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                                  SCHEDULE 14A

                                 (RULE 14a-101)

                     INFORMATION REQUIRED IN PROXY STATEMENT

                            SCHEDULE 14A INFORMATION

           PROXY STATEMENT PURSUANT TO SECTIONProxy Statement Pursuant to Section 14(a) OF THE SECURITIES
                     EXCHANGE ACT OFof the Securities

                    Exchange Act of 1934 (AMENDMENT NO.  )(Amendment No. ___)

Filed by the Registrant [X]

Filed by a Party other than the Registrant [  ]

Check the appropriate box:

[X] Preliminary Proxy Statement     [  ] Confidential, for Use of the Commission Only (asCommissio
                                          Only(as permitted by Rule 14a-6(e)(2))

[  ] Definitive Proxy Statement

[  ] Definitive Additional Materials

[  ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12


                                   MLC HOLDINGS, INC.ePlus inc.

- --------------------------------------------------------------------------------
                (Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
     (Name of Person(s) Filing Proxy Statement if other thanOther Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  [X] No fee required.

  [ ] Fee computed on table below per Exchange  Act Rules  14a-6(i)(1)  and
      0-11.

  (1) Title of each class of securities to which transaction applies:    N/A
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  (2) Aggregate number of securities to which transaction applies:       N/A
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  (3) Per unit price or other  underlying value of transaction  computed
  pursuant to Exchange Act Rule 0-11 (Set(set forth the amount on which the filing
  fee is calculated and state how it was determined):           N/A
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  (4) Proposed maximum aggregate value of transaction:          N/A
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  [ ] Fee paid previously with preliminary materials.materials:
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  [ ] Check box if any part of the fee is offset as  provided by Exchange
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  fee was paid  previously.  Identify the previous filing by registration
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                               MLC HOLDINGS, INC.
                       11150 Sunset Hills Road, Suite 110
                          Reston, Virginia 20190-5321ePlus inc.
400 Herndon Parkway
Herndon, VA 20170


August ___, 199718, 2000


Dear Stockholder:

You are cordially  invited to attend the Annual Meetingannual meeting of Stockholders of MLC Holdings, Inc.ePlus
inc. on September 30, 1997.20, 2000.  The Annual Meetingannual  meeting will begin at 10:0030 a.m.  local
time at the Hyatt Regency Reston, 1800 Presidents Street, Reston, VA 20191.

The  Four Seasons Hotel, 2800 Pennsylvania Avenue,
N.W., Washington, DC.  20007

         Informationformal  notice  of the  meeting  follows  on the next  page.  In  addition,
information  regarding  each of the  matters you will be asked to be voted uponvote on at the
Annual Meetingannual meeting is contained in the attached Proxy Statement.proxy statement. We urge you to read
the Proxy Statementproxy statement carefully.  The Proxy Statement is being mailedOn August 18, 2000, we began mailing these proxy
materials  to all  Stockholdersstockholders  of record at the close of  business on or about August ___, 1997.

         Because itJuly 28,
2000. The mailings include the proxy, proxy card, return envelope, and the ePlus
2000 annual report.

It is important that your shares be votedyou vote at the Annual
Meeting, whetherannual meeting.  Whether or not you plan to
attend in person,  we urge you to complete,  date,  and sign the enclosed  proxy
card and return it as promptly as possible in the accompanying  envelope. If you
are a  Stockholderstockholder  of record  and do attend the  meeting  and wish to vote your
shares in person, even after returning your proxy, you still may do so.

We look forward to seeing you in Washington, DCReston, Virginia on September 30, 1997.20, 2000.

                                                Very truly yours,



                                                Phillip G. Norton, President






                                   3
                               MLC HOLDINGS, INC.
                       11150 Sunset Hills Road, Suite 110
                          Reston, Virginia 20190-5321       

                      ------------------------------------ePlus inc.

                               400 Herndon Parkway

                                Herndon, VA 20170

                    ----------------------------------------

                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

                          TO BE HELD SEPTEMBER 30, 1997      

                      ------------------------------------

TO THE STOCKHOLDERS OF MLC HOLDINGS, INC.to be held September 20, 2000

                    ----------------------------------------

To the stockholders of ePlus inc.:

NOTICE IS HEREBY GIVEN that the Annual MeetingThe annual meeting of Stockholdersstockholders of MLC
Holdings, Inc.ePlus inc., a Delaware  corporation, (the "Company"),  will
be held on September  30, 1997,20, 2000,  at The Four Seasons Hotel, 2800 Pennsylvania Avenue, N.W.,
Washington, DC 20007,the Hyatt Regency  Reston,  1800  Presidents
Street,  Reston,  VA 20191,  at 10:0030 a.m.  local time and thereafter as it may from
time to time be adjourned (the "Annual Meeting"), for the  purposes  stated
below:

1.   To elect onetwo  Class I  directordirectors,  each to serve fora term of three  years and
     until his
         successor hastheir successors have been duly elected and shall qualify.

2.   To approve and adopt an amendment to the Company'sePlus Certificate of Incorporation
     to increase  the number of shares of our  authorized  stock of
         the Company from 1227 million
     shares  (10(consisting of 25 million shares of common stock,  par value $0.01,
     and 2 million  preferred  shares) to 2752 million  shares  (25(consisting  of 50
     million shares of common stock,  par value $0.01,  and 2 million  preferred
     shares).

3.   To approve amendments to the MLC Holdings, Inc. Master Stock Incentive
         Plan")(formerly the 1996 Stock Incentive Plan).

4.       To approve adoption of the MLC Holdings, Inc. Employee Stock Purchase
         Plan (a component plan of the Master Stock Incentive Plan).

5.       To approve amendments to the MLC Holdings, Inc. Amended and Restated
         Outside Director Stock Plan (formerly the 1996 Outside Director Stock
         Option Plan).

6.       To approve amendments to the MLC Holdings, Inc. Amended and Restated
         Incentive Stock Option Plan (formerly the 1996 Incentive Stock Option
         Plan).

7.       To approve amendments to the MLC Holdings, Inc. Amended and Restated
         Nonqualified Stock Option Plan (formerly the 1996 Nonqualified Stock
         Option Plan).

8.       To ratify the  appointment  of  Deloitte  & Touche  LLP as the Company'sour  independent
     auditors for the Company'sour fiscal year ending March 31, 1998.

9.2001.

4.   To  transact  such other  business as may  properly  come before the Annual
         Meeting.

         All Stockholders are cordially invited to attend the Annual Meeting.annual
     meeting.

Under the  provisions of our Bylaws,  and in  accordance  with Delaware law, the
Bylaws, the Boardboard of  Directorsdirectors  has fixed the close of  business on August 14, 1997,July 28,  2000,  as the
record  date for  the determination of
Stockholdersstockholders  entitled  to notice of and to vote at the Annual Meetingannual
meeting,

Whether or not you expect to be present at the meeting, please date and any
adjournments thereof.  The stock transfer books will not be closed.

         Stockholders should note thatsign the
Company's By-Laws provide thatenclosed  from of proxy and mail it promptly in order for a stockholderthe  enclosed  envelope to bring business before a meeting or to make a
nomination for the election of directors, such stockholder must give written
notice complying with the requirements of the By-Laws to the Secretary of the
Company not later than 90 days in advance of such meeting or, if later, the
seventh day following the first public announcement of the date of such
meeting.

WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN
THE ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE TO
FIRST UNION NATIONAL BANK,First
Union National Bank, 1525 W.W.T. HARRIS BLVD.W.T. Harris Blvd., 3C3, CHARLOTTE,Charlotte, NC 28288-1113.

                                                 MLC HOLDINGS, INC.ePlus inc.


August ___, 1997                                                            
                                           ---------------------------------18, 2000                                  Kleyton L. Parkhurst, Secretary





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                               MLC HOLDINGS,
ePlus inc. PROXY STATEMENT Table of Contents INFORMATION ABOUT ePLUS INC..............................................................................1 INFORMATION ABOUT THE ANNUAL MEETING.....................................................................1 INFORMATION ABOUT THE PROXY STATEMENT....................................................................1 INFORMATION ABOUT VOTING.................................................................................2 QUORUM REQUIREMENTS......................................................................................2 VOTING REQUIREMENTS......................................................................................3 Proposal 1............................................................................................3 Proposal 2............................................................................................3 Proposal 3............................................................................................3 Effect of Abstentions and Broker Non-votes............................................................3 DISSENTERS' RIGHTS OF APPRAISAL..........................................................................3 VOTING SECURITIES, PRINCIPAL HOLDERS THEREOF, AND MANAGEMENT.............................................3 DIRECTORS AND EXECUTIVE OFFICERS.........................................................................6 Section 16(a) Beneficial Ownership Reporting Compliance...............................................8 The Board of Directors................................................................................9 Director Compensation................................................................................10 Committees of the Board of Directors.................................................................10 COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS........................................................11 Summary Compensation Table...........................................................................11 Option Grants in Last Fiscal Year....................................................................11 Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end Option/SAR Values............12 Report Of The Compensation Committee.................................................................13 Employment Contracts and Termination of Employment and Change in Control Arrangements................13 Compensation Committee Interlocks and Insider Participation..........................................15 PERFORMANCE GRAPH.......................................................................................15 CERTAIN TRANSACTIONS....................................................................................16 TC Plus LLC..........................................................................................16 Advances and Loans to Employees and Stockholders.....................................................17 Reimbursement of Certain Expenses....................................................................17 Indemnification Agreements...........................................................................17 Future Transactions..................................................................................18 PROPOSAL 1..............................................................................................18 PROPOSAL 2..............................................................................................19 PROPOSAL 3..............................................................................................21 OTHER PROPOSED ACTION...................................................................................21 STOCKHOLDER PROPOSALS AND SUBMISSIONS...................................................................21 PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION.................................................A-1
-i- INFORMATION ABOUT ePLUS INC. PROXY STATEMENT DATED AUGUST __, 1997 INTRODUCTION This Proxy Statement is furnished in connectionePlus inc. provides an 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 solicitationautomated procurement, management, financing and disposition of proxies by the Boardoperating resources. The address of Directors of MLC Holdings, Inc., a Delaware corporation (the "Company"), for use at the annual meeting of the Company's Stockholders to be held at The Four Seasons Hotel, 2800 Pennsylvania Avenue, N.W., Washington, DC, 20007 on September 30, 1997 at 10:00 a.m., and at any adjournments thereof (the "Annual Meeting"). Theour principal executive offices of the Company are locatedoffice is 400 Herndon Parkway, Herndon, Virginia 20170 and our telephone number at 11150 Sunset Hills Road, Reston, Virginia 20190-5321; and its telephone numberthat address is (703) 834-5710. Our Website is located at www.ePlus.com. INFORMATION ABOUT THE ANNUAL MEETING Our annual meeting will be held on September 20, 2000 at 10:30 A.M. local time, at the Hyatt Regency Reston, 1800 Presidents Street, Reston, VA 20191. The Annual Meetingannual meeting has been called to consider and take action on the following proposals: (i)(1) to elect onetwo Class I directordirectors, each to serve fora term of three years and until his successor has been duly elected and shall qualify; (ii)qualify, (2) to approve and adopt an amendment to the Company's ArticlesePlus Certificate of Incorporation to increase the number of shares of our authorized stock of the Company from 1227 million shares (10(consisting of 25 million shares of common stock, par value $0.01, and 2 million preferred shares) to 2752 million shares (25(consisting of 50 million shares of common stock, par value $0.01, and 2 million preferred shares); (iii) to approve amendments to the MLC Holdings, Inc. Master Stock Incentive Plan (formerly the 1996 Stock Incentive Plan); (iv) to approve adoption of the MLC Holdings, Inc. Employee Stock Purchase Plan (a component plan of the Master Stock Incentive Plan); (v) to approve amendments to the MLC Holdings, Inc. Amended and Restated Outside Director Stock Plan (formerly the 1996 Outside Director Stock Option Plan); (vi) to approve amendments to the MLC Holdings, Inc. Amended and Restated Incentive Stock Option Plan (formerly the 1996 Incentive Stock Option Plan); (vi) to approve amendments to the MLC Holdings, Inc. Amended and Restated Nonqualified Stock Option Plan (formerly the 1996 Nonqualified Stock Option Plan)(viii), (3) to ratify the appointment of Deloitte & Touche LLP as the Company'sour independent auditors for the Company'sour fiscal year ending March 31, 1998;2001, and (viii)(4) to transact such other business as may properly come before the meeting. The Company's BoardOur board of Directorsdirectors has taken affirmative action with respect tounanimously approved each of the foregoing proposals and recommends that the Stockholdersyou vote in favor of each of the proposals. All of the holders of record of our common stock $.01 par value (the "Common Stock"), of the CompanyePlus at the close of business on August 14, 1997 (the "Record Date")July 28, 2000, the record date, will be entitled to vote at the Annual Meeting. The stock transfer books will not be closed.annual meeting. INFORMATION ABOUT THE APPROXIMATE DATE ON WHICH THE NOTICE OF ANNUAL MEETING OF STOCKHOLDERS, PROXY STATEMENT AND PROXY CARD ARE FIRST SENT OR GIVEN TO STOCKHOLDERS IS AUGUST ___, 1997. 2We sent you this proxy statement because ePlus' board of directors is soliciting your proxy to vote at the annual meeting. If you own ePlus common stock in more than one account, such as individually and also jointly with your spouse, you may receive more than one set of these proxy materials. To assist us in saving money and to provide you with better shareholder services, we encourage you to have all of your accounts registered in the same name and address. You may do this by contacting our transfer agent, First Union National Bank at (800) 829-8432. This proxy statement contains information that we are -1- 5 VOTING REQUIREMENTS As of August 14, 1997,required to provide to you under the Record Date, there were outstanding 5,672,307 sharesrules of the Common Stock. Only holders of shares of Common StockSecurities and Exchange Commission and is designed to assist you in voting your shares. On August 18, 2000, we began mailing these proxy materials to all shareholders of record as ofat the close of business on the Record Date will be entitled toJuly 28, 2000. INFORMATION ABOUT VOTING Shareholders can vote in person at the Annual Meeting, such holders beingannual meeting or by proxy. To vote by proxy, please mail the enclosed proxy card in the enclosed envelope. Please sign and date your proxy card before mailing. Each share of ePlus common stock is entitled to one vote on all matters presented at the Annual Meetingannual meeting. If your shares are held in the name of a bank, broker or other holder of record, you will receive instructions from the holder of record that you must follow in order for your shares to be voted. If your shares are not registered in your own name and you plan to attend the annual meeting and vote your shares in person, you should contact your broker or agent in whose name your shares are registered to obtain a broker's proxy card and bring it annual meeting in order to vote. If you vote by proxy, the individuals named on the card (your proxy holders) will vote your shares in the manner you indicate. You may specify whether your shares should be voted for or if authority to vote is withheld as to the nominees for director and whether your shares should be voted for or against each share held of record.the other proposals. If you sign and return the card without indicating your instructions, your shares will be voted for: - - The election of both the Class I nominees for director; and - - The approval of the proposal to amend the ePlus Certificate of Incorporation to increase the number of shares of our authorized stock from 27 million shares (consisting of 25 million shares of common stock, par value $0.01, and 2 million preferred shares) to 52 million shares (consisting of 50 million shares of common stock, par value $0.01, and 2 million preferred shares), - - The ratification of the appointment of Deloitte & Touche LLP as our independent auditors for the fiscal year ending March 31, 2001. You may revoke or change your proxy at any time before it is voted by sending a written notice of your revocation to ePlus' Corporate Secretary, Kleyton L. Parkhurst. QUORUM REQUIREMENTS As of July 28, 2000, the record date for this solicitation of proxies, there were 9,671,589 shares of common stock outstanding. The holders of record of a majority in voting interest of the shares of common stock of the Company entitled to vote thereat,at the meeting, present in person or by proxy, shallwill constitute a quorum for the transaction of business at the Annual Meetingannual meeting or any adjournment thereof. If a quorum should not be present, the Annual Meetingannual meeting may be adjourned until a quorum is obtained. The nominee to-2- VOTING REQUIREMENTS Proposal 1 To be selectedelected as a Class I Director, named in Proposal 1a nominee must receive a pluralitybe one of the two persons receiving the greatest number of affirmative votes cast at the meeting for Class I Directors. Proposal 2 To be approved, Proposal 2 requires the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the meetingof common stock outstanding and entitled to vote on the election of directors. Theproposal. Proposal 3 To be approved, Proposal 3 requires the affirmative vote of a majority of the outstanding stock entitled to vote on Proposal 2 is required for the approval of Proposal 2. The approval of each other matter to be considered at the Annual Meeting requires the affirmative voteholders of at least a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter.proposal. Effect of Abstentions and Broker Non-votes Abstentions and broker non-votes will be counted only for the purpose of determining the existence of a quorum, but will not be counted as an affirmative vote for the purposes of determining whether a proposal has been approved. AsTherefore, an abstention or a broker non-vote will not have any effect on the votes for Proposals 1 and 3, but will have the effect as a vote against Proposal 2. All Proxies received will be voted in accordance with the choices specified on such proxies. Proxies will be voted in favor of a proposal if no contrary specification is made. All valid proxies obtained will be voted at the discretion of the Record Date, allboard of the present Directors, as a group of five persons, and all of the present Directors and officers of the Company, as a group of twelve persons, owned beneficially 4,119,130 shares (77.6% of the total outstanding shares) of the Company. To the knowledge of management, as of the Record Date, the only officers, directors and nominees for director who owned beneficially five percent or more of the Company's outstanding shares were Phillip G. Norton, Bruce M. Bowen, William J. Slaton, Kevin M. Norton and Patrick J. Norton. Proxies given by Stockholders of record for use at the Annual Meeting may be revoked at any time priorwith respect to the exercise of the powers conferred. In addition to revocation in any other manner permitted by law, Stockholders of record giving a proxybusiness that may revokecome before the proxy by an instrument in writing, executed by the Stockholder or his attorney authorized in writing or, if the Stockholder is a corporation, under its corporate seal, by an officer or attorney thereof duly authorized, and deposited either at the corporate headquarters of the Company at any time up to and including the last business day preceding the day of the Annual Meeting, or any adjournment thereof, at which the proxy is to be used, or with the chairman of such Annual Meeting on the day of the Annual Meeting or adjournment thereof, and upon either of such deposits the proxy is revoked. ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED ON SUCH PROXIES. PROXIES WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE DISCRETION OF THE BOARD OF DIRECTORS WITH RESPECT TO ANY OTHER BUSINESS THAT MAY COME BEFORE THE ANNUAL MEETING. Solicitation ofannual meeting. We may solicit proxies may be made by use of the mails, and may also be made in person or by telephone, E-mail,e-mail or other electronic communications. TheWe will bear the cost of soliciting proxies in the accompanying form will be borne by the Company. The Companyform. We may reimburse brokerage firms and others for their expenses in forwarding proxy materials to the beneficial owners and soliciting them to execute the proxies. None of the matters to be acted on at the Annual Meeting give rise to any statutory right of a Stockholder to dissent and obtain the appraisal of or payment for such Stockholder's shares. 3 6 The Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997, including audited financial statements, will accompany the mailing to Stockholders of this Proxy Statement. DISSENTERS' RIGHTS OF APPRAISAL The Boardboard of Directorsdirectors does not propose any action for which the laws of the state of Delaware, or the Certificate of Incorporation, By-LawsBylaws or Corporate Resolutionscorporate resolutions of the CompanyePlus provide a right of a Stockholderstockholder to dissent and obtain payment for shares. INTEREST OF OFFICERS AND DIRECTORS IN MATTERS TO BE ACTED UPON Officers or Directors of the Company have a substantial interest in certain of the matters to be acted upon at the Annual Meeting of Stockholders: the Class I director has been nominated for re-election to the office of director for a term of three years; and every Officer and Director has an interest in the approval of the amendments to the MLC Holdings, Inc. Master Stock Incentive Plan (formerly the 1996 Stock Incentive Plan), the adoption of the MLC Holdings, Inc. Employee Stock Purchase Plan (a component plan of the Stock Incentive Plan), the amendments to the MLC Holdings, Inc. Amended and Restated Outside Director Stock Plan (formerly the 1996 Outside Director Stock Option Plan), the amendments to the MLC Holdings, Inc. Amended and Restated Incentive Stock Option Plan (formerly the 1996 Incentive Stock Option Plan), and the amendments to the MLC Holdings, Inc. Amended and Restated Nonqualified Stock Option Plan (formerly the 1996 Nonqualified Stock Option Plan) (Proposals 3 through 7) to the extent that such persons are or will be eligible to participate in such Plans. Phillip G. Norton and Bruce M. Bowen, who presently serve on the Stock Incentive Committee, are ineligible to participate in the Master Stock Incentive Plan and its component plans while they serve as members of the Stock Incentive Committee. VOTING SECURITIES, PRINCIPAL HOLDERS THEREOF, AND MANAGEMENT Only holders of record of the outstanding 5,672,307 shares of Common Stock as of the close of business on the Record Date will be entitled to vote at the Annual Meeting. Each share of Common Stock is entitled to one vote. The Company has no other voting securities outstanding. The following table sets forth certain information as of the Record Date with respect to: (1) each executive officer, Director and the Director nominee;-3- nominees; (2) all executive officers and Directors of the CompanyePlus as a group; and (3) all persons known by the CompanyePlus to be the beneficial owners of five percent or more of the Company's Common Stock.our common stock.
Shares Beneficially Owned ------------------------- Name and Address of Beneficial Owner(1) Number Percent ------------------------------------ ------ ------- Phillip G. Norton(2) 2,825,500 49.53% 1019 Basil Road McLean, Virginia 22101
4 7
Shares Beneficially Owned ------------------------- Name and Address of Beneficial Owner(1) Number Percent ------------------------------------ ------ ------- Bruce M. and Elizabeth D. Bowen(3) 763,750 13.46% 10895 Lake Windermere Drive Great Falls, Virginia 22066 William J. Slaton 400,000 7.05% 1850 Maple Glen Sacramento, California 95864 Kevin M. Norton(4) 376,500 6.64% 5920 Royal Palm Plano, Texas 75093 Patrick J. Norton(4) 376,500 6.64% 705 Brookfield Road Raleigh, North Carolina 27615 Kleyton L. Parkhurst(5) 68,000 1.2% 605 Abbott Lane Falls Church, Virginia 22046 Jonathan J. Ledecky 10,000 * 1400 34th Street, N.W. Washington, D.C. 20007 Thomas K. McNamara 10,000 * 420 Weldon Drive Westchester, PA 19380 Thomas B. Howard, Jr. -0- * 11565 Embers Court Reston, VA 20191 Steven J. Mencarini -0- -0- 1921 Batten Hollow Road Vienna, VA 22182 Terrence O'Donnell 10,000 * 5133 Yuma Street, N.W. Washington, D.C. 20016 Carl J. Rickertsen 10,000 * 4016 Linnean Avenue, N.W. Washington, D.C. 20008
5 8
Shares Beneficially Owned ------------------------- Name and Address of Beneficial Owner(1) Number Percent ------------------------------------ ------ ------- Barbara J. Simmonds 1,880 * 3053 N. Peary Street Arlington, VA 22207 Laifer Capital Management(6) 474,000 9.2% 114 West 47th Street New York, NY 10036 All directors and named officers as a group (12 individuals) 4,099,130 72.3%
- -------------------------------------- *less than 1% (1) Unless otherwise indicated and subject to community property laws where applicable, each of the stockholders named in this table has sole voting and investment power with respect to the shares shown as beneficially owned by such stockholder. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days upon exercise of options and warrants. Each beneficial owner's percentage ownership is determined by assuming options that are held by such person (but not those held by any other person) and that are exercisable within sixty days have been exercised. (2) Includes 2,040,000 shares held by J.A.P. Investment Group, L.P., a Virginia limited partnership, of which J.A.P., Inc., a Virginia corporation, is the sole general partner, and Patricia A. Norton, trustee for the benefit of Phillip G. Norton, Jr., u/a dated as of July 20, 1983, Patricia A. Norton, trustee for the benefit of Andrew L. Norton u/a dated as of July 20, 1983, Patricia A. Norton, trustee for the benefit of Jeremiah O. Norton u/a dated as of July 20, 1983, and Patricia A. Norton are the limited partners. Patricia A. Norton, spouse of Phillip G. Norton, is the sole stockholder of J.A.P., Inc. and Phillip G. Norton is the sole director and President of J.A.P., Inc. Phillip G. Norton holds sole voting rights as to all of the shares of Common Stock and as to all shares of voting stock acquired in the future held by J.A.P. Investment Group, L.P., Kevin M. Norton and Patrick J. Norton, Jr. under the Irrevocable Proxy and Stock Rights Agreement. See also footnote (4). Also includes 32,500 shares of Common Stock that Phillip G. Norton has rights to acquire pursuant to options, which vested upon completion of the Offering and which are immediately exercisable and excludes 97,500 options to acquire shares of Common Stock which are not vested and not immediately exercisable. See "Irrevocable Proxy and Stock Rights Agreement" and "Executive Compensation -- Compensation Arrangements and Employment Agreements." (3) Includes 600,000 shares held by Bruce M. and Elizabeth D. Bowen, as tenants by the entirety, and includes 160,000 shares held by Bowen Holdings L.C., a Virginia limited liability Company composed of Bruce M. Bowen and three minor children, Daniel Bowen, Sarah Bowen and Margaret Bowen, of whom Bruce M. Bowen is legal guardian and for which Bruce M. Bowen serves as manager. Also includes 3,750 shares of Common Stock that Bruce M. Bowen has rights to acquire pursuant to options and excludes 11,250 options to acquire Common Stock which are not vested and not immediately exercisable. See "Executive Compensation -- Compensation Arrangements and Employment Agreements." (4) Phillip G. Norton holds sole voting rights as to all of the foregoing shares of Common Stock under an Irrevocable Proxy and Stock Rights Agreement. See "Irrevocable Proxy and Stock Rights Agreement." Phillip G. Norton, Kevin M. Norton and Patrick J. Norton are brothers. (5) Includes 13,000 shares held by Kleyton L. Parkhurst, 30,000 shares held by three minor children of Kleyton L. Parkhurst, Charlotte A. Parkhurst, Madeline M. Parkhurst, and Kleyton L. Parkhurst, Jr., all of which are voted by Kleyton L. Parkhurst, Custodian, under the Virginia Uniform Gift to Minors Act and 25,000 shares of Common Stock that Kleyton L. Parkhurst has option rights to acquire, and excludes 75,000 options to acquire Common Stock which are not vested and not immediately exercisable. See "Executive Compensation -- Compensation Arrangements and Employment Agreements." (6) On May 28, 1997, a Schedule 13D was filed by Laifer Capital Management, Inc. According to the filing, Laifer Capital Management, Inc. is the beneficial owner of 474,000 shares, or 9.2%. The 474,000 shares of Common Stock beneficially owned by Laifer Capital Management, Inc. includes: (i) 267,500 shares of Common Stock beneficially owned by Laifer Capital Management, Inc. in its capacity as General Partner 6 9 and investment advisor to Hilltop Partners, L.P.; and (ii) 206,500 shares of Common Stock beneficially owned by Laifer Capital Management, Inc. in its capacity as investment advisor to various other clients. These clients include: (a) various Wolfson family entities ("Wolfson"), with an address at One State Street Plaza, New York, New York 10004-1505, and (b) Hilltop Offshore Limited, a Cayman Islands company, with an address c/o Consolidated Fund Management Limited, P.O. Box HM 2257, Par La Ville Place, 14 Par La Ville Road, Hamilton HMJX, Bermuda (collectively, the "Clients"). Lance Laifer, as president, sole director and principal stockholder of Laifer Capital Management, Inc., is deemed to have the same beneficial ownership as Laifer Capital Management, Inc. IRREVOCABLE PROXY AND STOCK RIGHTS AGREEMENT Phillip G. Norton and J.A.P. Investments Group, L.P., Kevin M. Norton and Patrick J. Norton have entered into an agreement entitled "Irrevocable Proxy and Stock Rights Agreement" pursuant to the terms of which (i) each of J.A.P. Investments, L.P., Kevin M. Norton and Patrick J. Norton have granted Phillip G. Norton an irrevocable proxy to vote their shares of Common Stock, which proxy terminates only upon the death or mental incapacity of Phillip G. Norton or in the event of his death or mental incapacity, then to Patricia A. Norton, if then living, or upon the sale or transfer to a third party of the shares of Common Stock subject thereto and (ii) Kevin M. Norton or Patrick J. Norton have granted Phillip G. Norton a first right to buy their shares of Common Stock in the event they desire to sell or transfer any shares of Common Stock to a third party. The foregoing first right to buy is at 85% of the market value, or if sold for less, for a period of three years from November 20, 1996 (the date of closing of the Offering) and at 95% of the market value thereafter. Phillip G. Norton may assign his first right to buy to a third party, and if exercised, the terms of the Irrevocable Proxy and Stock Rights Agreement provide for a deferred purchase money note to finance the purchase. Any shares of Common Stock which Kevin M. Norton or Patrick J. Norton offers to Phillip G. Norton and which are subsequently sold or transferred to a third party after Phillip G. Norton's nonexercise of his first right to buy, will no longer be subject to the Irrevocable Proxy and Stock Rights Agreement. DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company are as follows:
NUMBER OF SHARES % OF BENEFICIALLY OUTSTANDING NAME AGE POSITION CLASS ---- --- -------- -----OF BENEFICIAL OWNER(1)(2) OWNED SHARES ------------------------------ ------------ ------------------ Phillip G. Norton*Norton(3) 2,370,000 24.5% Bruce M. and Elizabeth D. Bowen(4) 857,500 8.9% Steven J. Mencarini(5) 44,040 *............. 53 Kleyton L. Parkhurst(6) 193,000 2.0% C. Thomas Faulders, III(7) 13,507 * Terrence O'Donnell(8) 30,000 * Carl J. Rickertsen(9)(10) 1,620,968 16.8% Dr. Paul G. Stern(9) 1,600,968 16.6% All directors and named executive officers as a group (8 Individuals) 5,129,015 53.0% TC Plus, LLC(9) 1,600,968 16.6% Eric D. Hovde(11) 501,424 5.2% - ------------------------------------------------------------------------------------------------------------------- * less than 1% (1) The business address of TC Plus, LLC is 1455 Pennsylvania Avenue, N.W., Suite 350, Washington, D.C. 20004. The business address of Mr. Hovde is 1826 Jefferson Place, N.W., Washington, D.C. 20036. (2) Unless otherwise indicated and subject to community property laws where applicable, each of the stockholders named in this table has sole voting and investment power with respect to the shares shown as beneficially owned by such stockholder. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date of this prospectus upon exercise of options or warrants. Each beneficial owner's percentage ownership is determined by assuming options or warrants that are held by such person (but not by any other person) and that are exercisable within 60 days from the date of this prospectus have been exercised. The ownership amounts reported for persons who we know own 5% or more of our common stock are based on the Schedules 13D and 13G filed with the SEC by such persons. (3) Includes 2,040,000 shares held by J.A.P. Investment Group, L.P., a Virginia limited partnership, of which J.A.P., Inc., a Virginia corporation, is the sole general partner. The limited partners are: Patricia A. Norton, trustee for the benefit of Phillip G. Norton, Jr., u/a dated as of July 20, 1983; Patricia A. Norton, the spouse of Mr. Norton, trustee for the benefit of Andrew L. Norton, u/a dated as of July 20, 1983; Patricia A. Norton, trustee for the benefit of Jeremiah O. Norton, u/a dated as of July 20, 1983; and Patricia A. Norton. Patricia A. Norton is the sole stockholder of J.A.P., Inc., and Mr. Norton is the sole director and President of J.A.P., Inc. Mr. Norton and J.A.P. Investment Group, L.P. are parties to a stockholders agreement with TC Plus, LLC, Bruce M. Bowen, and Kevin M. Norton and Patrick J. Norton who Mr. Norton's brothers. Also includes 330,000 shares of common stock that Mr. Norton has rights to acquire pursuant to vested options and are immediately exercisable. See "Certain Transactions--TC Plus LLC." (4) Includes 560,000 shares held by Mr. and Mrs. Bowen, as tenants by the entirety, and includes 160,000 shares held by Bowen Holdings L.C., a Virginia limited liability company, composed of Mr. Bowen and three minor children of whom Mr. Bowen is legal guardian and for which shares Mr. Bowen serves as manager. Also includes 137,500 shares of common stock that Mr. Bowen has rights to acquire pursuant to vested options and are immediately exercisable and excludes 7,500 options to acquire shares of common stock which are not vested and not immediately exercisable. Mr. Bowen is party to a stockholders agreement with TC Plus, LLC, Phillip G. Norton, Kevin M. Norton and Patrick J. Norton. See "Certain Transactions--TC Plus LLC." (5) Includes 44,040 shares of common stock issuable to Mr. Mencarini under currently exercisable options and excludes 46,660 options to acquire shares of common stock which are not vested and not immediately exercisable. -4- (6) Includes 13,000 shares held by Kleyton L. Parkhurst; 30,000 shares held by three minor children of Kleyton L. Parkhurst, all of which shares are voted by Kleyton L. Parkhurst, Custodian, under the Virginia Uniform Gift to Minors Act; and 150,000 shares of common stock issuable to Mr. Parkhurst under currently exercisable options and excludes 60,000 options to acquire shares of common stock which are not vested and not immediately exercisable. (7) Includes 13,507 shares of common stock issuable to Mr. Faulders under currently exercisable options. (8) Includes 30,000 shares of common stock issuable to Mr. O'Donnell under currently exercisable options. (9) Includes 1,600,968 shares of our common stock owned by TC Plus, LLC. Thayer Equity Investors III, L.P. is the managing member of TC Plus, LLC. TC Equity Partners, L.L.C. is the sole general partner of Thayer Equity Investors III, L.P., and has sole voting and investment power with respect to the shares of our common stock held by TC Plus, LLC. Messrs. Frederic V. Malek and Carl J. Rickertsen and Dr. Paul G. Stern are members of TC Equity Partners, L.L.C. and share power to vote and dispose of shares of our common stock, except for the 20,000 shares of our common stock underlying the options over which Mr. Rickertsen has sole voting and dispositive power. TC Plus, LLC is party to a stockholders agreement with Phillip G. Norton, J.A.P. Investment Group, L.P., Bruce M. Bowen, Kevin M. Norton and Patrick J. Norton which, among other things, grants TC Plus, LLC authority to effectively appoint two members of our board of directors. Both Mr. Rickertsen and Dr. Stern are directors of ePlus and serve pursuant to appointment by TC Plus, LLC under the terms of the stockholders agreement. See "Certain Transactions--TC Plus LLC." (10) Includes 20,000 shares of common stock issuable to Mr. Rickertsen under currently exercisable options. (11) Includes 402,600 shares beneficially owned as a managing member of Hovde Capital, L.L.C; 19,000 shares beneficially owned as a trustee for the Hovde Financial, Inc. Profit Sharing Plan and Trust; 30,000 shares beneficially owned as managing member of Hovde Acquisition, L.L.C.; 17,000 shares beneficially owned as a trustee for The Eric D. Hovde Foundation; and 32,824 shares held directly by Eric D. Hovde. -5-
DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the name, age and position with ePlus of each person who is an executive officer, director or significant employee. NAME AGE POSITION CLASS Phillip G. Norton.....................56 Chairman of the Board, III President and Chief Executive Officer III Thomas B. Howard, Jr............ 50 Vice President; Executive Vice President, and Chief Operating Officer of MLC Group Bruce M. Bowen ................. 45Bowen........................48 Director and Executive Vice III President III Steven J. Mencarini ............ 42Mencarini...................45 Senior Vice President and Chief Financial Officer Jonathan J. Ledecky............. 39 Director I
7 10 Kleyton L. Parkhurst..................37 Senior Vice President, Secretary, and Treasurer Terrence O'Donnell............. 52O'Donnell....................56 Director II Carl J. Rickertsen............. 37Rickertsen....................40 Director II Kleyton L. Parkhurst........... 34 Secretary and Treasurer Barbara J. Simmonds............ 37 Vice President and Controller Kevin M. Norton**.............. 41 Vice President of Brokerage Operations William J. Slaton.............. 50 Vice President of MarketingC. Thomas K. McNamara............. 52 Vice PresidentFaulders, III...............50 Director I Dr. Paul G. Stern.....................61 Director I
**Phillip G. Norton, Kevin M. Norton and Patrick J. Norton are brothers. All references to a Mr. Norton contained herein refer to Mr. Phillip G. Norton unless otherwise indicated. The name and business experience during the past five years of each director, executive officer and key employee of the CompanyePlus are described below. Phillip G. Norton joined the CompanyePlus in March 1993 and has served since then as its Chairman of the Board and Chief Executive Officer. Since September 1, 1996, Mr. Norton has served as President of the Company.ePlus. From October 1990 through March 1993, Mr. Norton was an investor and devoted the majority of his time to managing his personal investments. From October 1992 to March, 1993, Mr. Norton served as a consultant to the CompanyePlus and engaged in private investment activity. Prior to 1990, Mr. Norton was President and Chief Executive officer of PacifiCorp Capital, Inc. (formerly Systems Leasing Corporation), a wholly owned indirect subsidiary of PacifiCorp, Inc., an information technology leasing company and an SEC reporting entity. Mr. Norton started his leasing career as the National Sales Manager at Federal Leasing, Inc. Mr. Norton is a 1966 graduate of the U.S. Naval Academy. Phillip G. Norton and Kevin M. Norton are brothers. Bruce M. Bowen founded the CompanyePlus in 1990 and served as its President until September 1, 1996. Since September 1, 1996, Mr. Bowen has served as a director and -6- Executive Vice President of the Company,ePlus, and from September 1, 1996 to June 18, 1997, he served as Chief Financial Officer. Mr. Bowen has been a director of the CompanyePlus since it was formed. Prior to founding the Company,ePlus, from 1986 through 1990, Mr. Bowen was Senior Vice President of PacifiCorp Capital, Inc. Prior to his tenure at PacifiCorp Capital Inc., Mr. Bowen was with Systems Leasing Corporation and Federal Leasing, Inc., where his leasing career started in 1975. Mr. Bowen is a past President of the Association of Government Leasing and Finance and currently serves as Vice-Chairman for the State and Local Public Enterprise Committee of the Information Technology Association of America. Mr. Bowen is a 1973 graduate of the University of Maryland and in 1978 received a Masters of Business Administration from the University of Maryland. 8 11 Thomas B. Howard, Jr. joined the Company in January of 1997 as Vice President and Chief Operating Officer. Prior to joining the Company, Mr. Howard was President of Allstate Leasing, Inc., a third party lessor, from 1995 to January, 1997. Mr. Howard has spent over 20 years in the banking industry, most recently having served as President of Signet Leasing and a Senior Vice President of Signet Bank. As President of Signet Leasing, Mr. Howard directed all of the capital equipment financing and leasing products for commercial, federal and municipal accounts at the leasing Company. He oversaw a staff of 60 people and effectively led the Company's growth from approximately $25 million in assets to approximately $650 million in assets in nine years, while maintaining loan loss ratios which were less than industry standards. Mr. Howard trained and motivated sales teams which greatly increased business volumes and led the leasing division through three major reorganizations in five years, and to increased profitability each year. Mr. Howard began his career at Signet in 1975 as an Assistant Vice President at Union Trust Bancorp, one of its predecessor banks, and is a Certified Public Accountant in the State of Maryland. Mr. Howard is a 1970 graduate of the University of Maryland and received an MBA in Finance from Loyola College of Maryland. Steven J. Mencarini joined the CompanyePlus in June of 1997 as Senior Vice President and Chief Financial Officer. Prior to joining the Company,ePlus, Mr. Mencarini was Controller of the Technology Management Group of Computer Sciences Corporation, a New York Stock Exchange company and one of the nation's three largest information technology outsourcing organizations. At CSC, Mr. Mencarini supervised 72 people and was responsible for all financial and tax reporting, financial review of MIS systems, financial planning and approval for a $150 million capital annual budget, tax research, sales and personal property tax, asset management of owned and leased equipment, and the review and analysis of proposed work for outsourcing contracts which included costing, pricing, residual analysis, lease financing, and equipment liquidation. Mr. Mencarini joined CSC in 1991 as Director of Finance and was promoted to Controller in 1996. Prior to working at CSC, Mr. Mencarini was the Vice President-Finance of PacifiCorp Capital from 1981 to 1991, and was Senior Auditor of Deloitte Haskins & Sells from 1979 to 1981. Mr. Mencarini is a 1976 graduate of the University of Maryland and has a Masters of Taxation from American University. Jonathan J. LedeckyTerrence O'Donnell joined the Company's BoardePlus' board of Directorsdirectors upon the completion of the Company's Offering. Mr. Ledecky is the founder of U.S. Office Products Company, a Nasdaq National Market Company, and has served as Chairman and Chief Executive Officer of U.S. Office Products Company since its organization in October of 1994. Prior to founding U.S. Office Products Company, Mr. Ledecky served as the President of The Legacy Fund, Inc., an investment management firm, from 1989 through 1994 and as President and Chief Executive Officer of Legacy Dealer Capital, Inc., a wholly owned subsidiary of Steelcase Inc., and the nation's largest manufacturer of office furniture products from 1991 through 1994. Prior to his tenure at The Legacy Fund, Inc., Mr. Ledecky was a partner at Adler and Company, an investment management firm, and a Senior Vice President at Allied Capital Corporation, a publicly traded investment management Company. Mr. Ledecky is a 1979 graduate of Harvard College, and in 1983, received a Masters of Business Administration from Harvard Graduate School of Business Administration. Terrence O'Donnell joined the Company's Board of Directors upon the completion of the Company'sePlus' Initial Public Offering. Mr. O'Donnell is a partner with the law firm of Williams & Connolly in Washington, D.C. and Executive Vice President and General Counsel of Textron, Inc. Mr. O'Donnell has practiced law with Williams & Connolly since 1977, with the exception of the period from 1989 through 1992 when he served as general counsel to the U.S. Department of Defense. Prior to commencing his law practice, Mr. O'Donnell served as 9 12 Special Assistant to President Ford from 1974 through 1976 and as Deputy Special Assistant to President Nixon from 1972 through 1974. Mr. O'Donnell presently also serves as a director of IGI, Inc., a Nasdaq National Market Company which manufactures(Nasdaq: "IG"). IGI produces and markets a broad range of animal health products used insuch as poultry productionvaccines, veterinary pharmaceuticals, nutritional supplements and pet care.grooming aids. IGI also produces and markets consumer cosmetics consumer products and human pharmaceuticals.skin care products. Mr. O'Donnell is a 1966 graduate of the U.S. Air Force Academy, and in 1971, received a Juris Doctor from Georgetown University Law Center. Carl J. Rickertsen joined the Company's BoardePlus' board of Directorsdirectors upon the completion of the Company'sePlus' Initial Public Offering. Mr. Rickertsen is a partner in Thayer Capital Partners, a $364 million institutional private equity fund based in Washington, D.C. Mr. Rickertsen has been with Thayer Capital Partners since September 1994. Prior to his tenure at Thayer Capital Partners, Mr. Rickertsen acted as a private financial consultant from 1993 through 1994 and was a partner of Hancock Park Associates, a private equity investment firm, from 1989 through 1993. Prior to that, Mr. Rickertsen was associated with Brentwood Associates from 1987 through 1989 and was a Financial Analyst with Morgan Stanley & Co., Incorporated from 1983 through 1985. Mr. Rickertsen is a 1983 graduate of Stanford University and, in 1987, received a Masters of Business Administration from Harvard Graduate School of Business Administration. C. Thomas Faulders, III joined the board of directors on July 14, 1998. Mr. Faulders is the Chairman, President and Chief Executive Officer of LCC International, Inc. (Nasdaq: "LCCI") and is Chairman of Telesciences, Inc. -7- (Nasdaq: "TLSI"), formerly Axiom Inc. (Nasdaq: "AXIM") a provider of real-time billing data collection and processing, fraud management and traffic management systems. Mr. Faulders was most recently Executive Vice President, Treasurer and Chief Financial Officer of BDM International, Inc., a prominent systems integration company which is a wholly owned subsidiary of TRW, Inc. Prior to BDM, Mr. Faulders was Vice President and Chief Financial Officer of Comsat Corporation; Senior Vice President, Business Marketing and Vice President, and Vice President and Treasurer of MCI Communications Corporation; and Treasurer of Satellite Business Systems. Mr. Faulders was in the U.S. Navy from 1971 to 1979. He is a 1971 graduate of the University of Virginia and has an MBA from the Wharton School of the University of Pennsylvania, Class of 1981. Mr. Faulders is on the board of directors of Intersolv, Inc., a software development company (Nasdaq: "ISLI"), Universal Technology and Systems, Inc., a private company, and the Ronald Reagan Institute for Emergency Medicine at George Washington University Hospital, the Northside Hospital Advisory Board in Atlanta, and the Leukemia Society of America. Mr. Faulders has been nominated for re-election as a Class I Director at the 2000 annual meeting. Dr. Paul G. Stern is a Partner and Co-founder of Thayer Capital Partners, L.L.P. and Arlington Capital Partners, L.L.P. Dr. Stern has been a director of ePlus since October, 1998. Dr. Stern is and director of Aegis Communications, Inc., Whirlpool Corporation, The Dow Chemical Company and SAGA SOFTWARE, Inc. Dr. Stern was a Special Limited Partner at Forstmann Little & Co. from 1993 to 1995, Vice Chairman and CEO from 1989 to 1990, Chairman and CEO from 1990 to 1993, and Chairman of the Board from 1990 to1993. He was President of Unisys Corporation (formerly Burroughs Corporation) form 1982 to 1987. He is a board member of the Lauder Institute and the University of Pennsylvania's School of Engineering and Applied Science and the Wharton School. Dr. Stern is a member of the Board of Trustees, Library of Congress, and the Treasurer of the John F. Kennedy Center for the Performing Arts in Washington, D.C. Dr. Stern has been nominated for re-election as a Class I Director at the 2000 annual meeting. Kleyton L. Parkhurst joined the CompanyePlus in 1991 as Director of Finance and, sinceFinance. Since September 1, 1996, he has served as Secretary and Treasurer of the Company.ePlus, and since July, 1998, as Senior Vice President of Corporate Development. Mr. Parkhurst is responsible for all of the Company'sePlus' financing activities, credit review,mergers and acquisitions, investor relations, and he manages the Company'sePlus' bank facilities. Mr. Parkhurst has syndication expertise in commercial nonrecourse debt, federal government leases, state and local taxable and tax-exempt leases, and computer lease equity placements. From 1988 through 1991, Mr. Parkhurst was an Assistant Vice President of PacifiCorp Capital, Inc. Mr. Parkhurst is a 1985 graduate of Middlebury College. Barbara J. Simmonds, a certified public accountant, joined the Company in 1992, has served since then as Controller and, since September 1, 1996, has served as a vice president of the Company. From 1982 through 1990, Ms. Simmonds was an Assistant Controller for PacifiCorp Capital, Inc. Ms. Simmonds is a 1982 graduate of the University of Virginia. Kevin M. Norton joined the Company in 1991 and has served since then as Vice President of Brokerage Operations. Mr. Norton is responsible for all of the Company's equipment brokerage activities. He has a wide variety of equipment experience including mainframes and peripheral equipment. Prior to joining the Company, he was employed in a similar capacity with PacifiCorp Capital, Inc. Mr. Norton is a 1979 graduate of the University of North Carolina. Kevin M. Norton and Phillip G. Norton are brothers. William J. Slaton joined the Company in 1991 and has served since then as Vice President of Marketing. His primary responsibility is the management of the Company's marketing of its public sector finance products. From 1986 through 1991 and from 1980 through 1986, Mr. Slaton held various marketing positions, specializing in technology financing for local and state government agencies, with PacifiCorp Capital, Inc. and Systems Leasing Corporation. From 1969 through 1977, Mr. Slaton held various marketing positions with IBM, also focusing on state and local government customers in Texas and California. Mr. Slaton is a 1969 graduate of the University of Texas at Austin. Thomas K. McNamara joined the Company in 1994 upon the acquisition by the Company of the business assets of Pilot Associates and serves as Vice President and Regional 10 13 Manager of the Pilot Associates division. In 1989, Mr. McNamara co-founded and was responsible for sales at Pilot Associates. Prior to founding Pilot Associates, Mr. McNamara served as Sales Representative with Memorex Corporation from 1974 through 1989. Mr. McNamara was also previously with Computer Communication, Inc., from 1970 through 1974 and with Philco Ford, Inc. from 1966 through 1970. Mr. McNamara is a 1966 graduate of the Philco Technical Institute. Each officer of the CompanyePlus is chosen by the Boardboard of Directorsdirectors and holds his or her office until his or her successor shall have been duly chosen and qualified or until his or her death or until he or she shall resign or be removed as provided by the By-Laws. COMPLIANCE WITH SECTIONBylaws. Section 16(a) OF THE EXCHANGE ACT OF 1934Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company'sePlus' officers and directors, and persons who own more than ten percent of a registered class of the Company'sePlus' equity securities, to file -8- reports of ownership and changes in ownership of equity securities of the CompanyePlus with the SecuritiesSEC and Exchange Commission (the "Commission") and NASDAQ.NASDAQ National Market. Officers, directors and greater-than-ten-percent stockholders are required by SEC regulation to furnish the CompanyePlus with copies of all Section 16(a) forms that they file. Based solely upon a review of Forms 3, Forms 4 and Forms 5 furnished to the CompanyePlus pursuant to Rule 16a-3 under the Exchange Act, the CompanyePlus believes that all such forms required to be filed pursuant to Section 16(a) of the Exchange Act were timely filed, as necessary, by the officers, directors and security holders required to file the same except that Forms 3 were filed late by Thomas B. Howard, Jr. and Steven J. Mencarini. 11 14 THE BOARD OF DIRECTORSfile. The Company's By-LawsBoard of Directors ePlus' Bylaws as amended provide that the number of Directors of the CompanyePlus shall be five,six, until this number is amended by a resolution duly adopted by the Boardboard of Directorsdirectors or the Stockholders (subject to certain provisions of the By-LawsBylaws relating to the entitlement of holders of preferred stock to elect directors). The Company's By-Laws provide that the BoardOur board of Directors shall bedirectors is divided into three classes: Class I, comprised of one Director;two Directors; Class II, comprised of two Directors; and Class III, comprised of two Directors. In accordance with the By-Laws, at the annual meeting of Stockholders in 1996, the Class I Director was elected to hold office for a term ending at the next succeeding annual meeting of Stockholders, the Class II Director was elected to hold office for a term ending at the second succeeding annual meeting of Stockholders, and the Class III Directors were elected to hold office for a term ending at the third succeeding annual meeting of Stockholders. Subject to the provisions of the By-Laws,Bylaws, at each annual meeting of Stockholders, the successors to the class of Directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting of Stockholders. Each Director shall hold office until his or her successor shall have been duly elected and shall qualify or until he or she shall resign or shall have been removed in the manner provided in the By-Laws.Bylaws. The Boardmembers of Directors has designated the persons in each classthree classes of directors are as follows: Class I-JonathanI-C. Thomas Faulders III and Dr. Paul G. Stern, Class II--Terrence O'Donnell and Carl J. Ledecky,Rickertsen, and Class II--PhillipIII-- Phillip G. Norton and Bruce M. Bowen and Class III--Terrence O'Donnell and Carl J. Rickertsen.Bowen. The Class I Directors are expected towill stand for re-election at the annual meeting of Stockholdersstockholders in 1997 (i.e., the upcoming Annual Meeting);2000; Class II Directors are expected to stand for re-election at the annual meeting of Stockholdersstockholders in 1998 (i.e., the annual meeting to be held in one year);2001, and Class III Directors are expected to stand for re-election at the annual meeting of Stockholdersstockholders in 1999 (i.e., the annual meeting to be held in two years).2002. Each member of the Boardboard of Directorsdirectors then elected will serve for a term of three years or until a successor has been elected and qualified. The classification of the Boardboard of Directors,directors, with staggered terms of office, was implemented for the purpose of maintaining continuity of management and of the Boardboard of Directors.directors. Directors Stern and Rickertsen serve at the direction of TC Plus LLC, a major investor of ours. See "Certain Transactions--T.C. Plus LLC." The Boardboard of Directorsdirectors met one timefour times during the fiscal year ended March 31, 1997. In addition, prior to the closing upon the Company's initial public offering in November, 1996 (the "Offering"), the Board of Directors, which then consisted only of Bruce M. Bowen and Phillip G. Norton, acted by written action in lieu of meeting.2000. The Executive Compensation Committee did not meetheld one meeting and the Audit Committee held two meetings during the fiscal year ended March 31, 1997.2000. No incumbent Director attended fewer than 75% of the total number of meetings held by the Boardboard of Directors meetings. Onedirectors and the meetings of any committee on which the current director positions will be filled at the Annual Meeting of Stockholders. The Class I Director, Jonathan J. Ledecky, will stand for re-election to serve for three years and until his successor is duly elected and qualified.served. There are no material proceedings to which any Director, officer or affiliate of the Company,ePlus, any owner of record or beneficially of more than five percent of any class of voting securities of the Company,ePlus, or any associate of any such Director, officer, affiliate of the CompanyePlus or security holder is a party adverse to the CompanyePlus or any of its subsidiaries or has a material interest adverse to the CompanyePlus or any of its subsidiaries. COMMITTEES OF THE BOARD OF DIRECTORS 12-9- 15Director Compensation Directors who are also employees of ePlus do not currently receive any compensation for service as members of the board of directors. Each outside who is not affiliated with TC Plus LLC receives an annual grant of 10,000 stock options, and $500 for each special committee meeting. All directors will be reimbursed for their out-of-pocket expenses incurred to attend board or committee meetings. Committees of the Board of Directors Audit Committee. The audit committee of the Boardboard of Directorsdirectors (the "Audit Committee") is responsible for making recommendations to the Boardboard concerning the engagement of independent public accountants, monitoring and reviewing the quality and activities of the Company'sePlus' internal and external audit functions and monitoring the adequacy of the Company'sePlus' operating and internal controls as reported by management and the external or internal auditors. The members of the Audit Committee are C. Thomas Faulders III, Terrence O'Donnell and Carl J. Rickertsen. During the fiscal year, two meetings of the audit committee were held. Compensation Committee. The compensation committee of the Boardboard of Directorsdirectors (the "Compensation Committee") is responsible for reviewing the salaries, benefits and other compensation, excludingincluding stock based compensation, of Mr. Norton and Mr. Bowen and will makemaking recommendations to the Boardboard of directors based on its review. The members of the Compensation Committee are Terrence O'Donnell, Jonathan J. LedeckyC. Thomas Faulders III and Carl J. Rickertsen. Mr. Norton and Mr. Bowen, as directors, will not vote on any matters affecting their personal compensation. Mr. Bowen and Mr. Norton will be responsible for reviewing and establishing salaries, benefits and other compensation, excluding stock based compensation, for other directors and all other employees. Since compensation for Mr. Norton and Mr. Bowen was established prior to the Company's initial public offering in November, 1996, the compensation committee did not meet duringDuring the fiscal year, ending March 31, 1997. The current membersone meeting of the compensation committee were not appointed until January 1997, and the compensation committee has neither reviewed nor approved any compensation actions relating to the Company's fiscal year ended March 31, 1997. The compensation committee recognizes that as a newly public company, the Company needs a transition period during which to establish its long-range compensation philosophy and objectives. The compensation committee is developing its compensation policies and will describe them in the proxy materials to be furnished in connection with the Company's 1998 annual meeting of shareholders.Compensation Committee was held. Stock Incentive Committee.Committee The stock incentive committee of the Boardboard of Directorsdirectors (the "Stock Incentive Committee") is authorized to award stock, and various stock options and rights and other stock based compensation grants under the Company'sePlus' Master Stock Incentive Plan (formerly the 1996 Stock Incentive Plan prior to an amendment and restatement effective May 14, 1997 which has been adopted by the Board of Directors but which is subject to stockholder ratification) and its component plans, which include the Amended and Restated Incentive Stock Option Plan, (formerly the 1996 Incentive Stock Option Plan prior to an amendment and restatement effective May 14, 1997 which has been adopted by the Board of Directors but which is subject to stockholder ratification), the Amended and Restated Outside Director Stock Option Plan, (formerly the 1996 Outside Director Stock Option Plan prior to an amendment and restatement effective May 14, 1997 which has been adopted by the Board of Directors but which is subject to stockholder ratification), the Amended and Restated Nonqualified Stock Option Plan, (formerly the 1996 Nonqualified Stock Option Plan prior to an amendment and restatement effective May 14, 1997 which has been adopted by the Board of Directors but which is subject to stockholder ratification), and the Employee Stock Purchase Plan (approved by the Board of Directors but which is not effective until stockholder ratification). See "Executive Compensation -- 1996 Stock Incentive Plan." The members of the Stock Incentive Committee presently are Phillip G. Norton and Bruce M. Bowen. Except for options granted to Mr. NortonBowen, Mr. Rickertsen, and Mr. Bowen under the employment agreements,Norton. Except for formula plan grants to the outside directors under the Amended and Restated Outside Director Stock Option Plan (subject to stockholder approval of amendments, including the May 14, 1997 amendment and restatement) and grants that are approved by a majority of the disinterested members of the Boardboard of Directors,directors, no member of the Stock Incentive Committee or the Compensation Committee is eligible to receive grants under the Stock Incentive Plan or the Long Term Compensation Plan. The Company has noDuring the fiscal year, one meetings of the Stock Incentive Committee was held. -10- Nominating Committee. Pursuant to the terms of the amended and restated stockholders agreement with TC Plus, LLC, Carl J. Rickertsen and Bruce M. Bowen act as a nominating committee or anyto nominate two persons to serve as directors who are not our employees. See "Certain Transactions--TC Plus LLC." During the fiscal year, one meeting of the nominating committee serving a similar function. 13 16was held. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS SUMMARY COMPENSATION TABLESummary Compensation Table The following table provides certain summary information concerning the compensation earned, for services rendered in all capacities to the Company,ePlus, by the Company'sePlus' Chief Executive Officer and certain other executive officers (together with the Chief Executive Officer, the "Named Executive Officers") of the CompanyePlus for the fiscal yearyears ended March 31, 1997.1998, 1999, and 2000. Certain columns have been omitted from this summary compensation table as they are not applicable.
ANNUAL COMPENSATION ------------------------------------------------------------------------ Other------------------- Long Term Compensation Bonus/ AnnualAwards All Other Name and Principal Position Year Salary Commission Options/SARs Compensation Compensation- --------------------------- ---- -------------- -------- ---------- ------------ ------------ Phillip G. Norton 1997 $67,265 $ $348 $90,000(1)2000 233,333(2) $132,000 175,000 1,500(1) Chairman, Chief Executive 1996 9841999 200,000 -- -- 120,000(1)1,500(1) Officer and President 1995 3761998 200,000 -- -- --348(1) Bruce M. Bowen 1997 130,000 10,000 12,729(2)(3) --2000 191,667(2) 100,000 115,000 1,500(1) Director, Chief Financial 1996 120,000 40,000 13,206(2)(3) 1,000(4) Officer, Executive Vice 1995 120,000 16,000 11,500(2)(3) 1,000(4) President Kevin M. Norton 1997 30,000(5) 249,015 1,500(2) -- Vice President of 1996 -- 347,023 3,087(2) -- Brokerage Operations 1995 -- 348,944 1,068(2) --1999 150,000 0 1,500(1) 1998 150,000 10,000 1,500(1) Kleyton L. Parkhurst 1997 40,000(5) 117,567 1,500(2) --2000 140,000(2) 60,000 20,000 1,500(1) Senior Vice President 1999 120,000 65,000 1,500(1) Secretary and Treasurer 1996 -- 169,352 1,356(2) -- 1995 -- 237,153 1,500(2) -- Thomas K. McNamara 1997 42,000 351,781 1,1091998 120,000 20,000 1,500(1) Steven J. Mencarini 2000 150,000 25,000 20,000 1,500(1) Chief Financial Officer, Senior 1999 137,500(3) 20,000 775(1) Vice President 1996 42,000 98,257 3,234(2)1998 97,596 -- 1995 42,000 335,699 1,500 -- - ---------------------------- (1) Employer 401(k) plan match. (2) Difference in salary represents a salary increase effective 8/01/99 to the amount of $250,000 per year for Phillip Norton, a salary increase effective 8/01/99 to $225,000 per year for Bruce Bowen, and a salary increase effective 8/01/99 to $150,000 per year for Kleyton Parkhurst (3) Difference in salary represents a salary increase effective 10/01/98 to $150,000 per year.
- ---------------------- (1) Represents guarantee fees paid to Mr. Norton's spouse, Patricia Norton. See "Certain Transactions -- Guarantee Fees." (2) Employer 401(k) plan match. (3) Includes $11,229Option Grants in fiscal year 1997 and $10,000 in fiscal years 1996 and 1995, respectively, of interest paid on loans by Mr. Bowen to the Company; the balance represents employer 401(k) plan match amounts. (4) Represents the personal use of the Company's country club membership. (5) Until December 1, 1996 Kevin M. Norton and Kleyton L. Parkhurst were paid on a commission basis and thereafter, pursuant to their employment agreements, received base salaries plus bonus. See "--Compensation Arrangements and Employment Agreements". (6) Mr. Howard commenced employment in January 1997. See "--Compensation Arrangements and Employment Agreements". OPTION GRANTS IN LAST FISCAL YEARLast Fiscal Year The following table sets forth certain information with respect to options granted during the last fiscal year to the Named Executive Officers in the above Summary Compensation Table. 14-11- 17
Percent of Number of Total Securities Options/SARS Potential Realizable Value at Number of Total Assumed Annual Rates of Stock Securities Options/SARS Price Appreciation for Option Underlying Granted to Exercise or Term (6)Assumed Annual Rates of Stock Options/SARS Employees in Base Price Expiration --------Price Appreciation for Option Name Granted (#) Fiscal Year(5)Year(3) ($/Sh) Date Term (4) ---- ----------- ------------- ---------- ---------- -------- 5% ($) 10% ($) ---- ----------- -------------- ------ ---- ------ ------- Phillip G. Norton 130,000(1) 36.7% $8.75 175,000(1)(2) 30.36% $7.75 08/11/19/2006 715,390 1,812,8502009 $852,938 $2,161,513 Bruce M. Bowen 15,000(1) 4.2% $8.75 115,000(1)(2) 19.95% $7.75 08/11/19/2006 82,545 209,175 Kevin M. Norton ---- --- --- --- --- ---2009 560,502 1,420,423 Kleyton L. Parkhurst 100,000(2) 28.3% $6.40 20,000(1)(2) 3.47% $7.75 08/11/19/2006 785,300 1,629,500 Thomas K. McNamara 5,000(3) 1.4% $8.75 2009 97,479 247,030 Steven J. Mencarini 20,000(1)(2) 3.47% $7.75 08/11/19/2006 27,515 69,725 5,000(4) 1.4% $10.75 01/07/2007 17,515 59,7252009 97,479 247,030 - ------------------------------ (1) The options were granted to Mr. Norton, Mr. Bowen, Mr. Parkhurst and Mr. Mencarini on August 11, 1999 under the Long-Term Incentive Plan. (2) Options become exercisable on their one year anniversary date. (3) Based on an aggregate of 576,400 shares granted during fiscal year 2000 to certain employees of ePlus. (4) Potential realizable value is calculated based on an assumption that the price of ePlus' common stock will appreciate at the assumed annual rates shown (5% and 10%), compounded annually, from the date of grant of the option until the end of the option term (10 years). The 5% and 10% assumed rates of appreciation are required by the rules of the SEC and do not represent ePlus' estimate of future market prices of the common stock.
- ---------------------- (1) The options were granted to Mr. NortonAggregated Option/SAR Exercises in Last Fiscal Year and Mr. Bowen on November 20, 1996 concurrent with closing of the Company's initial public offering with an exercise price equal to the initial public offering price. These options are nonqualified options and were not issued as part of the Company's Stock Incentive Plan. All become exercisable in four installments beginning on the date of grant. (2) The options were granted to Mr. Parkhurst on September 1, 1996 under an employment agreement. These options are nonqualified options and were not issued as part of the Company's Stock Incentive Plan. All become exercisable in four installments beginning on the date of grant. (3) The options were granted to Mr. McNamara on November 20, 1996 under the 1996 Incentive Stock Option Plan, a component plan of the Company's Stock Incentive Program. These options become exercisable in four installments beginning one year after grant. See Note 11 of the Company's financial statements appearing elsewhere in the Annual Report on Form 10-K for further discussion of the Company's Stock Incentive Plan. (4) The options were granted to Mr. McNamara on January 7, 1997 under the 1996 Incentive Stock Option Plan, a component plan of the Company's Stock Incentive Program. These options become exercisable in four installments beginning one year after grant. See Note 11 of the Company's financial statements appearing elsewhere in the Annual Report on Form 10-K for further discussion of the Company's Stock Incentive Plan. (5) Based on options to purchase an aggregate of 353,800 shares granted during fiscal 1997 to certain employees of the Company. (6) Potential realizable value is calculated based on an assumption that the price of the Company's Common Stock will appreciate at the assumed annual rates shown (5% and 10%), compounded annually, from the date of grant of the option until the end of the option term (10 years). The 5% and 10% assumed rates of appreciation are required by the rules of the SEC and do not represent the Company's estimate of future market prices of the Common Stock. AGGREGATED OPTION/Fiscal Year-end Option/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUESValues The following table sets forth certain information with respect to options exercised during the Company'sePlus' fiscal year ended March 31, 19972000 by the Named Executive Officers in the Summary Compensation Table, and with respect to unexercised options held by such persons at the end of fiscal year 1997.2000.
Shares Acquired Number of Securities Value of Unexercised in the Acquired On Value Underlying Unexercised Money Options/SARs at Name Exercise Realized Options/SARS at FY-End (#) FY-End ($)(1) ---- ----------------- -------- -------------------------- -------------------------------------------- Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- Philip G. Norton --- --- 32,500 97,500 105,625 316,875
15 18 142,500 187,500 $3,424,687 -- Bruce M. Bowen --- --- 3,750 11,250 12,188 36,562 Kevin M. Norton --- --- --- --- --- ---22,500 122,500 527,812 -- Kleyton L. Parkhurst --- --- 25,000 75,000 140,000 420,000 Thomas K. McNamara115,000 65,000 3,024,375 -- Steven J. Mencarini --- --- --- 10,000 --- 22,50019,780 60,920 430,752 -- (1) Based on a closing bid price of $33.125 per share as of the close of business on March 31, 2000.
- ------------- (1) Based on a closing bid price-12- Report Of The Compensation Committee The Compensation Committee is composed of $12.00 per share as of the close of business on March 31, 1997. Director Compensation. Directorsfour directors who are alsonot employees of ePlus or any of its subsidiaries. The Committee makes recommendations to the Company do not currently receive anyboard of directors as the amount and form of compensation nor other services as membersfor Mr. Norton and Mr. Bowen and is responsible for granting stock options and restricted stock to Mr. Norton and Mr. Bowen. The compensation programs of ePlus are designed to align compensation with business objectives and performance, and to enable ePlus to attract, retain and reward executives who contribute to the Boardlong-term success of Directors. PriorePlus. The Committee believes that executive pay should be linked to May 14, 1997, the outside directors were paid $500 per meeting. On May 14, 1997, the Board of Directors adopted a revised outside directorperformance. Therefore, ePlus provides an executive compensation program which providesincludes base pay, potential cash bonus, and long-term incentive opportunities through the use of stock options. The role of the Compensation Committee is limited to the review of the compensation, excluding stock-based compensation for each outside directorsMr. Norton and Mr. Bowen, who are principal shareholders of ePlus. During the fiscal year ending March 31, 2000, the Compensation Committee raised Mr. Norton's base salary from $200,000 per year to receive a $10,000 annual retainer,$250,000 per year and $500 for each special committee meeting. The $500 fee for regular Board meetings was terminated. All directors will be reimbursed for their out-of-pocket expenses incurred to attend board or committee meetings. The Company has adopted the Amended and Restated Outside Director Stock Option Plan (formerly the 1996 Outside Director Stock Option Plan prior to an amendment and restatement effective May 14, 1997 which has been adopted by the Board of Directors but which is subject to stockholder ratification), which provides for the award and exercise of certain options to nonemployee directors on a formula basis based upon length of service. In November 1996, under the 1996 Outside Director Stock Option Plan, the Company granted options to its nonemployee directors to purchase an aggregate of 30,000 shares of Common Stock at an exercise price equal to $8.75 per share, 50% of which may be exercised after the first year of service and the remaining 50% of which may be exercised after the second year of service, provided they continue to serve as directors. The Amended and Restated Outside Director Stock Option Plan made the options granted in November, 1996 immediately exercisable (subject to stockholder ratification) and also provides for the grant of an annual bonus of 175,000 options, for 10,000 sharesand raised Mr. Bowen's base salary from $150,000 per year to $225,000 per year and the grant of common stock to each nonemployee directoran annual bonus of 115,000 options. Section 162(m) of the Internal Revenue Code imposes a limit, with certain exceptions, on the anniversaryamount that a publicly-held corporation may deduct in any year for the compensation paid with respect to its five most highly compensated executive officers. While the Committee cannot predict with certainty how ePlus' compensation tax deduction might be affected, the Committee tries to preserve the tax deductibility of each yearall executive compensation while maintaining flexibility with respect to ePlus' compensation programs as described in this report. BY THE COMPENSATION COMMITTEE Terrence O'Donnell C. Thomas Faulders, III Carl J. Rickertsen Dr. Paul G. Stern Employment Contracts and Termination of service as a director at an exercise price equal to the market price as of the date of grant, with each option being subject to a one-year vesting requirement. See "Executive Compensation -- 1996 Stock Incentive Plan" for a description of option grants to nonemployee directors. CompensationEmployment and Change in Control Arrangements and Employment Agreements. The Company has entered into employment agreements with Phillip G. Norton, Bruce M. Bowen, and Kleyton L. Parkhurst, and William J. Slaton, each effective as of September 1, 1996, with Thomas B. Howard, Jr. effective as of April 1, 1997 and with Steven J. Mencarini effective as of June 18, 1997. Each employment agreement provides for an initial term of three years, and is subject to an automatic one-year renewal at the expiration thereof unless the CompanyePlus or the employee provides notice of an intention not to renew at least three months prior to expiration. Under each employment agreement, the employee began to receive, commencing with the first day of the first calendar month after closing the Offering (November 20, 1996), an-13- The current annual base salary ($200,000250,000 in the case of Phillip G. Norton; $150,000$225,000 in the case of Bruce M. Bowen; $120,000$150,000 in the case of Kleyton L. Parkhurst and William J. Slaton; $125,000$175,000 in the case of Thomas B. Howard, Jr. and Steven J. Mencarini) are in effect and areeach employee may be eligible for commissions or performance bonuses. The performance bonus for Phillip G. Norton for each fiscal year is equal to 5% of the increase in the Company's net income before taxes over net income before taxes for the preceding fiscal year, not to exceed 16 19 $150,000 for any fiscal year. The performance bonus for Bruce M. Bowen for each fiscal year is equal to 5% of the increase in the Company'sePlus' net income before taxes over net income before one-time charges before taxes for the preceding fiscal year, not to exceed $100,000 for any fiscal year. The performance bonus for Kleyton L. Parkhurst William J. Slaton, Thomas B. Howard, Jr. and Steven J. Mencarini are paid based upon performance criteria established by Phillip G. Norton and Bruce M. Bowen, not to exceed $80,000 each per fiscal year as to Kleyton L. Parkhurst, and William Slaton and not to exceed $100,000 for Thomas B. Howard, Jr. and not to exceed $25,000 for Steven J. Mencarini. Thomas K. McNamara is compensated pursuant to the Company's commission program which is generally based on the profitability of business produced. Under the employment agreements, each receives certain other benefits including medical, insurance, death and long term disability benefits, 401(k), and reimbursement of employment related expenses. Mr. Bowen's country club dues are paid by the Company.ePlus. The employment agreements of Messrs. Norton, Bowen Slaton, Howard and Mencarini contain a covenant not to compete on the part of each, whereby in the event of a voluntary termination of employment, upon expiration of the term of the agreement or upon the termination of employment by the CompanyePlus for cause, each are subject to restrictions upon acquiring, consulting with or otherwise engaging in or assisting in the providing of capital needs for competing business activities or entities within the United States for a period of one year after the date of such termination or expiration of the term of the employment agreement. Under his original employment agreement, Phillip G. Norton was granted options to acquire 130,000 shares of Common Stockcommon stock at a price per share equal to $8.75 per share. These options have a ten year term, and became exercisable and -14- vested 25% on November 20, 1996, and the balance will be exercisable and vest in 25% increments over three years on November 20, 1997, November 27, 1998, and November 20, 1999, respectively, subject to acceleration upon certain conditions. The CompanyMr. Norton was also granted 25% incentive stock options in February, 1998 at $12.65 per share and 175,000 options at $7.75 per share in August, 1999. ePlus had paid a $120,000 annual guarantee fee payable in $10,000 monthly payments to Patricia A. Norton, wife of Phillip G. Norton, in consideration of providing certain guarantees and collateral for the NationsBank and First Union Facilities. This fee was terminated when thesethe secured credit facilities were terminated and the guarantee released. See "Transactions -- Guarantee Fees." Under his original employment agreement, Bruce M. Bowen was granted options to acquire 15,000 shares of Common Stockcommon stock at a price equal to $8.75 per share. These options have a ten year term, and became exercisable and vested 25% on November 20, 1996, and the balance will be exercisable and vest in 25% increments over three years on November 20, 1997, November 27, 1998, and November 20, 1999, respectively, subject to acceleration upon certain conditions. Mr. Bowen was also granted 15,000 options in February, 1998 at $11.50 per share and 115,00 options in August, 1999 at $7.75 per share. Under his original employment agreement, Kleyton L. Parkhurst was granted options to acquire 100,000 shares of Common Stockcommon stock at a price per share equal to $6.40 per share. These options have a ten year term, and became exercisable and vested 25% on November 20, 1996, and the balance will become exercisable and vest in 25% increments over three years on November 20, 1997, November 20, 1998, and November 20, 1999, respectively, subject to acceleration upon certain conditions. Mr. Parkhurst was also granted 10,000 options at $11.50 per share in February, 1998 and 50,000 options in September, 1998 at an $8.75 per share, and 20,000 options in August, 1999 at $7.75 per share, and 30,000 options in May, 2000 at $18.75 per share. In connection with his original employment, Thomas B. Howard, Jr.Steven J. Mencarini was granted incentive stock options to acquire 30,00016,200 shares of Common Stockcommon stock at a price equal to $11.00$12.75 per share. See "Executive Compensation -- Master Stock Incentive Plan." These options have a ten year term, and will be exercisable and vest 20% at the end of each year of service over five years, and are subject to acceleration upon certain conditions. 17 20 In connection with his employment, Steven J.Mr. Mencarini was also granted incentive stock5,100 options to acquire 16,200 shares of Common Stockin September 1997 at a price equal to $12.75$13.75 per share, 9,400 options in December 1997 at $12.35 per share, 5,000 options in February 1998 at $11.50 per share and 25,000 options in October 1998 at $8.00 per share, and 10,000 options in May, 2000 at $18.75 per share. See "Executive Compensation -- Master Stock Incentive Plan." These options have a ten year term, and will be exercisable and vest 20% at the end of each year of service over five years, and are subject to acceleration upon certain conditions. The CompanyePlus maintains key-man life insurance on Mr. Norton in the amount of $10 million and on Mr. Bowen in the amount of $1 million. The CompanyePlus maintains key-man life insurance on Mr. Norton in the form of two separate policies, one with the PrudentialFirst Colony Life Insurance Company and the second with TransAmerica Life Co.,CNA/Valley Forge, each in the amount of $5 million and on Mr. Bowen with CNA Insurance Company in the amount of $1 million. Master Stock Incentive Plan. The Company has established a stock incentive program (the "Master Stock Incentive Plan")(formerly the 1996 Stock Incentive Plan prior to amendment and restatement effective May 14, 1997 which has been adopted by the Board of Directors but which is subject to stockholder ratification) to provide an opportunity for directors, executive officers, independent contractors, key employees, and other employees of the Company to participate in the ownership of the Company. The Master Stock Incentive Plan provides for the award to eligible directors, employees, and independent contractors of the Company, of a broad variety of stock-based compensation alternatives under a series of component plans. These component plans include tax advantaged incentive stock options for employees under the Incentive Stock Option Plan (formerly the 1996 Incentive Stock Option Plan prior to amendment and restatement effective May 14, 1997 which is subject to stockholder ratification ), formula length of service based nonqualified options to nonemployee directors under the Outside Director Stock Plan (formerly the 1996 Outside Director Stock Option Plan prior to amendment and restatement effective May 14, 1997 subject to stockholder ratification), nonqualified stock options under the Nonqualified Stock Option Plan (formerly the 1996 Nonqualified Stock Option Plan prior to amendment and restatement effective May 14, 1997 subject to stockholder ratification), a program for employee purchase of Common Stock of the Company at 85% of fair market value under a tax advantaged Employee Stock Purchase Plan (approved by the Board of Directors but which is not effective until stockholder ratification), as well as other restrictive stock and performance based stock awards and programs which may be established by the Board of Directors. The Company anticipates that the above described amendments and restatements and the Employee Stock Purchase Plan (collectively the May 14, 1997 Amendments") which require stockholder ratification will be submitted for stockholder approval at the next annual meeting of the Company. Prior to the May 14, 1997 Amendments which are subject to stockholder ratification, the Company had reserved a total of 155,000 shares of Common Stock for issuance upon exercise of options under: (i) the 1996 Incentive Stock Option Plan (under which options for an aggregate of 58,800 shares were granted on November 20, 1996, options for an aggregate of 15,000 shares were granted on January 8, 1997, options for 30,000 were granted to Thomas B. Howard, Jr. on April 25, 1997, and options for 16,200 shares were granted to Steven J. Mencarini on June 19, 1997); (ii) the 1996 Outside Director Stock Plan (under which options for an aggregate of 75,000 shares of Common Stock were reserved for grant under a formula plan based upon length of service, which reserved number was reduced to 30,000 shares which were transferred to the Incentive Stock Option Plan by the Board of Directors on May 14, 1997, subject to stockholder approval of the amendment and restatement of that plan and under which options for 30,000 shares of Common Stock were granted on November 20, 1996); and (iii) the 1996 Nonqualified Stock Option Plan (under which options for an aggregate of 5,000 shares of Common Stock were granted on January 8, 1997). The May 14, 1997 Amendments increase the aggregate number of shares reserved for grant under all plans which are a part of the 18 21 Master Stock Incentive Plan to a floating number equal to 20% of the issued and outstanding stock of the Company (after giving effect to pro forma assumed exercise of all outstanding options and purchase rights). The number that may be subject to options granted under the Incentive Stock Option Plan is also further capped at a maximum of 4,000,000 shares to comply with IRS requirements for a specified maximum. As of June 30, 1997, based on 5,150,000 shares outstanding and 400,000 shares of Common Stock for which options have been granted, this 20% number would be 1,110,000 shares. The Stock Incentive Plan is administered by the Stock Incentive Committee, which is authorized to select from among the eligible participants the individuals to whom options, restricted stock purchase rights and performance awards are to be granted and to determine the number of shares to be subject thereto and the terms and conditions thereof. The Stock Incentive Committee is also authorized to adopt, amend and rescind the rules relating to the administration of the Stock Incentive Plan. Except for grants that are approved by a majority of the Company's Board of Directors, no member of the Stock Incentive Committee is eligible to participate in future grants of options in the Stock Incentive Plan. Incentive stock options issued under the 1996 Incentive Stock Option Plan are designed to comply with the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and are subject to restrictions contained in the Code, including a requirement that exercise prices be equal to at least 100% of fair market value of the shares of Common Stock on the grant date and a ten-year restriction on the option term. The incentive stock options may be subsequently modified to disqualify them from treatment as incentive stock options. Under the Stock Incentive Plan and the Code, non-employee directors are not permitted to receive incentive stock options. Nonqualified stock options issued under the Stock Incentive Plan, may be granted to directors, officers, independent contractors and employees and will provide for the right to purchase shares of Common Stock at a specified price which may be less than fair market value on the date of grant, and usually will become exercisable in installments after the grant date. Nonqualified stock options may be granted for any reasonable term. Under the Outside Director Stock Option Plan, each of the three nonemployee directors were granted options, on November 20, 1996, to purchase an aggregate of 30,000 shares of Common Stock, which, as amended, became immediately exercisable in May 1997. The Outside Director Stock Option Plan also provides for the grant of options for 10,000 shares to each nonemployee director (30,000 annually in the aggregate) on each anniversary of service, at an exercise price equal to the market price as of the date of grant, with each option being exercisable on the first anniversary of grant. In May 1997, the Board of Directors adopted a resolution to approve an Employee Stock Purchase Plan, subject to stockholder vote and ratification. Under the plan, employees will be eligible to purchase up to the lesser of ten percent of their total compensation or $5,000 of stock each six month period, subject to a $10,000 annual maximum, by purchasing the shares at the end of the quarter at a price equal to 85% of the lesser of (a) the Fair Market Value of a share of Common Stock on the first day of the six month period (or such other offering period as the Board may adopt) or (b) the Fair Market Value of a share of Stock on the last day of the six month period (or such other offering period as the Board may adopt). As a part of the Employee Stock Purchase Plan employees will participate via payroll withholding. Compensation Committee Interlocks and Insider Participation.Participation For the year ended March 31, 1997,2000, all decisions regarding executive compensation were made by the Compensation Committee when applicable or by Mr. Norton as President. None of the executive officers of the CompanyePlus currently serves on the Compensation Committee of another entity or 19 22 any other committee of the board of directors of another entity performing similar functions. For a description of transactions between the CompanyePlus and Mr. Bowen, see "Certain Transactions." PERFORMANCE GRAPH The following graph shows the value as of March 31, 19972000 of a $100 investment made on November 15, 1996 in the Company's Common StockePlus' common stock (with dividends, if any, reinvested), as compared with similar investments based on (i)(1) the value of the NASDAQ Stock Market Index (U.S.) (with dividends reinvested) and (ii)(2) the value of the NASDAQ financial index. The stock performance shown below is not necessarily indicative of future performance. [Graph] $160 $140 $120 [GRAPH] $100 $80 $60 11/15/96 11/96 12/96 1/97 2/97 3/97
COMPARATIVE VALUES CUMULATIVE TOTAL RETURN NASDAQ STOCK MLC MARKET YEAR HOLDINGS (U.S.) NASDAQ FINANCIAL 11/15/96 100 100 100 11/96 96 106 106 12/96 100 106 108 1/97 142 114 108 2/97 132 107 108 3/97 126 100 108
203/98 3/99 3/00 ---- ---- ---- ---- EPLUS INC. 126.32 144.74 86.84 348.68 NASDAQ STOCK MARKET (U.S.) 96.97 147.03 198.62 369.17 NASDAQ FINANCIAL 109.54 170.18 153.30 145.89 -15- 23 CERTAIN TRANSACTIONS GUARANTEES OF NATIONSBANK FACILITY Through December 1996,TC Plus LLC On October 23, 1998, we sold 1,111,111 shares of common stock at a price of $9.00 per share and a warrant to acquire an additional 1,090,909 shares of our common stock at an exercise price of $11.00 per share, subject to certain anti-dilution adjustment, to TC Plus, LLC, formerly named TC Leasing, LLC, for total consideration of $10 million. TC Plus, LLC is controlled by Thayer Equity Investors III, L.P., a private equity investment fund. TC Equity Partners, L.L.C. is the NationsBank Facility was guaranteed bysole general partner of Thayer Equity Investors III, L.P. The stock purchase agreement entered into in connection with the transaction imposed certain super-majority voting requirements on our board of directors and restricted our ability to engage in mergers or other material transactions. We also entered into a stockholders agreement with TC Plus, LLC, Phillip G. Norton, Patricia A. Norton, Bruce M. Bowen, Elizabeth D. Bowen, William J. Slaton, Margaret Newton, Kevin M. Norton, Brianna Norton and Patrick J. Norton. In addition, this line was secured by a pledge of approximately $1.5 million of cash collateral pledged by Phillip G. Norton and his spouse Patricia A. Norton. The Company terminated the NationsBank Facility on December 31, 1996, at which time all stockholders' personal guarantees were removed and collateral pledges released. GUARANTEES OF FIRST UNION FACILITY Through June 10, 1997, the First Union Facility was guaranteed by Phillip G. Norton, Patricia A. Norton, Bruce M. Bowen, Elizabeth D. Bowen, William J. Slaton,J.A.P. Investment Group, L.P., Kevin M. Norton and Patrick J. Norton, eachNorton. The stockholders agreement as originally entered into provided for restrictions on transfers of whom isshares, restriction on the issuance of shares, board representation, the forced sale of ePlus by TC Plus, LLC in certain circumstances and registration rights. The warrant gave us the right to require TC Plus, LLC to exercise the warrant if our common stock closes at or above $11.00 per share for 20 consecutive days. On December 23, 1999, this condition was satisfied, and we gave notice to TC Plus, LLC to require exercise. On February 25, 2000, we entered into an agreement with TC Plus, LLC, which was amended on April 11, 2000, to defer the obligation of TC Plus, LLC to exercise the warrant and to permit TC Plus, LLC to exercise the warrant at the time of this offering on a beneficial ownercashless basis in exchange for a commitment by TC Plus, LLC to waive certain provisions of Common Stock. In addition, the facilitystock purchase agreement and amend the stockholders agreement. Upon the cashless exercise of the warrant, which was secured by cash and securities having a valuetransacted on April 14, 2000, we issued to TC Plus, LLC 669,857 shares of approximately $1.2 million, pledgedour common stock. The agreement, as collateral by Patricia A. Norton, as trusteeamended, provides for the Phillipwaiver of all super-majority voting requirements and restrictions on mergers and material transactions contained in the stock purchase agreement. The stockholders agreement, as amended, has the following provisions: - - Our board of directors will have six members with two directors designated by TC Plus, LLC, two directors designated by the management stockholders party to the agreement and two directors who are not our employees designated by a nominating committee comprised of one individual designated by TC Plus, LLC and one individual designated by the management stockholders party to the agreement. The two directors named by TC Plus, LLC will continue to be Carl J. Rickertsen, who has served as a director since November 1996, and Paul G. Norton Jr. Trust, the Andrew L. Norton Trust and the Jeremiah O. Norton Trust. Upon termination of the line on June 10, 1997, all stockholders' personal guarantees were removed and collateral pledges released. GUARANTEES OF NATIONSBANC LEASING FACILITY Through January 31, 1997, the NationsBanc Leasing Facility was guaranteed byStern. Phillip G. Norton and Bruce M. Bowen. The Company terminatedBowen serve as the Facility, at which timedirectors designated by the management stockholders. - - TC Plus, LLC has the right to demand registration of its shares on three separate occasions. TC Plus, LLC also has the right to include its shares in any other registration by us of our common stock. We are responsible for all stockholders' personal guarantees were removed. STOCKHOLDER LOANS During November 1996,of the Company repaid a total of $275,000registration expenses incurred in outstanding borrowings from stockholders ($175,000 from Bruce M. Bowen and $100,000 from William J. Slaton)connection with a portion of proceeds received from the Offering. EachTC Plus, LLC's exercise of these loans was evidencedregistration rights. -16- - - If we agree to purchase any shares of our common stock held by a promissory note dated March 1, 1995, bearing interest at the rate of 10% per annum, and due March 1, 1998. The Company paid $17,500 and $10,000 in interest for fiscal year 1996, and $11,229 and $6,417 in interest for fiscal year 1997 to Messrs. Bowen and Slaton, respectively. NEW ENERGY LEASING CORPORATION OBLIGATIONS The Company is amanagement stockholders party to anthe agreement, entered into in 1994 with New Energy Leasing Corporation ("New Energy"), of which Bruce M. Bowen is a 45% stockholder. Under that arrangement,we must give notice to TC Plus, LLC. If TC Plus, LLC wishes to participate, we must purchase its shares on the Company has sold leasessame terms and conditions. - - Shares held by stockholders party to New Energy under which the Company remains obligatedstockholders agreement are no longer subject to manage the lease and to provide remarketing or asset disposition services upon expiration or other terminationterms of the lease. The Company recognized revenue for such transactionsagreement when they are transferred in a registered offering or pursuant to Rule 144 under the Securities Act. - - All rights and obligations under the stockholders agreement terminate when TC Plus, LLC no longer holds 5% of approximately $1.3 million for the year ended March 31, 1996,our outstanding stock and the basisshall remain terminated even if TC Plus, LLC later acquires 5% or more of the equipment sold was approximately $1.6 million. During the year ended March 31, 1997, the 21 24 Company received remarketing fees from New Energy in the amount of $224,126. New Energy is entitledour outstanding stock. Advances and Loans to the first $75,000 of proceeds from any remarketing or sale of the assets, with the Company being entitled to 90% of any proceeds above that amount. This agreementEmployees and the lease transactions to which it relates are slated to expire in 1999. The Company does not intend to enter into any further lease sale transactions with New Energy. MLC FEDERAL OBLIGATIONS Marcella A. Dilworth and Donna O'Hear, sister-in-law of Philip G. Norton, two of the Company's employees, own 51% and 49% respectively of MLC Federal, Inc., a woman-owned small business which was purchased from the Company in 1992. The Company and MLC Federal have entered into a Servicing Agreement which sets forth cost and profit sharing and reimbursement for transactions which are jointly originated, serviced, or financed by MLC Federal and/or the Company. The Company expects to continue this relationship to originate various federal government contracts and financing arrangements. In July, 1997, Marcella Dilworth gave notice of her resignation from the Company but may continue to work with the Company as an outside contractor. As of March 31, 1996 and 1997, $152,606 and $72,000, respectively, was receivable from MLC Federal, the payment of which is unlikely. As of March 31, 1997, the Company fully reserved for the receivable from MLC Federal. GUARANTEE FEES From April 1, 1995 through December 31, 1996, the Company paid a total of $240,000 of guarantee fees, $10,000 per month, to Patricia A. Norton, the spouse of Phillip G. Norton, as consideration for her providing personal guarantees and pledging personal assets for the NationsBank Facility. ADVANCES AND LOANS TO EMPLOYEES AND STOCKHOLDERS The CompanyStockholders ePlus has in the past provided loans and advances to employees and certain stockholders. Such balances are to be repaid from personal funds or commissions earned by the employees/stockholders on successful sales or financing arrangements obtained on behalf of the Company.ePlus. Loans and advances totaled $47,812, $76,349, and $14,353 as of March 31, 1997, 1996, and 1995, respectively. The aggregate amount of these advances equals $12,193, $139,500 and $61,583$94,693 for yearsthe year ended March 31, 1997, 1996 and 1995, respectively. Amounts2000. Reimbursement of $53,941, $82,612 and $80,505 were repaid during the years ended March 31, 1997, 1996 and 1995, respectively. LOANS TO STOCKHOLDERS In 1994, the Company loaned $40,000 to Kevin M. Norton, an officer and a stockholderCertain Expenses ePlus leases certain office space from entities which are owned, in part, by executives of subsidiaries of the Company, pursuant to a promissory note dated February 15, 1994 bearing interest at 8% per annum and due July 31, 1995. Kevin M. Norton paid interest of $2,048 and $382 during fiscal years 1995 and 1996, respectively and made principal repayments of $25,505 and $14,495 during fiscal years 1995 and 1996, respectively. The Company's $40,000 loan to Kevin M. Norton was repaid in full during fiscal year 1996. 22 25 In 1995, the Company loaned $74,115 to William J. Slaton, an officer and a stockholder of the Company, pursuant to a promissory note dated January 5, 1995 bearing no interest and due on demand. Mr. Slaton repaid this note in full in 1995. In 1995, the Company loaned $54,000 to Patrick J. Norton, a stockholder of the Company, pursuant to a promissory note dated November 17, 1995, bearing interest at 8% per annum. Patrick J. Norton paid interest of $1,608 and made principal repayments of $8,392 during fiscal year 1996 and interest of $3,193 and principal payments of $14,507 during fiscal year 1997. The Company's loan to Patrick J. Norton had balances of $31,101 and $45,608 as of the end of March 31, 1997 and 1996, respectively. BROKERAGE FEECompany. During the year ended March 31, 1997, the Company recognized $250,000 in income from broker fees for providing advisory services2000, rent expense paid to a company which is owned, in part, by Carl J. Rickertsen, one of the Company's outside directors. INDEMNIFICATION AGREEMENTS The Companythese related parties was $228,000. Indemnification Agreements ePlus has entered into separate but identical indemnification agreements (the "Indemnification agreements") with each director and executive officer of the CompanyePlus and expects to enter into Indemnification Agreements with persons who become directors or executive officers in the future. The Indemnification Agreements provide that the CompanyePlus will indemnify the director or officer (the "Indemnitee") against any expenses or liabilities in connection with any proceeding in which such Indemnitee may be involved as a party or otherwise, by reason of the fact that such Indemnitee is or was a director or officer of the CompanyePlus or by reason of any action taken by or omitted to be taken by such Indemnitee while acting as an officer or director of the Company,ePlus, provided that such indemnity shall only apply if (i)if; (1) the Indemnitee was acting in good faith and in a manner the Indemnitee reasonably believed to be in the best interests of the Company,ePlus, and, with respect to any criminal action, had no reasonable cause to believe the Indemnitee's conduct was unlawful, (ii)(2) the claim was not made to recover profits made by such indemniteeIndemnitee in violation of Section 16(b) of the Securities Exchange Act, of 1934, as amended, or any successor statute, (iii)-17- (3) the claim was not initiated by the Indemnitee, or (iv)(4) the claim was not covered by applicable insurance, or (v)(5) the claim was not for an act or omission of a director of the CompanyePlus from which a director may not be relieved of liability under Section 103(b)(7) of the DGCL. Each Indemnitee has undertaken to repay the CompanyePlus for any costs or expenses paid by the CompanyePlus if it shall ultimately be determined that such Indemnitee is not entitled to indemnification under the Indemnification Agreements. FUTURE TRANSACTIONS Certain of the transactions described above may be on terms more favorable to officers, directors and principal stockholders than they could obtain in transaction with an unaffiliated party. The Company intends to adopt aFuture Transactions ePlus' policy requiringrequires that all material transactions between the CompanyePlus and its officers, directors or other affiliates must (i) be approved by a majority of the disinterested members of the Boardboard of Directorsdirectors of the Company,ePlus, and (ii) be on terms no less favorable to the CompanyePlus than could be obtained from unaffiliated third parties. 23 26 PROPOSAL 1 TO ELECT ONE CLASSTo Elect Two Class I DIRECTOR TO SERVE FOR THREE YEARS AND UNTIL HIS SUCCESSOR HAS BEEN DULY ELECTED AND SHALL QUALIFY.Directors To Serve For Three Years And Until Their Respective Successors Have Been Duly Elected And Shall Qualify. The Boardboard of Directorsdirectors has concluded that the re-election of theC. Thomas Faulders, III and Dr. Paul G. Stern as Class I DirectorDirectors is in the best interest of the CompanyePlus and recommends Stockholderstockholder approval of the re-election of Jonathan J. LedeckyC. Thomas Faulders, III and Dr. Paul G. Stern as a Class I director.directors. The remaining four Directors will continue to serve in their positions for the remainder of their terms. Biographical information concerning Mr. LedeckyFaulders, Dr. Stern, and the Company'sePlus' other Directors can be found under "Directors and Executive Officers." Unless otherwise instructed or unless authority to vote is withheld, the enclosed proxyall proxies will be voted for the election of Jonathan J. Ledecky, the nominee listed herein.C. Thomas Faulders, III and Dr. Paul G. Stern as Class I Directors. Although the Boardboard of Directorsdirectors of the CompanyePlus does not contemplate that such nomineenominees will be unable to serve, if such a situation arises prior to the Annual Meeting,annual meeting, the persons named in the enclosed proxy will vote for the election of such other person or persons as may be nominated by the Boardboard of Directors. VOTE REQUIRED FOR APPROVALdirectors. Vote Required for Approval. The two persons receiving the greatest number of affirmative vote of a plurality of the outstanding shares of Common Stock present in person or represented by proxyvotes cast at the annual meeting entitled to vote is required to elect awill be elected as Class I director. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF JONATHAN J. LEDECKY, THE NOMINEE LISTED ABOVE.directors. The board of directors unanimously recommends a vote for the election of C. Thomas Faulders III and Dr. Paul G. Stern as Class I directors. -18- PROPOSAL 2 TO APPROVE AND ADOPT AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED STOCK OF THE COMPANY FROM 12 MILLION SHARES (10 MILLION SHARES OF COMMON STOCK, PAR VALUETo Approve And Adopt An Amendment To The Certificate Of Incorporation To Increase The Number Of Shares Of Authorized Stock Of ePlus From 27 Million Shares (25 Million Shares Of Common Stock, Par Value $0.01, ANDAnd 2 MILLION PREFERRED SHARES) TO 27 MILLION SHARES (25 MILLION SHARES OF COMMON STOCK, PAR VALUEMillion Preferred Shares) To 52 Million Shares (50 Million Shares Of Common Stock, Par Value $0.01, ANDAnd 2 MILLION PREFERRED SHARES)Million Preferred Shares). GENERAL. The Boardboard of Directorsdirectors has adopted a resolution declaring it advisable and in the best interests of the CompanyePlus and its stockholders that the Company'sePlus' Certificate of Incorporation be amended to provide for an increase in the authorized number of shares of stock of the CompanyePlus from twelvetwenty-seven million (10shares (25 million shares of common stock, par value $0.01, and 2 million preferred shares) to 27fifty-two million shares (25(50 million shares of common stock, par value $0.01, and 2 million preferred shares). Such resolution also recommends that such amendment be approved and adopted by the Company'sePlus' stockholders and directs that such proposal be submitted to the Company'sePlus' stockholders at the Annual Meeting.annual meeting. If the Board of Directors' proposalProposal 2 is approved by the Company'sePlus' stockholders, the Boardboard of Directorsdirectors would have authority to issue up to twenty-fivefifty million (25,000,000)(50,000,000) shares of Common Stockcommon stock and to designate and issue up to two million (2,000,000) shares of Preferred Stockpreferred stock to such persons, for such consideration and with such rights and preferences as the Boardboard of Directorsdirectors may determine without further action by the stockholders except as may be required by law. As of the date hereof, the CompanyePlus has not designated or issued any shares of Preferred Stockpreferred stock and the proposal will not change the authorized number of shares of Preferred Stock.preferred stock. As of the Record Daterecord date there are 5,672,307were 9,671,589 shares of Common Stockcommon stock issued and outstanding. The Boardboard of Directorsdirectors of the CompanyePlus has reserved 245,0001,567,945 shares of Common Stockcommon stock for issuance pursuant to the exercise of outstanding stock optionsoptions. 57,500 shares of common stock for issuance pursuant to various warrant agreements, and, in addition, 155,000691,462 shares of Common Stockcommon stock have been reserved in connection with the Master 24 27 StockLong Term Incentive Plan (formerly the 1996 Stock Incentive Plan)(which is the subject of Proposal Three) and its component plans, the Amended and Restated Incentive Stock Option Plan (formerly the 1996 Incentive Stock Option Plan), the Amended and Restated Outside Director Stock Option Plan (formerly the 1996 Outside Director Stock Option Plan), the Amended and Restated Nonqualified Stock Option Plan (formerly the 1996 Nonqualified Stock Option Plan).Plan. Accordingly, there remain 3,927,69313,011,504 shares of Common Stockcommon stock which are unissued and are not reserved for any specific purpose. The Boardboard of Directorsdirectors has proposed the increase in and classification of the authorized capital stock to provide shares which could be used for a variety of corporate purposes, including stock splits, mergers, the raising of additional capital (including public and private offerings of securities), acquisitions and implementation of incentive and other option and stock ownership plans. While the Boardboard of Directorsdirectors believes it important that the CompanyePlus have the flexibility that would be provided by having additional authorized capital stock available and by having the ability to designate and issue additional classes thereof, the CompanyePlus does not currently have any binding commitments or arrangements that would require the issuance of such stock. The Company is obligated, subjectePlus regularly evaluates potential acquisition opportunities and engages in discussions regarding potential acquisition opportunities from time to stockholder ratification of the proposals referred to as Proposals 3,4,5,6, and 7, to grant options for an aggregate total of 60,000 shares of common stock to key employees of CompuVentures of Pitt County, a recent acquisition of the Company and options for 3,800 shares to Steven Mencarini, who recently commenced employment as the Company's Chief Financial Officer. In addition, the Company is presently in negotiation with one or more possible acquisition targets, with thetime. The contemplated terms involvingof these potential acquisition transactions may involve payment of a material portion of the acquisition price in the form of Company common stock. If ePlus completes any such acquisitions, are consummated, the CompanyePlus may also expects thatgrant stock options will be granted to key employees of the acquired businesses as part of such transactions. The Company is also actively pursuing efforts to identify other acquisition targets. The Boardboard of Directorsdirectors believes it would be in the Company'sePlus' best interest, therefore, to have such additional shares of authorized stock available to enable the CompanyePlus to take advantage of opportunities for possible future -19- acquisitions, raising capital for future growth and the continued use of stock incentive and option plans, including the option plans composing the Master Stock Incentive Plan as described in Proposals 3,4,5,6 and 7.plans. If such opportunities arise in the future, significant amounts of capital stock may be issued by the Company's BoardePlus' board of Directorsdirectors without further authorization by the Company'sePlus' stockholders. Such issuancesissuance's could have a significant dilutive effect on the current stockholders of the Company.ePlus. It is possible that the additional capital stock that would be authorized by the proposed amendment could be issued in a transaction that might discourage offers by takeover bidders or make such offers more difficult or expensive to accomplish, although the Boardboard of Directorsdirectors has no current plans for any such use of the capital stock. For example, the Boardboard of Directorsdirectors could approve the issuance of stock, or grant rights or stock options for such issuance, to persons, firms or entities that are known to be friendly to management of the Company.ePlus. The Boardboard of Directorsdirectors could also approve the issuance of additional shares of capital stock having classes, series, rights and preferences (including the number of votes applicable to each share of such class or series of capital stock) which may render it more difficult in the future for takeover bidders or others to accomplish takeovers or changes in control of the Company.ePlus. Any issuance of capital stock must be made for proper business purposes and for proper consideration from the recipient. Designation of certain classes, series, rights and preferences with respect to the Company'sePlus' capital stock would be subject to applicable rules and 25 28 regulations of the exchange on which such securities are listed for quotation (currently, the Nasdaq National Market(R)). The text of the proposed amendment to the Certificate of Incorporation is set forth in full in ExhibitAppendix A hereto and reference is made thereto for a complete statement of its terms. The amendment to the Certificate of Incorporation will become effective upon approval by the stockholders and the filing of thea Certificate of Amendment to the Certificate of Incorporation containing such amendment with the Secretary of State of Delaware. If approved by the stockholders, the CompanyePlus anticipates that suchthe Certificate of Amendment ofto the Certificate of Incorporation will be filed as soon as practicable. VOTE REQUIRED FOR APPROVAL. Approval of the amendment of the Certificate of Incorporation will require the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock entitled to vote thereon. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK FROM TEN MILLION (10,000,000) SHARES OF COMMON STOCK TO TWENTY-FIVE MILLION (25,000,000) SHARES OF COMMON STOCK AS SET FORTH IN EXHIBIT A HERETO. UNLESS MARKED TO THE CONTRARY, SHARES REPRESENTED BY PROXY CARDS RECEIVED FROM STOCKHOLDERS WILL BE VOTED IN FAVOR OF THE PROPOSED AMENDMENT. PROPOSAL 3 TO APPROVE ADOPTION OF AMENDMENTS TO THE MLC HOLDINGS, INC., MASTER STOCK INCENTIVE PLAN (FORMERLY THE 1996 STOCK INCENTIVE PLAN). The Board of Directors has approved and recommends to the stockholders the adoption of an amendment and restatement of the 1996 Stock Incentive Plan which (i) renames the amended and restated plan as the "Master Stock Incentive Plan," (ii) increases the limitation of the number of shares of common stock that may be subject to outstanding awards under the various constituent plans under the Stock Incentive Plan from 155,000 shares of common stock to a number of shares of common stock equal to twenty percent (20%) of the total number of shares of Common Stock outstanding from time to time, as determined immediately after giving pro forma effect to the assumed exercise of all option or purchase rights under all of the component plans of the Master Stock Incentive Plan ("Reserved Shares"); and (iii) adds an employee stock purchase plan (referred to as the "Employee Stock Purchase Plan " as an additional plan to the existing plans which comprise the Master Stock Incentive Plan (See also Proposal 4). The Board has adopted, as of May 14, 1997, both this amended and restated Master Stock Incentive Plan, and the corresponding amendments to the existing component plans: the Amended and Restated Outside Director Stock Option Plan (formerly the 1996 Outside Director Stock Option Plan) -- see also Proposal 5; the Amended and Restated Incentive Stock Option Plan (formerly the 1996 Incentive Stock Option Plan) -- see also Proposal 6; and the Amended and Restated Nonqualified Stock Option Plan (formerly the 1996 Nonqualified Stock Option Plan)-- see also Proposal 7. 26 29 In the Board's judgment, the Master Stock Incentive Plan provides the Company a means to offer a critical long-term incentive for a broad range of employees and offers a competitive advantage as the Company acquires other firms and seeks to attract, retain and motivate newly acquired personnel. The Company believes that the Company's policy of granting stock options and making stock purchase opportunities available to a broad base of employees will provide it with valuable advantage in attracting acquisition candidates and attracting and retaining top personnel. During fiscal 1997, options for a total of 73,800 shares of common stock were granted to a total of 39 employees (other than the Company's executive officers) and options for a total of 5,000 shares of common stock were granted to 2 independent contractors of the Company under the component plans of the Master Stock Incentive Plan. Since the close of fiscal 1997, options for 46,200 shares were granted to newly hired executive officers, Thomas B. Howard Jr. (30,000 shares -- made available by reallocation of 30,00 shares previously reserved for future issuance under the Amended and Restated Outside Director Stock Option Plan) and Steven J. Mencarini (16,200 shares) (the Company intends to grant incentive stock options for an additional 3,800 shares to Steven J. Mencarini upon stockholder approval of Proposal 3 and Proposal 6). The purpose of the amendment to the Stock Incentive Plan and the component plans to increase the number of shares available is to provide the compensation committee with continued and greater flexibility to utilize awards of long-term equity based incentives to a wide range of employees, in particular as a part of the Company's growth and acquisition strategy. The incorporation of a formula for expansion of the number of shares based upon fluctuations in the number of shares outstanding will provide for and accommodate growth via stock acquisitions. The Company believes that providing opportunities for stock awards and for stock purchase encourages employees at all levels to focus on the long-term growth of stockholder value. The Board believes that providing for flexibility in awarding long-term compensation allows for greater use of equity based incentives as opposed to current cash compensation for managers and other employees, which, in the Board's judgment, promotes a better alignment of the interest of managers and stockholders and also encourages key managers to remain with the Company over an extended period. By increasing the number of shares that may be awarded under the Master Stock Incentive Plan, the Board of Directors seeks to ensure that the long-term incentives can continue to be awarded to a broad range of employees and will remain available for ongoing strategic use as an attractive component of the Company's acquisition program. The Board also believes that upon occasion in connection with a major acquisition the Company may be able to offer substantial option grants to reduce the up front price paid by the Company for the acquired business and to encourage the owners of the business being acquired to remain employed for an extended period of time (where such owners are deemed to be particularly valuable employees). The Board of Directors expects that annual option grants to any one individual for in excess of 100,000 shares or at an exercise price below the market value will be made only rarely, when special circumstances warrant or demand unique compensation arrangements such as in connection with a major acquisition. Description of the Master Stock Incentive Plan The Company has established the Master Stock Incentive Plan to provide an opportunity for directors, executive officers, independent contractors, key employees, and other employees of the Company to participate in the ownership of the Company. The Master Stock Incentive Plan provides for the award to eligible directors, employees, and independent contractors of the Company, of a broad variety of stock-based compensation alternatives such as incentive stock options for employees under the Amended and Restated Incentive Stock Option Plan, formula length of service based nonqualified options to nonemployee directors under the Amended and Restated Outside Director Stock Plan, and 27 30 nonqualified stock options under the Amended and Restated Nonqualified Stock Option Plan, as well as other restrictive stock and performance based stock awards and programs which may be established by the Board of Directors. Currently, the Company has reserved a total of 155,000 shares of Common Stock for issuance upon exercise of options under: (i)the Amended and Restated Incentive Stock Option Plan (under which options for an aggregate of 60,000 shares were granted immediately upon completion of the Offering, options for an additional 15,700 shares were granted January 8, 1997, options for 30,000 were granted to Mr. Howard on April 25, 1997, and options for 16,200 shares were granted to Mr. Mencarini on June 19, 1997); (ii) the Amended and Restated Outside Director Stock Plan (under which options for an aggregate of 75,000 shares of Common Stock were reserved for grant under a formula plan based upon length of service and for which 30,000 shares of Common Stock were granted upon completion of the Offering, and which 45,000 shares were reserved for future formula grants --which reserved shares were transferred to the Amended and Restated Incentive Stock Option Plan by the Board in order to make available shares for the granting of options in connection with the employment of Mr. Howard and Mr. Mencarini); and (iii) the Amended and Restated Nonqualified Stock Option Plan (under which options for 5,000 shares were granted on January 8, 1997 to two outside contractors who work with the Company). In addition, the Company has agreed by the terms of an agreement for the acquisition of CompuVentures of Pitt County, Inc., to grant incentive stock options for an additional 60,000 shares to key employees of CompuVentures under the Incentive Stock Option Plan, subject to stockholder approval of this Proposal (and coordinating Proposal 6). Philip G. Norton has entered into an agreement with CompuVentures of Pitt County, Inc. agreeing to vote the stock of the Company controlled by Mr. Norton in favor of this proposal (and Proposal 6). Mr. Norton controls 2,825,000 shares of common stock of the Company or 53.6% of the shares entitled to vote, thus stockholder ratification of these proposals is assured. In May 1997, the Master Stock Incentive Plan was amended, subject to stockholder approval, to increase the aggregate number of shares allocated to the Stock Incentive Plan to a number equal to twenty percent (20%) of the total number of shares of Common Stock outstanding from time to time, as determined immediately after giving pro forma effect to the assumed exercise of all option or purchase rights under all of the component plans of the Master Stock Incentive Plan. The Master Stock Incentive Plan is administered by the Stock Incentive Committee, which is authorized to select from among the eligible participants the individuals to whom options, restricted stock purchase rights and performance awards are to be granted and to determine the number of shares to be subject thereto and the terms and conditions thereof. The Stock Incentive Committee is also authorized to adopt, amend and rescind the rules relating to the administration of the Master Stock Incentive Plan. Except for grants that are approved by a majority of the Company's Board of Directors, no member of the Stock Incentive Committee is eligible to participate in future grants of options in the Master Stock Incentive Plan. Incentive stock options issued under the Amended and Restated Incentive Stock Option Plan are designed to comply with the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and are subject to restrictions contained in the Code, including a requirement that exercise prices be equal to at least 100% of fair market value of the shares of Common Stock on the grant date and a ten-year restriction on the option term. The incentive stock options may be subsequently modified to disqualify them from treatment as incentive stock options. Under the Master Stock Incentive Plan, the Amended and Restated Incentive Stock Option Plan, and the Code, non-employee directors are not permitted to receive incentive stock options. 28 31 Nonqualified stock options issued under the Amended and Restated Nonqualified Stock Option Plan, may be granted to directors, officers, independent contractors and employees and will provide for the right to purchase shares of Common Stock at a specified price which may be less than fair market value on the date of grant, and usually will become exercisable in installments after the grant date. Nonqualified stock options may be granted for any reasonable term. Under the Amended and Restated Outside Director Stock Option Plan, each of the three nonemployee directors were granted options, immediately upon the completion of the Offering, to purchase an aggregate of 30,000 shares of Common Stock, which, as amended, became immediately vested in May 1997. The Amended and Restated Outside Director Stock Option Plan also provides for the grant of options for shares to each nonemployee director (15,000 annually in the aggregate) on the second, third and fourth anniversary of service, at an exercise price equal to the market price as of the date of grant, with each option being exercisable as to 50% of the shares on the first anniversary of grant and the remaining 50% of the shares as the second anniversary of grant. Options for 15,000 shares become exercisable after the second, third and fourth anniversaries of grants. The Board of Directors approved certain amendments to the Amended and Restated Outside Director Stock Option Plan in May 1997, subject to stockholder approval, to provide for the immediate exercisability of options previously granted to purchase 10,000 shares (30,000 shares in the aggregate) and to provide for the annual formula grant of options to purchase 10,000 shares to each nonemployee director on each anniversary of service, subject to a one-year vesting requirement. In May, 1997, the Board of Directors adopted a resolution to begin an Employee Stock Purchase Plan, subject to stockholder vote and ratification. Under the plan, employees will be eligible to purchase Common Stock on a periodic basis ("Offering Periods") through payroll deductions elected prior to the beginning of each Offering Period, which may not exceed the lesser of 10% of an employee's compensation or $10,000 per year. The price at which stock may be purchased under the Employee Stock Purchase Plan is equal to 85% of the lower of the fair market value of the Common Stock on the first day of the offering period or the last day of the offering period. The Employee Stock Purchase Plan provides for semi-annual Offering Periods of six months duration, however the Board of Directors may vary the length of the Offering Period (but may not exceed twenty-seven months). Except for the amendments described above, the Amended and Restated Stock Incentive Plan, the Amended and Restated Incentive Stock Option Plan, the Amended and Restated Nonqualified Stock Option Plan, and the Amended and Restated Outside Director Stock Option Plan are unchanged from the 1996 Stock Incentive Plan, the 1996 Incentive Stock Option Plan, the 1996 Nonqualified Stock Option Plan, and the 1996 Outside Director Stock Option Plan attached as exhibit to the Company's Registration Statement on Form S-1 filed on September 11, 1996, and the description of the plans is qualified in its entirety by reference to that exhibit. Vote Required for Approval. The affirmative vote of a majority of the outstanding shares of common stock present in person or represented by proxy at the Annual Meeting entitled to vote is required to approve the adoption of the amendment and restatement of the Master Stock Incentive Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO APPROVE THE ADOPTION OF THE AMENDMENT AND RESTATEMENT TO THE MASTER STOCK INCENTIVE PLAN AND, UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM STOCKHOLDERS WILL 29 32 BE VOTED IN FAVOR OF THE RATIFICATION OF THE PROPOSED AMENDMENT AND RESTATEMENT TO THE MASTER STOCK INCENTIVE PLAN. PROPOSAL 4 TO APPROVE ADOPTION OF THE MLC HOLDINGS, INC. 1997 EMPLOYEE STOCK PURCHASE PLAN. The Board of Directors has approved and recommends to the stockholders the adoption of the Employee Stock Purchase Plan (the "Stock Purchase Plan") which establishes a tax advantaged employee stock purchase program as an additional plan to the existing plans which comprise the Stock Incentive Plan. The Employee Stock Purchase Plan will not be effective unless and until stockholder approval is obtained. The shares reserved for issuance under this plan are also a part of the 20% of the total number of shares of Common Stock outstanding reserved under the Master Stock Incentive Plan and will be limited to the lesser of (A) twenty percent (20%) of the total number of shares of Common Stock outstanding from time to time, as determined immediately after giving pro forma effect to the assumed exercise of all options or purchase rights under all of the component plans of the Master Stock Incentive Plan ("Reserved Shares"), or (B) 4,000,000 (IRS regulations require that a tax advantaged incentive stock option plan have a specified number of shares as a cap--this limit applies only to the Amended and Restated Incentive Stock Option Plan and to the Stock Purchase Plan and not the other component plans of the Master Stock Incentive Plan). In the Board's judgment, the Stock Purchase Plan also provides the Company with a critical long-term incentive for a broad range of employees and offers a competitive advantage as the Company acquires other firms to retain and motivate newly acquired personnel. As with all component plans under the Master Stock Incentive Plan, the Company believes that the Company's policy of granting stock options and/or making stock purchase opportunities available to a broad base of employees will provide it with critical advantage in attracting acquisition candidates and attracting and retaining top personnel. Description of the Stock Purchase Plan The Stock Purchase Plan, which is intended to qualify under Section 423 of the Code, will be administered by the Stock Incentive Committee of the Board of Directors. Employees (including officers and employee directors of the Company except for those serving as members of the Stock Incentive Committee) are eligible to participate in the Stock Purchase Plan if they are customarily employed for more than 20 hours per week five months per year. The Stock Purchase Plan will be implemented during sequential six month Offering Periods six (6) months duration or such other duration as the Board of Directors shall determine. The Company has not yet offered or sold shares of Common Stock to employees pursuant to the Stock Purchase Plan, but intends to initiate the first offering under the Stock Purchase Plan commencing with the first calendar quarter after the Stock Purchase Plan is ratified by the stockholders. The Stock Purchase Plan permits eligible employees to purchase Common Stock through payroll deductions, which may not exceed the lesser of 10% of an employee's total compensation or $10,000 per year. The price at which stock may be purchased under the Stock Purchase Plan is equal to 85% of the lower of the fair market value of the Common Stock on the first day of the offering period or the last day of the offering period. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of a participant's employment with the Company. 30 33 The Employee Stock Purchase Plan is set forth as Exhibit B to this Proxy Statement, and the description of the Stock Purchase Plan contained is qualified in its entirety by reference to Exhibit B. Vote Required for Approval. The affirmative voteholders of a majority of the shares of common stock present in person or represented by proxy at the annual meetingoutstanding and entitled to vote on the proposal is required to approve the adoption of the Stock Purchase Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO APPROVE THE ADOPTION OF THE STOCK PURCHASE PLAN AND, UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM STOCKHOLDERS WILL BE VOTED IN FAVOR OF THE RATIFICATION OF THE PROPOSED STOCK PURCHASE PLAN. PROPOSAL 5 TO APPROVE ADOPTION OF AMENDMENTS TO THE MLC HOLDINGS, INC., AMENDED AND RESTATED OUTSIDE DIRECTOR STOCK OPTION PLAN (FORMERLY THE 1996 OUTSIDE DIRECTOR STOCK OPTION PLAN). The Board of Directors has approved and recommends to the stockholders the adoption of an amendment and restatement of the 1996 Outside Director Stock Option Plan which (i) renames the amended and restated plan as the "Amended and Restated Outside Director Stock Option Plan," (ii) conforms the Amended and Restated Outside Director Stock Option Plan to the increase in the limitation of the number of shares of Common Stock that may be subject to outstanding awards under the various constituent plans under the Master Stock Incentive Plan (which includes the Amended and Restated Outside Director Stock Option Plan) from 155,000 shares of common stock to a number of shares of Common Stock equal to twenty percent (20%) of the total number of shares of Common Stock outstanding from time to time, as determined immediately after giving pro forma effect to the assumed exercise of all option or purchase rights under all of the component plans of the Master Stock Incentive Plan ("Reserved Shares"), (iii) modifies the formula grants of options made to nonemployee directors to provide for an annual grant of an option to purchase 10,000 shares of common stock on the anniversary of each year of service of a nonemployee director, which option is at the market value on the date of grant, vests and is exercisable commencing one year after the date of grant, and expires 10 years from the date of grant, (iv) amends the terms of existing options granted to outside directors in November, 1996, to make such options immediately vested and exercisable. The Board has adopted, as of May 14, 1997, the Amended and Restated Outside Director Stock Option Plan, and the corresponding amendments to the Master Stock Incentive Plan -- see also Proposal 3. In the Board's judgment, the Amended and Restated Outside Director Stock Option Plan provides the Company a means to offer a critical long-term incentive to attract and retain highly qualified outside directors and to provide them an inducement to focus upon the long term growth of the Company and appreciation in the value of the Company's Common Stock. Description of the Amended and Restated Outside Director Stock Option Plan 31 34 Under the 1996 Outside Director Stock Option Plan prior to the amendment and restatement, each of the three non-employee directors were granted options, immediately upon the completion of the Offering, to purchase 10,000 shares of Common Stock, which vested 50% after one year of service as a director and 50% after completion of of the second year of service. As a result of the amendments made by the Amended and Restated Outside Director Stock Option Plan, these options became immediately vested as of May, 1997. Under the 1996 Outside Director Stock Option Plan, prior to the amendment and restatement, each of the three non-employee outside directors would also have been granted options for 5,000 shares of Common Stock (15,000 annually in the aggregate to all three outside non-employee directors) on the second, third, and fourth anniversary of service as a director, at an exercise price equal to the market price as of the date of grant, with each option being exercisable as to 50% of the shares on the first anniversary of grant and the remaining 50% of the shares as of the second anniversary of the grant. As a result of the amendments made by the Amended and Restated Outside Director Stock Option Plan, each non-employee director will receive an option to purchase 10,000 shares of common stock on each annual anniversary of service, with each option being exercisable one year after the date of grant. Each of such options will be exercisable at the market price as of the date of grant. Table V below sets forth the benefits that will be allocated to each member of the Board who is not an employee of the Company if the Amended and Restated Outside Director Stock Option Plan is adopted. AMENDED AND RESTATED OUTSIDE DIRECTOR STOCK OPTION PLAN BENEFITS One-Time Immediately Annual Option Grant for Vested Existing Options Below Specified Number of (Number of Shares of Shares of Common Stock Common Stock Subject to Name Option) Jonathan J. Ledecky ........ 10,000 10,000 Terrence O'Donnell ......... 10,000 10,000 Carl J. Rickersten ......... 10,000 10,000 TOTAL ...................... 30,000 30,000
Vote Required for Approval. The affirmative vote of a majority of the shares of Common Stock present and personally represented by proxy at the Annual Meeting entitled to vote is required to approve the adoption of the amendment and restatement of the Amended and Restated Outside Director Stock Option Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO APPROVE THE ADOPTION OF THE AMENDMENT AND RESTATEMENT OF THE AMENDED AND RESTATED OUTSIDE DIRECTOR STOCK OPTION PLAN AND, UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM STOCKHOLDERS WILL BE VOTED IN FAVOR OF THE ADOPTION OF THE PROPOSED AMENDMENT AND RESTATEMENT OF THE AMENDED AND RESTATED OUTSIDE DIRECTOR STOCK OPTION PLAN. PROPOSAL 6 TO APPROVE ADOPTION OF AMENDMENTS TO THE MLC HOLDINGS, INC., AMENDED AND RESTATED INCENTIVE STOCK OPTION PLAN (FORMERLY THE 1996 INCENTIVE STOCK OPTION PLAN). The Board of Directors has approved and recommends to the stockholders the adoption of an amendment and restatement of the 1996 Incentive Stock Option Plan which (i) renames the amended and restated plan as the "Amended and Restated Incentive Stock Option Plan," (ii) conforms the Amended and Restated Incentive Stock Option Plan to the increase in the limitation of the number of shares of Common Stock that may be subject to outstanding awards under the various constituent plans under the Master Stock Incentive Plan (which includes the Amended and Restated Incentive Stock Option Plan) from 155,000 shares of Common Stock to a number of shares of Common Stock equal to the lesser of (A) twenty percent (20%) of the total number of shares of Common Stock outstanding from time to time, as determined immediately after giving pro forma effect to the assumed exercise of all option or purchase rights under all of the component plans of the Master Stock Incentive Plan ("Reserved Shares"), or (B) 4,000,000 (IRS regulations require that a tax advantaged incentive stock option plan have a specified number of shares as a cap -- this limit applies only to the Amended and Restated Incentive Stock Option Plan and the Stock Purchase Plan and does not apply to other component plans of the Master Stock Incentive Plan). The Board has adopted, as of May 14, 1997, the Amended and Restated Incentive Stock Option Plan, and the corresponding amendments to the Master Stock Incentive Plan -- see also Proposal 3; In the Board's judgment, the Amended and Restated Incentive Stock Option Plan, together with other component plans of the Master Stock Incentive Plan provides the Company a means to offer a critical long-term incentive for a broad range of employees and offers a competitive advantage as the Company acquires other firms and seeks to attract, retain and motivate newly acquired personnel. The Company believes that the Company's policy of granting stock options and making stock purchase opportunities available to a broad base of employees will provide it with valuable advantage in attracting acquisition candidates and attracting and retaining key personnel. 32 35 During fiscal 1997, options for a total of 73,800 shares of common stock were granted to a total of 39 employees (other than the Company's executive officers) under the 1996 Incentive Stock Option Plan. Since the close of fiscal 1997, options for 46,200 shares were granted to newly hired executive officers, Thomas Howard (30,000 shares -- made available by reallocation of 30,00 shares previously reserved for future issuance under the 1996 Outside Director Stock Option Plan) and Steven Mencarini, (16,200 shares). The purpose of the Amended and Restated Incentive Stock Option Plan is to increase the number of shares available to provide the compensation committee with continued and greater flexibility to utilize awards of long-term equity based incentives to a wide range of employees, in particular as a part of the Company's acquisition and growth. The incorporation of a formula for expansion of the number of shares based upon fluctuations in the number of shares outstanding will provide for and accommodate growth via stock acquisitions. The Company believes that providing opportunities for stock awards and for stock purchase encourages employees at all levels to focus on the long-term growth of stockholder value. The Board believes that providing for flexibility in awarding long-term compensation allows for greater use of equity based incentives as opposed to current cash compensation for managers and other employees, which, in the Board's judgment, promotes a better alignment of the interest of managers and stockholders and also encourages key managers to remain with the Company over an extended period. By increasing the number of shares that may be awarded under the Amended and Restated Incentive Stock Option Plan, the Board of Directors seeks to insure that the long-term incentives can continue to be awarded to a broad range of employees and will remain available for ongoing strategic use as an attractive component of the Company's acquisition program. The Board also believes that upon occasion in connection with a major acquisition the Company may be able to offer substantial option grants to reduce the up front price paid by the Company for the acquired business and to encourage the owners of the business being acquired remain employed for an extended period of time (where such owners are deemed to be particularly valuable employees). The Board of Directors expects that annual option grants for in excess of 100,000 shares to any one individual or at an exercise price below the market value will be made only rarely, when special circumstances warrant or demand unique compensation arrangements such as in connection with a major acquisition. Description of the Amended and Restated Incentive Stock Option Plan See Proposal 3 for a discussion of the Master Stock Incentive Plan and the Amended and Restated Incentive Stock Option Plan. In addition to options granted, the Company has agreed by the terms of an agreement for the acquisition of CompuVentures of Pitt County, Inc. ("CompuVentures"), to grant incentive stock options for an additional 60,000 shares to key employees of CompuVentures under the Amended and restated Incentive Stock Option Plan, subject to shareholder approval of this Proposal 6 (and coordinating Proposal 3). Phillip G. Norton has entered into an agreement with CompuVentures agreeing to vote the Common Stock2. The board of the Company controlled by Mr. Norton in favor of this proposal 6 (and Proposal 3). Mr. Norton controls 2,825,000 shares of Common Stock of the Company or 49.53% of the shares entitled to vote, thus stockholder ratification of these proposals is virtually assured. The Company's Stock Incentive Committee has also approved a grant of additional incentive stock options to purchase 3,800 shares of Common Stock to Steven Mencarini, subject to stockholder ratification of the Amended and Restated Incentive Stock Option Plan. In addition, the Company is considering several possible acquisitions which, if consummated, would result in the grant of stock options to key employees of the acquired businesses. 33 36 Options granted under the Amended and Restated Incentive Stock Option Plan will become exercisable and expire in accordance with the Amended and Restated Incentive Stock Option Plan and the applicable option agreement, provided that no option may become exercisable earlier than one year from the date of grant. Upon the exercise of an option, the full option price, either in cash, Common Stock or a combination of cash and Common Stock, or in any other form of consideration permitted by the Amended and Restated Incentive Stock Option Plan, including under any cashless exercise program permitted by the Amended and Restated Incentive Stock Option Plan, is required to be paid to the Company. If the aggregate fair market value of the Common Stock, determined at the time of grant, with respect to which incentive stock options are granted under the Amended and Restated Incentive Stock Option Plan or any other plan of the Company, are exercisable for the first time by an optionee during any calendar year exceeds $100,000, or such other amount as may be permitted under the Code, such excess shall be considered non-qualified stock options. The Amended and Restated Incentive Stock Option Plan also contains limitations on the grant of incentive stock options to any holder of more than 10% of the combined voting power of the Company's voting Common Stock. An optionee will not be subject to federal income tax upon the grant of an option under the Amended and Restated Incentive Stock Option Plan. Upon exercise of a non-qualified stock option, the optionee generally must recognize ordinary income in the amount of the "option spread" (the difference between the fair market value of the option shares and the exercise price) at the date of exercise and the optionee's employer generally is entitled to a tax deduction in the same amount subject to applicable tax withholding requirements; and upon sale, appreciation (or depreciation) after the date of exercise is treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held. Upon exercise of an incentive stock option, the optionee generally will not have to recognize any taxable income (except that the alternative minimum tax may apply). Instead, the optionee will be subject to taxation only upon the disposition of the shares acquired upon exercise of the incentive stock option. If the optionee disposes of the shares acquired upon exercise of an incentive stock option more than two years after the date of grant of the incentive stock option and more than eighteen months after exercise, he or she will realize a long-term capital gain (or loss) based on the difference between the sale price of the shares and the exercise price of the option (or his or her basis in the shares if it is not equal to the exercise price). Otherwise, in the event the optionee disposes of the shares acquired pursuant to the exercise of an incentive stock option prior to the expiration of two years from the date of grant or eighteen months from the date of exercise of the incentive stock option, the optionee will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares on the date of exercise or the amount realized on a sale (whichever is less) over the option price, and the optionee's employer will be entitled to deduct such amount for federal income tax purposes. Any further gain (or loss) realized by the optionee upon the sale of the Common Stock will be taxed as short-term or long-term capital gain (or loss), depending on how long the shares have been held, and will not result in any further deduction by the employer. 34 37 Because all grants and awards under the Amended and Restated Incentive Stock Option Plan are entirely within the discretion of the Committee, the total benefits allocable under the Amended and Restated Incentive Stock Option Plan in the future are not at present determinable. Except for the commitment to employees of CompuVentures and the grant to Mr. Mencarini described above, no grants or awards have been made to date and no grants or awards will be made by the Corporation until such time as the Amended and Restated Incentive Stock Option Plan is approved by the stockholders at the 1997 Annual Meeting. In the Board's judgment, the Amended and Restated Incentive Stock Option Plan provides the Company a means to offer a critical long-term incentive to attract and retain highly qualified outside directors and to provide them an inducement to focus upon the long term growth of the Company and appreciation in the value of the Company's Common Stock. Table VI below sets forth the determinable benefits that will be allocated to each Executive Officer and each non-executive officer employee of the Company if the Amended and Restated Incentive Stock Option Plan is adopted. AMENDED AND RESTATED INCENTIVE STOCK OPTION PLAN BENEFITS
Option Grants (Number of Shares of Name Common Stock Subject to Option) - ---- ------------------------------- Steven J. Mencarini, Chief Financial Officer 3,800 - -------------------------------------------- ----- TOTAL EXECUTIVE OFFICER GROUP 3,800 William Garner . . . . . . . . . . . . . . . . . . . . . . 15,000 Elaine Denton . . . . . . . . . . . . . . . . . . . . . . 15,500 David Rose . . . . . . . . . . . . . . . . . . . . . . . . 10,500 Nan Spainhour . . . . . . . . . . . . . . . . . . . . . . 5,000 Susan Chatham . . . . . . . . . . . . . . . . . . . . . . 6,000 Darrin Scott . . . . . . . . . . . . . . . . . . . . . . . 2,000 Roy Richardson . . . . . . . . . . . . . . . . . . . . . . 2,000 Jim Wood . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 Chauncy Willard . . . . . . . . . . . . . . . . . . . . . 2,000 - --------------- ----- TOTAL NON-EXECUTIVE OFFICER EMPLOYEE GROUP . . . . . . . . . . . . . . . . . . . . . . 60,000
Vote Required for Approval. The affirmative vote of a majority of the shares of Common Stock present and personally represented by proxy at the Annual Meeting entitled to vote is required to approve the adoption of the amendment and restatement of the Amended and Restated Incentive Stock Option Plan. The Board of Directorsunanimously recommends a vote FOR the approval of the proposal to approve the adoption of the proposed amendment and restatement of the Amended and Restated Incentive Stock Option Plan and, unless marked to the contrary, proxies received from Stockholders will be voted in favorCertificate of the ratification of the amendment and restatement of the Amended and Restated Incentive Stock Option Plan.Incorporation. -20- PROPOSAL 7 TO APPROVE ADOPTION OF AMENDMENTS TO THE MLC HOLDINGS, INC., AMENDED AND RESTATED NONQUALIFIED STOCK OPTION PLAN (FORMERLY THE 1996 NONQUALIFIED STOCK OPTION PLAN).3 To Ratify The Board of Directors has approved and recommends to the stockholders the adoption of an amendment and restatement of the 1996 Nonqualified Stock Option Plan which (i) renames the amended and restated plan as the "Amended and Restated Nonqualified Stock Option Plan," (ii) conforms the provisions of the Amended and Restated Nonqualified Stock Option Plan with the increase in the limitation of the number of shares of Common Stock that may be subject to outstanding awards under the various constituent plans under the Master Stock Incentive Plan. See Proposal 3. The Board has adopted, as of May 14, 1997, both this Amended and Restated Nonqualified Stock Option Plan and the Master Stock Incentive Plan, and the corresponding amendments to the other existing component plans: the Amended and Restated Outside Director Stock Option Plan (formerly the 1996 Outside Director Stock Option Plan) -- see also Proposal 5; the Amended and Restated Incentive Stock Option Plan (formerly the 1996 Incentive Stock Option Plan) -- see also Proposal 6. In the Board's judgment, the Amended and Restated Nonqualified Stock Option Plan provides the Company a means to offer a critical long-term incentive for a broad range of employees as well as independent contractors and offers a competitive advantage as the Company acquires other firms and seeks to attract, retain and motivate newly acquired personnel. The Amended and 35 38 Restated Nonqualified Stock Option Plan provides the Company the ability to offer and structure option awards beyond the parameters imposed upon the tax advantaged plans such as the Amended and Restated Incentive Stock Option Plan and the Stock Purchase Plan. During fiscal 1997, options for a total of 5,000 shares of Common Stock were granted to 2 independent contractors of the Company under the 1996 Nonqualified Stock Option Plan. The Board of Directors expects that annual option grants for in excess of 100,00 shares or at an exercise price below the market value will be made only rarely, when special circumstances warrant or demand unique compensation arrangements such as in connection with a major acquisition. Description of the Amended and Restated Nonqualified Stock Option Plan See Proposal 3 for a discussion of the Master Stock Incentive Plan and the Amended and Restated Nonqualified Stock Option Plan. Vote Required for Approval. The affirmative vote of a majority of the shares of Common Stock present and personally represented by proxy at the Annual Meeting entitled to vote is required to approve the adoption of the amendment and restatement of the Amended and Restated Nonqualified Stock Option Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE AMENDED AND RESTATED NONQUALIFIED STOCK OPTION PLAN AND, UNLESS MARKED TO THE CONTRARY, PROXIES RECEIVED FROM STOCKHOLDERS WILL BE VOTED IN FAVOR OF THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE AMENDED AND RESTATED NONQUALIFIED STOCK OPTION PLAN. PROPOSAL 8 TO RATIFY THE APPOINTMENT OF DELOITTEAppointment Of Deloitte & TOUCHETouche LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE COMPANY'S FISCAL YEAR ENDING MARCHAs ePlus' Independent Auditors For ePlus' Fiscal Year Ending March 31, 19982001. Subject to stockholder ratification, the Boardboard of Directorsdirectors has reappointed the firm of Deloitte and Touche LLP as the independent auditors to examine the Company'sePlus' financial statements for the fiscal year ending March 31, 1998.2001. Deloitte & Touche has audited the Company'sePlus' and its principal operating subsidiary, MLC Group, Inc.'s books since 1990. The Board of Directors recommends that Stockholders vote FOR such ratification. If the Stockholdersstockholders do not ratify this appointment, other independent auditors will be considered by the Boardboard of Directorsdirectors upon recommendation of the Audit Committee. Representatives of Deloitte & Touche are expected to attend the Annual Meetingannual meeting and will have the opportunity to make a statement if they desire and to respond to appropriate questions. 36 39Vote Required for Approval. The affirmative vote of the holders of at least a majority of the shares of common stock present in person or by proxy and entitled to vote at the annual meeting on the proposal will constitute approval of Proposal 3. The board of directors unanimously recommends a vote FOR the approval of the ratification of the approval of Deloitte & Touche LLP as independent auditors. OTHER PROPOSED ACTION The Boardboard of Directorsdirectors does not intend to bring any other matters before the Annual Meeting,annual meeting, nor does the Boardboard of Directorsdirectors know of any matters which other persons intend to bring before the Annual Meeting.annual meeting. If, however, other matters not mentioned in this Proxy Statement properly come before the Annual Meeting,annual meeting, the persons named in the accompanying form of Proxyproxy will vote thereon in accordance with the recommendation of the Boardboard of Directors.directors. Stockholders should note that the Company's By-LawsePlus' Bylaws provide that in order for a stockholder to bring business before a meeting or to make a nomination for the election of directors, such stockholder must give written notice complying with the requirements of the By-LawsBylaws to the Secretary of the companyePlus not later than 90 days in advance of such meeting or, if later, the seventh day following the first public announcement of the date of such meeting. STOCKHOLDER PROPOSALS AND SUBMISSIONS If any Stockholderstockholder wishes to present a proposal for inclusion in the proxy materials to be solicited by the Company's BoardePlus' board of Directorsdirectors with respect to the next Annual Meetingannual meeting of Stockholders,stockholders, that proposal must be presented to the Company'sePlus' management prior to December 31, 1997. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. YOUR VOTE IS IMPORTANT. IF YOU AREApril 20, 2001. Whether or not you expect to be present at the annual meeting, please sign and return the enclosed proxy card promptly. Your vote is important. If you are a stockholder of record and attend the annual meeting and wish to vote in person, you may withdraw your proxy at any time prior to the vote. -21- APPENDIX A STOCKHOLDER OF RECORD AND ATTEND THE ANNUAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE. MLC HOLDINGS, INC. ----------------------------------- Kleyton L. Parkhurst, Secretary 37 40 EXHIBIT A TEXT OF PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION (PROPOSAL 2) PROPOSED SUBSTITUTE SECTIONBelow is the full text of the proposed amendment to the ePlus Certificate of Incorporation. The only change to the Certificate of Incorporation affected by this amendment is to increase the number of authorized shares ePlus' stock, as described in the proxy statement. The Corporation's certificate of incorporation hereby is amended by striking out existing Article "FOURTH" TO THE COMPANY'S CERTIFICATE OF INCORPORATION FOURTHthereof and replacing it with the following new Article "FOURTH": "FOURTH" The total number of shares of all classes of stock which the Corporation shall have authority to issue is twenty-sevenfifty-two million (27,000,000)(52,000,000) shares consisting of twenty-fivefifty million (25,000,000)(50,000,000) shares of common stock having a par value of $.01 per share (the "Common Stock") and two million (2,000,000) shares of preferred stock having a par value of $.01 per share (the "Preferred Stock"). The Board of Directors of the Corporation is authorized, subject to limitations prescribed by law, to provide by resolution or resolutions for the issuance of shares of the Preferred Stock as a class or in series, and, by filing a certificate of designations, pursuant to the Delaware General Corporation Law, setting forth a copy of such resolution or resolutions to establish from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of the class or of each such series and the qualifications, limitations, and restrictions thereof. The authority of the Board of Directors with respect to the class or each series shall include, but not be limited to, determination of the following: a) the number of shares constituting any series and the distinctive designation of that series; b) the dividend rate of the shares of the class or of any series, whether dividends shall be cumulative, and if so, from which date or dates, and the relative rights of priority, if any of payment of dividends on shares of the class or of that series; c) whether the class or any series shall have voting rights, in addition to the voting 1 41 rights provided by law, and if so, the terms of such voting rights; d) whether the class or any series shall have conversion privileges and, if so, the terms and conditions of conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; e) whether or not the shares of the class or of any series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or datedates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; f) whether the class or any series shall have a sinking fund for the redemption or purchase of shares of the class or of that series, and if so, the terms and amount of such sinking fund; g) the rights of the shares of the class or of any series in the event of voluntary or involuntary dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of the class or of that series; and h) any other powers, preferences, rights, qualifications, limitations and restrictions of the class or of that series. All rights accruing to the outstanding shares of the Corporation not expressly provided for to the contrary herein or in any certificate of designation shall be vested exclusively in the Common Stock. 2" A-1 42 MLC HOLDINGS, INC. 1997 EMPLOYEE STOCK PURCHASE PLAN 1. ESTABLISHMENT, PURPOSE AND TERM[FORM OF PLAN. 1.1 ESTABLISHMENT. The MLC Holdings, Inc. Employee Stock Purchase Plan (the "PLAN") is established effective as of the date of approval of this Plan by the stockholders (the "EFFECTIVE DATE"). 1.2 PURPOSE. The purpose of the Plan is to provide Eligible Employees of the Participating Company Group with an opportunity to acquire a proprietary interest in the Company through the purchase of Stock. The Company intends that the Plan qualify as an "employee stock purchase plan" under Section 423 of the Code (including any amendments or replacements of such section), and the Plan shall be so construed. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued. 2. DEFINITIONS AND CONSTRUCTION. 2.1 DEFINITIONS. Any term not expressly defined in the Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s). (b) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (c) "COMMITTEE" means a committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (d) "COMPANY" means MLC Holdings, Inc., a Delaware corporation, or any successor corporation thereto. (e) "COMPENSATION" means, with respect to any Offering Period, a Participant's total compensation (base salary, commissions and overtime) payable in cash during such Offering Period before deduction for any contributions to any plan maintained by a Participating Company and described in Section 1 43 401(k) or Section 125 of the Code. Compensation shall not include reimbursements of expenses, allowances, long-term disability, workers' compensation or any amount deemed received without the actual transfer of cash or any amounts directly or indirectly paid pursuant to the Plan or any other stock purchase or stock option plan. (f) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set forth in Section 5 for eligibility to participate in the Plan. (g) "EMPLOYEE" means a person treated as an employee of a Participating Company for purposes of Section 423 of the Code. A Participant shall be deemed to have ceased to be an Employee either upon an actual termination of employment or upon the corporation employing the Participant ceasing to be a Participating Company. For purposes of the Plan, an individual shall not be deemed to have ceased to be an Employee while such individual is on a military leave, sick leave or other bona fide leave of absence approved by the Company of ninety (90) days or less. In the event an individual's leave of absence exceeds ninety (90) days, the individual shall be deemed to have ceased to be an Employee on the ninety-first (91st) day of such leave unless the individual's right to reemployment with the Participating Company Group is guaranteed either by statute or by contract. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual's employment or termination of employment, as the case may be. All such determinations by the Company shall be, for purposes of an individual's participation in or other rights under the Plan as of the time of the Company's determination, final, binding and conclusive, notwithstanding that the Company or any governmental agency subsequently makes a contrary determination. (h) "FAIR MARKET VALUE" means, as of any date, if there is then a public market for the Stock, the closing sale price of a share of Stock (or the mean of the closing bid and asked prices if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in The Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. If there is then no public market for the Stock, the Fair Market Value on any relevant date shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. Notwithstanding the foregoing, the Fair Market Value per share of Stock on the Effective Date shall be deemed to be the public offering price set forth in the final prospectus filed with the Securities and Exchange Commission in connection with the initial public offering of the Stock. (i) "OFFERING" means an offering of Stock as provided in Section 6. (j) "OFFERING DATE" means, for any Offering Period, the first day of such Offering Period. 2 44 (k) "OFFERING PERIOD" means a period established in accordance with Section 6.1. (l) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (m) "PARTICIPANT" means an Eligible Employee who has become a participant in an Offering Period in accordance with Section 7 and remains a participant in accordance with the Plan. (n) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation designated by the Board as a corporation the Employees of which may, if Eligible Employees, participate in the Plan. The Board shall have the sole and absolute discretion to determine from time to time which Parent Corporations or Subsidiary Corporations shall be Participating Companies. (o) "PARTICIPATING COMPANY GROUP" means, at any point in time, the Company and all other corporations collectively which are then Participating Companies. (p) "PURCHASE DATE" means, for any Offering Period (or Purchase Period if so determined by the Board in accordance with Section 6.2), the last day of such period. (q) "PURCHASE PERIOD" means a period, if any, established in accordance with Section 6.2. (r) "PURCHASE PRICE" means the price at which a share of Stock may be purchased under the Plan, as determined in accordance with Section 9. (s) "PURCHASE RIGHT" means an option granted to a Participant pursuant to the Plan to purchase such shares of Stock as provided in Section 8, which the Participant may or may not exercise during the Offering Period in which such option is outstanding. Such option arises from the right of a Participant to withdraw any accumulated payroll deductions of the Participant not previously applied to the purchase of Stock under the Plan and to terminate participation in the Plan or any Offering thereunder at any time during an Offering Period. (t) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2. (u) "SUBSCRIPTION AGREEMENT" means a written agreement in such form as specified by the Company, stating an Employee's election to participate in the Plan and authorizing payroll deductions under the Plan from the Employee's Compensation. (v) "SUBSCRIPTION DATE" means the last business day prior to the Offering Date of an Offering Period or such earlier date as the Company shall establish. 3 45 (w) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. 2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 3. ADMINISTRATION. 3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board, including any duly appointed Committee of the Board. All questions of interpretation of the Plan, of any form of agreement or other document employed by the Company in the administration of the Plan, or of any Purchase Right shall be determined by the Board and shall be final and binding upon all persons having an interest in the Plan or the Purchase Right. Subject to the provisions of the Plan, the Board shall determine all of the relevant terms and conditions of Purchase Rights granted pursuant to the Plan; provided, however, that all Participants granted Purchase Rights pursuant to the Plan shall have the same rights and privileges within the meaning of Section 423(b)(5) of the Code. All expenses incurred in connection with the administration of the Plan shall be paid by the Company. 3.2 AUTHORITY OF OFFICERS. Any officer of the Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election that is the responsibility of or that is allocated to the Company herein, provided that the officer has apparent authority with respect to such matter, right, obligation, determination or election. 3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY. The Company may, from time to time, consistent with the Plan and the requirements of Section 423 of the Code, establish, change or terminate such rules, guidelines, policies, procedures, limitations, or adjustments as deemed advisable by the Company, in its sole discretion, for the proper administration of the Plan, including, without limitation, (a) a minimum payroll deduction amount required for participation in an Offering, (b) a limitation on the frequency or number of changes in the rate of payroll deduction during an Offering, (c) an exchange ratio applicable to amounts withheld in a currency other than United States dollars, (d) a payroll deduction greater than or less than the amount designated by a Participant in order to adjust for the Company's delay or mistake in processing a Subscription Agreement or in otherwise effecting a Participant's election under the Plan or as advisable to comply with the requirements of Section 423 of the Code, and (e) determination of the date and manner by which the Fair Market Value of a share of Stock is determined for purposes of administration of the Plan. 4. SHARES SUBJECT TO THE PLAN. 4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan, 4 46 together with all other shares that may be issued under all other component plans of the Company's Master Stock Incentive Plan, shall be a number of shares of the common stock of MLC Holdings, Inc. equal to twenty percent (20%) of the total number of shares of Common Stock outstanding from time to time, as determined immediately after giving pro forma effect to the assumed exercise of all option or purchase rights under all of the component plans of the Master Stock Incentive Plan ("Reserved Shares"). Provided, that notwithstanding the foregoing or any other provision of this Plan or the Master Stock Incentive Plan, the aggregate number of shares which may be issued pursuant to options granted under this Plan shall not exceed 4,000,000. If an outstanding Purchase Right for any reason expires or is terminated or canceled, the shares of Stock allocable to the unexercised portion of such Purchase Right shall again be available for issuance under the Plan. 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, or in the event of any merger (including a merger effected for the purpose of changing the Company's domicile), sale of assets or other reorganization in which the Company is a party, appropriate adjustments shall be made in the number and class of shares subject to the Plan and each Purchase Right and in the Purchase Price. If a majority of the shares which are of the same class as the shares that are subject to outstanding Purchase Rights are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding Purchase Rights to provide that such Purchase Rights are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the Purchase Price of, the outstanding Purchase Rights shall be adjusted in a fair and equitable manner, as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number, and in no event may the Purchase Price be decreased to an amount less than the par value, if any, of the stock subject to the Purchase Right. The adjustments determined by the Board pursuant to this Section 4.2 shall be final, binding and conclusive. 5. ELIGIBILITY. 5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Each Employee of a Participating Company is eligible to participate in the Plan and shall be deemed an Eligible Employee, except the following: (a) Any Employee who is customarily employed by the Participating Company Group for twenty (20) hours or less per week; and (b) Any Employee who is customarily employed by the Participating Company Group for not more than five (5) months in any calendar year. 5.2 EXCLUSION OF CERTAIN SHAREHOLDERS. Notwithstanding any provision of the Plan to the contrary, no Employee shall be granted a Purchase Right under the Plan if, immediately after such grant, such Employee would own or hold options to purchase stock of the Company or of any Parent Corporation or Subsidiary Corporation possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of such corporation, as determined in accordance with Section 423(b)(3) of the Code. For purposes of this Section 5.2, the attribution 5 47 rules of Section 424(d) of the Code shall apply in determining the stock ownership of such Employee. 6. OFFERINGS. 6.1 OFFERING PERIODS. Except as otherwise set forth below, the Plan shall be implemented by sequential semi-annual Offerings of six (6) months duration or such other duration as the Board shall determine. The first Offering Period shall commence on the first day of the first calendar quarter occuring on or after the Effective Date (the "INITIAL OFFERING PERIOD"). Subsequent Offering Periods shall commence on or about January 1, and July 1, of each year and end on or about the last business day of each such six month period, respectively. Notwithstanding the foregoing, the Board may establish a different term for one or more Offerings or different commencing or ending dates for such Offerings; provided, however, that no Offering may exceed a term of twenty-seven (27) months. If the first or last day of an Offering Period is not a day on which the national securities exchanges or Nasdaq Stock Market are open for trading, the Company shall specify the trading day that will be deemed the first or last day, as the case may be, of the Offering Period. 6.2 PURCHASE PERIODS. If the Board so determines, in its discretion, each Offering Period may consist of two (2) or more consecutive Purchase Periods having such duration as the Board shall specify, and the last day of each such Purchase Period shall be a Purchase Date. If the first or last day of a Purchase Period is not a day on which the national securities exchanges or Nasdaq Stock Market are open for trading, the Company shall specify the trading day that will be deemed the first or last day, as the case may be, of the Purchase Period. 7. PARTICIPATION IN THE PLAN. 7.1 INITIAL PARTICIPATION. An Eligible Employee may become a Participant in an Offering Period by delivering a properly completed Subscription Agreement to the Company's payroll office or other office designated by the Company not later than the close of business for such office on the Subscription Date established by the Company for such Offering Period. An Eligible Employee who does not deliver a properly completed Subscription Agreement to the Company's payroll office or other designated office on or before the Subscription Date for an Offering Period shall not participate in the Plan for that Offering Period or for any subsequent Offering Period unless such Eligible Employee subsequently delivers a properly completed Subscription Agreement to the appropriate office of the Company on or before the Subscription Date for such subsequent Offering Period. An Employee who becomes an Eligible Employee after the Offering Date of an Offering Period shall not be eligible to participate in such Offering Period but may participate in any subsequent Offering Period provided such Employee is still an Eligible Employee as of the Offering Date of such subsequent Offering Period. 7.2 CONTINUED PARTICIPATION. A Participant shall automatically participate in the next Offering Period commencing immediately after the final Purchase Date of each Offering Period in which the Participant participates provided that such Participant remains an Eligible Employee on the Offering Date of the new Offering Period and has not either (a) withdrawn from the Plan 6 48 pursuant to Section 12.2 or (b) terminated employment as provided in Section 13. A Participant who may automatically participate in a subsequent Offering Period, as provided in this Section 7.2, is not required to deliver any additional Subscription Agreement for the subsequent Offering Period in order to continue participation in the Plan. However, a Participant may deliver a new Subscription Agreement for a subsequent Offering Period in accordance with the procedures set forth in Section 7.1 if the Participant desires to change any of the elections contained in the Participant's then effective Subscription Agreement. Eligible Employees may not participate simultaneously in more than one Offering if the Company establishes concurrent Offerings. 8. RIGHT TO PURCHASE SHARES. 8.1 GRANT OF PURCHASE RIGHT. Except as set forth below, on the Offering Date of each Offering Period, each Participant in such Offering Period shall be granted automatically a Purchase Right consisting of an option to purchase that number of whole shares of Stock determined by dividing the lesser of (i) Five Thousand Dollars ($5,000) or (ii) ten percent (10%) of the Participant's Compensation for such Offering Period by eighty-five percent (85%) of the Fair Market Value of a share of Stock on the Offering Date of the Offering Period. No Purchase Right shall be granted on an Offering Date to any person who is not, on such Offering Date, an Eligible Employee. 8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. Notwithstanding the provisions of Section 8.1, if the Board establishes an Offering Period of less than five and one-half (5 1/2) months or more than six and one-half (6 1/2) months in duration, the number of shares of Stock subject to a Purchase Right shall be the lesser of (i) Eight Hundred Thirty-Three and Thirty-Three One Hundredths Dollars ($833.33) multiplied by the number of months (rounded to the nearest whole month) in the Offering Period or (ii) ten percent (10%) of the Participant's Compensation for such Offering Period divided by eighty-five percent (85%) of the Fair Market Value of a share of Stock on the Offering Date of the Offering Period and rounding the result to the nearest whole share. 8.3 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding any provision of the Plan to the contrary, no Purchase Right shall entitle a Participant to purchase shares of Stock under the Plan at a rate which, when aggregated with such Participant's rights to purchase shares under all other employee stock purchase plans of a Participating Company intended to meet the requirements of Section 423 of the Code, exceeds Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or such other limit, if any, as may be imposed by the Code) for each calendar year in which such Purchase Right has been outstanding at any time. For purposes of the preceding sentence, the Fair Market Value of shares purchased during a given Offering Period shall be determined as of the Offering Date for such Offering Period. The limitation described in this Section 8.3 shall be applied in conformance with applicable regulations under Section 423(b)(8) of the Code. 9. PURCHASE PRICE. The Purchase Price at which each share of Stock may be acquired in an Offering Period upon the exercise of all or any portion of a Purchase Right shall be established by the Board; provided, however, that the Purchase Price shall not be less than eighty-five percent (85%) of the lesser of (a) the Fair Market Value of a share of Stock on the Offering Date of the Offering Period or (b) the Fair Market Value of a share of Stock on the Purchase Date. Unless otherwise provided by the Board prior to the commencement of an Offering Period, the Purchase 7 49 Price for that Offering Period shall be eighty-five percent (85%) of the lesser of (a) the Fair Market Value of a share of Stock on the Offering Date of the Offering Period, or (b) the Fair Market Value of a share of Stock on the Purchase Date. 10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION. Shares of Stock acquired pursuant to the exercise of all or any portion of a Purchase Right may be paid for either (i) in cash, or (ii) by means of payroll deductions from the Participant's Compensation accumulated during the Offering Period for which such Purchase Right was granted, subject to the following: 10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise provided herein, the amount to be deducted under the Plan from a Participant's Compensation on each payday during an Offering Period shall be determined by the Participant's Subscription Agreement. The Subscription Agreement shall set forth the percentage of the Participant's Compensation to be deducted on each payday during an Offering Period in one percent (1%) increments not exceeding ten percent (10%) of the Participant's Compensation on such payday. Notwithstanding the foregoing, the amount deducted from a Participant's Compensation during each Offering Period shall not exceed Five Thousand Dollars ($5,000); provided, however, that if the Board establishes an Offering Period of less than two and one-half (2 1/2) months or more than six and one-half (6 1/2) months in duration, the such dollar limit shall be determined by multiplying Eight Hundred Thirty- Three and Thirty-Three One Hundredths Dollars ($833.33) by the number of months (rounded to the nearest whole month) in the Offering Period and rounding the product to the nearest whole dollar. The Board may change the foregoing limits on payroll deductions effective as of any future Offering Date. 10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions shall commence on the first payday following the Offering Date and shall continue to the end of the Offering Period unless sooner altered or terminated as provided herein. 10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS. During an Offering Period, a Participant may elect to increase or decrease the rate of or to stop deductions from his or her Compensation by delivering to the Company's payroll office or other designated office an amended Subscription Agreement authorizing such change on or before the "Change Notice Date." The "CHANGE NOTICE DATE" shall initially be the seventh (7th) day prior to the end of the first pay period for which such election is to be effective. However, the Company may change the Change Notice Date from time to time. A Participant who elects to decrease the rate of his or her payroll deductions to zero percent (0%) shall nevertheless remain a Participant in the current Offering Period unless such Participant withdraws from the Offering or from the Plan as provided in Section 12.1 or 12.2, respectively. 10.4 PARTICIPANT ACCOUNTS. Individual bookkeeping accounts shall be maintained for each Participant. All payroll deductions from a Participant's Compensation shall be credited to such Participant's Plan account and shall be deposited with the general funds of the Company. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose. 8 50 10.5 NO INTEREST PAID. Interest shall not be paid on sums deducted from a Participant's Compensation pursuant to the Plan. 11. PURCHASE OF SHARES. 11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an Offering Period, each Participant who has not withdrawn from the Offering and whose participation in the Offering has not terminated on or before such Purchase Date shall automatically acquire pursuant to the exercise of the Participant's Purchase Right the number of whole shares of Stock determined by dividing (a) the total amount of the Participant's payroll deductions accumulated in the Participant's account during the Offering Period and not previously applied toward the purchase of Stock by (b) the Purchase Price. However, in no event shall the number of shares purchased by the Participant during an Offering Period exceed the number of shares subject to the Participant's Purchase Right. No shares of Stock shall be purchased on a Purchase Date on behalf of a Participant whose participation in the Offering or the Plan has terminated on or before such Purchase Date. 11.2 LIMIT ON NUMBER OF SHARES PURCHASABLE IN OFFERING PERIOD. Any provision herein to the contrary notwithstanding, the Board may establish, effective for any future Offering Period, a limit on the aggregate number of shares of Stock which may be purchased under the Plan by all Participants during such Offering Period. 11.3 PRO RATA ALLOCATION OF SHARES. In the event that the number of shares of Stock which might be purchased by all Participants in the Plan on a Purchase Date exceeds the number of shares of Stock available in the Plan as provided in Section 4.1 or the aggregate limit established by the Board pursuant to Section 11.2, the Company shall make a pro rata allocation of the remaining shares in as uniform a manner as shall be practicable and as the Company shall determine to be equitable. 11.4 DELIVERY OF CERTIFICATES. As soon as practicable after each Purchase Date, the Company shall arrange the delivery to each Participant, as appropriate, of a certificate representing the shares acquired by the Participant on such Purchase Date; provided that the Company may deliver such certificates to a broker that holds such certificates in street name for the benefit of each Participant. Shares to be delivered to a Participant under the Plan shall be registered in the name of the Participant, or, if requested by the Participant, in the name of the Participant and his or her spouse, or, if applicable, in the names of the heirs of the Participant. 11.5 RETURN OF CASH BALANCE. Any cash balance remaining in a Participant's Plan account following any Purchase Date shall be refunded to the Participant as soon as practicable after such Purchase Date. However, if the cash to be returned to a Participant pursuant to the preceding sentence is an amount less than the amount that would have been necessary to purchase an additional whole share of Stock on such Purchase Date, the Company may retain such amount in the Participant's Plan account to be applied toward the purchase of shares of Stock in the subsequent Purchase Period or Offering Period, as the case may be. 9 51 11.6 TAX WITHHOLDING. At the time a Participant's Purchase Right is exercised, in whole or in part, or at the time a Participant disposes of some or all of the shares of Stock he or she acquires under the Plan, the Participant shall make adequate provision for the foreign, federal, state and local tax withholding obligations of the Participating Company Group, if any, which arise upon exercise of the Purchase Right or upon such disposition of shares, respectively. The Participating Company Group may, but shall not be obligated to, withhold from the Participant's compensation the amount necessary to meet such withholding obligations. 11.7 EXPIRATION OF PURCHASE RIGHT. Any portion of a Participant's Purchase Right remaining unexercised after the end of the Offering Period to which the Purchase Right relates shall expire immediately upon the end of the Offering Period. 11.8 REPORTS TO PARTICIPANTS. Each Participant who has exercised all or part of his or her Purchase Right shall receive, as soon as practicable after the Purchase Date, a report of such Participant's Plan account setting forth the total payroll deductions accumulated prior to such exercise, the number of shares of Stock purchased, the Purchase Price for such shares, the date of purchase and the cash balance, if any, remaining immediately after such purchase that is to be refunded or retained in the Participant's Plan account pursuant to Section 11.5. 12. WITHDRAWAL FROM OFFERING OR PLAN. 12.1 VOLUNTARY WITHDRAWAL FROM AN OFFERING. A Participant may withdraw from an Offering by signing and delivering to the Company's payroll office or other designated office a written notice of withdrawal on a form provided by the Company for such purpose. Such withdrawal may be elected at any time prior to the end of an Offering Period; provided, however, if a Participant withdraws after a Purchase Date, the withdrawal shall not affect shares of Stock acquired by the Participant on such Purchase Date. Unless otherwise indicated by the Participant, withdrawal from an Offering shall not result in the Participant's withdrawal from the Plan or any succeeding Offering therein. Following a Participant's withdrawal from an Offering, the Participant is prohibited from again participating at any time in the same Offering. The Company may impose, from time to time, a requirement that the notice of withdrawal from an Offering be on file with the Company's payroll office or other designated office for a reasonable period prior to the effectiveness of the Participant's withdrawal. 12.2 VOLUNTARY WITHDRAWAL FROM THE PLAN. A Participant may withdraw from the Plan by signing and delivering to the Company's payroll office or other designated office a written notice of withdrawal on a form provided by the Company for such purpose. A Participant's withdrawal made after a Purchase Date shall not affect shares of Stock acquired by the Participant on such Purchase Date. A Participant who voluntarily withdraws from the Plan is prohibited from resuming participation in the Plan in the same Offering from which he or she withdrew, but may participate in any subsequent Offering by again satisfying the requirements of Sections 5 and 7.1. The Company may impose, from time to time, a requirement that the notice of withdrawal from the Plan be on file with the Company's payroll office or other designated office for a reasonable period prior to the effectiveness of the Participant's withdrawal. 10 52 12.3 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's voluntary withdrawal from an Offering or the Plan pursuant to Sections 12.1 or 12.2, respectively, the Participant's accumulated payroll deductions which have not been applied toward the purchase of shares of Stock shall be returned as soon as practicable after the withdrawal, without the payment of any interest, to the Participant, and the Participant's interest in the Offering or the Plan, as applicable, shall terminate. Such accumulated payroll deductions may not be applied to any other Offering under the Plan. 13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY. Upon a Participant's ceasing to be an Employee of the Participating Company Group for any reason, including retirement, disability or death, or the failure of a Participant to remain an Eligible Employee, the Participant's participation in the Plan shall terminate immediately. In such event, the payroll deductions credited to the Participant's Plan account since the last Purchase Date shall, as soon as practicable, be returned to the Participant or, in the case of the Participant's death, to the Participant's legal representative, and all of the Participant's rights under the Plan shall terminate. Interest shall not be paid on sums returned pursuant to this Section 13. A Participant whose participation has been so terminated may again become eligible to participate in the Plan by again satisfying the requirements of Sections 5 and 7.1. 14. TRANSFER OF CONTROL. 14.1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the shareholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the shareholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 11 53 14.2 EFFECT OF TRANSFER OF CONTROL ON PURCHASE RIGHTS. In the event of a Transfer of Control, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), shall assume the Company's rights and obligations under the Plan. If the Acquiring Corporation elects not to assume the Company's rights and obligations under outstanding Purchase Rights, the Purchase Date of the then current Offering Period, or Purchase Period, as the case may be, shall be accelerated to a date before the date of the Transfer of Control specified by the Board, but the number of shares of Stock subject to outstanding Purchase Rights shall not be adjusted. All Purchase Rights which are neither assumed by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control shall terminate and cease to be outstanding effective as of the date of the Transfer of Control. 15. NONTRANSFERABILITY OF PURCHASE RIGHTS. A Purchase Right may not be transferred in any manner otherwise than by will or the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. 16. RESTRICTION ON ISSUANCE OF SHARES. The issuance of shares under the Plan shall be subject to compliance with all applicable requirements of foreign, federal or state law with respect to such securities. A Purchase Right may not be exercised if the issuance of shares upon such exercise would constitute a violation of any applicable foreign, federal or state securities laws or other law or regulations or the requirements of any securities exchange or market system upon which the Stock may then be listed. In addition, no Purchase Right may be exercised unless (a) a registration statement under the Securities Act of 1933, as amended, shall at the time of exercise of the Purchase Right be in effect with respect to the shares issuable upon exercise of the Purchase Right, or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Purchase Right may be issued in accordance with the terms of an applicable exemption from the registration requirements of said Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares under the Plan shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of a Purchase Right, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation, and to make any representation or warranty with respect thereto as may be requested by the Company. The issuance of shares shall also be subject to the limitation upon the maximum number of shares that may be issued under the Plan and under other plans adopted under the Company's Amended and Restated Stock Incentive Plan, as amended from time to time. 17. RIGHTS AS A SHAREHOLDER AND EMPLOYEE. A Participant shall have no rights as a shareholder by virtue of the Participant's participation in the Plan until the date of the issuance of a certificate for the shares purchased pursuant to the exercise of the Participant's Purchase Right (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 4.2. Nothing herein shall confer upon a Participant any right to continue in the employ of the 12 54 Participating Company Group or interfere in any way with any right of the Participating Company Group to terminate the Participant's employment at any time. 18. LEGENDS. The Company may at any time place legends or other identifying symbols referencing any applicable foreign, federal or state securities law restrictions or any provision convenient in the administration of the Plan on some or all of the certificates representing shares of Stock issued under the Plan. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to a Purchase Right in the possession of the Participant in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include but shall not be limited to the following: "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED HOLDER HEREOF MADE ON OR BEFORE____________________. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE." 19. NOTIFICATION OF SALE OF SHARES. The Company may require the Participant to give the Company prompt notice of any disposition of shares acquired by exercise of a Purchase Right within two years from the date of granting such Purchase Right or one year from the date of exercise of such Purchase Right. The Company may require that until such time as a Participant disposes of shares acquired upon exercise of a Purchase Right, the Participant shall hold all such shares in the Participant's name (or, if elected by the Participant, in the name of the Participant and his or her spouse but not in the name of any nominee) until the lapse of the time periods with respect to such Purchase Right referred to in the preceding sentence. The Company may direct that the certificates evidencing shares acquired by exercise of a Purchase Right refer to such requirement to give prompt notice of disposition. 20. NOTICES. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection 13 55 with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same. 22. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time amend or terminate the Plan, except that (a) such termination shall not affect Purchase Rights previously granted under the Plan, except as permitted under the Plan, and (b) no amendment may adversely affect a Purchase Right previously granted under the Plan (except to the extent permitted by the Plan or as may be necessary to qualify the Plan as an employee stock purchase plan pursuant to Section 423 of the Code or to obtain qualification or registration of the shares of Stock under applicable foreign, federal or state securities laws). In addition, an amendment to the Plan must be approved by the shareholders of the Company within twelve (12) months of the adoption of such amendment if such amendment would authorize the sale of more shares than are authorized for issuance under the Plan or would change the definition of the corporations that may be designated by the Board as Participating Companies. IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing MLC Holdings, Inc. 1997 Employee Stock Purchase Plan was duly adopted by the Board of Directors of the Company on May 14, 1997, and the Shareholders of the Company on __________, 1997. /s/ --------------------------------- Secretary 14 56 EXHIBIT C MLC HOLDINGS,PROXY CARD] ePLUS INC. PROXY ANNUAL MEETINGS OF STOCKHOLDERS OF MLC HOLDINGS,ePLUS INC. ON SEPTEMBER 30, 199720, 2000 THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Phillip G. Norton, Bruce M. Bowen, C. Thomas Faulders, III, Terrence O'Donnell, Dr. Paul G. Stern, and Carl J. Rickersten,Rickertsen, and each or any of them, proxies, with power of substitution, to vote all shares of the undersigned at the Annual Meetingannual meeting of Stockholdersstockholders of MLC Holdings, Inc.ePLUS INC., a Delaware corporation (the "Company"), to be held on September 30, 199720, 2000 at 10:0030 a.m. at The Four Seasons Hotel, 2800 Pennsylvania Avenue, N.W., Washington, DC 20007,Hyatt Regency Reston, 1800 Presidents Street, Reston, VA 20191, or at any adjournment thereof, upon the matters set forth in the Proxy Statement for such meeting, and in their discretion, upon such other business as may properly come before the meeting. 1. TO ELECT ONETWO CLASS I DIRECTORDIRECTORS TO SERVE FOR THREE YEARS AND UNTIL HIS SUCCESSOR HASTHEIR SUCCESSORS HAVE BEEN DULY ELECTED AND SHALL QUALIFY. TO VOTE FOR BOTH THE NOMINEES LISTED BELOW [ ]FOR BOTH THE NOMINEENOMINEES LISTED BELOW [ ]WITHHOLD AUTHORITY to vote for the nominee listed below Jonathan J. LedeckyC. Thomas Faulders III. Dr. Paul G. Stern OR TO VOTE FOR EACH NOMINEE SEPARATELY C. Thomas Faulders III [ ]FOR [ ]WITHHOLD AUTHORITY Dr. Paul G. Stern [ ]FOR [ ]WITHHOLD AUTHORITY 2. TO APPROVE AND ADOPT AN AMENDMENT TO THE EPLUS' CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF OUR AUTHORIZED STOCK OF THE COMPANY FROM 1227 MILLION SHARES (10(CONSISTING OF 25 MILLION SHARES OF COMMON STOCK, PAR VALUE $0.01, AND 2 MILLION PREFERRED SHARES) T0 27TO 52 MILLION SHARES (25(CONSISTING OF 50 MILLION SHARES OF COMMON STOCK, PAR VALUE $0.01, AND 2 MILLION PREFERRED SHARES). [ ]FOR [ ]AGAINST [ ]ABSTAIN 3. TO APPROVE ADOPTION OF AMENDMENTS TO THE MLC HOLDINGS, INC., MASTER STOCK INCENTIVE PLAN (FORMERLY THE 1996 STOCK INCENTIVE PLAN). [ ]FOR [ ]AGAINST [ ]ABSTAIN 57 4. TO APPROVE ADOPTION OF THE MLC HOLDINGS, INC. 1997 EMPLOYEE STOCK PURCHASE PLAN (A COMPONENT PLAN OF THE MASTER STOCK INCENTIVE PLAN). [ ]FOR [ ]AGAINST [ ]ABSTAIN 5. TO APPROVE ADOPTION OF AMENDMENTS TO THE MLC HOLDINGS, INC., AMENDED AND RESTATED OUTSIDE DIRECTOR STOCK OPTION PLAN (FORMERLY THE 1996 OUTSIDE DIRECTOR STOCK OPTION PLAN). [ ]FOR [ ]AGAINST [ ]ABSTAIN 6. TO APPROVE ADOPTION OF AMENDMENTS TO THE MLC HOLDINGS, INC., AMENDED AND RESTATED INCENTIVE STOCK OPTION PLAN (FORMERLY THE 1996 INCENTIVE STOCK OPTION PLAN). [ ]FOR [ ]AGAINST [ ]ABSTAIN 7. TO APPROVE ADOPTION OF AMENDMENTS TO THE MLC HOLDINGS, INC., AMENDED AND RESTATED NONQUALIFIED STOCK OPTION PLAN (FORMERLY THE 1996 NONQUALIFIED STOCK OPTION PLAN). [ ]FOR [ ]AGAINST [ ]ABSTAIN 8. TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'SePLUS' INDEPENDENT AUDITORS FOR THE COMPANY'SePLUS' FISCAL YEAR ENDING MARCH 31, 1998.2001. [ ]FOR [ ]AGAINST [ ]ABSTAIN Dated: , 1997 -------------------- ------------------------------ Signature 58 -----------------------------------2000 Signature: Signature if held jointlyjointly: NOTE: When shares are held by joint tenants, both should sign. Persons signing as Executor, Administrator, Trustee, etc. should so indicate. Please sign exactly as the name appears on the proxy. THE SHARES REPRESENTED BY ALL PROXIES RECEIVED WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED ON SUCH PROXIES. THE SHARES REPRESENTED BY A PROXY WILL BE VOTED IN FAVOR OF A PROPOSAL IF NO CONTRARY SPECIFICATION IS MADE. ALL VALID PROXIES OBTAINED WILL BE VOTED AT THE DISCRETION OF THE BOARD OF DIRECTORS WITH RESPECT TO ANY OTHER BUSINESS THAT MAY COME BEFORE THE ANNUAL MEETING. PLEASE MARK, SIGN AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.