by reputable overnight courier service (charges
prepaid), when delivered via facsimile (with appropriate confirmation of
receipt), or on the third day following the date on which the same shall have
been mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to Thayer and to the Company at the addresses indicated below:
If to Thayer:
c/o Thayer Equity Investors III, L.P.
1455 Pennsylvania Avenue, Suite 350
Washington, DC 20004
FAX: 202-371-0391
Attention: Daniel Raskas
with a copy to:
Kirkland & Ellis
655 Fifteenth Street, N.W., Suite 1200
Washington, DC 20005-5793
FAX: 202-879-5200
Attention: Terrance L. Bessey, Esq.
If to the Company:
ePlus inc.
11150 Sunset Hills Road, Suite 110
Reston, VA 20190-5321
FAX: 703-834-5718
Attention: Phillip G. Norton
3
<PAGE>
with a copy to:
Alston & Bird, LLP
601 Pennsylvania Avenue, N.W.
North Building, 11th Floor
Washington, DC 20004
FAX: 202-508-3333
Attention: Frank M. Conner, III, Esq.
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Section 12. No Strict Construction. The parties hereto 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 hereto, 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.
Section 13. Entire Agreement. This Agreement (including the exhibits
attached hereto) and the Warrant, the Stockholders Agreement and the Stock
Purchase Agreement (to the extent such agreements are not amended hereby) embody
the complete understanding between the parties hereto with respect to the
subject matter hereof and supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
Section 14. Effectiveness of Sections 4, 5 and 6 hereof . Notwithstanding
anything in Section 4, 5 or 6 hereof to the contrary, Sections 4, 5 and 6 hereof
shall only be effective when and if
(a) the Holder is exercising the Warrant pursuant to a "cashless exercise"
as set forth in Section 2 hereof, and
(b) the executed underwriting agreement in connection with the Public
Offering provides that the underwriter(s) will purchase from Thayer
(1) not less than the greater of (x) 320,000 shares of Common Stock,
(y) 80% of the shares of Common Stock to be sold by shareholders of
the Company (including Thayer) in such Public Offering, and (z) 16% of
the shares of Common Stock to be sold by the Company and the
shareholders of the Company (including Thayer) in such Public Offering
(in each of clauses (x), (y) and (z), before the exercise of any
over-allotment option granted to the underwriter(s)), and
(2) not less than 40% of the shares of Common Stock to be sold by
shareholders of the Company (including Thayer) pursuant to any such
over-allotment option.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
EPLUS INC.
(FORMERLY MLC HOLDINGS, INC.)
By: /s/ Phillip G. Norton
Name: Phillip G. Norton
Title: President and Chief Executive Officer
TC PLUS, LLC
(FORMERLY TC LEASING, LLC)
By: THAYER EQUITY INVESTORS III, L.P.,
its managing member
By: TC EQUITY PARTNERS, L.L.C.,
its general partner
By: /s/ Daniel A. Raskas
Name: Daniel A. Raskas
Title: Vice President
5
<PAGE>
Exhibit A
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
Dated as of February __, 2000
Among
EPLUS INC.
AND CERTAIN OF ITS STOCKHOLDERS
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
Section 1. Definitions.....................................................................................1
Section 2. Voting Arrangements.............................................................................5
(a) Election of Directors...........................................................................5
(b) Removal of Directors............................................................................5
(c) Vacancies.......................................................................................5
(d) Rights Unimpaired...............................................................................6
(e) Committees......................................................................................6
(f) Stock Purchase Warrant..........................................................................6
(g) Initial Thayer Directors........................................................................6
(h) Fiduciary Duties Unchanged......................................................................6
(i) Election of Subsidiaries' Directors.............................................................6
Section 3. Legend..........................................................................................6
(a) 1933 Act Legend.................................................................................6
(b) Removal of Legends..............................................................................7
Section 4. Registration Rights.............................................................................7
(a) Shelf Registration..............................................................................7
(b) Demand Registration.............................................................................7
(c) Incidental Registration.........................................................................8
(d) Holdback Agreements.............................................................................9
(e) Registration and Maintenance Procedures.........................................................9
(f) Registration Expenses..........................................................................13
(g) Indemnification; Contribution..................................................................13
(h) Rule 144 Sales.................................................................................16
(i) Underwritten Registrations.....................................................................16
(j) No Inconsistent Agreements.....................................................................16
(k) S-3 Demands....................................................................................16
Section 5. Redemption.....................................................................................17
Section 6. Amendment and Waiver...........................................................................18
Section 7. Severability...................................................................................18
Section 8. Entire Agreement...............................................................................18
Section 9. Successors and Assigns.........................................................................18
Section 10. Counterparts...................................................................................19
Section 11. Remedies.......................................................................................19
Section 12. Notices........................................................................................19
Section 13. Governing Law..................................................................................20
Section 14. Descriptive Headings...........................................................................20
Section 15. Survival; Termination..........................................................................20
Section 16. Other Registration Rights......................................................................20
</TABLE>
<PAGE>
Schedules and Exhibits:
Schedule I -- Other Management Stockholders
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
-------------------------------------------
This AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement") is
dated as of February __, 2000 among (i) EPLUS INC., formerly MLC Holdings, Inc.,
a Delaware corporation (the "Company"), (ii) TC Plus, LLC, formerly TC Leasing,
LLC, a Delaware limited liability company ("Thayer") and (iii) Phillip G. Norton
("Norton"), Bruce M. Bowen and the other Persons listed on Schedule I hereto
(collectively, the "Management Stockholders" and collectively with Thayer, the
"Stockholders").
The parties hereto amend and restated the initial stockholders agreement
dated as of October 23, 1998 in its entirety and hereby agree as follows:
Section 1. Definitions. Section 1. Definitions. For purposes of this
Agreement, the following terms have the indicated meanings:
"Affiliate" of a Person means any other Person controlling, controlled by
or under common control with such Person, whether by ownership of voting
securities, by contract or otherwise, and in the case of Thayer shall include
Thayer Equity Investors III, L.P. and any of its partners or Affiliates, and in
the case of a natural Person shall include any member of such Person's Family
Group.
"Agreement" is defined in the preface.
"Board" means the Company's Board of Directors.
"Common Shares" means shares of the Company's Common Stock.
"Common Stock" means, collectively, the Company's common stock, par value
$.01 per share, and any other class or series of authorized capital stock of the
Company which is not limited to a fixed sum or percentage of par or stated value
in respect to the rights of the holders thereof to participate in dividends or
in the distribution of assets upon any liquidation, dissolution or winding up of
the Company.
"Common Stock Purchase Agreement" means the Common Stock Purchase
Agreement, dated as of October 23, 1998, by and between the Company and Thayer.
"Company" is defined in the preface.
"Co-Redemption Notice" is defined in Section 5.
"Demand Registration" is defined in Section 4(b)(i).
"Demand Right" is defined in Section 4(b)(i).
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<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Family Group" means such Person's spouse and lineal descendants (whether
natural or adopted) and any trust formed and maintained solely for the benefit
of such Person, such Person's spouse or such Person's lineal descendants.
"Incidental Registration" is defined in Section 4(c)(i).
"Incidental Registration Statement" is defined in Section 4(c)(i).
"Indemnified Company" is defined in Section 4(g)(ii).
"Indemnified Parties" is defined in Section 4(g)(ii).
"Indemnified Stockholder" is defined in Section 4(g)(i).
"Indemnifying Party" is defined in Section 4(g)(iii).
"Independent Directors" is defined in Section 2(a).
"Losses" is defined in Section 4(g)(i).
"Management Directors" is defined in Section 2(a).
"Management Shares" means Stockholder Shares held by the Management
Stockholders and their Affiliates.
"Management Stockholders" is defined in the preface.
"Market Value" means, with respect to any security on any date, (x) if such
security is quoted on NASDAQ or listed on a national securities exchange, the
average daily closing sales price of such security on NASDAQ or a national
securities exchange, as applicable, for the 20 trading days prior to such date,
and (y) if such security is not quoted on NASDAQ or listed on a national
securities exchange, the fair value per share determined jointly by the Company
and Thayer, provided that if the Company and Thayer are unable to reach an
agreement within a reasonable period of time, such fair value shall be
determined by a recognized investment banking firm jointly selected by the
Company and Thayer, whose determination shall be final and binding upon the
Company and Thayer (and the fees and expenses of such recognized investment
banking firm shall be paid by the Company).
"NASDAQ" means National Association of Securities Dealers Automated
Quotations National Market System.
"Norton" is defined in the preface.
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<PAGE>
"Options" means any options to purchase Common Stock granted by the
Company.
"Other Redeemers" is defined in Section 5.
"Ownership Percentage" means, with respect to any Stockholder, a percentage
equal to the product of (a) a fraction, the numerator of which is the sum of (i)
the number of Common Shares owned by such Stockholder, and (ii) the number of
Common Shares issuable upon the exercise of any Stock Purchase Warrant or Option
owned by such Stockholder, and the denominator of which is the sum of (x) the
number of shares of the Company's outstanding Common Shares, and (y) the number
of Common Shares issuable upon the exercise of all Stock Purchase Warrants or
Options owned by any of the Stockholders, multiplied by (b) 100.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, limited liability company, joint-stock company, trust,
unincorporated organization, governmental or regulatory body or other legal
entity.
"Proceeding" is defined in Section 4(g)(iii).
"Public Offering" means a sale of Common Stock to the public in an offering
pursuant to an effective registration statement filed with the SEC pursuant to
the Securities Act, as then in effect, provided that a Public Offering shall not
include an offering made in connection with a business acquisition or
combination or an employee benefit plan.
"Public Sale" means a sale of Common Stock pursuant to a Public Offering or
a Rule 144 Sale.
"Redeemable Shares" is defined in Section 5.
"Redemption Notice" is defined in Section 5.
"Refused Securities" is defined in Section 5(d).
"Registrable Securities" means any Common Shares, except Common Shares
which have been Transferred in a Public Sale.
"Registration Notice" is defined in Section 4(b)(i).
"Registration Request" is defined in Section 4(b)(i).
"Registration Statement" means any registration statement of the Company
under which any of the Registrable Securities are included therein pursuant to
the provisions of this Agreement, including the prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement. The Shelf shall be
deemed a Registration Statement.
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<PAGE>
"Requesting Holders" is defined in Section 4(b)(i).
"Rule 144 Sale" means a sale of Common Stock to the public through a
broker, dealer or market-maker pursuant to the provisions of Rule 144 adopted
under the Securities Act (or any successor rule or regulation).
"S-3 Demand Registration" is defined in Section 4(k)(i).
"S-3 Registration Notice" is defined in Section 4(k)(i).
"S-3 Registration Request" is defined in Section 4(k)(i).
"S-3 Requesting Holders" is defined in Section 4(k)(i).
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf" is defined in Section 4(a).
"Stockholders" is defined in the preface.
"Stock Option Plans" means the 1998 Long-Term Incentive Plan, the Employee
Share Purchase Plan and any other plan of the Company pursuant to which the
Company issues options, stock appreciation rights, restricted stock or other
stock based compensation to officers, employees, directors or consultants of the
Company or any of its Subsidiaries.
"Stock Purchase Warrant" means, collectively, the Stock Purchase Warrant,
dated as of October 23, 1998, by the Company in favor of Thayer, and any
subsequent stock purchase warrant or stock purchase warrants in favor of Thayer
or any of its Affiliates issued pursuant to or in connection with the Stock
Purchase Warrant, dated as of October 23, 1998, by the Company in favor of
Thayer.
"Stockholder Shares" means (i) all shares of Common Stock now owned or in
the future acquired by the Stockholders, including all shares of Common Stock
acquired pursuant to the exercise of Options or the Stock Purchase Warrant, and
(ii) all shares of Common Stock or other securities issued or issuable directly
or indirectly with respect to the securities referred to in clause (i) by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. Stockholder
Shares shall cease to be such when Transferred in a Public Sale or to the
Company.
"Subsidiary" means, with respect to any Person, any other Person of which
at least a majority of the outstanding shares or other equity interests having
ordinary voting power for the election of directors or comparable managers of
such Person are owned, directly or indirectly, by the first Person or one or
more Subsidiaries of such first Person.
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<PAGE>
"Thayer" is defined in the preface.
"Thayer Directors" is defined in Section 2(a).
"Thayer Shares" means Stockholder Shares held by the Thayer and its
permitted transferees. Thayer Shares shall cease to be such when they cease to
be Stockholder Shares.
"Transfer" means, with respect to any Stockholder Shares, the gift, sale,
assignment, transfer, pledge, hypothecation or other disposition (whether for or
without consideration and whether voluntary, involuntary or by operation of law)
of such Stockholder Shares or any interest therein.
"Warrant Shares" means the Common Shares issued in connection with the
exercise of the Stock Purchase Warrant, so long as such Common Shares continue
to be Stockholder Shares.
Section 2. Voting Arrangements.
(a) Election of Directors. Each Stockholder agrees that such Person
will vote, or cause to be voted, all voting securities of the Company over
which such Person has the power to vote or direct the voting, and will take
all other necessary or desirable action within such Person's control, and
the Company will take all necessary and desirable actions within its
control, to cause the authorized number of directors for the Company to be
established at six directors, and to elect or cause to be elected to the
Board and cause to be continued in such offices as follows: (i) two
individuals designated by Thayer (the "Thayer Directors"), (ii) two
individuals designated by the Management Stockholders (the "Management
Directors") and (iii) two individuals who are not employees of the Company
or its Subsidiaries or Affiliates, designated by a nominating committee
comprised of one individual designated by the Management Stockholders and
one individual designated by Thayer (the "Independent Directors"); provided
that for so long as the Board is divided into three classes, the "Class I"
directors shall consist of one Thayer Director and one Independent
Director, the "Class II" directors shall consist of one Thayer Director and
one Independent Director and the "Class III" directors shall consist of two
Management Directors.
(b) Removal of Directors. If at any time Thayer shall notify the other
Stockholders of its desire to remove, with or without cause, any individual
designated by Thayer pursuant to Section 2(a) or 2(i) from a directorship,
or if at any time the Management Stockholders shall notify the other
Stockholders of their desire to remove, with or without cause, any
individual designated by the Management Stockholders pursuant to Section
2(a) above from a directorship, all such Persons so notified will vote, or
cause to be voted, all voting securities of the Company or any Subsidiary
of the Company, as applicable, over which they have the power to vote or
direct the voting, and will take all other necessary or desirable action
within such Person's control, and the Company will take all necessary and
desirable actions within its control, to cause the removal of such
director.
(c) Vacancies. If at any time any director ceases to serve on the
board of directors of the Company or any Subsidiary of the Company (whether
due to resignation, removal or otherwise), then Thayer or the Management
Stockholders, as applicable, shall be entitled to designate a successor
director to fill the vacancy created thereby on the terms and subject to
the conditions of Section 2(a) or 2(i), as applicable. Each Stockholder
agrees that he, she or it will vote, or cause to be voted, all voting
securities of the Company or any Subsidiary of the Company over which such
Person has the power to vote or direct the voting, and shall take all such
other actions promptly as shall be necessary or desirable to cause the
successor designated by Thayer or the Management Stockholders, as
applicable, to be elected to fill such vacancy.
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<PAGE>
(d) Rights Unimpaired. Nothing in this Agreement shall be construed to
impair any rights that the stockholders of the Company or any Subsidiary of
the Company may have to remove any director for cause. No removal for cause
of an individual designated pursuant to this Section 2 shall affect the
right of Thayer or the Management Stockholders, as applicable, to designate
a different individual pursuant to this Section 2 to fill the directorship
from which such individual was removed.
(e) Committees. The Compensation Committee of the Board shall at all
times grant all awards under the Stock Option Plans. The Compensation
Committee shall consist of four members, two of which shall be Independent
Directors and two of which shall be Thayer Directors. All other committees
of the Board shall at all times consist of at least one Thayer Director.
(f) Stock Purchase Warrant . Each Stockholder agrees that such Person
will vote, or cause to be voted, all voting securities of the Company over
which such Person has the power to vote or direct the voting, and will take
all other necessary or desirable action within such Person's control, and
the Company will take all necessary and desirable actions within its
control, so that Thayer (or any Person designated by Thayer) may exercise
its rights under the Stock Purchase Warrant pursuant to the terms thereof.
(g) Initial Thayer Directors. Thayer hereby designates Carl J.
Rickertsen as the initial "Class II" Thayer Director and Dr. Paul G. Stern
as the initial "Class I" Thayer Director.
(h) Fiduciary Duties Unchanged. Nothing in this Agreement shall be
construed to limit, change or eliminate any fiduciary duties a director of
the Company or any Subsidiary of the Company may have to the stockholders
of the Company or any Subsidiary of the Company under Delaware law.
(i) Election of Subsidiaries' Directors. The Company will take all
necessary and desirable actions within its control to elect or cause to be
elected to the respective boards of directors of each of the Company's
domestic Subsidiaries, and cause to be continued in such offices, at least
one Thayer Director. Thayer hereby designates Carl J. Rickertsen as the
initial Thayer Director for the purposes of this Section 2(i).
Section 3. Legend.
(a) 1933 Act Legend. The certificates representing Stockholder Shares shall
bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION
THEREUNDER,
or a similar legend indicating that such Stockholder Shares may not be
Transferred in violation of the Securities Act. Unless the above legend or a
similar legend in already on the certificate representing such Stockholder
Shares, then each holder of Stockholder Shares shall provide the Company
promptly after the date hereof (and in no event later than 14 days after the
date hereof) with his or her certificates representing Stockholder Shares so
that such legend can be placed thereon.
(b) Removal of Legends. Whenever the restrictions described above cease to
be applicable to any Stockholder Shares, the holder thereof shall be entitled to
receive from the Company, without expense to the holder, a new certificate not
bearing a legend stating such restriction. The holders of Stockholder Shares
with a legend referencing that certain Stockholders Agreement, dated as of
October 23, 1998, among the Company and certain of its stockholders shall be
entitled to receive from the Company, without expense to the holder, a new
certificate not bearing such legend.
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<PAGE>
Section 4. Registration Rights.
(a) Shelf Registration. Thayer shall have the right at any time to demand
that the Company include any and all Stockholder Shares owned by Thayer or its
Affiliates in the Company's shelf registration statement in effect as of the
date hereof (the "Shelf").
(b) Demand Registration.
(i) So long as any Thayer Shares are not included in the Shelf and/or the
Shelf is not then effective, Thayer shall have the right (the "Demand Right") to
request registration under the Securities Act of all or any portion of the
Registrable Securities held by Thayer and its Affiliates (in each case, referred
to herein as the "Requesting Holders") by delivering a written notice to the
Company, which notice identifies the Requesting Holders and specifies the number
of Registrable Securities to be included in such registration (the "Registration
Request"). The Company will give prompt written notice of such Registration
Request (the "Registration Notice") to all other Stockholders and will thereupon
use its reasonable best efforts to effect the registration (a "Demand
Registration") under the Securities Act on any form available to the Company of:
(x) the Registrable Securities requested to be registered by the
Requesting Holders; and
(y) all other Registrable Securities which the Company has received a
written request from another Stockholder to register within 30 days after
the Registration Notice is given.
The Company shall be obligated to effect three Demand Registrations.
(ii) A registration undertaken by the Company at the request of the
Requesting Holders will not count as a Demand Registration if, pursuant to the
applicable Demand Right, the Requesting Holders fail to register and sell at
least 50% of the Registrable Securities requested to be included in such
registration by the Requesting Holders.
(iii) If the sole or managing underwriter of a Demand Registration advises
the Company in writing that in its opinion the number of Registrable Securities
and other securities requested to be included exceeds the number of Registrable
Securities and other securities which can be sold in such offering without
adversely affecting the distribution of the securities being offered, the price
that will be paid in such offering or the marketability thereof, the Company
will include in such registration the greatest number of Registrable Securities
proposed to be registered by the Stockholders which in the opinion of such
underwriter can be sold in such offering without adversely affecting the
distribution of the securities being offered, the price that will be paid in
such offering or the marketability thereof, ratably among the Stockholders
proposing to register based on each such Stockholder's Ownership Percentage;
provided, however, that the Requesting Holders shall have the right to receive
priority over all other Stockholders in the third Demand Registration.
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<PAGE>
(c) Incidental Registration.
(i) At any time the Company proposes to register any Common Shares
under the Securities Act (other than pursuant to Section 4(b) or in
connection with a business acquisition or combination or an employee
benefit plan), whether in connection with a primary or secondary offering,
the Company will give written notice to each Stockholder at least thirty
(30) days prior to the initial filing of such Registration Statement with
the SEC of its intent to file such Registration Statement and of such
Stockholder's rights under this Section 4(c). Upon the written request of
any Stockholder made within twenty (20) days after any such notice is given
(which request shall specify the Registrable Securities intended to be
disposed of by such Stockholder), the Company will use its reasonable best
efforts to effect the registration (an "Incidental Registration") under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by the holders thereof; provided, however, that if,
at any time after giving written notice of its intention to register any
securities and prior to the effective date of the Registration Statement
filed in connection with such Incidental Registration (each an "Incidental
Registration Statement"), the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to each Stockholder
and, thereupon, (x) in the case of a determination not to register, the
Company shall be relieved of its obligation to register any Registrable
Securities under this Section 4(c) in connection with such registration
(but not from its obligation to pay the expenses incurred in connection
therewith), and (y) in the case of a determination to delay registration,
the Company shall be permitted to delay registering any Registrable
Securities under this Section 4(c) during the period that the registration
of such other securities is delayed.
(ii) If the sole or managing underwriter of a registration advises the
Company in writing that in its opinion the number of Registrable Securities
and other securities requested to be included exceeds the number of
Registrable Securities and other securities which can be sold in such
offering without adversely affecting the distribution of the securities
being offered, the price that will be paid in such offering or the
marketability thereof, the Company will include in such registration the
Registrable Securities and other securities of the Company in the following
order of priority:
(x) first, the greatest number of securities of the Company
proposed to be included in such registration by the Company for its
own account which in the opinion of such underwriter can be so sold;
and
(y) second, after all securities that the Company proposes to
register for its own account have been included, the greatest amount
of Registrable Securities requested to be registered by the
Stockholders of which in the opinion of such underwriter can be sold
in such offering without adversely affecting the distribution of the
securities being offered, the price that will be paid in such offering
or the marketability thereof, ratably among the Stockholders proposing
to register based on each such Stockholder's Ownership Percentage.
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(d) Holdback Agreements.
(i) Each Stockholder agrees that if requested in connection with an
underwritten offering made pursuant to this Section 4 by the managing
underwriter or underwriters of such underwritten offering, such Stockholder will
not effect any Public Sale or distribution of any of the securities being
registered or any securities convertible or exchangeable or exercisable for such
securities (except as part of such underwritten offering), during the period
beginning 10 days prior to, and ending 180 days after, the closing date of each
underwritten offering made pursuant to such Registration Statement (or for such
shorter period as to which the managing underwriter or underwriters may agree).
(ii) The Company agrees not to effect any Public Sale or distribution of
its Common Stock, or any securities convertible into or exchangeable or
exercisable for such Common Stock, during the seven days prior to and during the
180-day period beginning on the effective date of any underwritten Demand
Registration (or for such shorter period as to which the managing underwriter or
underwriters may agree), except as part of such Demand Registration or in
connection with any employee benefit or similar plan, any dividend reinvestment
plan, or a business acquisition or combination.
(e)Registration and Maintenance Procedures. In connection with the
registration of any Registrable Securities and/or the maintenance of the Shelf
and/or any other Registration Statement, the Company shall, to the extent
applicable, at its own expense, as promptly as reasonably possible:
(i) Prepare and file with the SEC a
Registration Statement or Registration Statements on a form
available for the sale of the Registrable Securities by the
holders thereof in accordance with the intended method of
distribution thereof, and use its reasonable best efforts to
cause each such Registration Statement to become effective;
(ii) Prepare and file with the SEC such
amendments and post-effective amendments to each Registration
Statement as may be necessary to keep such Registration
Statement continuously effective for a period ending on the
earlier of (x) 90 days from the effective date and (y) such
time as all of such securities have been disposed of in
accordance with the intended method of disposition thereof;
and cause the related prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in
force) under the Securities Act; and comply with the
provisions of the Securities Act, the Exchange Act and the
rules and regulations of the SEC promulgated thereunder
applicable to it with respect to the disposition of all
securities covered by such Registration Statement as so
amended or in such prospectus as so supplemented;
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(iii) Notify the selling Stockholders
promptly (but in any event within two business days), and
confirm such notice in writing, (A) when a prospectus or any
prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective,
(B) of the issuance by the SEC of any stop order suspending
the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary
prospectus, (C) if at any time when a prospectus is required
by the Securities Act to be delivered in connection with sales
of Registrable Securities the Company becomes aware that the
representations and warranties of the Company contained in any
agreement (including any underwriting agreement) contemplated
by Section 4(e)(viii) cease to be true and correct in all
material respects, (D) of the receipt by the Company of any
notification with respect to the suspension of the
qualification or exemption from qualification of a
Registration Statement or any of the Registrable Securities
for offer or sale in any jurisdiction, (E) if the Company
becomes aware of the happening of any event that makes any
statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material
respect or that requires the making of any changes in such
Registration Statement, prospectus or documents so that, in
the case of such Registration Statement, it will not contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading, and that in the
case of the prospectus, it will not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading;
(iv) Use its reasonable best efforts to
prevent the issuance of any order suspending the effectiveness
of a Registration Statement or of any order preventing or
suspending the use of a prospectus or suspending the
qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, and, if
any such order is issued, to obtain the withdrawal of any such
order at the earliest possible moment;
(v) Deliver to each selling Stockholder and
the underwriters, if any, without charge, as many copies of
the prospectus or prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such
Persons may reasonably request; and, the Company hereby
consents to the use of such prospectus and each amendment or
supplement thereto by each of the selling Stockholders and the
underwriters or agents, if any, in connection with the
offering and sale of the Registrable Securities covered by
such prospectus and any amendment or supplement thereto;
(vi) Prior to any public offering of
Registrable Securities, to use its reasonable best efforts to
register or qualify, and cooperate with the selling
Stockholders, the underwriters, if any, the sales agents and
their respective counsel in connection with the registration
or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and
sale under the securities or "blue sky" laws of such
jurisdictions within the United States as necessary;
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<PAGE>
(vii) Upon the occurrence of any event
contemplated by Section 4(e)(iii)(E), as promptly as
practicable prepare a supplement or post-effective amendment
to the Registration Statement or a supplement to the related
prospectus or any document incorporated or deemed to be
incorporated therein by reference, or file any other required
document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder, such
prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading;
(viii) Enter into an underwriting agreement
in form, scope and substance as is customary in underwritten
offerings and take all such other actions as are reasonably
requested by the managing or sole underwriter in order to
expedite or facilitate the registration or the disposition of
such Registrable Securities, and in such connection, (A) make
such representations and warranties to the underwriters, with
respect to the business of the Company and its Subsidiaries,
and the Registration Statement, prospectus and documents, if
any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are
customarily made by issuers to underwriters in underwritten
offerings, and confirm the same if and when requested; (B)
obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing
underwriters), addressed to the underwriters covering the
matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be
reasonably requested by underwriters; (C) obtain "cold
comfort" letters and updates thereof from the independent
certified public accountants of the Company (and, if
necessary, any other independent certified public accountants
of any Subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial
data are, or are required to be, included in the Registration
Statement), addressed to each of the underwriters, such
letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in
connection with underwritten offerings; and (D) if an
underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to
the Stockholders than those set forth in Section 4(g) (or such
other provisions and procedures acceptable to holders of a
majority of the Registrable Securities covered by such
Registration Statement and the managing underwriters or
agents) with respect to all parties to be indemnified pursuant
to Section 4(g). The above shall be done at each closing under
such underwriting agreement, or as and to the extent required
thereunder;
(ix) Comply with all applicable rules and
regulations of the SEC and make generally available to its
Stockholders earnings statements satisfying the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act) no
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later than 45 days after the end of any 12-month period (or 90
days after the end of any 12-month period if such period is a
fiscal year) (x) commencing at the end of any fiscal quarter
in which Registrable Securities are sold to underwriters in a
firm commitment or best efforts underwritten offering and (y)
if not sold to underwriters in such an offering, commencing on
the first day of the first fiscal quarter of the Company after
the effectiveness of a Registration Statement, which
statements shall cover said 12-month periods; and
(x) Use its reasonable best efforts to cause
all such Registrable Securities covered by such Registration
Statement to be designated as a NASDAQ "national market system
security" within the meaning of Rule 11Aa2-1 or listed on the
principal securities exchange on which Common Stock is then
listed (if any).
The Company may require each Stockholder as to which any registration is being
effected to furnish to the Company such information regarding such Stockholder
and the distribution of such Registrable Securities as the Company may, from
time to time, reasonably request in writing; provided that such information
shall be used only in connection with such registration. The Company may exclude
from such registration the Registrable Securities of any Stockholder who
unreasonably fails to furnish such information promptly after receiving such
request. Each Stockholder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
4(e)(iii)(B), 4(e)(iii)(D) or 4(e)(iii)(E), such Stockholder will forthwith
discontinue disposition of such Registrable Securities covered by such
Registration Statement or prospectus until such Stockholder's receipt of the
copies of the supplemented or amended prospectus contemplated by Section 4(e),
or until such Stockholder is advised in writing by the Company that the use of
the applicable prospectus may be resumed, and has received copies of any
amendments or supplements thereto.
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(f) Registration Expenses. All fees and expenses incident to the
performance of or compliance the Company with the provisions of Section 4 shall
be borne by the Company, whether or not any Registration Statement is filed or
becomes effective, including, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses of compliance with
state securities or "blue sky" laws), (ii) reasonable messenger, telephone and
delivery expenses, (iii) fees and disbursements of counsel for the Company, (iv)
fees and disbursements of all independent certified public accountants referred
to in Section 4(e)(viii), (v) underwriters' fees and expenses (excluding
discounts, commissions, or fees of underwriters, selling brokers, dealer
managers or similar securities industry professionals relating to the
distribution of the Registrable Securities, which shall be paid by the selling
stockholders), (vi) Securities Act liability insurance, if the Company so
desires such insurance, (vii) internal expenses of the Company, (viii) the
expense of any annual audit, (ix) the fees and expenses incurred in connection
with the listing of the securities to be registered on any securities exchange,
and (x) the fees and expenses of any Person, including special experts, retained
by the Company. In connection with any Demand Registration or Incidental
Registration hereunder, the Company shall reimburse the holders of the
Registrable Securities being registered in such registration for the reasonable
fees and disbursements of not more than one counsel (together with appropriate
local counsel) chosen by Thayer, if pursuant to a Demand Registration, or the
Company, in all other cases, and other reasonable out-of-pocket expenses of the
Stockholders incurred in connection with the registration of the Registrable
Securities.
(g) Indemnification; Contribution.
(i) The Company shall, without limitation as to time, indemnify and hold
harmless, to the full extent permitted by law, each Stockholder, the officers,
directors, members, agents and employees of each of them, each Person who
controls each such Person (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act), the officers, directors, agents and
employees of each such controlling person and any financial or investment
adviser (each, an "Indemnified Stockholder"), to the fullest extent lawful, from
and against any and all losses, claims, damages, liabilities, actions or
proceedings (whether commenced or threatened) reasonable costs (including,
without limitation, reasonable costs of preparation and reasonable attorneys'
fees) and reasonable expenses (including reasonable expenses of investigation)
(collectively, "Losses"), as incurred, arising out of or based upon any untrue
or alleged untrue statement of a material fact contained in any Registration
Statement, prospectus or form of prospectus or in any amendment or supplements
thereto or in any preliminary prospectus, or arising out of or based upon any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except to the extent,
but only to the extent, that such untrue or alleged untrue statement is
contained in, or such omission or alleged omission is required to be contained
in, any information so furnished in writing by the Company to such Stockholder
expressly for use in such Registration Statement or prospectus and that such
statement or omission was reasonably relied upon by such Stockholder in
preparation of such Registration Statement, prospectus or form of prospectus;
provided, however, that the Company shall not be liable in any such case to the
extent that the Company has furnished in writing to such Stockholder within a
reasonable period of time prior to the filing of any such Registration Statement
or prospectus or amendment or supplement thereto information expressly for use
in such Registration Statement or prospectus or any amendment or supplement
thereto which corrected or made not misleading, information previously furnished
to such Stockholder, and such Stockholder failed to include such information
therein; provided, further, however, that the Company shall not be liable to any
Person who participates as an underwriter in the offering or sale of Registrable
Securities or any other Person, if any, who controls such underwriter(s) within
the meaning of the Securities Act to the extent that any such Losses arise out
of or are based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in any preliminary prospectus if (A) such Person failed
to send or deliver a copy of the prospectus with or prior to the delivery of
written confirmation of the sale by such Person to the Person asserting the
claim from which such Losses arise, (B) the prospectus would have corrected such
untrue statement or alleged untrue statement or such omission or alleged
omission, and (C) the Company has complied with its obligations under Section
4(e)(iii). Each indemnity and reimbursement of costs and expenses shall remain
in full force and effect regardless of any investigation made by or on behalf of
such Indemnified Stockholder.
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<PAGE>
(ii) In connection with any Registration Statement in which a Stockholder
is participating, such Stockholder, or an authorized officer of such
Stockholder, shall furnish to the Company in writing such information as the
Company reasonably requests for use in connection with any Registration
Statement or prospectus and agrees, severally and not jointly, to indemnify, to
the full extent permitted by law, the Company, its directors, officers, agents
and employees, each Person who controls the Company (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling persons (each, an
"Indemnified Company", and together with the Indemnified Stockholders, the
"Indemnified Parties"), from and against all Losses, as incurred, arising out of
or based upon any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, prospectus or form of prospectus or in
any amendment or supplements thereto or in any preliminary prospectus, or
arising out of or based upon any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except to the extent, but only to the extent, that such untrue or
alleged untrue statement is contained in, or such omission or alleged omission
is required to be contained in, any information so furnished in writing by such
Stockholder to the Company expressly for use in such Registration Statement or
prospectus and that such statement or omission was reasonably relied upon by the
Company in preparation of such Registration Statement, prospectus or form of
prospectus; provided, however, that such Stockholder shall not be liable in any
such case to the extent that such Stockholder has furnished in writing to the
Company within a reasonable period of time prior to the filing of any such
Registration Statement or prospectus or amendment or supplement thereto
information expressly for use in such Registration Statement or prospectus or
any amendment or supplement thereto which corrected or made not misleading,
information previously furnished to the Company, and the Company failed to
include such information therein. In no event shall the liability of any selling
Stockholder hereunder be greater in amount than the after-tax dollar amount of
the proceeds (net of payment of all expenses) received by such Stockholder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Company.
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<PAGE>
(iii) Any Indemnified Party shall give prompt notice to the party or
parties from which such indemnity is sought (the "Indemnifying Parties") of the
commencement of any action, suit, proceeding or investigation or written threat
thereof (a "Proceeding") with respect to which such Indemnified Party seeks
indemnification or contribution pursuant hereto; provided, however, that the
failure to so notify the Indemnifying Parties shall not relieve the Indemnifying
Parties from any obligation or liability except to the extent that the
Indemnifying Parties have been prejudiced by such failure. The Indemnifying
Parties shall have the right, exercisable by giving written notice to an
Indemnified Party promptly after the receipt of written notice from such
Indemnified Party of such Proceeding, to assume, at the Indemnifying Parties'
expense, the defense of any such Proceeding, with counsel reasonably
satisfactory to such Indemnified Party; provided, however, that an Indemnified
Party or Indemnified Parties (if more than one such Indemnified Party is named
in any Proceeding) shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Indemnified
Parties unless: (x) the Indemnifying Parties agree to pay such fees and
expenses; (y) the Indemnifying Parties fail promptly to assume the defense of
such Proceeding or fail to employ counsel reasonably satisfactory to such
Indemnified Party or Indemnified Parties; or (z) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
or Indemnified Parties and the Indemnifying Parties, and there may be one or
more defenses available to such Indemnified Party or Indemnified Parties that
are different from or additional to those available to the Indemnifying Parties,
in which case, if such Indemnified Party or Indemnified Parties notifies the
Indemnifying Parties in writing that it elects to employ separate counsel at the
expense of the Indemnifying Parties, the Indemnifying Parties shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Parties, it being understood, however, that, unless there
exists a conflict among Indemnified Parties, the Indemnifying Parties shall not,
in connection with any one such Proceeding or separate but substantially similar
or related Proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for such Indemnified Party or Indemnified Parties. Whether or not such
defense is assumed by the Indemnifying Parties, such Indemnifying Parties or
Indemnified Party or Indemnified Parties will not be subject to any liability
for any settlement made without its or their consent (but such consent will not
be unreasonably withheld). The Indemnifying Parties shall not consent to entry
of any judgment or enter into any settlement which (A) provides for other than
monetary damages without the consent of the Indemnified Party or Indemnified
Parties (which consent shall not be unreasonably withheld or delayed) or (B)
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party or Indemnified Parties of a release, in form
and substance satisfactory to the Indemnified Party or Indemnified Parties, from
all liability in respect of such Proceeding for which such Indemnified Party
would be entitled to indemnification hereunder.
(iv) If the indemnification provided for in this Section 4(g) is
unavailable to an Indemnified Party or is insufficient to hold such Indemnified
Party harmless for any Losses in respect of which this Section 4(g) would
otherwise apply by its terms, then each applicable Indemnifying Party, in lieu
of indemnifying such Indemnified Party, shall have a joint and several
obligation to contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses, in such proportion as is appropriate to reflect the
relative fault of and relative benefit to the Indemnifying Party, on the one
hand, and such Indemnified Party, on the other hand, in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party, on the one hand, and Indemnified Party, on the other hand, shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been taken by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent any such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
Proceeding, to the extent such party would have been indemnified for such
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expenses if the indemnification provided for in Section 4(g)(i) or 4(g)(ii) was
available to such party. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 4(g)(iv) were determined by
pro-rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in this Section 4(g)(iv).
Notwithstanding the provisions of this Section 4(g)(iv), an Indemnifying Party
that is a selling Stockholder shall not be required to contribute any amount in
excess of the amount by which the net after-tax proceeds received by such
Indemnifying Party exceeds the amount of any damages that such Indemnifying
Party has otherwise been required to pay by reasons of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(h) Rule 144 Sales. The Company shall file the reports required to be filed
by it under the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder, and will take such further action as any
Stockholder may reasonably request, all to the extent required from time to time
to enable such Stockholder to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144. Upon the request of any Stockholder, the Company shall deliver to such
Stockholder a written statement as to whether it has complied with such
requirements.
(i) Underwritten Registrations. No Stockholder may participate in any
underwritten registration hereunder unless such Stockholder (x) agrees to sell
such Stockholder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (y) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
(j) No Inconsistent Agreements. The Company has not and will not, enter
into any agreement with respect to the Company's securities that is inconsistent
with the rights granted to the Stockholders in this Section 4 or otherwise
conflicts with the provisions hereof.
(k) S-3 Demands.
(i) So long as (A) any Thayer Shares are not included in the Shelf
and/or the Shelf is not then effective and (B) the Company is permitted
under Securities Act to register securities on Form S-3, Thayer shall have
the right to request registration on Form S-3 of all or any portion of the
Registrable Securities held by Thayer and its Affiliates (in each case,
referred to herein as the "S-3 Requesting Holders") by delivering a written
notice to the Company, which notice identifies the S-3 Requesting Holders
and specifies the number of Registrable Securities to be included in such
registration (the "S-3 Registration Request"). The Company will give prompt
written notice of such S-3 Registration Request (the "S-3 Registration
Notice") to all other Stockholders and will thereupon use its reasonable
best efforts to effect the registration (a "S-3 Demand Registration") on
Form S-3 of:
(x) the Registrable Securities requested to be registered by the
S-3 Requesting Holders; and
(y) all other Registrable Securities which the Company has
received a written request from another Stockholder to
register within 30 days after the S-3 Registration Notice is
given.
S-3 Demand Registrations shall constitute Demand Registrations.
(ii) If the sole or managing underwriter of a S-3 Demand Registration
advises the Company in writing that in its opinion the number of Registrable
Securities and other securities requested to be included exceeds the number of
Registrable Securities and other securities which can be sold in such offering
without adversely affecting the distribution of the securities being offered,
the price that will be paid in such offering or the marketability thereof, the
Company will include in such registration the greatest number of Registrable
Securities proposed to be registered by the Stockholders which in the opinion of
such underwriter can be sold in such offering without adversely affecting the
distribution of the securities being offered, the price that will be paid in
such offering or the marketability thereof, ratably among the Stockholders
proposing to register based on each such Stockholder's Ownership Percentage.
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Section 5. Redemption. Prior to redeeming, purchasing or otherwise
acquiring (contingent or otherwise), directly or indirectly, or entering into
any agreement for the redemption, purchase or acquisition (contingent or
otherwise), directly or indirectly, of any Common Shares from any holder of
Management Shares, the Company shall give at least thirty (30) days prior
written notice to Thayer, which notice (for purposes of this Section 5, the
"Redemption Notice") shall identify the type and amount of Common Shares to be
redeemed, describe the terms and conditions of such proposed redemption, and
identify each prospective transferor of the Common Shares to be redeemed (the
"Other Redeemers"). Thayer or any of its Affiliates may, within fifteen (15)
days after the receipt of the Redemption Notice, give written notice (each, a
"Co-Redemption Notice") to the Company that such Person wishes to participate in
such proposed redemption upon the terms and conditions set forth in the
Redemption Notice, which Co-Redemption Notice shall specify the type and amount
of Common Shares such Person desires to redeem. If none of Thayer and its
Affiliates give the Company a timely Co-Redemption Notice, then the Company may
redeem such Common Shares on the terms and conditions set forth in the
Redemption Notice of the Other Redeemers at any time within ninety days after
expiration of the fifteen-day period for giving Co-Redemption Notices with
respect to such redemption. Any such Common Shares not redeemed by the Company
during such ninety-day period will again be subject to the provisions of this
Section 9 upon a subsequent redemption. If Thayer and/or its Affiliates give the
Company a timely Co-Redemption Notice, then the Company, at its option, shall
(a) redeem all Common Shares which Thayer, its Affiliates and the Other
Redeemers desire to redeem, or (b) allocate the maximum number of each class of
Common Shares that the Company is willing to redeem (the "Redeemable Shares")
among Thayer, its Affiliates and the Other Redeemers as follows:
(i) each Stockholder holding Thayer Shares shall be
entitled to redeem a number of Common Shares (not to exceed, for any
such Stockholder, the number of shares of such Common Shares identified
in such Stockholder's Co-Redemption Notice) equal to the product of (A)
the number of Redeemable Shares of such class of Common Shares and (B)
such Stockholder's Ownership Percentage of such class of Common Shares;
and
(ii) the Other Redeemers shall be entitled to redeem
all Redeemable Shares remaining after taking into account clause (i)
above (with the allocation among the Other Redeemers as decided by the
Company in its sole discretion).
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Section 6. Amendment and Waiver.Section Except as otherwise provided
herein, no amendment or waiver of any provision of this Agreement shall be
effective against the Company or Stockholders unless such amendment or waiver is
approved in writing by the Company, Thayer and the holders of at least a
majority of the then-outstanding Management Shares. The failure of any party to
enforce any provision of this Agreement shall not be construed as a waiver of
such provision and shall not affect the right of such party thereafter to
enforce each provision of this Agreement in accordance with its terms.
Section 7. Severability. If any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
Section 8. Entire Agreement. Except as otherwise expressly set forth
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
Section 9. Successors and Assigns. Except as otherwise provided in this
Section 9, this Agreement shall bind and inure to the benefit of and be
enforceable by the Company and the Stockholders and their respective permitted
successors and assigns so long as such Stockholders and their respective
permitted successors and assigns hold Stockholder Shares. Any assignee of a
Stockholder shall be deemed a "Stockholder" and entitled to all benefits of a
"Stockholder" for all purposes hereunder, except that no assignee of a
Stockholder other than an Affiliate of such Stockholder (a) shall be bound be
the provisions of Section 2 hereof or (b) shall be entitled to the benefits or
suffer the burdens of Section 5 hereof, unless in each case the assignor and
assignee explicitly agree otherwise.
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Section 10. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
Section 11. Remedies. The Company and the Stockholders shall be entitled to
enforce their rights under this Agreement specifically to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that the Company or any Stockholder may in its
sole discretion apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunctive relief (without posting a bond or
other security) in order to enforce or prevent any violation of the provisions
of this Agreement.
Section 12. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or sent via facsimile, or
mailed first class mail (postage prepaid) or sent by reputable overnight courier
service (charges prepaid) to such Person as follows:
if to the Company:
ePlus inc.
11150 Sunset Hills Road, Suite 110
Reston, VA 20190-5321
FAX: 703-834-5718
Attention: Phillip G. Norton
with a copy to:
Alston & Bird, LLP
601 Pennsylvania Avenue, N.W.
North Building, 11th Floor
Washington, DC 20004
FAX: 202-508-3333
Attention: Frank M. Conner, III, Esq.
if to Thayer:
c/o Thayer Equity Investors III, L.P.
1455 Pennsylvania Avenue, Suite 350
Washington, DC 20004
FAX: 202-371-0391
Attention: Carl J. Rickertsen
with a copy to:
Kirkland & Ellis
655 Fifteenth Street, N.W., Suite 1200
Washington, DC 20005-5793
FAX: 202-879-5200
Attention: Terrance L. Bessey, Esq.
if to a Management Stockholder:
at the address set forth below such Management
Stockholder's signature on the signature page hereto
if to any Person who is deemed a Stockholder for any purpose
hereunder:
at the address set forth in the Company's records
or at such address or to the attention of such other Person as the
recipient party has specified by prior written notice to the sending party.
Notices will be deemed to have been given hereunder when delivered personally or
sent via facsimile (against receipt therefor), five business days after deposit
in the U.S. mail and one business day after deposit with a reputable overnight
courier service.
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<PAGE>
Section 13. Governing Law. The corporate law of Delaware shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity and interpretation of this
Agreement shall be governed by the internal law, and not the law of conflicts,
of Delaware.
Section 14. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
Section 15. Survival; Termination. Common Shares acquired by the
Stockholders after the date hereof shall be Stockholder Shares and hence fully
subject to the provisions of this Agreement. Stockholder Shares shall cease to
be such when Transferred in a Public Sale or to the Company. All rights and
obligations of the Stockholders and the Company shall terminate upon Thayer
Shares constituting less than 5% of the issued and outstanding Common Shares,
and all rights and obligations of the Stockholders and the Company shall remain
terminated even if Thayer, its Affiliates and any holders of Thayer Shares later
own in the aggregate 5% or more of the issued and outstanding Common Shares;
provided that the limited partners of Thayer Equity Investors III, L.P. shall
not be treated as Affiliates of Thayer or the holders of Thayer Shares for the
purposes of this Section 15.
Section 16. Other Registration Rights. Each of the Management Stockholders
hereby agrees to waive any right to demand that the Company register any Common
Shares under the Securities Act or include any Common Shares in the Shelf or
other registration statement and any other registration right of any kind
granted by the Company to such Management Stockholder under any agreement other
this Agreement.
[END OF PAGE]
[SIGNATURE PAGES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties, which constitute the Company,
Thayer and the holders of a majority of the outstanding Management Shares, have
executed this Amended and Restated Stockholders Agreement as of the date first
above written.
THE COMPANY:
EPLUS INC. (formerly MLC Holdings, Inc.)
By:
Name: Phillip G. Norton
Title: President and Chief Executive Officer
THAYER:
TC PLUS, LLC (formerly TC Leasing, LLC)
By: THAYER EQUITY INVESTORS III, L.P., its managing member
By: TC EQUITY PARTNERS, L.L.C., its general partner
By: _________________________________
Name:
Title:
HOLDERS OF A MAJORITY OF THE OUTSTANDING
MANAGEMENT SHARES:
PHILLIP G. NORTON
Address: ___________________________
FAX: ___________________________
<PAGE>
By:
Bruce M. Bowen
Address:
FAX:
JAP INVESTMENT GROUP, L.P.
By: J.A.P., Inc., its general partner
By:
Phillip G. Norton
Title:
By:
Kevin M. Norton
Address:
FAX:
By:
Patrick J. Norton, Jr.
Address:
FAX:
<PAGE>
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SCHEDULE I
OTHER MANAGEMENT STOCKHOLDERS
JAP Investment Group, L.P.
Kevin M. Norton
Patrick J. Norton, Jr.
