UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2017

OR

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____ to ____ .

Commission file number:   1-34167

e Plus inc.

(Exact name of registrant as specified in its charter)

Delaware
 
54-1817218
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

13595 Dulles Technology Drive, Herndon, VA 20171-3413
(Address, including zip code, of principal executive offices)

Registrant’s telephone number, including area code: (703) 984-8400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐(do not check if smaller reporting company)
 
Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐   No ☒
 
The number of shares of common stock outstanding as of January 31, 2018 was 13,948,590.
 
TABLE OF CONTENTS

e Plus inc. AND SUBSIDIARIES

Part I. Financial Information:
 
     
Item 1.
 
     
 
5
     
 
6
     
 
7
     
 
8
     
 
10
     
 
11
     
Item 2.
26
     
Item 3.
41
     
Item 4.
42
     
Part II. Other Information:
 
     
Item 1.
43
     
Item 1A.
43
     
Item 2.
44
     
Item 3.
45
     
Item 4.
45
     
Item 5.
45
     
Item 6.
45
     
46
 
2
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or “Exchange Act,” and are made in reliance upon the protections provided by such acts for forward-looking statements. Such statements are not based on historical fact, but are based upon numerous assumptions about future conditions that may not occur. Forward-looking statements are generally identifiable by use of forward-looking words such as “may,” “should,” “would,” “intend,” “estimate,” “will,” “potential,” “possible,” “could,” “believe,” “expect,” “intend,” “plan,” “anticipate,” “project,” and similar expressions. Readers are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf. Forward-looking statements are made based upon information that is currently available or management’s current expectations and beliefs concerning future developments and their potential effects upon us, speak only as of the date hereof, and are subject to certain risks and uncertainties. We do not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or of which we hereafter become aware. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Our ability to consummate such transactions and achieve such events or results is subject to certain risks and uncertainties. Such risks and uncertainties include, but are not limited to, the matters set forth below:

·
national and international political instability fostering uncertainty and volatility in the global economy including exposure to fluctuation in foreign currency rates, and downward pressure on prices;
·
significant adverse changes in, reductions in, or loss of our largest volume customer or one or more of our large volume customers, or vendors;
·
exposure to changes in, interpretations of, or enforcement trends in legislation and regulatory matters;
·
the creditworthiness of our customers and our ability to reserve adequately for credit losses;
·
reduction of vendor incentives provided to us;
·
we offer a comprehensive set of solutions — integrating information technology (IT) product sales, third-party software assurance and maintenance, our advanced professional and managed services, our proprietary software, and financing, and encounter the following challenges, risks, difficulties and uncertainties:
o
managing a diverse product set of solutions in highly competitive markets with a number of key vendors;
o
increasing the total number of customers utilizing integrated solutions by up-selling within our customer base and gaining new customers;
o
adapting to meet changes in markets and competitive developments;
o
maintaining and increasing advanced professional services by retaining highly skilled, competent, personnel and vendor certifications;
o
increasing the total number of customers who utilize our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace;
o
performing professional and managed services competently;
o
maintaining our proprietary software and updating our technology infrastructure to remain competitive in the marketplace; and
o
reliance on third parties to perform some of our service obligations to our customers;
·
changes in the IT industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service and software as a service;
·
our dependency on continued innovations in hardware, software, and services offerings by our vendors and our ability to partner with them;
·
future growth rates in our core businesses;
·
failure to comply with public sector contracts or applicable laws;
·
changes to or loss of members of our senior management team and/or failure to successfully implement succession plans;
·
our dependence on key personnel to maintain certain customer relationships, and our ability to hire, train, and retain sufficient qualified personnel;
·
our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration and other key strategies;
·
a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us;
·
our contracts may not be adequate to protect us, and we are subject to audit in which we may not pass, and our professional and liability insurance policies coverage may be insufficient to cover a claim;
·
disruptions or a security breach in our IT systems and data and audio communication networks;
 
3
·
our ability to secure our customers’ electronic and other confidential information, and remain secure during a cyber-security attack;
·
our ability to raise capital, maintain or increase as needed our lines of credit with vendors or floor planning facility, or obtain debt for our financing transactions or the effect of those changes on our common stock or its holders;
·
our ability to realize our investment in leased equipment;
·
our ability to successfully perform due diligence and integrate acquired businesses;
·
the possibility of goodwill impairment charges in the future;
·
our ability to protect our intellectual property rights and successfully defend any challenges to the validity of our patents or allegations that we are infringing upon any third party patents, and the costs associated with those actions, and, when appropriate, license required technology; and
·
significant changes in accounting standards including changes to the financial reporting of leases which could impact the demand for our leasing services, or misclassification of products and services we sell resulting in the misapplication of revenue recognition policies or inaccurate costs and completion dates for our services which could affect our estimates.

We cannot be certain that our business strategy will be successful or that we will successfully address these and other challenges, risks and uncertainties. For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see Item 1A, “Risk Factors” and Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in this report, as well as other reports that we file with the Securities and Exchange Commission (“SEC”).
 
4
PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

e Plus inc. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 
 
 
As of
December 31, 2017
   
As of
March 31, 2017
 
ASSETS
 
(in thousands, except per share data)
 
             
Current assets:
           
Cash and cash equivalents
 
$
76,105
   
$
109,760
 
Accounts receivable—trade, net
   
285,820
     
266,029
 
Accounts receivable—other, net
   
30,690
     
24,987
 
Inventories
   
51,295
     
93,557
 
Financing receivables—net, current
   
74,598
     
51,656
 
Deferred costs
   
24,740
     
7,971
 
Other current assets
   
25,970
     
43,364
 
Total current assets
   
569,218
     
597,324
 
 
               
Financing receivables and operating leases—net
   
72,575
     
71,883
 
Deferred tax assets—net
   
1,268
     
-
 
Property, equipment and other assets
   
17,632
     
11,956
 
Goodwill
   
76,546
     
48,397
 
Other intangible assets—net
   
27,414
     
12,160
 
TOTAL ASSETS
 
$
764,653
   
$
741,720
 
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
LIABILITIES
               
                 
Current liabilities:
               
Accounts payable
 
$
125,850
   
$
113,518
 
Accounts payable—floor plan
   
107,761
     
132,612
 
Salaries and commissions payable
   
20,568
     
18,878
 
Deferred revenue
   
50,739
     
65,312
 
Recourse notes payable—current
   
-
     
908
 
Non-recourse notes payable—current
   
27,649
     
26,085
 
Other current liabilities
   
26,116
     
19,179
 
Total current liabilities
   
358,683
     
376,492
 
 
               
Non-recourse notes payable—long term
   
3,840
     
10,431
 
Deferred tax liability—net
   
-
     
1,799
 
Other liabilities
   
18,518
     
7,080
 
TOTAL LIABILITIES
   
381,041
     
395,802
 
                 
COMMITMENTS AND CONTINGENCIES  (Note 8)
               
                 
STOCKHOLDERS' EQUITY
               
                 
Preferred stock, $.01 per share par value; 2,000 shares authorized; none outstanding
   
-
     
-
 
Common stock, $.01 per share par value; 25,000 shares authorized; 14,046 outstanding at December 31, 2017 and 14,161 outstanding at March 31, 2017
   
142
     
142
 
Additional paid-in capital
   
128,392
     
123,536
 
Treasury stock, at cost
   
(14,165
)
   
-
 
Retained earnings
   
269,048
     
222,823
 
Accumulated other comprehensive income—foreign currency translation adjustment
   
195
     
(583
)
Total Stockholders' Equity
   
383,612
     
345,918
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
764,653
   
$
741,720
 

See Notes to Unaudited Condensed Consolidated Financial Statements.
 
e Plus inc. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2017
   
2016
   
2017
   
2016
 
                         
   
(in thousands, except per share data)
 
                         
Net sales
 
$
342,569
   
$
326,657
   
$
1,080,571
   
$
996,622
 
Cost of sales
   
265,881
     
252,871
     
838,719
     
773,239
 
Gross profit
   
76,688
     
73,786
     
241,852
     
223,383
 
                                 
Selling, general, and administrative expenses
   
57,134
     
50,160
     
168,138
     
149,821
 
Depreciation and amortization
   
2,894
     
1,910
     
7,086
     
5,408
 
Interest and financing costs
   
270
     
409
     
903
     
1,158
 
Operating expenses
   
60,298
     
52,479
     
176,127
     
156,387
 
                                 
Operating income
   
16,390
     
21,307
     
65,725
     
66,996
 
                                 
Other income (expense)
   
(131
)
   
-
     
(1
)
   
380
 
                                 
Earnings before tax
   
16,259
     
21,307
     
65,724
     
67,376
 
                                 
Provision for income taxes
   
678
     
8,687
     
19,499
     
27,310
 
                                 
Net earnings
 
$
15,581
   
$
12,620
   
$
46,225
   
$
40,066
 
                                 
Net earnings per common share—basic
 
$
1.12
   
$
0.92
   
$
3.34
   
$
2.88
 
Net earnings per common share—diluted
 
$
1.11
   
$
0.91
   
$
3.30
   
$
2.86
 
                                 
Weighted average common shares outstanding—basic
   
13,851
     
13,791
     
13,845
     
13,891
 
Weighted average common shares outstanding—diluted
   
13,990
     
13,920
     
14,022
     
14,026
 

See Notes to Unaudited Condensed Consolidated Financial Statements.
 
e Plus inc. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2017
   
2016
   
2017
   
2016
 
   
(amounts in thousands)
 
                         
NET EARNINGS
 
$
15,581
   
$
12,620
   
$
46,225
   
$
40,066
 
                                 
OTHER COMPREHENSIVE INCOME, NET OF TAX:
                               
                                 
Foreign currency translation adjustments
   
75
     
(145
)
   
778
     
(240
)
                                 
Other comprehensive income (loss)
   
75
     
(145
)
   
778
     
(240
)
                                 
TOTAL COMPREHENSIVE INCOME
 
$
15,656
   
$
12,475
   
$
47,003
   
$
39,826
 

See Notes to Unaudited Condensed Consolidated Financial Statements.
 
e Plus inc. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Nine Months Ended December 31,
 
   
2017
   
2016
 
   
(in thousands)
 
Cash Flows From Operating Activities:
           
Net earnings
 
$
46,225
   
$
40,066
 
                 
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
               
Depreciation and amortization
   
11,324
     
8,758
 
Reserve for credit losses, inventory obsolescence and sales returns
   
286
     
926
 
Share-based compensation expense
   
4,856
     
4,520
 
Deferred taxes
   
(3,058
)
   
-
 
Payments from lessees directly to lenders — operating leases
   
(1,325
)
   
(1,831
)
Gain on disposal of property, equipment and operating lease equipment
   
(7,555
)
   
(3,742
)
Gain on sale of financing receivables
   
(4,625
)
   
(3,968
)
Other
   
1
     
316
 
Changes in:
               
Accounts receivable—trade
   
(8,295
)
   
(57,732
)
Accounts receivable—other
   
(1,976
)
   
(4,232
)
Inventories
   
43,332
     
(77,422
)
Financing receivables—net
   
(13,045
)
   
17,797
 
Deferred costs, other intangible assets and other assets
   
(26,188
)
   
1,838
 
Accounts payable
   
18,406
     
53,208
 
Salaries and commissions payable, deferred revenue and other liabilities
   
(9,539
)
   
51,200
 
Net cash provided by operating activities
 
$
48,824
   
$
29,702
 
                 
Cash Flows From Investing Activities:
               
Proceeds from sale of property, equipment and operating lease equipment
   
9,967
     
6,380
 
Purchases of property, equipment, software, and operating lease equipment
   
(6,298
)
   
(7,300
)
Purchases of assets to be leased or financed
   
(5,716
)
   
(5,897
)
Issuance of financing receivables
   
(138,160
)
   
(114,671
)
Repayments of financing receivables
   
59,029
     
44,091
 
Proceeds from sale of financing receivables
   
64,103
     
39,857
 
Cash used in acquisitions, net of cash acquired
   
(37,718
)
   
(9,500
)
Net cash used in investing activities
 
$
(54,793
)
 
$
(47,040
)
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

   
Nine Months Ended December 31,
 
   
2017
   
2016
 
   
(in thousands)
 
Cash Flows From Financing Activities:
           
Borrowings of non-recourse and recourse notes payable
 
$
39,365
   
$
34,020
 
Repayments of non-recourse and recourse notes payable
   
(27,269
)
   
(5,412
)
Repurchase of common stock
   
(13,399
)
   
(30,493
)
Payment of contingent consideration
   
-
     
(718
)
Repayments of financing of acquisitions
   
(1,604
)
   
-
 
Net borrowings (repayments) on floor plan facility
   
(24,851
)
   
(5,602
)
Net cash used in financing activities
   
(27,758
)
   
(8,205
)
                 
Effect of exchange rate changes on cash
   
72
     
454
 
                 
Net Decrease in Cash and Cash Equivalents
   
(33,655
)
   
(25,089
)
                 
Cash and Cash Equivalents, Beginning of Period
   
109,760
     
94,766
 
                 
Cash and Cash Equivalents, End of Period
 
$
76,105
   
$
69,677
 
                 
Supplemental Disclosures of Cash Flow Information:
               
Cash paid for interest
 
$
421
   
$
38
 
Cash paid for income taxes
 
$
29,987
   
$
23,381
 
                 
Schedule of Non-Cash Investing and Financing Activities:
               
Proceeds from sale of property, equipment, and operating lease equipment
 
$
3,463
   
$
429
 
Purchases of property, equipment, software, and operating lease equipment
 
$
(751
)   
$
(2,442
)
Purchase of assets to be leased or financed
 
$
(7,225
)
 
$
(12,700
)
Issuance of financing receivables
 
$
(74,907
)
 
$
(110,120
)
Repayment of financing receivables
 
$
9,572
   
$
16,454
 
Proceeds from sale of financing receivables
 
$
83,954
   
$
104,430
 
Financing of acquisitions
 
$
(12,050
)
 
$
-
 
Borrowing of non-recourse and recourse notes payable
 
$
8,904
   
$
33,651
 
Repayments of non-recourse and recourse notes payable
 
$
(14,465
)
 
$
(20,438
)
Vesting of share-based compensation
 
$
12,010
   
$
7,982
 
Repurchase of common stock included in accounts payable
 
$
(766
)
 
$
-
 

See Notes to Unaudited Condensed Consolidated Financial Statements.
 
e Plus inc. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

   
Common Stock
   
Additional
Paid-In
   
Treasury
   
Retained
   
Accumulated
Other
Comprehensive
       
   
Shares
   
Par Value
   
Capital
   
Stock
   
Earnings
   
Income
   
Total
 
                                           
Balance, April 1, 2017
   
14,161
   
$
142
   
$
123,536
   
$
-
   
$
222,823
   
$
(583
)
 
$
345,918
 
Issuance of restricted stock awards
   
68
     
-
     
-
     
-
     
-
     
-
     
-
 
Share-based compensation
   
-
     
-
     
4,856
     
-
     
-
     
-
     
4,856
 
Repurchase of common stock
   
(183
)
   
-
     
-
     
(14,165
)
   
-
     
-
     
(14,165
)
Net earnings
   
-
     
-
     
-
     
-
     
46,225
     
-
     
46,225
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
778
     
778
 
                                                         
Balance, December 31, 2017
   
14,046
   
$
142
   
$
128,392
   
$
(14,165
)
 
$
269,048
   
$
195
   
$
383,612
 

See Notes to Unaudited Condensed Consolidated Financial Statements.
 
e Plus inc. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS — Our company was founded in 1990 and is a Delaware corporation. e Plus inc. is sometimes referred to in this Quarterly Report on Form 10-Q as "we," "our," "us," "ourselves," or " e Plus." e Plus inc. is a holding company that through its subsidiaries provides information technology solutions which enable organizations to optimize their IT environment and supply chain processes. We also provide consulting, professional and managed services and complete lifecycle management services including flexible financing solutions. We focus on middle market and large enterprises in North America and the United Kingdom.

BASIS OF PRESENTATION — The unaudited condensed consolidated financial statements include the accounts of e Plus inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accounts of businesses acquired are included in the unaudited condensed consolidated financial statements from the dates of acquisition.

INTERIM FINANCIAL STATEMENTS — The unaudited condensed consolidated financial statements for the three and nine months ended December 31, 2017 and 2016 were prepared by us, without audit, and include all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income and cash flows for such periods. Operating results for the three and nine months ended December 31, 2017 and 2016 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending March 31, 2018 or any other future period. These unaudited condensed consolidated financial statements do not include all disclosures required by the accounting principles generally accepted in the United States (“U.S. GAAP”) for annual financial statements. Our audited consolidated financial statements are contained in our annual report on Form 10-K for the year ended March 31, 2017 (“2017 Annual Report”), which should be read in conjunction with these interim condensed consolidated financial statements.

USE OF ESTIMATES — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Estimates are used when accounting for items and matters including, but not limited to, revenue recognition, residual values, vendor consideration, lease classification, goodwill and intangible assets, reserves for credit losses, inventory obsolescence, and the recognition and measurement of income tax assets and other provisions and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

The notes to the consolidated financial statements contained in the 2017 Annual Report include additional discussion of the significant accounting policies and estimates used in the preparation of our consolidated financial statements. There have been no material changes to our significant accounting policies and estimates during the nine months ended December 31, 2017.

STOCK SPLIT — On March 31, 2017, we completed a two-for-one stock split in the form of a stock dividend. References made to outstanding shares or per share amounts in the accompanying financial statements and disclosures have been retroactively adjusted for this stock split. The number of authorized shares reflected on the consolidated balance sheets was not affected by the stock split.

CONCENTRATIONS OF RISK — A substantial portion of our sales of product and services are from sales of Cisco Systems, Hewlett Packard Enterprise (“HPE”) and HP, Inc. (collectively “Hewlett Packard companies”), and NetApp products, which represented approximately 39%, 5% and 7%, and 45%, 7%, and 5%, respectively, for the three and nine months ended December 31, 2017. Sales of Cisco Systems, Hewlett Packard companies, and NetApp represented approximately 45%, 6% and 6%, and 49%, 6% and 5%, respectively, for the three and nine months ended December 31, 2016. Any changes in our vendors’ ability to provide products or incentive programs could have a material adverse effect on our business, results of operations and financial condition.
 
2.
RECENT ACCOUNTING PRONOUNCEMENTS

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED — In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which, along with amendments issued in 2015 and 2016, will replace most existing revenue recognition guidance under GAAP and eliminate industry specific guidance. The core principle of the new guidance is that an entity should recognize revenue for the transfer of goods and services equal to an amount it expects to be entitled to receive for those goods and services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , to defer the effective date of ASU 2014-09 by one year. Including the one-year deferral, these updates become effective for us in our quarter ending June 30, 2018. The new guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method).

We have established a cross-functional implementation team and utilized a bottom-up approach to analyze the impact of the standard on our arrangements by reviewing the current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to our revenue contracts. Based on our analysis to date, we have reached the following tentative conclusions regarding the new standard and how we expect it to affect our consolidated financial statements and related disclosures:

·
We will adopt the guidance in our quarter ending June 30, 2018. We currently prefer to adopt the standard using the full retrospective method; however, our ability to do so is dependent on many factors, including the completion of our analysis of information necessary to recast prior period financial statements. Based on these and other factors, we may decide to use the modified retrospective method.
·
Substantially all of our revenue within our technology segment is contractual and is within the scope of ASU No. 2014-09, as amended. The majority of our revenues within our financing segment are scoped out of this update.
·
The majority of our revenues within our technology segment are derived from sales of third-party products, third-party software, third-party services, such as maintenance and software assurance, and sales of e Plus professional and managed services.
o
We recognize revenue on sales of third party product and third-party software on a gross basis upon delivery and we are still assessing whether we are acting as a principal or an agent in these transactions under the update.
o
We recognize sales of third party maintenance and software assurance on a net basis at the date of sale and sales of e Plus professional and managed services on a gross basis as the services are performed. We do not anticipate a material impact to our revenue recognition for these transactions under the update.
·
We expect that our disclosures in our notes to our consolidated financial statements related to revenue recognition will be significantly expanded under the new standard.

Our analysis and evaluation of the new standard will continue through its effective date in our quarter ending June 30, 2018. A substantial amount of work remains to be completed due to the complexity of the new standard, the application of judgment and the requirement for the use of estimates in applying the new standard, as well as the volume of our customer portfolio and the related terms and conditions of our contracts that must be reviewed.

In November 2016, the FASB issued ASU 2016-02, Leases , which will supersede the current U.S. GAAP on this topic. The core principle of this update is that a lessee should recognize the assets and liabilities that arise from leases. This update requires adoption under the modified retrospective approach and becomes effective for us in our quarter ending June 30, 2019. Early adoption is permitted. We are currently evaluating the impact of this update on our financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . The amendments in this update replace the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This update requires adoption under a modified retrospective approach and becomes effective for us in our quarter ending June 30, 2020. Early adoption is permitted beginning in our quarter ending June 30, 2019. We are currently evaluating the impact of this update on our financial statements.
 
3.
FINANCING RECEIVABLES AND OPERATING LEASES

Our financing receivables and operating leases consist of assets that we finance for our customers, which we manage as a portfolio of investments. Equipment financed for our customers is accounted for as investments in direct financing, sales-type or operating leases in accordance with Accounting Standards Codification (“ASC”) Topic 840, Leases . We also finance third-party software, maintenance, and services for our customers, which are classified as notes receivables. Our notes receivables are interest bearing and are often due over a period of time that corresponds with the terms of the leased products.

FINANCING RECEIVABLES—NET

Our financing receivables, net consist of the following (in thousands):

 
December 31, 2017
 
Notes
Receivables
   
Lease-Related
Receivables
   
Total Financing
Receivables
 
Minimum payments
 
$
59,444
   
$
73,022
   
$
132,466
 
Estimated unguaranteed residual value (1)
   
-
     
13,358
     
13,358
 
Initial direct costs, net of amortization (2)
   
369
     
321
     
690
 
Unearned income
   
-
     
(6,034
)
   
(6,034
)
Reserve for credit losses (3)
   
(451
)
   
(621
)
   
(1,072
)
Total, net
 
$
59,362
   
$
80,046
   
$
139,408
 
Reported as:
                       
Current
 
$
33,109
   
$
41,489
   
$
74,598
 
Long-term
   
26,253
     
38,557
     
64,810
 
Total, net
 
$
59,362
   
$
80,046
   
$
139,408
 

(1)
Includes estimated unguaranteed residual values of $7,753 thousand for direct financing leases, which have been sold and accounted for as sales.
(2)
Initial direct costs are shown net of amortization of $334 thousand.
(3)
For details on reserve for credit losses, refer to Note 5, “ Reserves for Credit Losses .”

 
March 31, 2017
 
Notes
Receivables
   
Lease-Related
Receivables
   
Total Financing
Receivables
 
Minimum payments
 
$
48,524
   
$
57,872
   
$
106,396
 
Estimated unguaranteed residual value (1)
   
-
     
18,273
     
18,273
 
Initial direct costs, net of amortization (2)
   
279
     
341
     
620
 
Unearned income
   
-
     
(5,913
)
   
(5,913
)
Reserve for credit losses (3)
   
(3,434
)
   
(679
)
   
(4,113
)
Total, net
 
$
45,369
   
$
69,894
   
$
115,263
 
Reported as:
                       
Current
 
$
23,780
   
$
27,876
   
$
51,656
 
Long-term
   
21,589
     
42,018
     
63,607
 
Total, net
 
$
45,369
   
$
69,894
   
$
115,263
 
 
(1)
Includes estimated unguaranteed residual values of $12,677 thousand for direct financing leases which have been sold and accounted for as sales.
(2)
Initial direct costs are shown net of amortization of $510 thousand.
(3)
For details on reserve for credit losses, refer to Note 5, “ Reserves for Credit Losses .”
 
OPERATING LEASES—NET

Operating leases—net represents leases that do not qualify as direct financing leases. The components of the operating leases—net are as follows (in thousands):

   
December 31,
2017
   
March 31,
2017
 
Cost of equipment under operating leases
 
$
16,804
   
$
16,725
 
Accumulated depreciation
   
(9,039
)
   
(8,449
)
Investment in operating lease equipment—net (1)
 
$
7,765
   
$
8,276
 

(1)
These totals include estimated unguaranteed residual values of $2,077 thousand and $1,117 thousand as of December 31, 2017 and March 31, 2017, respectively.

TRANSFERS OF FINANCIAL ASSETS

We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements, which are accounted for as sales or secured borrowings in accordance with ASC Topic 860, Transfers and Servicing . For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of December 31, 2017 and March 31, 2017, we had financing receivables of $37.2 million and $33.1 million, respectively, and operating leases of $5.9 million and $6.6 million, respectively, which were collateral for non-recourse notes payable. See Note 7, " Notes Payable and Credit Facility ."

For transfers accounted for as sales, we derecognize the carrying value of the asset transferred and recognize a net gain or loss on the sale, which are presented within net sales in the consolidated statement of operations. During the three months ended December 31, 2017 and 2016, we recognized net gains of $1.2 million and $0.9 million, respectively, and total proceeds from these sales were $32.8 million and $55.8 million, respectively. During the nine months ended December 31, 2017 and 2016, we recognized net gains of $4.6 million and $4.1 million, respectively, and total proceeds from these sales were $166.9 million and $185.4 million, respectively.

For certain assignments of financial assets, we retain a servicing obligation. For assignments accounted for as sales, we allocate a portion of the proceeds to deferred revenues, which is recognized as we perform the services. As of both December 31, 2017 and March 31, 2017, we had deferred revenue of $0.5 million for servicing. In a limited number of such sales, we indemnified the assignee in the event that the lessee elected to early terminate the lease. As of December 31, 2017, our maximum potential future payments related to such guarantees is $0.6 million. We believe the possibility of making any payments to be remote.

4.
GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL

The following table summarizes the changes in the carrying amount of goodwill for the nine months ended December 31, 2017 and 2016, (in thousands):

   
Nine Months Ended December 31, 2017
   
Nine Months Ended December 31, 2016
 
   
Goodwill
   
Accumulated
Amortization
/ Impairment
Loss
   
Net
Carrying
Amount
   
Goodwill
   
Accumulated
Amortization
/ Impairment
Loss
   
Net
Carrying
Amount
 
                                     
Balance as of March 31
 
$
57,070
   
$
(8,673
)
 
$
48,397
   
$
50,824
   
$
(8,673
)
 
$
42,151
 
Acquisitions
   
27,996
     
-
     
27,996
     
7,636
     
-
     
7,636
 
Foreign currency translations
   
153
     
-
     
153
     
(315
)
   
-
     
(315
)
Balance as of December 31
 
$
85,219
   
$
(8,673
)
 
$
76,546
   
$
58,145
   
$
(8,673
)
 
$
49,472
 

All of our goodwill as of December 31, 2017 and March 31, 2017 was assigned to our technology segment, which is also a single reporting unit. See Note 15, " Business Combinations " for additional information regarding our acquisitions.

We performed our annual test for goodwill impairment for fiscal year 2018 as of October 1, 2017. We performed a qualitative assessment of goodwill and concluded that the fair value of our technology reporting unit, more likely than not, exceeded its respective carrying value as of October 1, 2017.

We performed our annual test for goodwill impairment for fiscal year 2017 as of October 1, 2016. We elected to bypass the qualitative assessment of goodwill and estimate the fair value of our reporting units. The fair value of our technology reporting unit substantially exceeded its carrying value as of October 1, 2016. Our conclusions would not be impacted by a ten percent change in our estimate of the fair value of the reporting unit.

OTHER INTANGIBLE ASSETS

Our other intangible assets consist of the following at December 31, 2017 and March 31, 2017 (in thousands):
 
   
December 31, 2017
   
March 31, 2017
 
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Net
Carrying
Amount
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Net
Carrying
Amount
 
                                     
Customer relationships & other intangibles
 
$
41,777
   
$
(16,792
)
 
$
24,985
   
$
23,373
   
$
(12,553
)
 
$
10,820
 
Capitalized software development
   
4,908
     
(2,479
)
   
2,429
     
3,649
     
(2,310
)
   
1,339
 
Total
 
$
46,685
   
$
(19,271
)
 
$
27,414
   
$
27,022
   
$
(14,863
)
 
$
12,159
 

Customer relationships and capitalized software development costs are amortized over an estimated useful life, which is generally between 3 to 8 years. Trade names and trademarks are amortized over an estimated useful life of 10 years.

Customer relationships and other intangibles increased for the nine months ended December 31, 2017 due to business acquisitions by $18.4 million, of which $2.4 million is internally developed processes, $15.7 million is customer relationships, $0.2 million is due to foreign exchange translation, and $0.1 million in capitalized software development costs. Total amortization expense for other intangible assets was $1.9 million and $1.1 million for the three months and $4.2 million and $3.4 million for the nine months ended December 31, 2017 and 2016, respectively.

See Note 15, “ Business Combinations ” for additional information regarding acquired intangibles.

5.
RESERVES FOR CREDIT LOSSES

Activity in our reserves for credit losses for the nine months ended December 31, 2017 and 2016 were as follows (in thousands):

 
 
Accounts
Receivable
   
Notes
Receivable
   
Lease-Related
Receivables
   
Total
 
Balance April 1, 2017
 
$
1,279
   
$
3,434
   
$
679
   
$
5,392
 
Provision for credit losses
   
165
     
37
     
106
     
308
 
Write-offs and other
   
-
     
(3,020
)
   
(164
)
   
(3,184
)
Balance December 31, 2017
 
$
1,444
   
$
451
   
$
621
   
$
2,516
 

   
Accounts
Receivable
   
Notes
Receivable
   
Lease-Related
Receivables
   
Total
 
Balance April 1, 2016
 
$
1,127
   
$
3,381
   
$
685
   
$
5,193
 
Provision for credit losses
   
229
     
139
     
93
     
461
 
Write-offs and other
   
(32
)
   
(12
)
   
-
     
(44
)
Balance December 31, 2016
 
$
1,324
   
$
3,508
   
$
778
   
$
5,610
 
 
Our reserves for credit losses and minimum payments associated with our notes receivables and lease-related receivables disaggregated on the basis of our impairment method were as follows (in thousands):

   
December 31, 2017
   
March 31, 2017
 
   
Notes
Receivable
   
Lease-
Related
Receivables
   
Notes
Receivable
   
Lease-
Related
Receivables
 
Reserves for credit losses:
                       
Ending balance: collectively evaluated for impairment
 
$
389
   
$
621
   
$
348
   
$
556
 
Ending balance: individually evaluated for impairment
   
62
     
-
     
3,086
     
123
 
Ending balance
 
$
451
   
$
621
   
$
3,434
   
$
679
 
                                 
Minimum payments:
                               
Ending balance: collectively evaluated for impairment
 
$
59,382
   
$
73,022
   
$
45,438
   
$
57,730
 
Ending balance: individually evaluated for impairment
   
62
     
-
     
3,086
     
142
 
Ending balance
 
$
59,444
   
$
73,022
   
$
48,524
   
$
57,872
 

We place receivables on non-accrual status when events, such as a customer’s declaring bankruptcy, occur that indicate a receivable will not be collectable. We charge off uncollectable financing receivables when we stop pursuing collection. As of March 31, 2017 we had a balance outstanding as of $3.2 million for a customer in bankruptcy which was fully reserved and on a non-accrual status. We wrote off this balance against the reserve for credit losses during the nine months ended December 31, 2017, after the bankruptcy case was substantially complete.

The age of the recorded minimum lease payments and net credit exposure associated with our investment in direct financing and sales-type leases that are past due disaggregated based on our internally assigned credit quality rating (“CQR”) were as follows as of December 31, 2017 and March 31, 2017 (in thousands):

   
31-60
Days
Past
Due
   
61-90
Days
Past
Due
   
Greater
than 90
Days
Past
Due
   
Total
Past
 Due
   
Current
   
Unbilled
Minimum
Lease
Payments
   
Total
Minimum
Lease
Payments
   
Unearned
Income
   
Non-
Recourse
Notes
Payable
   
Net
Credit
Exposure
 
                                                             
December 31, 2017
                                                       
                                                             
High CQR
 
$
188
   
$
90
   
$
907
   
$
1,185
   
$
18,238
   
$
30,496
   
$
49,919
   
$
(3,027
)
 
$
(14,420
)
 
$
32,472
 
Average CQR
   
30
     
36
     
216
     
282
     
124
     
22,697
     
23,103
     
(1,385
)
   
(11,413
)
   
10,305
 
Low CQR
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Total
 
$
218
   
$
126
   
$
1,123
   
$
1,467
   
$
18,362
   
$
53,193
   
$
73,022
   
$
(4,412
)
 
$
(25,833
)
 
$
42,777
 
                                                                                 
March 31, 2017
                                                                         
                                                                                 
High CQR
 
$
379
   
$
224
   
$
230
   
$
833
   
$
406
   
$
32,532
   
$
33,771
   
$
(2,362
)
 
$
(12,924
)
 
$
18,485
 
Average CQR
   
113
     
20
     
113
     
246
     
91
     
23,622
     
23,959
     
(1,556
)
   
(13,353
)
   
9,050
 
Low CQR
   
-
     
-
     
142
     
142
     
-
     
-
     
142
     
(19
)
   
-
     
123
 
Total
 
$
492
   
$
244
   
$
485
   
$
1,221
   
$
497
   
$
56,154
   
$
57,872
   
$
(3,937
)
 
$
(26,277
)
 
$
27,658
 
 
The age of the recorded notes receivable balance disaggregated based on our internally assigned CQR were as follows as December 31, 2017 and March 31, 2017 (in thousands):

   
31-60
Days
Past
Due
   
61-90
Days
Past
Due
   
Greater
than 90
Days
Past Due
   
Total
Past
Due
   
Current
   
Unbilled
Notes
 Receivable
   
Total
Notes
Receivable
   
Non-
Recourse
Notes
Payable
   
Net
Credit
Exposure
 
                                                       
December 31, 2017
                                                     
                                                       
High CQR
 
$
4
   
$
-
   
$
833
   
$
837
   
$
2,071
   
$
35,001
   
$
37,909
   
$
(21,971
)
 
$
15,938
 
Average CQR
   
1,086
     
4
     
599
     
1,689
     
8
     
19,776
     
21,473
     
(15,555
)
   
5,918
 
Low CQR
   
-
     
-
     
62
     
62
     
-
     
-
     
62
     
-
     
62
 
Total
 
$
1,090
   
$
4
   
$
1,494
   
$
2,588
   
$
2,079
   
$
54,777
   
$
59,444
   
$
(37,526
)
 
$
21,918
 
                                                                         
March 31, 2017
                                                                 
                                                                         
High CQR
 
$
183
   
$
663
   
$
755
   
$
1,601
   
$
1,165
   
$
23,359
   
$
26,125
   
$
(12,003
)
 
$
14,122
 
Average CQR
   
28
     
5
     
-
     
33
     
555
     
18,725
     
19,313
     
(13,732
)
   
5,581
 
Low CQR
   
-
     
-
     
3,086
     
3,086
     
-
     
-
     
3,086
     
-
     
3,086
 
Total
 
$
211
   
$
668
   
$
3,841
   
$
4,720
   
$
1,720
   
$
42,084
   
$
48,524
   
$
(25,735
)
 
$
22,789
 

We estimate losses on our net credit exposure to be between 0% - 5% for customers with highest CQR, as these customers are investment grade or the equivalent of investment grade. We estimate losses on our net credit exposure to be between 2% - 15% for customers with average CQR, and between 15% - 100% for customers with low CQR, which includes customers in bankruptcy.

6.
PROPERTY, EQUIPMENT, OTHER ASSETS AND LIABILITIES

Our property, equipment, other assets and liabilities consist of the following (in thousands):

   
December 31,
2017
   
March 31,
2017
 
Other current assets:
           
Deposits & funds held in escrow
 
$
14,819
   
$
39,161
 
Prepaid assets
   
10,429
     
3,388
 
Other
   
722
     
815
 
Total other current assets
 
$
25,970
   
$
43,364
 
                 
Property, equipment and other assets
               
Property and equipment, net
 
$
8,013
   
$
6,690
 
Deferred costs
   
7,326
     
3,536
 
Other
   
2,293
     
1,730
 
Total other assets - long term
 
$
17,632
   
$
11,956
 

   
December 31,
2017
   
March 31,
2017
 
Other current liabilities:
           
Accrued expenses
 
$
7,907
   
$
7,450
 
Accrued income taxes payable
   
170
     
1,761
 
Contingent consideration
   
5,360
     
554
 
Other
   
12,679
     
9,414
 
Total other current liabilities
 
$
26,116
   
$
19,179
 
                 
Other liabilities:
               
Deferred revenue
 
$
10,064
   
$
4,704
 
Contingent consideration long-term
   
7,765
     
1,500
 
Other
   
689
     
876
 
Total other liabilities - long term
 
$
18,518
   
$
7,080
 
 
As of December 31, 2017 we had current and long-term contingent consideration liability balance of $5.4 and $7.8 million, respectively, of which $10.0 million relates to a recent acquisition. For details on the contingent consideration liability, refer to Note 15, “ Business Combinations .”

As of December 31, 2017 and March 31, 2017 we had customer deposits and funds held in escrow of $14.8 million and $39.2 million, respectively. These balances relate to financial assets that were sold to third-party banks. In conjunction with those sales, a portion of the proceeds were placed in escrow and will be released to us upon payment of outstanding invoices related to the underlying financing arrangements that were sold.

7.
NOTES PAYABLE AND CREDIT FACILITY

Non-recourse and recourse obligations consist of the following (in thousands):

   
December 31,
2017
   
March 31,
2017
 
Recourse notes payable with interest rates ranging from 3.20% to 4.13% as of March 31, 2017.
           
Current
 
$
-
   
$
908
 
                 
Non-recourse notes payable secured by financing receivables and investment in operating leases with interest rates ranging from  2.00% to 8.45% December 31, 2017, and ranging from 2.00% to 7.75% as of March 31, 2017.
               
Current
 
$
27,649
   
$
26,085
 
Long-term
   
3,840
     
10,431
 
Total non-recourse notes payable
 
$
31,489
   
$
36,516
 

Principal and interest payments on non-recourse notes payable are generally due monthly in amounts that are approximately equal to the total payments due from the customer under the leases or notes receivable that collateralize the notes payable. The weighted average interest rate for our non-recourse notes payable was 3.73%, as of both December 31, 2017 and March 31, 2017. The weighted average interest rate for our recourse notes payable was 3 .45%, as of March 31, 2017. Under recourse financing, in the event of a default by a customer, the lender has recourse to the customer, the assets serving as collateral, and us. Under non-recourse financing, in the event of a default by a customer, the lender generally only has recourse against the customer, and the assets serving as collateral, but not against us.

Our technology segment, through our subsidiary e Plus Technology, inc., finances its operations with funds generated from operations, and with a credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”). This facility provides short-term capital for our technology segment. There are two components of the WFCDF credit facility: (1) a floor plan component, and (2) an accounts receivable component. Under the floor plan component, we had outstanding balances of $107.8 million and $132.6 million as of December 31, 2017 and March 31, 2017, respectively. Under the accounts receivable component, we had no outstanding balances as of December 31, 2017 and March 31, 2017.

On July 27, 2017, we executed an amendment to the WFCDF credit facility which temporarily increases the aggregate limit of the two components from $250.0 million to $325.0 million from the date of the agreement through October 31, 2017, and provides us an election beginning July 1 in each subsequent year to similarly temporarily increase the aggregate limit of the two components to $325.0 million ending the earlier of 90 days following the date of election or October 31 of that same year.

As of December 31, 2017, the facility agreement had an aggregate limit of the two components of $250 million, and the accounts receivable component had a sub-limit of $30 million, which bears interest assessed at a rate of the One Month LIBOR plus two and one half percent.
 
The credit facility has full recourse to e Plus Technology, inc. and is secured by a blanket lien against all its assets, such as receivables and inventory. Availability under the facility may be limited by the asset value of equipment we purchase or accounts receivable, and may be further limited by certain covenants and terms and conditions of the facility. These covenants include but are not limited to a minimum excess availability of the facility and minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”) of e Plus Technology, inc. We were in compliance with these covenants as of December 31, 2017. In addition, the facility restricts the ability of e Plus Technology, inc. to transfer funds to its affiliates in the form of dividends, loans or advances with certain exceptions for dividends to e Plus inc. The facility also requires that financial statements of e Plus Technology, inc. be provided within 45 days of each quarter and 90 days of each fiscal year end and also includes that other operational reports be provided on a regular basis. Either party may terminate with 90 days’ advance notice. We are not, and do not believe that we are reasonably likely to be, in breach of the WFCDF credit facility. In addition, we do not believe that the covenants of the WFCDF credit facility materially limit our ability to undertake financing. In this regard, the covenants apply only to our subsidiary, e Plus Technology, inc. This credit facility is secured by the assets of only e Plus Technology, inc. and the guaranty as described below.

The facility provided by WFCDF requires a guaranty of $10.5 million by e Plus inc. The guaranty requires e Plus inc. to deliver its annual audited financial statements by certain dates. We have delivered the annual audited financial statements for the year ended March 31, 2017, as required. The loss of the WFCDF credit facility could have a material adverse effect on our future results as we currently rely on this facility and its components for daily working capital and liquidity for our technology segment and as an operational function of our accounts payable process.

Fair Value

As of December 31, 2017 and March 31, 2017, the fair value of our long-term recourse and non-recourse notes payable approximated their carrying value.

8.
COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, we may be subject to legal proceedings that arise in the ordinary course of business. In the opinion of management, there was not at least a reasonable possibility that the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for asserted legal and other claims. However, the outcome of legal proceedings and claims brought against us is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

9.
EARNINGS PER SHARE

Basic earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is calculated by dividing net earnings available to common shareholders by the basic weighted average number of shares of common stock outstanding plus common stock equivalents during each period.
 
The following table provides a reconciliation of the numerators and denominators used to calculate basic and diluted net income per common share as disclosed on our consolidated statements of operations for the three and nine months ended December 31, 2017 and 2016 (in thousands, except per share data).

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2017
   
2016
   
2017
   
2016
 
                         
Net earnings attributable to common shareholders - basic and diluted
 
$
15,581
   
$
12,620
   
$
46,225
   
$
40,066
 
                                 
Basic and diluted common shares outstanding:
                               
Weighted average common shares outstanding — basic
   
13,851
     
13,791
     
13,845
     
13,891
 
Effect of dilutive shares
   
139
     
129
     
177
     
135
 
Weighted average shares common outstanding — diluted
   
13,990
     
13,920
     
14,022
     
14,026
 
                                 
Earnings per common share - basic
 
$
1.12
   
$
0.92
   
$
3.34
   
$
2.88
 
                                 
Earnings per common share - diluted
 
$
1.11
   
$
0.91
   
$
3.30
   
$
2.86
 

10.
STOCKHOLDERS’ EQUITY

Share Repurchase Plan

On August 15, 2017, our board of directors authorized the repurchase up to 500,000 shares of our outstanding common stock over a 12-month period beginning on August 19, 2017 through August 18, 2018. The plan authorized purchases to be made from time to time in the open market, or in privately negotiated transactions, subject to availability. Any repurchased shares will have the status of treasury shares and may be used, when needed, for general corporate purposes. The former repurchase plan expired on August 18, 2017.

During the nine months ended December 31, 2017, we purchased 125,605 shares of our outstanding common stock at an average cost of $77.88 per share for a total purchase price of $9.8 million under the share repurchase plan. We also acquired 57,725 shares of common stock at a value of $4.4 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

During the nine months ended December 31, 2016, we purchased 656,962 shares of our outstanding common stock at an average cost of $40.81 per share for a total purchase price of $26.8 million under the share repurchase plan. We also purchased 59,472 shares of common stock at a value of $2.6 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

11.
SHARE-BASED COMPENSATION

Share-Based Plans

As of December 31, 2017, we had share-based awards outstanding under the following   plans: (1) the 2008 Non-Employee Director Long-Term Incentive Plan (“2008 Director LTIP”), (2) the 2017 Non-Employee Director Long-Term Incentive Plan (“2017 Director LTIP”) and (3) the 2012 Employee Long-Term Incentive Plan ("2012 Employee LTIP"). The share-based plans define fair market value as the previous trading day's closing price when the grant date falls on a date the stock was not traded.
 
Restricted Stock Activity

For the nine months ended December 31, 2017, we granted 535 restricted shares under the 2008 Director LTIP, 5,310 restricted shares under the 2017 Director LTIP, and 66,530 restricted shares under the 2012 Employee LTIP. For the nine months ended December 31, 2016, we granted 11,384 restricted shares under the 2008 Director LTIP, and 134,538 restricted shares under the 2012 Employee LTIP. A summary of the restricted shares is as follows:

   
Number of Shares
   
Weighted Average
Grant-date Fair Value
 
             
Nonvested April 1, 2017
   
371,689
   
$
40.45
 
Granted
   
72,375
   
$
80.25
 
Vested
   
(156,240
)
 
$
38.52
 
Forfeited
   
(4,108
)
 
$
39.37
 
Nonvested December 31, 2017
   
283,716
   
$
51.68
 
 
Upon each vesting period of the restricted stock awards, employees are subject to minimum tax withholding obligations. Under the 2012 Employee LTIP, we may purchase a sufficient number of shares due to the participant to satisfy their minimum tax withholding on employee stock awards. For the nine months ended December 31, 2017, the Company had acquired 57,725 shares of common stock at a value of $4.4 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock, which was included in treasury stock.

Compensation Expense

We recognize compensation cost for awards of restricted stock with graded vesting on a straight line basis over the requisite service period. There are no additional conditions for vesting other than service conditions. During the three months ended December 31, 2017 and 2016, we recognized $1.7 million and $1.5 million, respectively, of total share-based compensation expense. During the nine months ended December 31, 2017 and 2016, we recognized $4.9 million and $4.5 million, respectively, of total share-based compensation expense. Unrecognized compensation expense related to non-vested restricted stock was $11.1 million as of December 31, 2017, which will be fully recognized over the next thirty (30) months.

We also provide our employees with a contributory 401(k) profit sharing plan. We may make contributions to the plan. These contributions are not required and whether or not we choose to make them is entirely within our discretion. Our employer contributions to the plan are fully vested at all times. For the three months ended December 31, 2017 and 2016, our estimated contribution expense for the plan was $0.5 million and $0.5 million, respectively. For the nine months ended December 31, 2017 and 2016, our estimated contribution expense for the plan was $1.6 million and $1.2 million, respectively.

12.
INCOME TAXES

Income Taxes – Provision

Our provision for income tax expense was $0.7 million and $19.5 million for the three and nine months ended December 31, 2017, as compared to $8.7 million and $27.3 million for the same periods in the prior year. Our effective income tax rate for the three and nine months ended December 31, 2017, was 4.2% and 29.7%, respectively, compared to 40.8% and 40.5% for the three and nine months ended December 31, 2016, respectively. In the third quarter, the Company revised its estimated annual effective tax rate to reflect a change in the federal statutory rate from 35% to 21%, resulting from legislation that was enacted on December 22, 2017. The rate change is administratively effective at the beginning of our current fiscal year, using a blended rate for the annual period. As a result, the blended statutory tax rate for our current year is 31.5%. In addition, we recognized an estimated tax benefit in our tax provision for the period related to adjusting our deferred tax balance to reflect the new corporate tax rate. As a result, income tax expense reported for the first nine months was adjusted to reflect the effects of the change in the tax law and resulted in a decrease in income tax expense of $2.6 million during the third quarter. In addition we estimated the tax effect of originating items occurring in the fourth quarter that are expected to reverse at a rate of 21%. This resulted in an additional tax benefit of $0.8 million.
 
The accounting for the effects of the rate change on deferred tax balances is provisional and we will finalize these estimates during our fourth quarter of fiscal year 2018. We re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the new tax law and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
 
Income Taxes – Uncertain Tax Positions

We account for our tax positions in accordance with ASC Topic 740, Income Taxes . Under the guidance, we evaluate uncertain tax positions based on the two-step approach. The first step is to evaluate each uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in an audit, including resolution of related appeals or litigation processes, if any. For tax positions that are not likely of being sustained upon audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement.
 
Our total gross unrecognized tax benefits recorded for uncertain income tax, and interest and penalties thereon, were negligible as of December 31, 2017, and December 31, 2016. We had no additions or reductions to our gross unrecognized tax benefits during the three and nine months ended December 31, 2017. We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

13.
FAIR VALUE OF FINANCIAL INSTRUMENTS

We account for the fair values of our assets and liabilities in accordance with ASC Topic 820, Fair Value Measurement and Disclosure. The following table summarizes the fair value hierarchy of our financial instruments as of December 31, 2017 and March 31, 2017 (in thousands):

         
Fair Value Measurement Using
 
   
Recorded
Amount
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other
Observable
Inputs (Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
                         
December 31, 2017
                       
Assets:
                       
Money market funds
 
$
21,596
   
$
21,596
   
$
-
   
$
-
 
                                 
Liabilities:
                               
Contingent consideration
 
$
13,125
   
$
-
   
$
-
   
$
13,125
 
                                 
March 31, 2017
                               
Assets:
                               
Money market funds
 
$
50,866
   
$
50,866
   
$
-
   
$
-
 
                                 
Liabilities:
                               
Contingent consideration
 
$
554
   
$
-
   
$
-
   
$
554
 
 
For the three and nine months ended December 31, 2017, we recorded adjustments that increased the fair value of our liability for contingent consideration by $0.7 million, and $12.6 million due to business acquisitions. For the nine months ended December 31, 2017, we made $0.6 million in payments to satisfy the current obligations of the contingent consideration arrangement from our earlier acquisition of Consolidated IT Services.

14.
SEGMENT REPORTING

Our operations are conducted through two operating segments that are also both reportable segments. Our technology segment includes sales of information technology products, third-party software, third-party maintenance, advanced professional and managed services and our proprietary software to commercial enterprises, state and local governments, and government contractors. Our financing segment consists of the financing of IT equipment, software and related services to commercial enterprises, state and local governments, and government contractors. We measure the performance of the segments based on operating income.
 
Our reportable segment information was as follows (in thousands):

   
Three Months Ended
 
   
December 31, 2017
   
December 31, 2016
 
   
Technology
   
Financing
   
Total
   
Technology
   
Financing
   
Total
 
                                     
Sales of product and services
 
$
330,953
   
$
-
   
$
330,953
   
$
317,391
   
$
-
   
$
317,391
 
Financing revenue
   
-
     
9,592
     
9,592
     
-
     
8,190
     
8,190
 
Fee and other income
   
1,678
     
346
     
2,024
     
915
     
161
     
1,076
 
Net sales
   
332,631
     
9,938
     
342,569
     
318,306
     
8,351
     
326,657
 
                                                 
Cost of sales, product and services
   
264,487
     
-
     
264,487
     
251,729
     
-
     
251,729
 
Direct lease costs
   
-
     
1,394
     
1,394
     
-
     
1,142
     
1,142
 
Cost of sales
   
264,487
     
1,394
     
265,881
     
251,729
     
1,142
     
252,871
 
                                                 
Selling, general, and administrative expenses
   
53,836
     
3,298
     
57,134
     
47,780
     
2,380
     
50,160
 
Depreciation and amortization
   
2,893
     
1
     
2,894
     
1,908
     
2
     
1,910
 
Interest and financing costs
   
-
     
270
     
270
     
-
     
409
     
409
 
Operating expenses
   
56,729
     
3,569
     
60,298
     
49,688
     
2,791
     
52,479
 
                                                 
Operating income
 
$
11,415
   
$
4,975
   
$
16,390
   
$
16,889
   
$
4,418
   
$
21,307
 
                                                 
Selected Financial Data - Statement of Cash Flow
                                         
Depreciation and amortization
 
$
3,157
   
$
1,422
   
$
4,579
   
$
1,941
   
$
985
   
$
2,926
 
Purchases of property, equipment and operating lease equipment
 
$
2,018
   
$
844
   
$
2,862
   
$
849
   
$
3,282
   
$
4,131
 
                                                 
Selected Financial Data - Balance Sheet
                                         
Total assets
 
$
595,584
   
$
169,069
   
$
764,653
   
$
546,728
   
$
189,950
   
$
736,678
 

   
Nine Months Ended
 
   
December 31, 2017
   
December 31, 2016
 
   
Technology
   
Financing
   
Total
   
Technology
   
Financing
   
Total
 
                                     
Sales of product and services
 
$
1,045,792
   
$
-
   
$
1,045,792
   
$
968,799
   
$
-
   
$
968,799
 
Financing revenue
   
-
     
30,698
     
30,698
     
-
     
23,899
     
23,899
 
Fee and other income
   
3,707
     
374
     
4,081
     
3,679
     
245
     
3,924
 
Net sales
   
1,049,499
     
31,072
     
1,080,571
     
972,478
     
24,144
     
996,622
 
                                                 
Cost of sales, product and services
   
834,873
     
-
     
834,873
     
769,780
     
-
     
769,780
 
Direct lease costs
   
-
     
3,846
     
3,846
     
-
     
3,459
     
3,459
 
Cost of sales
   
834,873
     
3,846
     
838,719
     
769,780
     
3,459
     
773,239
 
                                                 
Selling, general, and administrative expenses
   
158,838
     
9,300
     
168,138
     
141,295
     
8,526
     
149,821
 
Depreciation and amortization
   
7,084
     
2
     
7,086
     
5,400
     
8
     
5,408
 
Interest and financing costs
   
-
     
903
     
903
     
-
     
1,158
     
1,158
 
Operating expenses
   
165,922
     
10,205
     
176,127
     
146,695
     
9,692
     
156,387
 
                                                 
Operating income
 
$
48,704
   
$
17,021
   
$
65,725
   
$
56,003
   
$
10,993
   
$
66,996
 
                                                 
Selected Financial Data - Statement of Cash Flow
                                               
Depreciation and amortization
 
$
7,413
   
$
3,911
   
$
11,324
   
$
5,494
   
$
3,264
   
$
8,758
 
Purchases of property, equipment and operating lease equipment
 
$
4,064
   
$
2,234
   
$
6,298
   
$
2,413
   
$
4,887
   
$
7,300
 
                                                 
Selected Financial Data - Balance Sheet
                                         
Total assets
 
$
595,584
   
$
169,069
   
$
764,653
   
$
546,728
   
$
189,950
   
$
736,678
 
 
15.
BUSINESS COMBINATIONS

Integrated Data Storage, LLC acquisition

On September 15, 2017, our subsidiary e Plus Technology, inc. acquired certain assets and assumed certain liabilities of Integrated Data Storage, LLC (“IDS”) though an asset purchase agreement. Headquartered in Oak Brook, IL and with offices in downtown Chicago and Indianapolis, IDS is an advanced data center solutions provider focused on cloud enablement and managed services, including its proprietary IDS Cloud, which features enterprise-class technology infrastructure coupled with consulting services to support private, hybrid, and public cloud deployments. The acquisition expands e Plus’ footprint in the Midwest and enhances its sales and engineering capabilities in cloud services, disaster recovery and backup as a service, storage, data center, and professional services.

Our preliminary sum of total consideration transferred is $38.4 million, consisting of $29.8 million paid in cash at closing, less $1.4 million in receivables due to us as a working capital adjustment , plus an additional $10.0 million equal to the preliminary fair value of consideration, contingent on the acquiree’s business operations future gross profit. The contingent consideration was calculated using the Monte Carlo simulation model based on our projections of future gross profits. The maximum payout of the contingent consideration is $15.0 million paid over 3 years. Our preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):

   
Acquisition
Date Amount
 
Accounts receivable and other assets
 
$
14,353
 
Property and equipment
   
1,620
 
Identified intangible assets
   
13,650
 
Accounts payable and other current liabilities
   
(12,313
)
Total identifiable net assets
   
17,310
 
Goodwill
   
21,088
 
Total purchase consideration
 
$
38,398
 
 
Our sum for consideration transferred and our allocation of the purchase consideration is preliminary and subject to revision as additional information related to the fair value of assets and liabilities becomes available.

The identified intangible assets of $13.7 million consist of customer relationships with an estimated useful life of 8 years. The fair value of acquired receivables equals the gross contractual amounts receivable. We expect to collect all acquired receivables.

We recognized goodwill related to this transaction of $21.1 million, which was assigned to our technology reporting unit. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period through the acquisition date had the acquisition date been April 1, 2017, is not material.

OneCloud Consulting Inc. acquisition

On May 17, 2017, our subsidiary e Plus Technology, inc., acquired 100% of the stock of OneCloud Consulting, Inc. (“OneCloud”). Based in Milpitas, CA, OneCloud is a versatile team of highly trained technology consultants, architects, developers and instructors. OneCloud enables its customers’ cloud and application strategy via professional services, technical education and software development. The acquisition provides us with additional ability to address customers’ needs in cloud-based solutions and infrastructure, including DevOps, OpenStack, and other emerging technologies, to our broad customer base.

Our sum of total consideration we transferred was $10.0 million consisting of $7.9 million paid in cash at closing, net of cash acquired, and $2.1 million equal to the fair value of contingent consideration, calculated using the Monte Carlo simulation model. The maximum payout of the contingent consideration is $4.5 million paid over 3 years.
 
Our allocation of the purchase consideration to the assets acquired and liabilities assumed is presented below (in thousands):

   
Acquisition
Date Amount
 
       
Accounts receivable and other assets
 
$
488
 
Identified intangible assets
   
4,130
 
Accounts payable and other current liabilities
   
(1,822
)
Total identifiable net assets
   
2,796
 
Goodwill
   
7,189
 
Total purchase consideration
 
$
9,985
 

The identified intangible assets of $4.1 million consist of customer relationships of $1.7 million with an estimated useful life of 8 years, and internally developed processes of $2.4 million with an estimated useful life of 5 years.

We recognized goodwill related to this transaction of $7.2 million, which was assigned to our technology reporting unit. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the current reporting period through the acquisition date had the acquisition date been April 1, 2017, is not material.

Consolidated IT Services acquisition

On December 6, 2016, our subsidiary e Plus Technology, inc., acquired certain assets and assumed certain liabilities of Consolidated IT Services. Consolidated IT Services’ business provides data center, unified communications, networking, and security solutions to a diverse set of domestic and international customers including commercial, enterprise, and state, local, and education (SLED) organizations in the upper Midwest. Acquiring Consolidated IT Services expanded our reach to the upper Midwest, a new geography for e Plus, and enables us to market our advanced technology solutions to their long-standing customer base.

The total purchase price is $13.1 million including $9.5 million paid in cash at closing and $4.0 million that will be paid in cash in equal quarterly installments over 2 years, less $0.4 million paid back to us as part of the final working capital adjustment. Our allocation of the purchase consideration to the assets acquired and liabilities is presented below (in thousands):

   
Acquisition
Date Amount
 
Accounts receivable and other current assets
 
$
7,491
 
Property and equipment
   
1,045
 
Identified intangible assets
   
4,090
 
Accounts payable and other current liabilities
   
(5,786
)
Total identifiable net assets
   
6,840
 
Goodwill
   
6,227
 
Total purchase consideration
 
$
13,067
 
 
In the nine months ended December 31, 2017, we increased identified intangible assets and decreased goodwill by $280 thousand from the provisional amounts recorded as of March 31, 2017.

The identified intangible assets of $4.1 million consist entirely of customer relationships with an estimated useful life of 7 years.

We recognized goodwill related to this transaction of $6.2 million, which was assigned to our technology reporting unit. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce and expected synergies, none of which qualify for recognition as a separate intangible asset. The total amount of goodwill is expected to be deductible for tax purposes. The amount of revenues and earnings of the acquiree since the acquisition date are not material. Likewise, the impact to the revenue and earnings of the combined entity for the prior reporting period through the acquisition date had the acquisition date been April 1, 2016 is not material.
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion is intended to further the reader’s understanding of our consolidated financial condition and results of operations. It should be read in conjunction with the financial statements included in this quarterly report on Form 10-Q and our annual report on Form 10-K for the fiscal year ended March 31, 2017 (“2017 Annual Report”). These historical financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described in Part I, Item 1A, “Risk Factors,” in our 2017 Annual Report.

EXECUTIVE OVERVIEW

Business Description

We are a leading solutions provider that delivers actionable outcomes for organizations by utilizing information technology (IT) and consulting solutions to drive business agility and innovation. Leveraging world-class engineering talent, we assess, plan, deliver, and secure solutions comprised of leading technologies and consumption models aligned with customers’ needs. Our expertise and experience enables e Plus to craft optimized solutions that take advantage of the cost, scale and efficiency of private, public and hybrid cloud in an evolving market. We also provide consulting, professional, managed and complete lifecycle management services including flexible financing solutions. We have been in the business of selling, leasing, financing, and managing information technology and other assets for more than 27 years.

Our primary focus is to deliver integrated technology solutions that address our customers’ Cloud, Security and Digital Infrastructure needs, for both on-premise and in the cloud. Our Hybrid IT framework is a lifecycle approach that includes consulting, assessment, architecture, testing, implementation, managed services, maintenance and periodic consultative reviews. In addition to cloud, our portfolio of expertise includes software defined, security, IoT, data and analytics, mobility, hyper-converged infrastructure, and other advanced technologies. We design, implement and manage an array of IT solutions from multiple leading IT vendors. We are an authorized reseller from over 1,000 vendors, but primarily from approximately 100 vendors, including Artista Networks, Check Point, Cisco Systems, Citrix, Commvault, Dell EMC, F5 Networks, Gigamon, HP Inc., HPE, Juniper Networks, Lenovo, NetApp, Nimble Storage, Oracle, Palo Alto Networks, Pure Storage, Quantum, Splunk, and VMware, among many others. We possess top-level engineering certifications with a broad range of leading IT vendors that enable us to offer multi-vendor IT solutions that are optimized for each of our customers’ specific requirements. Our hosted, proprietary software solutions are focused on giving our customers more control over their IT supply chain, by automating and optimizing the procurement and management of their owned, leased, and consumption-based assets.

Our scale and financial resources have enabled us to continue investing in engineering and technology resources and stay current with emerging technology trends. By delivering leading edge Hybrid IT solutions, e Plus has become a trusted advisor to our customers. Our integrated technology solutions incorporate hardware, software, security and both managed and professional services. In addition, we offer a wide range of consumption options including leasing and financing for technology and other capital assets. We believe our lifecycle approach offering of integrated solutions, services, financing, and our proprietary supply chain software, is unique in the industry. This broad portfolio enables us to deliver a unique customer experience that spans the continuum from fast delivery of competitively priced products, services, subsequent management and upkeep, through to end-of-life disposal services. This approach also permits us to accommodate our customers’ business requirements and deliver ever-more-sophisticated hybrid IT solutions, thus solidifying our relationships and value.

Our go-to-market strategy focuses primarily on diverse end-markets for middle market to large enterprises. For the twelve months ended December 31, 2017, the percentage of revenue by customer end market within our technology segment includes technology industry 25%, state and local government, and educational institutions 17%, telecommunications, media and entertainment 14%, financial services 16%, and healthcare 13%. The majority of our sales were generated within the United States; however, we have the ability to support our customers nationally and internationally including a presence in the United Kingdom (“U.K.”), India and Singapore. Our technology segment accounted for 97% of our net sales, and 70% of our operating income, while our financing segment accounted for 3% of our net sales, and 30% of our operating income for the nine months ended December 31, 2017.
 
Key Business Metrics

Our management monitors a number of financial and non-financial measures and ratios on a regular basis in order to track the progress of our business. We believe that the most important of these measures and ratios include gross margin, gross margin on product and services, operating income margin, net earnings, net earnings per common share, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted gross billings of product and services, and non-GAAP net earnings per share. We use a variety of operating and other information to evaluate the operating performance of our business, develop financial forecasts, make strategic decisions, and prepare and approve annual budgets.

These key indicators include financial information that is prepared in accordance with U.S. GAAP and presented in our unaudited condensed consolidated financial statements as well as non-GAAP performance measurement tools. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance or financial position that either excludes or includes amounts that are not normally included in the most directly comparable measure calculated and presented in accordance with U.S GAAP. Non-GAAP measures used by management may differ from similar measures used by other companies, even when similar terms are used to identify such measures.

Our key business metrics and results from those metrics are as follows, (dollars in thousands):

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2017
   
2016
   
2017
   
2016
 
                         
Sales of products and services
 
$
330,953
   
$
317,391
   
$
1,045,792
   
$
968,799
 
                                 
Adjusted gross billings of product and services (1)
 
$
464,105
   
$
432,407
   
$
1,449,371
   
$
1,317,188
 
                                 
Gross margin
   
22.4
%
   
22.6
%
   
22.4
%
   
22.4
%
Gross margin, product and services
   
20.1
%
   
20.7
%
   
20.2
%
   
20.5
%
Operating income margin
   
4.8
%
   
6.5
%
   
6.1
%
   
6.7
%
                                 
Net earnings
 
$
15,581
   
$
12,620
   
$
46,225
   
$
40,066
 
Net earnings margin
   
4.5
%
   
3.9
%
   
4.3
%
   
4.0
%
Net earnings per common share - diluted
 
$
1.11
   
$
0.91
   
$
3.30
   
$
2.86
 
                                 
Non-GAAP: Net earnings (2)
 
$
13,574
   
$
15,621
   
$
44,013
   
$
43,710
 
Non-GAAP: Net earnings per common share - diluted (2)
 
$
0.97
   
$
1.12
   
$
3.14
   
$
3.12
 
                                 
Adjusted EBITDA (3)
 
$
19,284
   
$
23,217
   
$
72,811
   
$
72,404
 
Adjusted EBITDA margin (3)
   
5.6
%
   
7.1
%
   
6.7
%
   
7.3
%
                                 
Purchases of property and equipment used internally
 
$
2,018
   
$
849
   
$
4,064
   
$
2,413
 
Purchases of equipment under operating leases
   
844
     
3,282
     
2,234
     
4,887
 
Total capital expenditures
 
$
2,862
   
$
4,131
   
$
3,436
   
$
7,300
 
 
(1)
We define Adjusted gross billings of product and services as our sales of product and services calculated in accordance with U.S. GAAP, adjusted to exclude the costs incurred related to sales of third party software assurance, subscription licenses, maintenance and services. We have provided below a reconciliation of Adjusted gross billings of product and services to Sales of product and services, which is the most directly comparable financial measure to this non-GAAP financial measure.

We use Adjusted gross billings of product and services as a supplemental measure of our performance to gain insight into the volume of business generated by our technology segment, and to analyze the changes to our accounts receivable and accounts payable. Our use of Adjusted gross billings of product and services as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under U.S. GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted gross billings of product and services or similarly titled measures differently, which may reduce their usefulness as comparative measures.
 
   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2017
   
2016
   
2017
   
2016
 
Sales of products and services
 
$
330,953
   
$
317,391
   
$
1,045,792
   
$
968,799
 
Costs incurred related to sales of third party software assurance, maintenance and services
   
133,152
     
115,016
     
403,579
     
348,389
 
                                 
Adjusted gross billings of product and services
 
$
464,105
   
$
432,407
   
$
1,449,371
   
$
1,317,188
 

(2)
Non-GAAP net earnings per common share are based on net earnings calculated in accordance with U.S. GAAP, adjusted to exclude other income and acquisition related amortization expense, and related effects on income tax, the tax (benefit) expense recognized due to the vesting of shared based compensation,  the tax benefit associated with the re-measurement of deferred tax assets and liabilities at the new tax rates, as well as an adjustment to our tax expense in the prior year assuming a 31.5% effective annual income tax rate for U.S. operations due to changes in U.S. tax rates. We use Non-GAAP net earnings per common share as a supplemental measure of our performance to gain insight into our operating performance. We believe that the exclusion of these items in calculating Non-GAAP net earnings per common share provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that non-GAAP net earnings per common share provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Non-GAAP net earnings per common share as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under U.S. GAAP. In addition, other companies, including companies in our industry, might calculate Non-GAAP net earnings per common share or similarly titled measures differently, which may reduce their usefulness as comparative measures.

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
   
2017
   
2016
   
2017
   
2016
 
GAAP: Earnings before tax
 
$
16,259
   
$
21,307
   
$
65,724
   
$
67,376
 
Acquisition related amortization expense
   
1,871
     
1,035
     
4,178
     
3,098
 
Other (income) expense
   
131
     
-
     
1
     
(380
)
Non-GAAP: Earnings before provision for income taxes
   
18,261
     
22,342
     
69,903
     
70,094
 
                                 
GAAP: Provision for income taxes
   
678
     
8,687
     
19,499
     
27,310
 
Acquisition related amortization expense
   
547
     
267
     
1,421
     
956
 
Other (income) expense
   
55
     
13
     
-
     
(144
)
Remeasurement of deferred taxes
   
3,407
     
-
     
3,407
     
-
 
Adjustment to FY17 US Federal tax rate to 31.5%
   
-
     
(2,252
)
   
-
     
(2,252
)
Tax benefit on restricted stock
   
-
     
6
     
1,563
     
514
 
Non-GAAP: Provision for income taxes
   
4,687
     
6,721
     
25,890
     
26,384
 
                                 
Non-GAAP: Net earnings
 
$
13,574
   
$
15,621
   
$
44,013
   
$
43,710
 
                                 
GAAP: Net earnings per common share - diluted
 
$
1.11
   
$
0.91
   
$
3.30
   
$
2.86
 
Non-GAAP: Net earnings per common share - diluted
 
$
0.97
   
$
1.12
   
$
3.14
   
$
3.12
 
              
(3)
We define Adjusted EBITDA as net earnings calculated in accordance with U.S GAAP, adjusted for the following: interest expense, depreciation and amortization, provision for income taxes, and other income. We consider the interest on notes payable from our financing segment and depreciation expense presented within cost of sales, which includes depreciation on assets financed as operating leases, to be operating expenses. As such, they are not included in the amounts added back to net earnings in the Adjusted EBITDA calculation. We provide below a reconciliation of Adjusted EBITDA to net earnings, which is the most directly comparable financial measure to this non-GAAP financial measure. Adjusted EBITDA margin is our calculation of Adjusted EBITDA divided by net sales.
 
We use Adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance. We believe that the exclusion of other income in calculating Adjusted EBITDA and Adjusted EBITDA margin provides management and investors a useful measure for period-to-period comparisons of our business and operating results by excluding items that management believes are not reflective of our underlying operating performance. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Adjusted EBITDA and Adjusted EBITDA margin as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under U.S. GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted EBITDA and Adjusted EBITDA margin or similarly titled measures differently, which may reduce their usefulness as comparative measures.

   
Three Months Ended
December 31,
   
Nine Months Ended
December 31,
 
Consolidated
 
2017
   
2016
   
2017
   
2016
 
Net earnings
 
$
15,581
   
$
12,620
   
$
46,225
   
$
40,066
 
Provision for income taxes
   
678
     
8,687
     
19,499
     
27,310
 
Depreciation and amortization
   
2,894
     
1,910
     
7,086
     
5,408
 
Other (income) expense
   
131
     
-
     
1
     
(380
)
Adjusted EBITDA
 
$
19,284
   
$
23,217
   
$
72,811
   
$
72,404
 
                                 
Technology Segment
                               
Operating income
 
$
11,415
   
$
16,889
   
$
48,704
   
$
56,003
 
Depreciation and amortization
   
2,893
     
1,908
     
7,084
     
5,400
 
Adjusted EBITDA
 
$
14,308
   
$
18,797
   
$
55,788
   
$
61,403
 
                                 
Financing Segment
                               
Operating income
 
$
4,975
   
$
4,418
   
$
17,021
   
$
10,993
 
Depreciation and amortization
   
1
     
2
     
2
     
8
 
Adjusted EBITDA
 
$
4,976
   
$
4,420
   
$
17,023
   
$
11,001
 

Consolidated Results of Operations

During the three months ended December 31, 2017, net sales increased 4.9%, or $15.9 million to $342.6 million, compared to $326.7 million for the same period in the prior fiscal year. For the nine months ended December 31, 2017, net sales increased 8.4%, or $83.9 million to $1,080.6 million, compared to $996.6 million for the same period in the prior fiscal year.

Adjusted gross billings of product and services increased 7.3%, or $31.7 million to $464.1 million, for the three months ended December 31, 2017 from $432.4 million for the same period in the prior fiscal year. For the nine months ended December 31, 2017, adjusted gross billings of product and services increased 10.0%, or $132.2 million to $1,449.4 million, from $1,317.2 million for the same period in the prior fiscal year. Both the three month and nine month increase in demand was from commercial customers primarily in the technology, financial services and health care industries, partially offset by SLED and other industries.

Consolidated gross profit rose 3.9% to $76.7 million, compared with $73.8 million for the three months ended December 31, 2016. Consolidated gross margins were 22.4% for the three months ended December 31, 2017 a decrease of 20 basis points compared to 22.6% for the same period in the prior fiscal year, due lower product margins, including a decrease in vendor incentives earned, which was offset by an increase in service revenues.

Consolidated gross profit rose 8.3% to $241.9 million, compared with $223.4 million for the nine months ended December 31, 2016. Consolidated gross margins were 22.4% for both the nine months ended December 31, 2017 and 2016. Consolidated gross margins were impacted by lower product margins, including a decrease in vendor incentives earned, which was offset by higher service and financing revenues.
 
Our operating expenses increased 14.9% to $60.3 million, or 78.6% of gross profits for the three months ended December 31, 2017 as compared to $52.5 million, representing 71.1% of gross profits in the same period prior year. For the nine months ended December 31, 2017, our operating expenses increased 12.6% to $176.6 million, or 72.5% of gross profits as compared to $156.4 million, representing 70.0% of gross profits in the same prior year period. The majority of this increase reflects increased salary expense due to an increase in headcount, as well as variable compensation as a result of the increase in gross profit, and an increase in employee healthcare costs. Our headcount increased by 120 employees or 10.3% to 1,284 from 1,164 a year ago, 98 of which were from the acquisitions of IDS and OneCloud . The net additions in personnel compared to the prior year include 105 sales and engineering positions, with the remaining additions being administrative, IT, and finance positions.

Operating income for the three months ended December 31, 2017 decreased 23.1% to $16.4 million, as compared to $21.3 million for the same period in the prior year. For the three months ended December 31, 2017, the operating income margin decreased 170 basis points to 4.8% from 6.5% for the same period in the prior year. Operating income for the nine months ended December 31, 2017 decreased 1.9% to $65.7million, as compared to $67.0 million for the same period in the prior year. For the nine months ended December 31, 2017, the operating income margin decreased 60 basis points to 6.1% from 6.7% for the same period in the prior year.

Consolidated net earnings for the three months ended December 31, 2017 were $15.6 million, an increase of 23.5%, or $3.0 million, compared to the prior year’s results of $12.6 million. For the nine months ended December 31, 2017, consolidated net earnings were $46.2 million, an increase of 15.4%, or $6.2 million, compared to the prior year’s results of $40.1 million.

Adjusted EBITDA decreased $3.9 million, or 16.9% to $19.3 million and Adjusted EBITDA margin decreased 150 basis points to 5.6% for the three months ended December 31, 2017, as compared to the prior period of 7.1%. For the nine months ended December 31, 2017, Adjusted EBITDA increased $0.4 million, or 0.6% to $72.8 million and Adjusted EBITDA margin decreased 60 basis points to 6.7% for the nine months ended December 31, 2017, as compared to prior period of 7.3%.

Diluted earnings per share increased 22.0%, or $0.20 to $1.11 per share for the three months ended December 31, 2017, as compared to $0.91 per share for the three months ended December 31, 2016. Our effective tax rate for the three months ended December 31, 2017 was 4.2%, which includes a tax benefit $3.4 million from the re-measurement of deferred tax assets and liabilities due to the change in the U.S. statutory rate. Non-GAAP diluted earnings per share decreased 13.4% to $0.97 for the three months ended December 31, 2017, as compared to $1.12 for the three months ended December 31, 2016.

For the nine months ended December 31, 2017, diluted earnings per share increased 15.4%, or $0.44 to $3.30 per share, as compared to $2.86 per share for the nine months ended December 31, 2016. Our effective tax rate for the nine months ended December 31, 2017 was 29.7%, which includes a tax benefit of $1.6 million related to the vesting of share based compensation and a tax benefit $3.4 million from the re-measurement of deferred tax assets and liabilities due to the change in the U.S. statutory rate. Non-GAAP diluted earnings per share increased 0.6% to $3.14 for the nine months ended December 31, 2017, as compared to $3.12 for the nine months ended December 31, 2016.

Cash and cash equivalents decreased $33.7 million or 30.7% to $76.1 million at December 31, 2017 compared with $109.8 million as of March 31, 2017. The decrease is primarily the result of investments in our financing portfolio, working capital required for the growth in our technology segment , $29.8 million paid in cash at closing of our acquisition of IDS and $7.9 million paid in cash at closing for our acquisition of OneCloud. Our cash on hand, funds generated from operations, amounts available under our credit facility and the possible monetization of our investment portfolio provide sufficient liquidity for our business.

Segment Overview

Our operations are conducted through two segments: technology and financing.

Technology Segment

The technology segment sells IT equipment and software and related services primarily to corporate customers, state and local governments, and higher education institutions on a nationwide basis, with geographic concentrations relating to our physical locations. The technology segment also provides Internet-based business-to-business supply chain management solutions for information technology products.
 
Our technology segment derives revenue from the sales of new equipment and service engagements. Included in the sales of product and services are revenues derived from performing advanced IT professional and managed services that may be sold together with and integral to third-party products and software. Our service engagements are generally governed by statements of work, and are primarily fixed price (with allowance for changes); however, some service agreements are based on time and materials.

Customers who purchase IT equipment and services from us may have customer master agreements, or CMAs, with our company, which stipulate the terms and conditions of the relationship. Some CMAs contain pricing arrangements, and most contain mutual voluntary termination clauses. Our other customers place orders using purchase orders without a CMA in place or with other documentation customary for the business. Often, our work with state and local governments is based on public bids and our written bid responses

We endeavor to minimize our cost of sales through incentive programs provided by vendors and distributors. The programs we qualify for are generally set by our reseller authorization level with the vendor. The authorization level we achieve and maintain governs the types of products we can resell as well as such items as pricing received, funds provided for the marketing of these products and other special promotions. These authorization levels are achieved by us through purchase volume, certifications held by sales executives or engineers and/or contractual commitments by us. The authorization levels are costly to maintain and these programs continually change and, therefore, there is no guarantee of future reductions of costs provided by these vendor consideration programs.

Financing Segment

Our financing segment offers financing solutions to corporations, governmental entities, and educational institutions nationwide and also in the United Kingdom, Canada and Iceland. The financing segment derives revenue from leasing IT and medical equipment and the disposition of that equipment at the end of the lease. The financing segment also derives revenues from the financing of third-party software licenses, software assurance, maintenance and other services.

Financing revenue generally falls into the following three categories:

·
Portfolio income: Interest income from financing receivables and rents due under operating leases;
·
Transactional gains: Net gains or losses on the sale of financial assets; and
·
Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole, or buyout fees; and net gains on the sale of off-lease (used) equipment.

Our financing segment sells the equipment underlying a lease to the lessee or a third-party other than the lessee. These sales occur at the end of the lease term and revenues from the sales of such equipment are recognized at the date of sale. We also recognize revenue from events that occur after the initial sale of a financial asset and remarketing fees from certain residual value investments.

Fluctuations in Revenues

Our results of operations are susceptible to fluctuations for a number of reasons, including, without limitation, customer demand for our products and services, supplier costs, changes in vendor incentive programs, interest rate fluctuations, general economic conditions, and differences between estimated residual values and actual amounts realized related to the equipment we lease. Operating results could also fluctuate as a result of a sale prior to the expiration of the lease term to the lessee or to a third-party or from post-term events.

We expect to continue to expand by opening new sales locations and hiring additional staff for specific targeted market areas in the near future whenever we can find both experienced personnel and desirable geographic areas. These investments may reduce our results from operations in the short term.
 
CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, or different assumptions were made, it is possible that alternative accounting policies would have been applied, resulting in a change in financial results. On an ongoing basis, we reevaluate our estimates, including those related to revenue recognition, residual values, vendor incentives, lease classification, goodwill and intangibles, reserves for credit losses and income taxes specifically relating to uncertain tax positions. We base estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. For all such estimates, we caution that future events rarely develop exactly as forecasted, and therefore, these estimates may require adjustment.

Our critical accounting estimates have not changed from those reported in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2017 annual Report.

SEGMENT RESULTS OF OPERATIONS

The three and nine months ended December 31, 2017 compared to the three and nine months ended December 31, 2016

Technology Segment

The results of operations for our technology segment for the three and nine months ended December 31, 2017 and 2016 were as follows (dollars in thousands):

   
Three Months Ended
December 31,
               
Nine Months Ended
December 31,
             
   
2017
   
2016
   
Change
   
2017
   
2016
   
Change
 
Sales of product and services
 
$
330,953
   
$
317,391
   
$
13,562
     
4.3
%
 
$
1,045,792
   
$
968,799
   
$
76,993
     
7.9
%
Fee and other income
   
1,678
     
915
     
763
     
83.4
%
   
3,707
     
3,679
     
28
     
0.8
%
Net sales
   
332,631
     
318,306
     
14,325
     
4.5
%
   
1,049,499
     
972,478
     
77,021
     
7.9
%
Cost of sales, product and services
   
264,487
     
251,729
     
12,758
     
5.1
%
   
834,873
     
769,780
     
65,093
     
8.5
%
Gross profit
   
68,144
     
66,577
     
1,567
     
2.4
%
   
214,626
     
202,698
     
11,928
     
5.9
%
                                                                 
Selling, general, and administrative expenses
   
53,836
     
47,780
     
6,056
     
12.7
%
   
158,838
     
141,295
     
17,543
     
12.4
%
Depreciation and amortization
   
2,893
     
1,908
     
985
     
51.6
%
   
7,084
     
5,400
     
1,684
     
31.2
%
Operating expenses
   
56,729
     
49,688
     
7,041
     
14.2
%
   
165,922
     
146,695
     
19,227
     
13.1
%
                                                                 
Operating income
 
$
11,415
   
$
16,889
   
$
(5,474
)
   
(32.4
%)
 
$
48,704
   
$
56,003
   
$
(7,299
)
   
(13.0
%)
                                                                 
Key business metrics
                                                               
Adjusted gross billings of product and services
 
$
464,105
   
$
432,407
   
$
31,698
     
7.3
%
 
$
1,449,371
   
$
1,317,188
   
$
132,183
     
10.0
%
                                                                 
Adjusted EBITDA
 
$
14,308
   
$
18,797
   
$
(4,489
)
   
(23.9
%)
 
$
55,788
   
$
61,403
   
$
(5,615
)
   
(9.1
%)
 
Net sales : Net sales for the three months ended December 31, 2017 were $332.6 million compared to $318.3 million during the three months ended December 31, 2016, an increase of 4.5%, or $14.3 million. For the nine months ended December 31, 2017, net sales were $1,049.5 million compared to $972.5 million during the same period in the prior year, an increase of 7.9%, or $77.0 million.
 
Adjusted gross billings of product and services for the three months ended December 31, 2017 were $464.1 million compared to $432.4 million during the three months ended December 31, 2016, an increase of 7.3%, or $31.7 million. Sales of product and services for the three months ended December 31, 2017 were $331.0 million compared to $ 317.4 million during the same period in the prior year, an increase of 4.3%, or $13.6 million.

The increase in net sales of product and services during the three months ended December 31, 2017 was also due, in part, to an increase in demand for products and services from customers in the technology, financial services and healthcare industries, partially offset by reductions in sales to state and local government and educational customers (“SLED”) , technology, and telecom, media and entertainment customers, and other industries.

For the nine months ended December 31, 2017, adjusted gross billings of product and services were $1,449.4 million compared to $1,317.2 million during the nine months ended December 31, 2016, an increase of 10.0%, or $132.2 million. For the nine months ended December 31, 2017, sales of product and services were $1,045.8 million compared to $ 968.8 million during the same period in the prior year, an increase of 7.9%, or $77.0 million. The increase in net sales of product and services during the nine month period was due to an increase in demand for products and services from customers in the financial services industries, technology, and health care industries, which include sales relating to several large projects for large customers.

Summarized below are the sequential and year-over-year changes in net sales of product and services:

Quarter Ended
 
Sequential
   
Year over Year
 
December 31, 2017
   
(7.5
%)
   
4.3
%
September 30, 2017
   
0.2
%
   
(1.0
%)
June 30, 2017
   
11.1
%
   
23.1
%
March 31, 2017
   
1.3
%
   
10.3
%
December 31, 2016
   
(12.1
%)
   
10.3
%
 
We rely on our vendors to fulfill a large majority of shipments to our customers. As of December 31, 2017, we had open orders of $170.0 million and deferred revenue of $59.6 million. As of December 31, 2016, we had open orders of $238.5 million and deferred revenues of $ 66.3 million.

We analyze sales of products and services by customer end market and by manufacturer, as opposed to discrete product and service categories. The percentage of sales of product and services by industry and vendor are summarized below:

 
 
Twelve Months Ended December 31,
       
 
 
2017
   
2016
   
Change
 
Revenue by customer end market:
                 
Technology
   
25
%
   
22
%
   
3
%
SLED
   
17
%
   
21
%
   
(4
%)
Telecom, Media & Entertainment
   
14
%
   
16
%
   
(2
%)
Financial Services
   
16
%
   
12
%
   
4
%
Healthcare
   
13
%
   
11
%
   
2
%
Other
   
15
%
   
18
%
   
(3
%)
Total
   
100
%
   
100
%
       
 
                       
Revenue by vendor:
                       
Cisco Systems
   
44
%
   
49
%
   
(5
%)
HP Inc. & HPE
   
7
%
   
6
%
   
1
%
NetApp
   
4
%
   
5
%
   
(1
%)
Sub-total
   
55
%
   
60
%
   
(5
%)
Other
   
45
%
   
40
%
   
5
%
Total
   
100
%
   
100
%
       
 
Our revenues by customer end market have remained consistent with over 80% of our revenues generated from customers within the five end markets identified above. During the trailing twelve months ended December 31, 2017 we had an increase in the percentage total revenues from customers in the technology, financial services, and health care industries, which were partially offset by decreases in the percentage of total revenues from SLED compared to the prior year period. These changes were driven by changes in customer buying cycles and specific IT related initiatives, rather than the acquisition or loss of a customer or set of customers.
 
The majority of our revenues by vendor are derived from Cisco Systems, a combined HP Inc. and HPE, and NetApp, which, collectively, declined to 55% for the twelve months ended December 31, 2017 from approximately 60% in the prior year trailing twelve month period, with the greatest decline in the proportional percentage of total revenues in Cisco product sales. The decrease in the percentage of revenues from the top three vendors is due in part to substantial competition and rapid developments in the IT industry. None of the vendors included within the “other” category exceeded 4% of total revenues.

Cost of sales, product and services: Cost of sales, product and services increased 5.1% for the three months ended December 31, 2017 as compared to the prior year period, due to the 4.3% increase in sales of product and services. For the nine months ended December 31, 2017, cost of sales, product and services increased 8.5% due to the increase in sales of product and services. Our gross margin on the sales of product and services decreased 60 basis points to 20.1% for the three months ended December 31, 2017, from 20.7% in the same period in the prior year.

For the nine months ended December 31, 2017, our gross margin on the sales of product and services decreased 30 basis points to 20.2%, from 20.5%, due to lower product margins from a large competitively bid project which partially shipped during the nine month period as well as reduction in vendor incentives earned as a percentage of sales of product services. Vendor incentives earned as a percentage of sales of product services for the three months and the nine months ended December 31, 2017 decreased 50 and 30 basis points respectively, as compared to same periods in the prior year.

Selling, general, and administrative expenses: Selling, general, and administrative expenses were $53.8 million for the three months ended December 31, 2017, an increase of $6.0 million, or 12.7% compared to $47.8 million for the prior year period. Salaries and benefits increased $4.3 million, or 10.8% to $44.5 million, compared to $40.2 million during the prior year. Most of the increase was due to higher salaries and benefits expenses related to the increase in the number of employees from both acquisitions and internal growth.

Selling, general, and administrative expenses were $158.8 million for the nine months ended December 31, 2017, an increase of $17.5 million, or 12.4% compared to $141.3 million for the prior year period. Salaries and benefits increased $12.8 million, or 10.8% to $130.6 million, compared to $117.8 million during the prior year. Approximately 20.8% of this increase was due to higher variable compensation due to the increase in gross profit, 18.6% of the increase was due to higher employee benefits, and the remaining increase was primarily due salary expense related to an increase in the number of employees. Our technology segment had 1,236 employees as of December 31, 2017, an increase of 123, or 11.1%, from 1,113 at December 31, 2016. The acquisitions of OneCloud and IDS accounted for 98 of the added positions. There were 107 positions added in the past year related to sales, marketing, and professional services personnel.

General and administrative expenses increased $1.5 million, or 23.9% to $7.9 million during the three months ended December 31, 2017 compared to $6.4 million the prior year, due to an adjustment of $0.7 million to the fair value of contingent consideration for acquisitions, higher advertising and marketing expense, and travel expenses, including travel expense related to acquisitions. For the nine months ended December 31, 2017, general and administrative expenses increased $3.9 million, or 20.3% to $23.3 million compared to $19.3 million the prior year, due to the incremental adjustment of $0.8 million to the fair value of contingent consideration for acquisitions, and higher travel expense, including travel expense related to acquisitions. Professional and other fees increased $0.9 million, or 20.7% to $5.0 million primarily due to legal fees related to the IDS and OneCloud acquisitions.

Depreciation and amortization expense increased $1.0 million, or 51.6% to $2.9 million during the three months ended December 31, 2017 compared to $1.9 million in the prior year. For the nine months ended December 31, 2017, depreciation and amortization expense increased $1.7 million, or 31.2% to $7.1 million compared to $5.4 million in the prior year. The increase in depreciation and amortization expense is related to the acquisitions of Consolidated IT Services in December 2016, OneCloud in May 2017, and IDS in September 2017.

Segment operating income: As a result of the foregoing, operating income was $11.4 million, a decrease of $5.5 million, or 32.4% for the three months ended December 31, 2017 compared to $16.9 million in the prior year period. For the three months ended December 31, 2017, Adjusted EBITDA was $14.3 million, a decrease of $4.5 million, or 23.9% compared to $18.8 million in the prior year period. For the nine months ended December 31, 2017, operating income was $48.7 million, a decrease of $7.3 million, or 13.0% compared to $56.0 million in the prior year period. Adjusted EBITDA for the nine months ended December 31, 2017, was $55.8 million, a decrease of $5.6 million, or 9.1% compared to $61.4 million in the prior year period.
 
Financing Segment

The results of operations for our financing segment for the three and nine months ended December 31, 2017 and 2016 were as follows (dollars in thousands):

   
Three Months Ended
December 31,
               
Nine Months Ended
December 31,
             
   
2017
   
2016
   
Change
   
2017
   
2016
   
Change
 
Financing revenue
 
$
9,592
   
$
8,190
   
$
1,402
     
17.1
%
 
$
30,698
   
$
23,899
   
$
6,799
     
28.4
%
Fee and other income
   
346
     
161
     
185
     
114.9
%
   
374
     
245
     
129
     
52.7
%
Net sales
   
9,938
     
8,351
     
1,587
     
19.0
%
   
31,072
     
24,144
     
6,928
     
28.7
%
Direct lease costs
   
1,394
     
1,142
     
252
     
22.1
%
   
3,846
     
3,459
     
387
     
11.2
%
Gross profit
   
8,544
     
7,209
     
1,335
     
18.5
%
   
27,226
     
20,685
     
6,541
     
31.6
%
                                                                 
Selling, general, and administrative expenses
   
3,298
     
2,380
     
918
     
38.6
%
   
9,300
     
8,526
     
774
     
9.1
%
Depreciation and amortization
   
1
     
2
     
(1
)
   
(50.0
%)
   
2
     
8
     
(6
)
   
(75.0
%)
Interest and financing costs
   
270
     
409
     
(139
)
   
(34.0
%)
   
903
     
1,158
     
(255
)
   
(22.0
%)
Operating expenses
   
3,569
     
2,791
     
778
     
27.9
%
   
10,205
     
9,692
     
513
     
5.3
%
                                                                 
Operating income
 
$
4,975
   
$
4,418
   
$
557
     
12.6
%
 
$
17,021
   
$
10,993
   
$
6,028
     
54.8
%
                                                                 
Key business metrics
                                                               
Adjusted EBITDA
 
$
4,976
   
$
4,420
   
$
556
     
12.6
%
 
$
17,023
   
$
11,001
   
$
6,022
     
54.7
%


Net sales : Net sales increased by $1.6 million, or 19.0% to $9.9 million for the three months ended December 31, 2017, as compared to $8.4 million prior year results due to higher post-contract earnings and other financing revenues. During the quarters ended December 31, 2017 and 2016, we recognized net gains on sales of financial assets of $1.2 million and $0.9 million, respectively, and the fair value of assets received from these sales were $32.8 million and $55.8 million, respectively. Post contract earnings increased $1.4 million due to the gain on sale of equipmentn associated with early lease terminations, and other financing revenues decreased $0.3 million mainly due to earnings on consumption based financing arrangements.

For the nine months ended December 31, 2017, net sales increased by $6.9 million, or 28.7% to $31.1 million as compared to $24.1 million prior year results due to higher transactional gains and other financing revenues. During the nine months ended December 31, 2017 and 2016, we recognized net gains on sales of financial assets of $4.6 million and $4.1 million, respectively, and the fair value of assets received from these sales were $166.9 million and $185.4 million, respectively. Post contract earnings increased $4.9 million due to the gain on sale of equipment associated with early lease terminations, and other financing revenues increased $1.0 million mainly due to earnings on consumption based financing arrangements.

At December 31, 2017, we had $147.2 million in financing receivables and operating leases, compared to $140.4 million as of December 31, 2016, an increase of $6.8 million or 4.8%.

Gross Profit: Gross profit increased by $1.3 million, or 18.5% to $8.5 million for the three months ended December 31, 2017, compared to the same period in the prior year. For the nine months ended December 31, 2017, gross profit increased $6.5 million, or 31.6% to $27.2 million compared to the same period of the prior year, as a result of higher revenues. Direct lease costs increased $0.3 million and $0.4 million for the three and nine months ended December 31, 2017, respectively, which primarily consists of depreciation expense from operating leases.

Selling, general, and administrative expenses: For the three months ended December 31, 2017 selling, general, and administrative expenses increased by $0.9 million or 38.6%, which was due primarily to an increase in our salaries and benefits expense of $0.7 million resulting from an increase in variable compensation related to the increase in gross profit. Selling, general, and administrative expenses increased by $0.8 million or 9.1%, due to an increase in our salaries and benefits expense of $1.1 million resulting from an increase in variable compensation related to the increase in gross profit, partially offset by lower professional fees and credit loss expenses for the nine months ended December 31, 2017. Our financing segment had 48 employees as of December 31, 2017, compared to 51 employees as of December 31, 2016.

Interest and financing costs decreased $0.1 million to $0.3 million for the three months ended December 31, 2017, compared to the prior year, due to a decrease in the average total notes payable outstanding compared to the three months ended December 31, 2017. For the nine months ended December 31, 2017, interest and financing costs decreased by $0.3 million to $0.9 million, or 22.0%.   Total notes payable were $31.5 million as of December 31, 2017, a decrease of $22.5 million or 41.7% compared to $54.0 million as of December 31, 2016. Our weighted average interest rate for non-recourse notes payable was 3.73% and 3.38%, as of December 31, 2017 and December 31, 2016, respectively.
 
Segment operating income : As a result of the foregoing, both operating income and Adjusted EBITDA increased $0.6 million or 12.6% to $5.0 million for both the three months ended December 31, 2017 and 2016. For the nine months ended December 31, 2017, operating income and Adjusted EBITDA each increased $6.0 million or 54.8% and 54.7% to $17.0 million, respectively.

Consolidated

Other income: Other income and expense during the three months ended December 31, 2017 was a net expense of $0.1 million, which consists of interest income on cash and cash equivalents, more than offset by foreign currency transaction losses.

Income taxes: Our provision for income tax expense was $0.7 million and $19.5 million for the three and nine months ended December 31, 2017, as compared to $8.7 million and $27.3 million for the same periods in the prior year. Our effective income tax rate for the three and nine months ended December 31, 2017 was 4.2% and 29.7%, compared to 40.8% and 40.5% for the three and nine months ended December 31, 2016. The favorable change in our effective income tax rate was due primarily to a tax benefit of $3.4 million from the re-measurement of deferred tax assets and liabilities due to the change in the U.S. statutory rate for the three and nine months ended December 31, 2017, and a tax benefit of $1.6 million on the vesting of restricted stock in the nine months ended December 31, 2017, compared to a tax benefit of $0.5 million in the nine months ended December 31, 2016.

Net earnings : The foregoing resulted in net earnings of $15.6 million and $46.2 million for the three and nine months ended December 31, 2017, an increase of 23.5% and 15.4%, as compared to $12.6 million and $40.1 million during the three and nine months ended December 31, 2016, respectively.

Basic and fully diluted earnings per common share were $1.12 and $1.11 for the three months ended December 31, 2017, an increase of 21.7% and 22.0% as compared to $0.92 and $0.91, respectively, for the three months ended December 31, 2016. For the nine months ended December 31, 2017, basic and fully diluted earnings per common share were $3.34 and $3.30, an increase of 16.0% and 15.4% as compared to $2.88 and $2.86, respectively, for the same period in the prior year.

Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share for the three months ended December 31, 2017 was 13.9 million and 14.0 million, respectively. Weighted average common shares outstanding used in the calculation of the basic and diluted earnings per common share for the three months ended December 31, 2016 was 13.8 million and 13.9 million, respectively.

Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share for the nine months ended December 31, 2017 was 13.8 million and 14.0 million, respectively. Weighted average common shares outstanding used in the calculation of the basic and diluted earnings per common share for the nine months ended December 31, 2016 was 13.9 million and 14.0 million, respectively.
 
LIQUIDITY AND CAPITAL RESOURCES

Liquidity Overview

Our primary sources of liquidity have historically been cash and cash equivalents, internally generated funds from operations, and borrowings, both non-recourse and recourse. We have used those funds to meet our capital requirements, which have historically consisted primarily of working capital for operational needs, capital expenditures, purchases of equipment for lease, payments of principal and interest on indebtedness outstanding, acquisitions and the repurchase of shares of our common stock.

Our subsidiary e Plus Technology, inc., part of our technology segment, finances its operations with funds generated from operations, and with a credit facility with Wells Fargo Commercial Distribution Finance, LLC (“WFCDF”). e Plus Technology, inc.’s agreement with WFCDF has an aggregate credit limit of $250 million as of December 31, 2017.

On July 27, 2017, we executed an amendment to the WFCDF credit facility which temporarily increases the aggregate limit of the two components from $250.0 million to $325.0 million from the date of the agreement through October 31, 2017, and provides us an election beginning July 1 in each subsequent year to similarly temporarily increase the aggregate limit of the two components to $325.0 million ending the earlier of 90 days following the date of election or October 31 of that same year.

There are two components of this facility: (1) a floor plan component; and (2) an accounts receivable component. After a customer places a purchase order with us and we have completed our credit check, we place an order for the equipment with one of our vendors. Generally, most purchase orders from us to our vendors are first financed under the floor plan component and reflected in “accounts payable—floor plan” in our consolidated balance sheets. Payments on the floor plan component are due on three specified dates each month, generally 30-60 days from the invoice date. On the due date of the invoices financed by the floor plan component, the invoices are paid by the accounts receivable component of the credit facility. The balance of the accounts receivable component is then reduced by payments from our available cash. The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our consolidated balance sheets. There was no outstanding balance at December 31, 2017or March 31, 2017, while the maximum credit limit was $30.0 million for both periods. The borrowings and repayments under the floor plan component are reflected as “net borrowings on floor plan facility” in the cash flows from financing activities section of our consolidated statements of cash flows.

Most customer payments in our technology segment are remitted to our lockboxes. Once payments are cleared, the monies in the lockbox accounts are automatically transferred to our operating account on a daily basis. On the due dates of the floor plan component, we make cash payments to WFCDF. These payments from the accounts receivable component to the floor plan component and repayments from our cash are reflected as “net borrowings on floor plan facility” in the cash flows from financing activities section of our consolidated statements of cash flows. We engage in this payment structure in order to minimize our interest expense and bank fees in connection with financing the operations of our technology segment.

We believe that cash on hand, and funds generated from operations, together with available credit under our credit facility, will be sufficient to finance our working capital, capital expenditures and other requirements for at least the next twelve calendar months.

Our ability to continue to fund our planned growth, both internally and externally, is dependent upon our ability to generate sufficient cash flow from operations or to obtain additional funds through equity or debt financing, or from other sources of financing, as may be required. While at this time we do not anticipate requiring any additional sources of financing to fund operations, if demand for IT products declines, our cash flows from operations may be substantially affected.
 
Cash Flows

The following table summarizes our sources and uses of cash over the periods indicated (in thousands):

   
Nine Months Ended December 31,
 
   
2017
   
2016
 
Net cash provided by operating activities
 
$
48,824
   
$
29,702
 
Net cash used in investing activities
   
(54,793
)
   
(47,040
)
Net cash used in financing activities
   
(27,758
)
   
(8,205
)
Effect of exchange rate changes on cash
   
72
     
454
 
                 
Net decrease in cash and cash equivalents
 
$
(33,655
)
 
$
(25,089
)

Cash flows from operating activities . Cash provided by operating activities totaled $48.8 million during the nine months ended December 31, 2017. Net earnings adjusted for the impact of non-cash items was $46.1million. Net changes in assets and liabilities resulted in a increase of cash and cash equivalents of $2.7 million, primarily due to net reductions in inventories of $43.3 million and increased in accounts payable of $18.4 million, mostly offset by additions to deferred costs, other intangible assets and other assets of $26.2 financing receivables of $13.0, accounts receivables of $10.3 million, and salaries and commissions payable and deferred revenues and other liabilities of $9.5 million.

Cash provided by operating activities totaled $29.7 million during the nine months ended December 31, 2016. Net earnings adjusted for the impact of non-cash items was $45.0 million. Net changes in assets and liabilities resulted in a decrease of cash and cash equivalents of $15.3 million, primarily due to net additions to accounts receivables of $62.0 million, inventories of $77.4 million, partially offset by increased in accounts payable of $53.2 million, and salaries and commissions payable, deferred revenues and other liabilities of $51.2 million.

In order to manage our working capital, we monitor our cash conversion cycle for our Technology segment, which is defined as days sales outstanding (“DSO”) in accounts receivable plus days of supply in inventory (“DIO”) minus days of purchases outstanding in accounts payable (“DPO”). The following table presents the components of the cash conversion cycle for our Technology segment:

   
As of December 31,
 
   
2017
   
2016
 
             
(DSO) Days sales outstanding (1)
   
52
     
52
 
(DIO) Days inventory outstanding (2)
   
12
     
23
 
(DPO) Days payable outstanding (3)
   
(40
)
   
(48
)
Cash conversion cycle
   
24
     
27
 

(1)
Represents the rolling three-month average of the balance of trade accounts receivable-trade, net for our Technology segment at the end of the period divided by Adjusted gross billings of product and services for the same three-month period.
(2)
Represents the rolling three-month average of the balance of inventory, net for our Technology segment at the end of the period divided by Cost of adjusted gross billings of product and services for the same three-month period.
(3)
Represents the rolling three-month average of the combined balance of accounts payable-trade and accounts payable-floor plan for our Technology segment at the end of the period divided by Cost of adjusted gross billings of product and services for the same three-month period.

Our cash conversion cycle decreased to 24 days at December 31, 2017, compared to 27 days at December 31, 2016, primarily driven by a decrease in DPO of 8 days due to DPO timing of payments. The higher cash conversion cycle for December 31, 2016 was due mainly to a significant increase in our inventories due to large projects for several of our major customers in the prior year’s quarter.

Cash flows related to investing activities . Cash used in investing activities was $54.8 million during the nine months ended December 31, 2017. Cash used in investing activities during the nine months ended December 31, 2017 was primarily driven by acquisitions of $37.7 million, net issuance and repayment of financing receivables of $79.1 million, purchases of assets to be leased or financed of $5.7 million, and purchases of property, equipment, software, and operating lease equipment of $6.3 million, which was partially offset by the sale of financing receivables of $64.1 million, and proceeds from sale of property, equipment and operating leases of $10.0 million.
 
Cash used in investing activities was $47.0 million during the nine months ended December 31, 2016. Cash used in investing activities during the nine months ended December 31, 2016 was primarily driven by issuance of financing receivables of $114.7 million, cash used in acquisitions of $9.5 million, purchases of property, equipment and operating lease equipment of $7.3 million, and purchases of assets to be leased or financed of $5.9 million, which was partially offset by cash proceeds from the repayment financing receivable of $44.1 million, the sale of financing receivables of $39.9 million, and proceeds from the sale of property, equipment and operating lease equipment of $6.4 million.

Cash flows from financing activities . Cash used in financing activities was $27.8 million during the nine months ended December 31, 2017, which was primarily due to net repayment on floor plan facility of $24.9 million, cash used for the repurchase of common stock of $13.4 million, and repayment of financing of acquisitions of $1.6 million, partially offset by net borrowings of non-recourse and recourse notes payable of $12.1 million . Cash used in financing activities was $8.2 million during the nine months ended December 31, 2016, which was primarily due to $30.5 million in cash used for the repurchase of common stock, and net repayment on the floor plan facility of $5.6 million, partially offset by to net borrowings of non-recourse and recourse notes payable of $28.6 million.

Non-Cash Activities

We assign contractual payments due under lease and financing agreements to third-party financial institutions, which are accounted for as non-recourse notes payable. As a condition to the assignment agreement, certain financial institutions may request that the customer remit their contractual payments to a trust; rather than to us, and the trust pays the financial institution. Alternatively, if the structure of the agreement does not require a trustee, the customer will continue to make payments to us, and we will remit the payment to the financial institution. The economic impact to us under either assignment structure is similar, in that the assigned contractual payments are paid by the customer and remitted to the lender to pay down the corresponding non-recourse notes payable. However, these assignment structures are classified differently within our consolidated statements of cash flows. More specifically, we are required to exclude non-cash transactions from our consolidated statement of cash flows, so certain contractual payments made by the customer to the trust are excluded from our operating cash receipts and the corresponding repayment of the non-recourse notes payable from the trust to the third-party financial institution are excluded from our cash flows from financing activities. Contractual payments received by the trust and paid to the lender on our behalf are disclosed as a non-cash financing activity.

Liquidity and Capital Resources

We may utilize non-recourse notes payable to finance approximately 80% to 100% of the purchase price of the assets being leased or financed by our customers. Any balance of the purchase price remaining after non-recourse funding and any upfront payments received from the customer (our equity investment in the equipment) must generally be financed by cash flows from our operations, the sale of the equipment leased to third parties, or other internal means. Although we expect that the credit quality of our financing arrangements and our residual return history will continue to allow us to obtain such financing, such financing may not be available on acceptable terms, or at all.

The financing necessary to support our lease and financing activities has been provided by our cash and non-recourse borrowings. We monitor our exposure closely. We are able to obtain financing through our traditional lending sources which is primarily non-recourse borrowings from third party banks and finance companies. Non-recourse financings are loans whose repayment is the responsibility of a specific customer, although we may make representations and warranties to the lender regarding the specific contract or have ongoing loan servicing obligations. Under a non-recourse loan, we borrow from a lender an amount based on the present value of the contractually committed payments at a fixed rate of interest, and the lender secures a lien on the financed assets. When the lender is fully repaid, the lien is released and all further proceeds are ours. We are not liable for the repayment of non-recourse loans unless we breach our representations and warranties in the loan agreements. The lender assumes the credit risk, and the lender’s only recourse, upon default, is against the customer and the specific equipment.

At December 31, 2017, our non-recourse notes payable decreased 13.8% to $31.5 million, as compared to $36.5 million at March 31, 2017. Recourse notes payable was zero as of December 31, 2017 compared to $0.9 million as of March 31, 2017.

Whenever desirable, we arrange for equity investment financing, which includes selling lease payments, including the residual portions, to third parties and financing the equity investment on a non-recourse basis. We generally retain customer control and operational services, and have minimal residual risk. We usually reserve the right to share in remarketing proceeds of the equipment on a subordinated basis after the investor has received an agreed-to return on its investment.
 
Credit Facility — Technology

Our subsidiary, e Plus Technology, inc., has a financing facility from WFCDF to finance its working capital requirements for inventories and accounts receivable. There are two components of this facility: (1) a floor plan component; and (2) an accounts receivable component. This facility has full recourse to e Plus Technology, inc. and is secured by a blanket lien against all its assets, such as chattel paper, receivables and inventory. As of December 31, 2017, the facility had an aggregate limit of the two components of $250.0 million with an accounts receivable sub-limit of $30.0 million.

On July 27, 2017, we executed an amendment to the WFCDF credit facility which temporarily increased the aggregate limit of the two components from $250.0 million to $325.0 million from the date of the agreement through October 31, 2017, and provides us an election beginning July 1 in each subsequent year to similarly temporarily increase the aggregate limit of the two components to $325.0 million ending the earlier of 90 days following the date of election and October 31 of that same year.

Availability under the facility may be limited by the asset value of equipment we purchase or accounts receivable, and may be further limited by certain covenants and terms and conditions of the facility. These covenants include but are not limited to a minimum excess availability of the facility and minimum earnings before interest, taxes, depreciation and amortization of e Plus Technology, inc. We were in compliance with these covenants as of December 31, 2017. Interest on the facility is assessed at a rate of the One Month LIBOR plus two and one half percent if the payments are not made on the three specified dates each month. The facility requires that financial statements of e Plus Technology, inc. be provided within 45 days of each quarter and 90 days of each fiscal year end and also requires other operational reports be provided on a regular basis. Either party may terminate the facility with 90 days advance written notice.

We are not, and do not believe that we are reasonably likely to be, in breach of the WFCDF credit facility. In addition, we do not believe that the covenants of the WFCDF credit facility materially limit our ability to undertake financing. In this regard, the covenants apply only to our subsidiary, e Plus Technology, inc. This credit facility is secured by the assets of only e Plus Technology, inc. and the guaranty as described below.

The facility provided by WFCDF requires a guaranty of $10.5 million by e Plus inc. The guaranty requires e Plus inc. to deliver its annual audited financial statements by a certain date. We have delivered the annual audited financial statements for the year ended March 31, 2017, as required. The loss of the WFCDF credit facility could have a material adverse effect on our future results as we currently rely on this facility and its components for daily working capital and liquidity for our technology segment and as an operational function of our accounts payable process.

Floor Plan Component

Purchases by e Plus Technology, inc. including computer technology products, software, maintenance and services, are in part financed through a floor plan component in which interest expense for the first thirty to ninety days, in general, is not charged. The floor plan liabilities are recorded as accounts payable—floor plan on our consolidated balance sheets, as they are normally repaid within the fifteen to ninety-day time frame and represent assigned accounts payable originally generated with the manufacturer/distributor. In some cases we are able to pay invoices early and receive a discount, but if the fifteen to ninety-day obligation is not paid timely, interest is then assessed at stated contractual rates.

The respective floor plan component credit limits and actual outstanding balance payables for the dates indicated were as follows (in thousands):

Maximum Credit Limit
at December 31, 2017
   
Balance as of
December 31, 2017
   
Maximum Credit Limit
at March 31, 2017
   
Balance as of
March 31, 2017
 
$
250,000
   
$
107,761
   
$
250,000
   
$
132,612
 
 
Accounts Receivable Component

Included within the credit facility, e Plus Technology, inc. has an accounts receivable component from WFCDF, which has a revolving line of credit. On the due date of the invoices financed by the floor plan component, the invoices are paid by the accounts receivable component of the credit facility. The balance of the accounts receivable component is then reduced by payments from our available cash. The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our consolidated balance sheets. There was no balance outstanding for the accounts receivable component at December 31, 2017or March 31, 2017, while the maximum credit limit was $30.0 million for both periods.
 
Performance Guarantees
 
In the normal course of business, we may provide certain customers with performance guarantees, which are generally backed by surety bonds. In general, we would only be liable for the amount of these guarantees in the event of default in the performance of our obligations. We are in compliance with the performance obligations under all service contracts for which there is a performance guarantee, and we believe that any liability incurred in connection with these guarantees would not have a material adverse effect on our consolidated statements of operations.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements as defined in Item 303(a) (4) (ii) of Regulation S-K or other contractually narrow or limited purposes. As of December 31, 2017, we were not involved in any unconsolidated special purpose entity transactions.

Adequacy of Capital Resources

The continued implementation of our business strategy will require a significant investment in both resources and managerial focus. In addition, we may selectively acquire other companies that have attractive customer relationships and skilled sales and/or engineering forces. We may also start offices in new geographic areas, which may require a significant investment of cash. We may also acquire technology companies to expand and enhance the platform of bundled solutions to provide additional functionality and value-added services. We may continue to use our internally generated funds to finance investments in leased assets or investments in notes receivables due from our customers. These actions may result in increased working capital needs as the business expands. As a result, we may require additional financing to fund our strategy, implementation, potential future acquisitions, and working capital needs which may include additional debt and equity financing.

Inflation

For the periods presented herein, inflation has been relatively low and we believe that inflation has not had a material effect on our results of operations.

Potential Fluctuations in Quarterly Operating Results

Our future quarterly operating results and the market price of our common stock may fluctuate. In the event our revenues or earnings for any quarter are less than the level expected by securities analysts or the market in general, such shortfall could have an immediate and significant adverse impact on the market price of our common stock. Any such adverse impact could be greater if any such shortfall occurs near the time of any material decrease in any widely followed stock index or in the market price of the stock of one or more public equipment leasing and financing companies, IT resellers, software competitors, major customers or vendors of ours.

Our quarterly results of operations are susceptible to fluctuations for a number of reasons, including, but not limited to currency fluctuations, reduction in IT spending, any reduction of expected residual values related to the equipment under our leases, the timing and mix of specific transactions, the reduction of manufacturer incentive programs, and other factors. Quarterly operating results could also fluctuate as a result of our sale of equipment in our lease portfolio at the expiration of a lease term or prior to such expiration, to a lessee or to a third party and the transfer of financial assets. Sales of equipment and transfers of financial assets may have the effect of increasing revenues and net income during the quarter in which the sale occurs, and reducing revenues and net income otherwise expected in subsequent quarters. See Part I, Item 1A, “Risk Factors,” in our 2017 Annual Report.

We believe that comparisons of quarterly results of our operations are not necessarily meaningful and that results for one quarter should not be relied upon as an indication of future performance.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our quantitative and qualitative disclosures about market risk during the nine months ended December 31, 2017 from our 2017 Annual Report. For a discussion of the Company's exposure to market risk, reference is made to disclosures set forth in Part II, Item 7A of our above-mentioned 2017 Annual Report.

Although a substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, we utilize our lines of credit and other financing facilities which are subject to fluctuations in short-term interest rates. These instruments, which are denominated in U.S. dollars, were entered into for other than trading purposes and, with the exception of amounts drawn under the WFCDF facility, bear interest at a fixed rate. Because the interest rate on these instruments is fixed, changes in interest rates will not directly impact our cash flows. Borrowings under the WFCDF facility bear interest at a market-based variable rate. As of December 31, 2017, the aggregate fair value of our recourse and non-recourse borrowings approximated their carrying value.
 
We have transactions in foreign currencies, primarily in British Pounds and in Euros. There is a potential for exposure to fluctuations in foreign currency rates resulting primarily from the translation exposure associated with the preparation of our consolidated financial statements. In addition, we have foreign currency exposure when transactions are not denominated in the subsidiary’s functional currency. To date, our foreign operations are insignificant in relation to total consolidated operations and we believe that potential fluctuations in currency exchange rates will not have a material effect on our financial position.

The UK referendum (“Brexit”) to leave, the European Union could impact revenue items, cost items, tax, goodwill impairments and liquidity, among others. The most obvious immediate impact is the effect of foreign exchange fluctuations on revenue and cost items. We have determined that our foreign currency exposure for our United Kingdom operations is insignificant in relation to total consolidated operations and we believe those potential fluctuations in currency exchange rates and other Brexit related economic and operational risks will not have a material effect on our results of operations and financial position.

We evaluate Brexit-related developments on a regular basis to determine if such developments are anticipated to have a material impact on the Company’s results on operations and financial position.

We have assets in Canada and Iceland. As a lessor, we have entered into lease contracts and non-recourse, fixed-interest-rate financing denominated in Canadian dollars and in Icelandic krona. In our fiscal year beginning April 1, 2016, we began entering in financing transactions and non-recourse, fixed-interest-rate financing denominated in British Pounds in the United Kingdom. To date, our foreign operations have been insignificant and we believe that potential fluctuations in currency exchange rates will not have a material effect on our financial position.

Item 4.
Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, or “disclosure controls,” as defined in the Exchange Act Rule 13a-15(e). Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this quarterly report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls include some, but not all, components of our internal control over financial reporting. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2017.

Changes in Internal Controls

There have not been any changes in our internal control over financial reporting during the quarter ended December 31, 2017, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Limitations on the Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system cannot provide absolute assurance due to its inherent limitations; it is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. A control system also can be circumvented by collusion or improper management override. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of such limitations, disclosure controls and internal control over financial reporting cannot prevent or detect all misstatements, whether unintentional errors or fraud. However, these inherent limitations are known features of the financial reporting process; therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

PART II. OTHER INFORMATION

Item 1.
Legal Proceedings

From time to time, we may be subject to legal proceedings that arise in the ordinary course of business. Legal proceedings which may arise in the ordinary course of business include preference payment claims asserted in customer bankruptcy proceedings, tax audits, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights, claims of alleged non-compliance with contract provisions, employment-related claims, claims by competitors, vendors or customers, claims related to alleged violations of laws and regulations, and claims relating to alleged security or privacy breaches. We attempt to ameliorate the effect of potential litigation through insurance coverage and contractual protections such as rights to indemnifications and limitations of liability.

We provide for costs relating to contingencies when a loss is probable and the amount is reasonably determinable. In the opinion of management, there was not at least a reasonable possibility that the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for asserted legal and other claims. However, the outcome of legal proceedings and claims brought against us is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

Item 1A.
Risk Factors

There has not been any material change in the risk factors previously disclosed in Part I, Item 1A of our 2017 Annual Report.
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding our purchases of e Plus inc. common stock during the nine months ended December 31, 2017.

Period
 
Total number of shares purchased (1)
   
Average price paid per share
   
Total number of shares purchased as part of publicly announced plans or programs
   
Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
 
April 1, 2017 through April 30, 2017
   
-
   
$
-
     
-
     
1,000,000
(2
)
May 1, 2017 through May 31, 2017
   
-
   
$
-
     
-
     
1,000,000
(3
)
June 1, 2017 through June 30, 2017
   
54,546
   
$
75.72
     
-
     
1,000,000
(4
)
July 1, 2017 through July 31, 2017
   
3,179
   
$
79.50
     
-
     
1,000,000
(5
)
August 1, 2017 through August 18, 2017
   
-
   
$
-
     
-
     
1,000,000
(6
)
August 19, 2017 through August 31, 2017
   
-
   
$
-
     
-
     
500,000
(7
)
September 1, 2017 through September 30, 2017
   
-
   
$
-
     
-
     
500,000
(8
)
October 1, 2017 through October 31, 2017
   
-
   
$
-
     
-
     
500,000
(9
)
November 1, 2017 through November 30, 2017
   
56,707
   
$
78.21
     
-
     
443,293
(10
)
December 1, 2017 through December 31, 2017
   
68,898
   
$
77.61
     
-
     
374,395
(11
)
 
(1)
Any shares acquired were in open-market purchases, except for 54,546 shares, which were repurchased in June 2017, and 3,179 shares which were repurchased in July 2017, to satisfy tax withholding obligations that arose due to the vesting of shares of restricted stock.
(2)
The share purchase authorization in place for the month ended April 30, 2017 had purchase limitations on the number of shares of up to 1,000,000 shares. As of April 30, 2017, the remaining authorized shares to be purchased were 1,000,000.
(3)
The share purchase authorization in place for the month ended May 31, 2017 had purchase limitations on the number of shares of up to 1,000,000 shares. As of May 31, 2017, the remaining authorized shares to be purchased were 1,000,000.
(4)
The share purchase authorization in place for the month ended June 30, 2017 had purchase limitations on the number of shares of up to 1,000,000 shares. As of June 30, 2017, the remaining authorized shares to be purchased were 1,000,000.
(5)
The share purchase authorization in place for the month ended July 31, 2017 had purchase limitations on the number of shares of up to 1,000,000 shares. As of July 31, 2017, the remaining authorized shares to be purchased were 1,000,000.
(6)
As of August 18, 2017 the authorization under the then existing share purchase plan expired.
(7)
On August 15, 2017, the board of directors authorized the company to repurchase up to 500,000 shares of our outstanding common stock commencing on August 19, 2017 through August 18, 2018. As of August 31, 2017, the remaining authorized shares to be purchased were 500,000.
(8)
The share purchase authorization in place for the month ended September 30, 2017 had purchase limitations on the number of shares of up to 500,000 shares. As of September 30, 2017, the remaining authorized shares to be purchased were 500,000.
(9)
The share purchase authorization in place for the month ended October 31, 2017 had purchase limitations on the number of shares of up to 500,000 shares. As of October 31, 2017, the remaining authorized shares to be purchased were 500,000.
(10)
The share purchase authorization in place for the month ended November 30, 2017 had purchase limitations on the number of shares of up to 500,000 shares. As of November 30, 2017, the remaining authorized shares to be purchased were 443,293.
(11)
The share purchase authorization in place for the month ended December 31, 2017 had purchase limitations on the number of shares of up to 500,000 shares. As of December 31, 2017, the remaining authorized shares to be purchased were 374,395.

The timing and expiration date of the current stock repurchase authorizations are included in Note 10, “ Stockholders’ Equity ” to our unaudited condensed consolidated financial statements included elsewhere in this report.
 
Item 3.
Defaults Upon Senior Securities

Not Applicable.

Item 4.
Mine Safety Disclosures

Not Applicable.

Item 5.
Other Information

None.

Item 6.
Exhibits
 
Amended and Restated Employment Agreement effective September 6, 2017, by and between ePlus inc. and Mark P. Marron.
 
 
Amended and Restated Employment Agreement effective December 12, 2017, by and between ePlus inc. and Phillip G. Norton.
 
 
Amended and Restated Employment Agreement effective September 6, 2017, by and between ePlus inc. and Elaine D. Marion.
 
 
Certification of the Chief Executive Officer of e Plus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
 
 
Certification of the Chief Financial Officer of e Plus inc. pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a).
 
 
Certification of the Chief Executive Officer and Chief Financial Officer of e Plus inc. pursuant to 18 U.S.C. § 1350.
 
 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
e Plus inc.
 
     
Date: February 7, 2018
/s/ MARK P. MARRON
 
 
By: Mark P. Marron,
 
Chief Executive Officer and
President
 
 
(Principal Executive Officer)
 
     
Date: February 7, 2018
/s/ ELAINE D. MARION
 
 
By: Elaine D. Marion
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)
 
 
46
EXHIBIT 10.1
 
EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “ AGREEMENT ”) is effective the 6th day of September, 2017, by and between ePlus inc., a Delaware corporation (the “ Company ” or collectively, with its subsidiaries, the “ Companies ”) and Mark P. Marron (the “ Executive ”).

RECITAL

The Executive is employed as Chief Executive Officer and President of the Company, and the parties have negotiated this Agreement in consideration of the Executive’s valuable services and expertise.

NOW THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties do hereby agree as follows:

1.  EFFECTIVE DATE .  This Agreement shall be effective as of the date noted above.

2.  DEFINITIONS .  As used herein, the following terms shall have the following meanings:

(a)  “ Disability ” shall mean the Executive’s physical or mental inability to perform his duties under this Agreement, for six months in any twelve month period, with at least three months running continuously, and which renders the Executive incapable of performing his customary and usual duties for the Company, with or without a reasonable accommodation as required by law.

(b)  “ Employment Term ” shall be the period from August 1, 2017, through and including January 31, 2018, and any renewal period thereafter.  Unless either the Company or the Executive delivers a written notice of termination to the other party, not less than 60 days prior to the end of the then-current Employment Term, then this Agreement shall automatically renew for successive two-year periods.

(c)  “ Expiration Date ” means the date that the Employment Term (as it may have been extended) expires.

(d)  “ Good Cause ” means that the Compensation Committee of the Company’s Board of Directors (the “ Board ”) in good faith determines that the Executive:

(1)  Failed to satisfactorily perform his duties to the Company and such failure was not cured within 30 days of the Company’s providing Executive written notice of such failure;

(2)  Failed to comply with a material policy of the Company that was applicable to the Executive and such failure was not cured within 30 days of the Company’s providing Executive written notice of such failure;
 
1
(3)  Acted or failed to act in a manner that constitutes gross misconduct, embezzlement, misappropriation of corporate assets, breach of the duty of loyalty, fraud, or negligent or willful violations of any laws with which the Company is required to comply;

(4)  Was convicted of or entered a plea of “guilty” or “no contest” to a felony;

(5)  Refused or failed to comply with lawful and reasonable instructions of the Board and such refusal or failure was not cured within 30 days of the Company’s providing Executive written notice of such refusal or failure; or

(6)  Any other material breach of this Agreement by the Executive that is not cured within 30 days of the Company’s providing Executive written notice of such breach.

Good Cause shall not include failures as set forth in this Section 2(d) when such failure is a result of the Executive’s illness or injury.

(e)  “ Good Reason ” shall mean that within 30 days prior to the Executive’s providing the notice to the Company required under Section 6(b)(1) of this Agreement that any of the following has occurred:

(1)  A material change in the scope of the Executive’s authority or assigned duties and responsibilities, or the assignment of duties or responsibilities that are inconsistent with the Executive’s level or position, without his consent;

(2)  Any material acts of dishonesty by the Company directed toward or affecting Executive;

(3)  Any illegal act or instruction directly affecting Executive by the Company, which is not withdrawn after the Company is notified of the alleged illegality by Executive;

(4)  A reduction by the Company in the Executive’s base salary as set forth herein as may be increased from time to time or a reduction by the Company in the Executive’s incentive compensation;

(5)  A change in the Executive’s principal office to a location outside of a 20 mile radius from the Company’s offices in Herndon, Virginia;

(6)  The failure by the Company to continue to provide the Executive with benefits substantially similar to those specified in Section 5 of this Agreement;

(7)  The Company delivers a timely notice (see Section 2(b)) to the Executive that the Agreement will terminate at the end of the Employment Term, and within 30 days after receipt of said notice the Executive tenders his resignation from the Company (to be effective at the end of the Employment Term); or

(8)  Any other material breach of this Agreement by the Company that is not cured within 30 days of the Executive providing the Company written notice of such breach.
 
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(f)  “ Termination Date ” shall mean the date Executive’s termination is effective, as described in the respective subparts of Section 6.

3.  EMPLOYMENT .  The Company and Executive hereby agree to employ the Executive as set forth herein during the Employment Term and until Executive’s employment terminates pursuant to Section 2(b) or Section 6 below.

4.  POSITION, DUTIES AND RESPONSIBILITIES .  During the Employment Term, the Executive shall:

(a)  Serve as the Company’s Chief Executive Officer and President.  The Executive’s responsibilities include, but are not limited to: providing overall strategic and operational direction; establishing policies and objectives in accordance with Board directives and corporate charter; revising objectives and policies in response to change in internal and external conditions; coordinating operations between divisions and departments; establishing responsibilities and procedures for attaining objectives; reviewing operations and financial statements to evaluate achievement of objectives;

(b)  Render such other services to the Company as requested, provided that such services are consistent with the level of his position; serve as President and/or Chief Executive Officer or a comparable role in the Company’s subsidiaries; and

(c)  Devote his substantially full business time, attention, skill and energy to the business of the Company and not engage or prepare to engage in any other business activity, whether or not such business activity is pursued for gain, profit or other economic or financial advantage.   Executive may engage in appropriate civic, charitable, or educational activities provided that such activities do not materially interfere or conflict with the Executive’s responsibilities or the Company’s interests.  Nothing in this Agreement shall preclude Executive from acquiring or managing any passive investment he has in publicly traded equity securities in companies that are not in the same line of business as the Company.

5.  COMPENSATION, COMPENSATION PLANS AND BENEFITS .  During the Employment Term, the Executive shall be compensated as follows:

(a)  Effective June 8, 2017, Executive shall receive a base annual salary of Seven Hundred Fifty Thousand Dollars ($750,000), which may be increased from time to time.

(b)  Based on applicable MBOs and company performance the Executive shall be eligible to be considered for an annual bonus as set forth in the terms and conditions as outlined in the Executive Incentive Plan (“ EIP ”) and any applicable award agreement thereunder.  The Company shall pay any bonus earned under this Section 5(b) no earlier than the end of the fiscal year for which earned and no later than the next September 30th following the fiscal year in which the bonus was earned, provided that financial filings are timely provided to the Compensation Committee.  In no event will any bonus earned under this Section 5(b) be paid later than the next December 31st following the fiscal year for which the bonus was earned, unless calculation of the bonus is not administratively practicable by that date, and further delay would not violate Code Section 409A.
 
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(c)  The Executive shall be entitled to participate in and receive other benefits offered by the Company to all employees, which may include, but are not limited to, vacation, sick, holiday and other leave times, and benefits under any life, health, accident, disability, medical, and dental insurance plans.

(d)  The Executive shall be entitled to be reimbursed for the reasonable and necessary out-of-pocket expenses, including entertainment, travel and similar items, and all expenses necessary to maintain his professional, industry association memberships incurred by him in performing his duties, in accordance with the Company’s expense reimbursement policies in place from time to time.  Any reimbursements that are includible in gross income of the Executive under this subsection 5(d) must meet the following conditions.  Such reimbursements: (i) must be for expenses incurred during the term of this Agreement, (ii) shall not be subject to liquidation or exchange for any other benefit, (iii) shall not affect eligibility for reimbursements in any other taxable year of the Executive, and (iv) shall be made no later than the last day of the Executive’s taxable year following the taxable year in which the expense was incurred.

(e)  In the event Executive’s employment with the Company terminates for any reason, any payments and benefits due the Executive under the Company’s employee benefit plans and programs, including any Long-Term Incentive Plan, shall be determined in accordance with the terms of such benefit plans and programs, and shall be in addition to any other payments or benefits herein.

(f)  Not more than once every year, the Executive shall be entitled to be reimbursed by the Company for his participation in the Johns Hopkins Executive Physical Program, or an equivalent thereof.

(g)  In the event it is determined that any bonus or other incentive compensation payable by the Company to the Executive was paid based on incorrect financial results, the Compensation Committee will review such payment.  If the amount of the payment would have been lower had the level of achievement of applicable financial performance goals been calculated based on the correct financial results, the Company’s Compensation Committee may, in its sole discretion, adjust (i.e., lower) the amount of such payment so that it reflects the amount that would have applied based on the correct financial results and, to the extent permitted by applicable law, require the reimbursement by Executive of any amount paid to or received by the Executive with respect to such bonus or other incentive compensation.  Additionally, bonuses or other incentive compensation payable to the Executive by the Company are subject to recovery by the Company to the extent required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the Sarbanes-Oxley Act of 2002, including any amendments thereto, and any regulations promulgated thereunder.  Except as required by law, this subsection shall not apply to time-vested stock options, restricted stock or restricted stock units which are not awarded, granted or vested based on financial measure required to be reported under the securities laws.
 
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6.  TERMINATION OF EMPLOYMENT

(a)  Termination by the Company.

(1)  Termination for Good Cause .  During the Employment Term, the Company may terminate the Executive’s employment for Good Cause.  In the absence of cure by the Executive as per Section 2(d), if applicable, termination by the Company for Good Cause shall be retroactive to the date the Company provides notice to the Executive of the Good Cause event.

(2)  Termination without Good Cause .  During the Employment Term, the Company may terminate the Executive’s employment at any time without Good Cause upon the Company’s payment to the Executive for the 30 days’ written notice period to the Executive or 30 days’ pay in lieu of such notice.  Termination is effective 30 days after the date the written notice of termination is provided to the Executive.  The Company may, in its sole discretion, place the Executive on paid administrative leave as of any date prior to the end of the 30-day notice period and require that the Executive no longer be present on Company premises.  During any period of paid administrative leave, the Executive is not authorized to act or speak as a representative of the Company.

(b)  Termination by Executive.

(1)  Termination for Good Reason .  During the Employment Term, the Executive may terminate his employment for Good Reason as defined in Section 2(e) only if the Executive has provided the Board with written notice of his intent to terminate his employment for Good Reason at least 30 days prior to the date of termination and the Company fails to cure the Good Reason within 30 days after receiving Executive’s written notice.  Termination for Good Reason will be effective on the 31st day after the Company receives Executive’s written notice and fails to cure the Good Reason identified in Executive’s notice.

(2)  Termination without Good Reason .  During the Employment Term, the Executive may voluntarily terminate his employment for any (or no) reason with the Company upon 30 days prior written notice.  Termination is effective 30 days after the date the notice is provided to the Company.  The Company may, in its sole discretion, place the Executive on paid administrative leave as of any date prior to the end of the 30-day notice period and require that the Executive no longer be present on Company premises.  During any such period of paid administrative leave, the Executive is not authorized to act or speak as a representative of the Company.

(c)  Termination by Reason of Death or Disability .  Executive’s employment with the Company shall be deemed to have been terminated effective upon the date of Executive’s death, or the date upon which either party provides the other party with notice of Disability.

(d)  At-will Termination .  If the Employment Term ends based on the Company’s delivering a notice of termination under Section 2(e)(7), then the Executive’s employment with the Company may continue on an at-will basis.
 
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7.  EFFECT OF TERMINATION .

(a)  Termination for Any Reason .  If the Executive’s employment ends at any time (during or after the Employment Term) for any reason, the Company shall pay the Executive his then current base salary and provide the Executive his then current benefits (as provided in Section 5) through the Termination Date.

(b)  Provided that after the Termination Date the Executive (i) signs in the form provided by the Company a general release of all claims Executive has or may have against the Company or its then current or former officers, directors, or employees (hereinafter “ Release ”), attached hereto as Exhibit 1, in the time provided in the Release, and does not revoke it; and (ii) certifies that the Executive has complied with Sections 8, 9, 10, 11 and 12 of this Agreement (confidentiality, intellectual property, non-compete, non-solicit, conflict of interest and return of property provisions), then:
 
(1)   Death or Disability .   If, during the Employment Term, the Executive’s employment terminates by reason of death or Disability as described in Section 6(c), then:

(a)  Unvested Stock .  Executive shall be entitled to the acceleration of vesting of any restricted stock, as set forth in the relevant Long-Term Incentive Plan and award agreement;

(b)  Severance .  In the event of Disability only, the Company shall pay to Executive a cash severance in the amount equal to eighteen months of his then-base annual salary; and

(c)  EIP Award .  The Company shall pay to the Executive, or to his estate any award due under any EIP award agreement (as described in Section 5.b), in the amount due to the value of the award that otherwise would have been received based on the extent to which Performance Goals are determined to have been met by the Compensation Committee, multiplied by a fraction, the numerator of which is the number of months (including partial months) in the period beginning on the first day of the relevant performance period and ending with the date as of which the Executive’s employment with the Company terminated and the denominator of which is the number of months in such performance period (the “ pro-rated EIP award ,”).  Any such payment shall be made at the time the payment would have been made had there been no termination of employment.

Notwithstanding anything to the contrary, the release of claims requirement shall be waived if the Executive’s death or Disability renders him unable to sign the Release.

(2)  Termination without Good Cause; Termination for Good Reason .   If, during the Employment Term, the Company terminates the Executive’s employment without Good Cause as described in Section 6(a)(2) or Executive terminates his employment for Good Reason, as described in Section 6(b)(1), then:

(a)  The Company shall pay Executive a severance amount equal to eighteen months of his then-base annual salary;
 
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(b)  The Company shall either, at the Company’s choice: (1) accelerate the vesting of any restricted stock owned by the Executive at the Termination Date or (2) pay to Executive an amount equal to the value of any restricted stock he forfeits at the Termination Date; and

(c)  The Company shall pay to the Executive the pro-rated EIP award, to the extent Performance Goals are met; such payment to be made at the time the payment would have been made had there been no termination of employment;

(d)  Any payment due to the Executive under this subsection 7(b) (except the EIP Award) shall be made in a lump sum within sixty (60) days following the Termination Date.

(c)  Notwithstanding the foregoing, if the Executive is a “Specified Employee” (as defined in Section 20), the payments under subsection 7(b) shall be made no earlier than the date provided in Section 20.

(d)  Any release and certification required from the Executive under the first paragraph of Section 7(b) shall be on the form attached as Exhibit 1.  The applicable release and certification must be signed and returned by Executive to the Company within the time frame set forth in the Release, and not revoked, for Executive to receive payments under Section 7(b).  Except as otherwise provided by subsection 7(b)(2)(d), and provided the requirements of this subsection 7(d) are met, any lump sum payment due Executive under subsection 7(b) shall be paid on the last day of the sixty (60) day period in which Company may make such payment in compliance with the applicable provision.

(e)  Continued Health Benefits Upon Termination .  In the event Executive’s employment is terminated due to Disability, by the Company Without Good Cause, or by the Executive for Good Reason, the Company shall pay an amount in cash equal to the cost of premiums the Company paid prior to the date of termination for Executive and/or Executive’s qualified dependents’ coverage under the Company’s medical, prescription, dental, and other health benefits each month until the last day of the Employment Term or eighteen months following the termination date, whichever is greater.  Executive agrees that this cash payment is not a reimbursement for his actual premiums for health coverage and that he has complete discretion with respect to the use of these funds.  The Executive shall not be obligated in any way to mitigate the Company’s obligations to him under this Section.
 
8.  CONFIDENTIALITY.

(a)  During the course of employment, Executive has had and shall continue to have access to the Company’s Confidential Information (as defined below).  Executive shall not disclose or use at any time, either during his employment or after his employment ends for any reason, any Confidential Information (as defined below) of the Company, whether or not patentable, that Executive learns as a result of his Involvement with the Company, whether or not he developed such information.  “ Involvement with the Company ” means holding a position as an employee, officer, or director with either the Company or any of its subsidiaries or affiliates.  “ Confidential Information ” means Company information that is material to the Companies’ business and that is not generally known by, or made available to, the public, and shall include, without limitation, information regarding:
 
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•
Trade Secrets (as defined below) or proprietary information;
 
•
Strategic sourcing information or analysis;
 
•
Patents, patent applications, developmental or experimental work, formulas, test data, prototypes, models, and product specifications;
 
•
Accounting and financial information;
 
•
Financial projections and pro forma financial information;
 
•
Sales and marketing strategies, plans and programs;
 
•
Product development and product testing information;
 
•
Product sales and inventory information;
 
•
Personnel information, such as employees’ and consultants’ benefits, perquisites, salaries, stock options, compensation, formulas or bonuses;
 
•
Organizational structure and reporting relationships;
 
•
Business plans;
 
•
Names, addresses, phone numbers of customers;
 
•
Contracts, including contracts with clients, suppliers, independent contractors or employees; business plans and forecasts;
 
•
Existing and prospective projects or business opportunities; and
 
•
Passwords and other physical and information security protocols and information.

“ Trade Secrets ” includes any information that derives independent economic value, actually and potentially, from not being generally known to, and is not readily being ascertainable by proper means by, other persons who may obtain economic value from their disclosure or use and that are the subject of efforts that are reasonable under the circumstances to maintain their secrecy.

(b)  Confidential Information excludes any information known to the Executive prior to his employment with the Companies regardless of whether such information would otherwise be deemed Confidential Information.  Information that is or later becomes publicly available in a manner wholly unrelated to any breach of this Agreement by Executive or other improper means will not be considered Confidential Information as of the date it enters the public domain.  If Executive is uncertain whether something is Confidential Information, Executive should treat it as Confidential Information until he receives clarification from the Board that it is not Confidential Information.  Confidential Information shall remain at all times the property of the Companies.
 
(c)  Executive may use or disclose Confidential Information only:

(1)  When he is employed by the Company, as authorized and necessary in performing the responsibilities of his position, provided that he has taken reasonable steps to ensure that the information remains confidential;

(2)  With prior written consent of the Board;

(3)  In a legal proceeding between Executive and the Company to establish the rights of either party under this Agreement, provided that Executive stipulates to a protective order to prevent any unnecessary use or disclosure; or

(4)  Where such disclosure is required by law, provided that Executive has complied with the following procedures to ensure that the Companies have an adequate opportunity to protect their legal interests.
 
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Upon receipt of a subpoena or any other compulsory legal process (“ Compulsory Process ”) that could possibly require disclosure of Confidential Information, Executive shall make his best effort to provide within forty-eight (48) hours of receipt a copy of the Compulsory Process as well as complete information regarding the circumstances under which he received Compulsory Process to the General Counsel by hand delivery or by e-mail, provided that Executive confirms with the General Counsel by telephone that the General Counsel received the e-mail.  To provide the Company with the greatest opportunity to assess the need for protection from disclosure, Executive shall not make any disclosure until the latest possible date for making such disclosure in accordance with the Compulsory Process (“ Latest Possible Date ”).  If one of the Companies seeks to prevent disclosure in accordance with the applicable legal procedures, and notifies Executive before the Latest Possible Date that it has initiated such procedures, Executive shall not make disclosures of any Confidential Information that is the subject of such procedures, until such objections are withdrawn, or the appropriate tribunal either makes a final determination that the objections are invalid or orders Executive to make the disclosure, unless otherwise required by law.

(d)  Executive hereby acknowledges that any breach of this Section 8 would cause the Companies irreparable harm.  Nothing in this Agreement prohibits Executive from reporting an event that he reasonably and in good faith believes is a violation of law to the relevant law-enforcement agency (such as the Securities and Exchange Commission, Department of Justice, Equal Employment Opportunity Commission, Department of Labor, National Labor Relations Board, the Congress, or any agency Inspector General), from cooperating in an investigation conducted by such a government agency, or from making other disclosures that are protected under the whistleblower provisions or state or federal law or regulation.  This may include disclosure of trade secret or confidential information within the limitations permitted by the 2016 Defend Trade Secrets Act (“ DTSA ”).  Executive is hereby provided notice that under the  DTSA, (1) no individual will be held criminally or civilly liable under federal or state trade secret law for the disclosure of a trade secret (as defined in the Economic Espionage Act) that: (A) is made in confidence   to a federal, state, or local government official, either directly or indirectly, or to his attorney, that is made solely   for the purpose of reporting or investigating a suspected violation of law; or, (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made   under seal so that it is not made public; and, (2) an individual who pursues a lawsuit for retaliation by an employer for reporting a suspected violation of the law may disclose the trade secret to his attorney and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal, and does not disclose the trade secret, except as permitted by court order.

9.  INTELLECTUAL PROPERTY .  Executive acknowledges that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, original works of authorship, copyrights and all similar or related information (whether or not patentable) that relate to the Companies’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by the Companies (“ Intellectual Property ”) belong to the Companies.  Executive agrees that both during and after his employment with the Companies that he will sign any documents or provide any information necessary for the Companies to protect their rights to such Intellectual Property.  If Executive is unavailable to sign any document that is necessary for the Companies to protect their rights to such Intellectual Property, Executive hereby authorizes the Companies to sign on his behalf.
 
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10.  NON-COMPETITION and NON-SOLICITATION .  During Executive’s employment and for a period of one year following the date on which his employment ends for any reason, (the “ Restricted Period ”), the Executive agrees to the following below Non-Competition and Non-Solicitation restrictions.

(a)  Non-Competition .  Executive shall not, directly or indirectly, individually or as part of or on behalf of any other person, company, employer or other entity, except with prior written approval of the Board, own, manage, operate, advise, consult with, control or otherwise be employed by or provide services to or on behalf of a Competing Business.  “ Competing Business ” means a business that is selling products or services similar to those products or services that any of the Covered Entities is selling as of the date the Executive’s employment ends.  “ Covered Entities ” include the Company and any affiliated entities in which Executive is actively engaged as an officer, director or employee or about which Executive has received Confidential Information as a result of his Involvement with the Company.

(b)  Non-Solicitation of Employees .  Executive shall not, either directly or indirectly or on behalf of himself or on behalf of any other person or entity, without prior written consent from the Company, solicit or otherwise encourage in any manner: (i) an employee of the Company to leave the employ of the Company; or (ii) a former employee of the Company who was employed by the Company within the twelve (12) months immediately preceding the time of the solicitation or encouragement to work for a Competing Business.  For the purpose of this provision, “ employee ” shall mean an employee with whom the Executive worked or about whom the Executive had material knowledge with respect to their skills.

(c)  Non-solicitation of Customers, Potential Customers and Vendors .  Executive shall not, either directly or indirectly or on behalf of himself or on behalf of any other person or entity, without prior written consent from the Company, solicit or otherwise encourage in any manner:

(1)  Any customer of the Company, whom the Executive, while employed by the Company, rendered services to, contacted or attempted to contact, recruited or attempted to recruit, solicited or attempted to solicit to (a) end its relationship with the Company or (b) enter into or continue a relationship with another person or entity to provide the same or similar service(s) that the Company provides;

(2)  Any vendor or partner of the Company, or any other third-party, to disclose or discuss any information about any customer of the Company whom Executive, while employed by the Company, rendered services to, contacted or attempted to contact, recruited or attempted to recruit, solicited or attempted to solicit; or

(3)  Any potential customer of the Company, whom Executive, while employed by the Company, contacted or attempted to contact, recruited or attempted to recruit, solicited or attempted to solicit, to enter into or continue a relationship with another person or entity to provide the same or similar service(s) that the Company provides.
 
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(d)  Nature of Restrictions . Executive acknowledges that as a result of his employment as Chief Operating Officer and the Chief Executive Officer of the Company, he has held and will continue to hold a position of utmost trust in which Executive has come to know and will continue to come to know the Company’s employees, customers and Confidential Information.  Executive agrees that the provisions of this entire Section 10 are necessary to protect the Company’s legitimate business interests.  Executive warrants that these provisions shall not unreasonably interfere with his ability to earn a living or to pursue his occupation after his employment ends for any reason.  Executive agrees that upon beginning any new employment or business during the Restricted Period, he will promptly inform the Company of the name and address of his new employer or business and provide such new employer or business with a copy of this Agreement and copy the Company on the letter or e-mail transmitting the Agreement to the appropriate person in such new employer or business.

11.  CONFLICT OF INTEREST.   During his employment, Executive agrees to have undivided loyalty to the Company.  This means that Executive shall avoid any situation that involves or has the potential to appear to involve a conflict of interest, including, but not limited to, participating in a business transaction that personally benefits Executive or a relative based on information or relationships developed on the job, failing to disclose that someone who is doing or seeking to do business with or work for the Company is a relative or close personal associate, or receiving direct or indirect compensation from a client or vendor.
 
12.  RETURN OF PROPERTY.  On the date Executive’s employment ends for any reason, or at any time during his employment at the request or direction of the Company, Executive will immediately deliver to the Company any or all equipment, property, material, Confidential Information, Intellectual Property or copies thereof that are owned by the Company and are in Executive’s possession or control.  This includes documents or other information prepared by Executive, or provided to him in connection with his duties for the Company and while employed by the Company, regardless of the form in which such document or information are maintained or stored, including by computer, typed, handwritten, electronic, audio, video, micro-fiche, imaged, drawn or any other means of recording or storing documents or other information.  Executive hereby warrants that he will not retain in any form such documents, Confidential Information, Intellectual Property or other information or copies thereof after Executive’s employment ends for any reason, provided that the Executive may retain a copy of this Agreement and any other document or information describing any rights he may have after the Termination Date.

13.  COOPERATION WITH LEGAL PROCEEDINGS.   Executive agrees to reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence or that may be brought in the future against or on behalf of any of the Companies that relate to events or occurrences that transpired while Executive was employed by any of the Companies.  Executive’s reasonable cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with the Companies’ counsel to prepare for discovery or trial and to act as a witness on behalf of any of the Companies.  Executive also agrees to reasonably cooperate with any of the Companies in connection with any investigation or review of any federal, state, or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Executive was employed by any of the Companies.  Executive understands that in any legal action, investigation, or review covered by this Section 13 the Company expects Executive to provide only accurate and truthful information or testimony.  The Company agrees to reimburse the Executive for any costs he incurs in cooperation pursuant to this Section 13, including but not limited to travel expenses and attorneys’ fees and costs.  Nothing in this Section shall limit any indemnification rights Executive may have on the effective date of this Agreement.
 
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14.  REMEDY.

(a)  Executive acknowledges that his breach of the obligations contained in Sections 8, 9, 10, 11 and 12 of this Agreement would cause the Company irreparable harm that could not be reasonably or adequately compensated by damages in an action at law.  If Executive breaches or threatens to breach any of the provisions contained in Sections 8, 9, 10, 11 and 12 of this Agreement, the Company shall be entitled to an injunction, without bond, restraining him from committing such breach.  The Company’s right to exercise its option to obtain an injunction shall not limit its right to any other remedies, including damages.

(b)  Any action relating to or arising from this Agreement shall be brought exclusively in a court of competent jurisdiction in the Commonwealth of Virginia, and Executive hereby consents to venue and personal jurisdiction in any such court in the Commonwealth of Virginia.

(c)  Executive expressly waives any right to a trial by jury for any action relating to or arising from this Agreement.

15.  SUCCESSORS; BINDING AGREEMENT.

(a)  This Agreement shall be binding upon, and inure to the benefit of the parties hereto and their heirs, successors and assigns.

(b)  The Company shall require any successor to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

16.  NOTICES.   For the purpose of this Agreement, notices and all other communications provided herein shall be in writing and shall be deemed to have been duly given when delivered in person or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
 
IF TO THE EXECUTIVE:
IF TO THE COMPANY:
   
Mark P. Marron
Attn:  General Counsel
c/o ePlus inc.
ePlus inc.
13595 Dulles Technology Drive
13595 Dulles Technology Drive
Herndon, VA 20171
Herndon, VA  20171
 
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17.  GOVERNING LAW.   All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.

18.  SEVERABILITY.   The provisions of this Agreement are severable, and if any part of it is found to be unlawful or unenforceable, the other provisions of this Agreement shall remain fully valid and enforceable to the maximum extent consistent with applicable law.

19.  MISCELLANEOUS.   No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and a member of the Board’s Compensation Committee, or its designate.  No waiver by either party hereto at any time of any breach by the other party hereto of, or noncompliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of other provisions or conditions at the same or at any prior or subsequent time.  No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement.

20.  CODE SECTION 409A.   It is the intent of this Agreement to either meet an exception from or to comply with the requirements of Section 409A (“ Section 409A ”) of the Internal Revenue Code of 1986, as amended, and any rulings and regulations promulgated thereunder (collectively, the “ Code ”), and any ambiguities herein will be so interpreted and this Agreement will be so administered.  References to a termination of employment in Section 6 and/or 7 of this Agreement shall mean the date of a “separation from service” within the meaning of Code Section 409A(a)(2)(A)(i).  If the Executive is a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i) at the time of the Executive’s termination of employment, any nonqualified deferred compensation subject to Section 409A that would otherwise have been payable under this Agreement as a result of, and within the first six (6) months following, the Executive’s “separation from service” and not by reason of another event under Section 409A(a)(2)(A), will become payable six (6) months and one (1) day following the date of the Executive’s separation from service or, if earlier, the date of Executive’s death.  Any such “nonqualified deferred compensation” shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment by creditors, or borrowing, to the extent necessary to avoid tax, penalties and/or interest under Section 409A.  The Company agrees that it will pay, indemnify and hold the Executive harmless for any additional tax or interest penalty payable amount by the Executive on account of a violation of Section 409A.  Any payment by the Company of such amount shall include a “gross-up” payment, which shall be the amount required to cause the net amount retained by the Executive after payment of all taxes, including taxes on the “gross-up” payment, to equal the amount of additional tax and interest penalty payable by the Executive on account of the violation of Section 409A.  Such payment shall be made by the Company within thirty (30) days of the date that Executive submits proof of payment of such taxes to the taxing authority and not later than the end of Executive’s taxable year next following the taxable year in which the Executive submits the respective taxes to the taxing authority.  The Executive agrees that the Company may amend this Agreement, with the consent of the Executive, as the Company determines is necessary or advisable so that payments made pursuant to this Agreement will not result in additional taxation of the Executive pursuant to the provisions of Section 409A.  The Executive agrees that he will not withhold his consent under this Section 20 if the proposed amendment does not materially adversely affect the Executive’s rights under this Agreement.
 
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21.  CODE SECTION 280G.  In the event the Company (or its successor) and Executive agree, based on the advice of an independent nationally recognized public accounting firm engaged by the Company, that part or all of the consideration, compensation or benefits to be paid to or for the benefit of Executive under this Agreement constitute “parachute payments” under Section 280G(b)(2) of the Code (“ Section 280G ”), then either (a) or (b) below shall apply.

(a)  Except as provided in Section 21(b) below, if the aggregate present value of such parachute payments, singularly or together with the aggregate present value of any consideration, compensation or benefits to be paid to or for the benefit of Executive under any other plan, arrangement or agreement which constitute “parachute payments”, calculated as provided under Section 280G, (collectively, the “ Parachute Amount ”) exceeds 2.99 times Executive’s “base amount”, as defined in Section 280G(b)(3) (the “ Base Amount ”), the amounts constituting parachute payments that would otherwise be payable to Executive or for Executive’s benefit shall be reduced to the extent necessary so that the Parachute Amount is equal to 2.99 times the Base Amount (the “ Reduced Amount ”).

(b)  The Parachute Amount shall not be reduced as provided in Section 21(a) if, based on the advice of such public accounting firm, without such reduction Executive would be entitled to receive and retain, on a net after-tax basis (including, without limitation, after imposition of any excise taxes payable under Section 4999 of the Code), an amount which is greater than the amount, on a net after-tax basis, that Executive would be entitled to retain upon receipt of the Reduced Amount.

If the determination made above results in a reduction under Section 21(a) of the payments that would otherwise be paid to or for the benefit of Executive, such reduction in payments shall be first applied to reduce any cash severance payments that Executive would otherwise be entitled to receive hereunder and shall thereafter be applied to reduce other payments and benefits in a manner that would not result in subjecting Executive to additional taxation under Section 409A.

22.  STATUS OF PRIOR EMPLOYMENT AGREEMENTS .  Executive acknowledges that this Agreement supplants and replaces in full all prior employment agreements between Executive and the Company.  Executive waives any and all rights to enforce any and all provisions in any prior employment agreement between Executive and the Company.
 
ePlus inc.
 
Executive
     
/s/ Erica S. Stoecker
 
/s/ Mark P. Marron
Erica S. Stoecker
 
Mark P. Marron
General Counsel
 
Chief Executive Officer
     
Date:
December 12, 2017
 
Date:
November 20, 2017

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EXHIBIT 1

GENERAL RELEASE

This General Release of Claims (“ Release ”) is entered into by ePlus inc. (hereafter referred to as “ ePlus ” or the “ Company ”) and _______________________ (hereafter referred to as “ Employee ”).

WHEREAS, Employee’s employment with ePlus terminated effective (insert date).

NOW THEREFORE, in consideration of the premises and mutual promises contained in the Employment Agreement between Employee and ePlus, the parties agree as follows:

Employee agrees to and does hereby release ePlus, its past and present officers, directors, agents, shareholders, trustees, partners, employees, in their individual and/or corporate capacities, as well as its employee benefit plans, affiliates, subsidiaries, predecessors, successors and successors in interest (the “ Releasees ”) from all claims, charges, causes of action or other liabilities (hereafter collectively referred to as “ claims ”), whether in contract or tort, known or unknown , arising out of or relating in any way to Employee’s employment and/or termination of employment with ePlus, including, but not limited to, claims under any federal, state or local law, including but not limited to Title VII of the Civil Rights Act of 1964 (“ Title VII ”); 42 U.S.C. § 1981; the American With Disabilities Act (“ ADA ”); the Age Discrimination in Employment Act (“ ADEA ”); the Employee Retirement Income Security Act of 1974 (“ ERISA ”); the Equal Pay Act; the Genetic Information Nondiscrimination Act; the Family and Medical Leave Act (“ FMLA ”), all as amended; and any common law, statutory, contract, tort, or public policy claims now or hereafter recognized, including but not limited to claims for wrongful discharge; breach of contract, express or implied; constructive discharge; discrimination; harassment; retaliation; defamation; and whistleblower claims (to the fullest extent they may be released under applicable law), as well as all claims for severance pay or benefits or attorneys’ fees and costs.  Any initiation of claims prohibited by this Release shall be a breach of this Release and shall entitle ePlus to recover the consideration as set in Section 7(b) of the Employment Agreement, along with reasonable attorneys’ fees incurred by ePlus to litigate any such action, to the extent permitted by law.  Employee acknowledges that as of the date he signs this Release, the Company has paid all wages, salaries, commissions, bonuses, benefits, and other amounts earned and accrued, less any applicable deductions, and has no obligation to pay any additional amounts except as set forth in Employee’s Employment Agreement, if applicable. THIS IS A GENERAL RELEASE OF CLAIMS.

Under the Older Workers Benefits Protections Act (“ OWBPA ”), Employee may, if desired, have a period of twenty-one calendar days to consider this Release.  Employee has also been advised in writing to consult with an attorney (without expense to ePlus) concerning the release of claims under the ADEA prior to executing this Release.  In addition, Employee may revoke this Release within a period of seven calendar days following execution of this Release (the “ Revocation Period ”).  If Employee signs and does not revoke this Release during the Revocation Period, this Release will become fully effective upon the expiration of the Revocation Period.
 
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Excluded from this Release are any claims which cannot be waived by law.  The Employee is waiving, however, his right to any monetary recovery should any governmental agency or entity, including but not limited to the U.S. Equal Employment Opportunity Commission (“ EEOC ”) or the U.S. Department of Labor (“ DOL ”), pursue any claims on his behalf, whether initiated by Employee or any person, organization, or entity filing on his behalf.  Further, no provision of this Release should be construed or interpreted to preclude or in any way limit or restrict the Employee’s right to initiate an action against the Company under the OWBPA or ADEA challenging, under the ADEA, the waiver and release of claims contained in this Release on the grounds that they were not knowing and voluntary.  To the extent that any provision of this Release is determined to be in violation of the OWBPA or ADEA, it should be severed or modified to comply with the OWBPA or ADEA, without affecting the validity or enforceability of any of the other terms or provisions of this Release.  To the extent that Employee is a Medicare beneficiary, Employee agrees to contact a Company human resources representative for further instruction.

The provisions of this Release shall inure to the benefit of the parties, their successors and assigns and shall be binding upon the parties and their heirs, executors, administrators, successors and assigns.
 
This Release shall be interpreted, applied and enforced in accordance with and shall be governed by the laws of the state of Delaware, without regard to its conflict of laws provisions.

Employee hereby certifies he has complied with Sections 8, 9, 10, 11 and 12 of his Employment Agreement (confidentiality, intellectual property, non-compete, non-solicit, conflict of interest and return of property provisions).

IN WITNESS WHEREOF, the parties have executed this Release on the date set forth next to each party’s signature.
 
EMPLOYEE
 
ePlus
 
       
       
Signature
 
Signature
 
       
       
Date
 
Name/Title
 
       
       
   
Date
 
 
 
16
EXHIBIT 10.2
 
EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “ AGREEMENT ”) is effective as of the date signed by the second party on the last page of the Agreement, by and between ePlus inc. a Delaware corporation (the “ Company ” or, collectively with its subsidiaries, the “ Companies ”) and Phillip G. Norton (the “ Executive ”).

RECITAL

Since 1993, the Executive has served as Chief Executive Officer of the Company.  As set forth in this Agreement, Executive has transitioned to a role as Executive Chairman, and the parties have negotiated this Agreement in consideration of the Executive’s valuable continuing services and expertise for the benefit of the Company.

NOW THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties do hereby agree as follows:

1.  EFFECTIVE DATE .  This Agreement shall be effective as of the date noted above.

2.  DEFINITIONS .  As used herein, the following terms shall have the following meanings:

a.  “ Disability ” shall mean a disability by Executive or his spouse, which renders or is likely to render Executive unable to fulfill his obligations under this Agreement for 30 days in any 90-day period (either due to his own disability or to care-taking responsibilities for his spouse).

b.  “ Employment Term ” shall be the period from August 1, 2017, through and including July 31, 2018.  Executive’s employment with the Company shall terminate effective July 31, 2018, unless (1) the employment terminates earlier as set forth in this Agreement, or (2) the Company’s Board of Directors (the “ Board ”) and the Executive agree in writing to extend the Employment Term.

c.  “ Good Cause ” means that the Compensation Committee of the Board in good faith determines that the Executive:

(1)  Failed to satisfactorily perform his duties to the Company and such failure was not cured within 30 days of the Company’s providing Executive written notice of such failure;

(2)  Failed to comply with a material policy of the Company that was applicable to the Executive and such failure was not cured within 30 days of the Company’s providing Executive written notice of such failure;

(3)  Acted or failed to act in a manner that constitutes gross misconduct, embezzlement, misappropriation of corporate assets, breach of the duty of loyalty, fraud or negligent or willful violations of any laws with which the Company is required to comply;
 
(4)  Was convicted of or entered a plea of “guilty” or “no contest” to a felony;
 
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(5)  Refused or failed to comply with lawful and reasonable instructions of the Board and such refusal or failure was not cured within 30 days of the Company’s providing Executive written notice of such refusal or failure; or

(6)  Any other material breach of this Agreement by the Executive that is not cured within 30 days of the Company providing Executive written notice of such breach.

Good Cause shall not include failures as set forth in this Section 2(c) when such failure is a result of the Executive’s illness or injury.

d.  “ Good Reason ” shall mean that within 30 days prior to the Executive’s providing the notice to the Company required under Section 6.b(1) of this Agreement that any of the following has occurred:

(1)  A material change in the scope of the Executive’s authority or assigned duties and responsibilities, or the assignment of duties or responsibilities that are inconsistent with the Executive’s level or position, without his consent;

(2)  Any material acts of dishonesty by the Company directed toward or affecting Executive;

(3)  Any illegal act or instruction directly affecting Executive by the Company, which is not withdrawn after the Company is notified of the alleged illegality by Executive;

(4)  A reduction by the Company in the Executive’s base salary and bonus opportunity other than as described in this Agreement;

(5)  A change in the Executive’s principal office to a location outside of a 20 mile radius from the Company’s offices in Herndon, Virginia;

(6)  The failure by the Company to continue to provide the Executive with benefits substantially similar to those specified in Section 5 of this Agreement; or

(7)  Any other material breach of this Agreement by the Company that is not cured within 30 days of the Executive providing the Company written notice of such breach.

e.  “ Termination Date ” shall mean the date Executive’s termination is effective, as described in the respective subparts of Section 6, or July 31, 2018, whichever occurs earlier.

3.  EMPLOYMENT.   The Company and Executive hereby agree to employ the Executive as set forth herein during the Employment Term unless Executive’s employment terminates earlier pursuant to Section 6 below.

4.  POSITION, DUTIES AND RESPONSIBILITIES.   During the Employment Term, the Executive shall serve as Executive Chairman, with duties to include:
 
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a.

(1)
Consultation to the CEO regarding compensation recommendations for senior executives (except for the incoming CEO);

(2)
Strategic acquisition review and consultation;

(3)
Business line consultation, as requested;

(4)
Financing segment consultation, as requested;

(5)
Continuity with key client relationships, as requested;

(6)
Assist in recruitment and training of key hires, as requested;

(7)
Interim succession and contingency planning, as requested;

b.  Rendering such other services to the Company as requested, provided that such services are consistent with the level of his position; and

c.  Directing his primary business attention and skill to the business of the Company as needed to fulfill the above-described duties.  Executive may (a) serve on other boards (public or private) or engage in civic, charitable or educational activities, (b) invest in other companies, and (c) actively manage his portfolio investment, real estate investment, or other investments, provided that such activities (1) do not materially interfere or conflict with the Executive’s responsibilities or the Company’s interests, (2) are not competitive with Company and would not constitute a related party transaction with the Company (unless appropriately approved and disclosed in accordance with the Company’s Related Party Transactions Policy, committee charters, bylaws, and other governing documents), and (3) meet all requirements imposed by NASDAQ, the Securities and Exchange Commission, or other relevant regulatory bodies.

5.  COMPENSATION, COMPENSATION PLANS AND BENEFITS .  During the Employment Term, the Executive shall be compensated as follows:

a.  Effective August 1, 2016, Executive shall receive a base annual salary of three hundred thousand dollars ($300,000.00).  The base annual salary will be reviewed by the Company’s Compensation Committee on an annual basis, and may be increased from time to time.

b.  The Executive shall be eligible to be considered for an annual bonus as set forth in the terms and conditions as outlined in the Executive Incentive Plan (“ EIP ”) and any applicable award agreement thereunder.  The Company shall pay any bonus earned under this Section 5.b no earlier than the end of the fiscal year for which earned and no later than the next September 30th following the fiscal year in which the bonus was earned, provided that financial filings are timely provided to the Compensation Committee.  In no event will any bonus earned under this Section 5.b be paid later than the next December 31st following the fiscal year for which the bonus was earned, unless calculation of the bonus is not administratively practicable by that date, and further delay would not violate Section 409A.

(1)  For the fiscal year ending March 31, 2017, the parties will enter into an amendment to the Executive’s current award agreement under the EIP.  For the four month period, April 1, 2016 through July 31, 2016, the per annum target award is $450,000.  Beginning on August 1, 2016 through the end of the fiscal year, March 31, 2017, the per annum target award is reduced to $150,000.  The weighted average annual target award, therefore, is $250,000 for the full fiscal year, April 1, 2016 through March 31, 2017.
 
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(2)  For the fiscal year beginning April 1, 2017 and ending March 31, 2018, Executive will be a participant in the EIP, with a target award of $150,000, with goals as determined by the Compensation Committee.

c.  The Executive shall receive the following Retention Payments, provided that he is employed by the Company on the date the payment is due:


Payment Due Date
Payment Amount
January 31, 2017
$250,000
July 31, 2017
$250,000
January 31, 2018
$500,000


d.  The Executive shall be entitled to participate in and receive other benefits offered by the Company, including six weeks of vacation per year, and eligibility to receive awards under the Company’s Long-Term Incentive Plan.  Other benefits will include, but are not limited to, those offered to employees generally, which may include, but are not limited to sick, holiday and other leave times, and benefits under any life, health, accident, disability, medical, and dental insurance plans, under the same terms and conditions as similarly situated employees.

e.  The Executive shall be entitled to be reimbursed for the reasonable and necessary out-of-pocket expenses, including entertainment, travel and similar items and all expenses necessary to maintain his professional, industry association memberships incurred by him in performing his duties, in accordance with the Company’s expense reimbursement policies in place from time to time.

f.  In the event Executive’s employment with the Company terminates for any reason, any payments and benefits due the Executive under the Company’s employee benefit plans and programs, including any Long-Term Incentive Plan, shall be determined in accordance with the terms of such benefit plans and programs, and shall be in addition to any other payments or benefits herein.

g.  In the event it is determined that any bonus or other incentive compensation payable by the Company to the Executive was paid based on incorrect financial results, the Compensation Committee will review such payment.  If the amount of the payment would have been lower had the level of achievement of applicable financial performance goals been calculated based on the correct financial results, the Company’s Compensation Committee may, in its sole discretion, adjust (i.e., lower) the amount of such payment so that it reflects the amount that would have applied based on the correct financial results and, to the extent permitted by applicable law, require the reimbursement by Executive of any amount paid to or received by the Executive with respect to such bonus or other incentive compensation.  Additionally, bonuses or other incentive compensation payable to the Executive by the Company are subject to recovery by the Company to the extent required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the Sarbanes-Oxley Act of 2002, including any amendments thereto, and any regulations promulgated thereunder.  Except as required by law, this subsection shall not apply to time-vested stock options, restricted stock or restricted stock units that are not awarded, granted or vested based on financial measure required to be reported under the securities laws.
 
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6.  TERMINATION OF EMPLOYMENT

a.  Termination by the Company.

(1)  During the Employment Term, the Company may terminate the Executive’s employment for Good Cause.  In the absence of cure by the Executive as per Section 2.c, if applicable, termination by the Company for Good Cause shall be retroactive to the date the Company provides notice to Executive of the Good Cause event.

(2)  During the Employment Term, the Company may terminate the Executive’s employment at any time without Good Cause upon the Company’s payment to the Executive for the 30 days’ written notice period to the Executive or 30 days’ pay in lieu of such notice.  Termination is effective 30 days after the date the written notice of termination is provided to the Executive.  The Company may, in its sole discretion, place the Executive on paid administrative leave as of any date prior to the end of the 30-day notice period and require that the Executive no longer be present on Company premises.  During any period of paid administrative leave, the Executive is not authorized to act or speak as a representative of the Company.

b.  Termination by Executive.

(1)  During the Employment Term, the Executive may terminate his employment for Good Reason as defined in Section 2.d only if the Executive has provided the Board with written notice of his intent to terminate his employment for Good Reason at least 30 days prior to the date of termination, and the Company fails to cure the Good Reason within 30 days after receiving Executive’s written notice.  Termination for Good Reason will be effective on the 31st day after the Company receives Executive’s written notice and fails to cure the Good Reason identified in Executive’s notice.

(2)  During the Employment Term, the Executive may voluntarily terminate his employment for any (or no) reason with the Company upon 30 days prior notice.  Termination is effective 30 days after the date the notice is provided to the Company.  The Company may, in its sole discretion, place the Executive on paid administrative leave as of any date prior to the end of the 30-day notice period and require that the Executive no longer be present on Company premises.  During any such period of paid administrative leave, the Executive is not authorized to act or speak as a representative of the Company.

c.  Termination by Reason of Death, or Disability.   Executive’s employment with the Company shall be deemed to have been terminated effective upon the date of Executive’s death, or the date upon which either party provides notice of Disability to the other party.

7.  EFFECT OF TERMINATION .

a.  If the Executive’s employment ends at any time for any reason, the Company shall pay the Executive his then current base salary due through the Termination Date, and provide the Executive his then current benefits (as provided in Section 5) through the Termination Date.
 
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b.  Provided that after the Termination Date the Executive (i) signs in the form provided by the Company a general release of any claims Executive has or may have against the Company or its then current or former officers, directors, or employees (hereinafter “ Release ”), attached hereto as Exhibit 1, in the time provided in the Release, and does not revoke it; and (ii) certifies that the Executive has complied with Sections 8, 9, 10, 11 and 12 of this Agreement (confidentiality, intellectual property, non-compete, non-solicit, conflict of interest and return of property provisions), then:

(1)  Death or Disability:  If, during the Employment Term, the Executive’s employment terminates by reason of death or Disability as described in Section 6.c, then:

(a)  Unvested Stock .  Executive shall be entitled to the acceleration of vesting of any restricted stock, as set forth in the relevant Long-Term Incentive Plan and award agreement; and

(b)  The Company shall pay to Executive or his estate, in the case of death, a cash severance payment in the amount as set forth on Schedule A; and

(c)  EIP Award .  The Company shall pay to the Executive, or to his estate any award due under any EIP award agreement (as described in Section 5.b), in the amount due to the value of the award that otherwise would have been received based on the extent to which Performance Goals are determined to have been met by the Compensation Committee, multiplied by a fraction, the numerator of which is the number of months (including partial months) in the period beginning on the first day of the relevant performance period and ending with the date as of which the Executive’s employment with the Company terminated and the denominator of which is the number of months in such performance period (the “ pro-rated EIP award ”).  Any such payment shall be made at the time the payment would have been made had there been no termination of employment.

Notwithstanding anything to the contrary, the release of claims requirement shall be waived if the Executive’s death or Disability renders him unable to sign the Release.

 (2)  Termination without Good Cause; Termination for Good Reason. If, during the Employment Term, the Company terminates the Executive’s employment without Good Cause as described in Section 6.a(2) or Executive terminates his employment for Good Reason, as described in Section 6.b(1), then:

(a)  The Company shall pay Executive a severance amount as set forth in the attached Schedule B;

(b)  The Company shall either, at the Company’s choice: (1) accelerate the vesting of any restricted stock owned by the Executive at the Termination Date or (2) pay to Executive an amount equal to the value of any restricted stock he forfeits at the Termination Date;

(c)  The Company shall pay to the Executive the pro-rated EIP award, to the extent Performance Goals are met;  such payment to be made at the time the payment would have been made had there been no termination of employment; and

(d)  Any payment due to the Executive under this Section 7.b (except the EIP Award) shall be made in a lump sum within sixty (60) days following the Termination Date.

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c.  Notwithstanding the above, if the Executive is a “specified employee” within the meaning of Section 20, the payments under subsection 7.b above shall be made no earlier than the date provided in Section 20.

d.  Any release and certification required from the Executive under the first paragraph of Section 7.b shall be on the form attached as Exhibit 1.  The applicable release and certification must be signed and returned by Executive to the Company within the time frame set forth in the Release, and not revoked, for Executive to receive payments under Section 7.b.  Except as provided by Section 7.b.(2)(d), and provided the requirements of this subsection are met, any lump sum payment due Executive under Section 7.b shall be paid on the last day of the 60-day or other applicable period in which the Company may make such payment in compliance with the applicable provision.

e.  Continued Health Benefits Upon Termination .  In the event Executive’s employment is terminated due to Disability, by the Company Without Good Cause, or by the Executive for Good Reason, or the Executive ceases to be eligible to participate in the Company’s health insurance program, the Company shall pay an amount in cash equal to the cost of premiums the Company paid prior to the date of termination for Executive and/or Executive’s qualified dependents’ coverage under the Company’s medical, prescription, dental, and other health benefits each month until the earlier of eighteen months after the Termination Date, July 31, 2018, or the date that Executive or his spouse become ineligible for COBRA coverage.  Executive agrees that this cash payment is not a reimbursement for his actual premiums for health coverage and that he has complete discretion with respect to the use of these funds.  The Executive shall not be obligated in any way to mitigate the Company’s obligations to him under this Section.

8.  CONFIDENTIALITY.

a.  During the course of employment, Executive has had and shall continue to have access to the Company’s Confidential Information (as defined below).  Executive shall not disclose or use at any time, either during his employment or after his employment ends for any reason, any Confidential Information (as defined below) of the Company, whether or not patentable, that Executive learns as a result of his Involvement with the Company, whether or not he developed such information.  “ Involvement with the Company ” means holding a position as an employee, officer, or director with either the Company or any of its subsidiaries or affiliates.”  “ Confidential Information ” means Company information that is material to the Companies’ business and that is not generally known by, or made available to, the public, and shall include, without limitation, information regarding:
 
•
“Trade Secrets” or proprietary information;
•
strategic sourcing information or analysis;
•
patents, patent applications, developmental or experimental work, formulas, test data, prototypes, models, and product specifications;
•
accounting and financial information;
•
financial projections and pro forma financial information;
•
sales and marketing strategies, plans and programs
•
product development and product testing information;
•
product sales and inventory information;
•
personnel information, such as employees’ and consultants’ benefits, perquisites, salaries, stock options, compensation, formulas or bonuses;
•
organizational structure and reporting relationships;
•
business plans;
•
names, addresses, phone numbers of customers;
•
contracts, including contracts with clients, suppliers, independent contractors or employees;
•
business plans and forecasts;
•
existing and prospective projects or business opportunities; and
•
passwords and other physical and information security protocols and information.
 
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“ Trade Secrets ” includes any information that derives independent economic value, actually and potentially, from not being generally known to, and is not readily ascertainable by proper means by, other persons who may obtain economic value from their disclosure or use and that are the subject of efforts that are reasonable under the circumstances to maintain their secrecy.

b.  Confidential Information excludes any information known to the Executive prior to his employment with the Companies regardless of whether such information would otherwise be deemed Confidential Information.  Information that is or later becomes publicly available in a manner wholly unrelated to any breach of this Agreement by Executive or other improper means will not be considered Confidential Information as of the date it enters the public domain.  If Executive is uncertain whether something is Confidential Information, Executive should treat it as Confidential Information until he receives clarification from the Board that it is not Confidential Information.  Confidential Information shall remain at all times the property of the Companies.

c.  Executive may use or disclose Confidential Information only:

(1)  When he is employed by the Company, as authorized and necessary in performing the responsibilities of his position, provided that he has taken reasonable steps to ensure that the information remains confidential;

(2)  With prior written consent of the Board;

(3)  In a legal proceeding between Executive and the Company to establish the rights of either party under this Agreement, provided that Executive stipulates to a protective order to prevent any unnecessary use or disclosure; or

(4)  Where such disclosure is required by law, provided that Executive has complied with the following procedures to ensure that the Companies have an adequate opportunity to protect their legal interests.

Upon receipt of a subpoena or any other compulsory legal process (“ Compulsory Process ”) that could possibly require disclosure of Confidential Information, Executive shall make his best effort to provide within forty-eight (48) hours of receipt a copy of the Compulsory Process as well as complete information regarding the circumstances under which he received Compulsory Process to the General Counsel by hand delivery or by e-mail, provided that Executive confirms with the General Counsel by telephone that the General Counsel received the e-mail.  To provide the Company with the greatest opportunity to assess the need for protection from disclosure, Executive shall not make any disclosure until the latest possible date for making such disclosure in accordance with the Compulsory Process (“ Latest Possible Date ”).  If one of the Companies seeks to prevent disclosure in accordance with the applicable legal procedures, and notifies Executive before the Latest Possible Date that it has initiated such procedures, Executive shall not make disclosures of any Confidential Information that is the subject of such procedures, until such objections are withdrawn, or the appropriate tribunal either makes a final determination that the objections are invalid or orders Executive to make the disclosure, unless otherwise required by law.

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d.  Executive hereby acknowledges that any breach of this Section 8 would cause the Companies irreparable harm.  Nothing in this Agreement prohibits Executive from reporting an event that he reasonably and in good faith believes is a violation of law to the relevant law-enforcement agency (such as the Securities and Exchange Commission, Department of Justice, Equal Employment Opportunity Commission, Department of Labor, National Labor Relations Board, the Congress, or any agency Inspector General), from cooperating in an investigation conducted by such a government agency, or from making other disclosures that are protected under the whistleblower provisions or state or federal law or regulation.  This may include disclosure of trade secret or confidential information within the limitations permitted by the 2016 Defend Trade Secrets Act (“ DTSA ”).  Executive is hereby provided notice that under the  DTSA, (1) no individual will be held criminally or civilly liable under federal or state trade secret law for the disclosure of a trade secret (as defined in the Economic Espionage Act) that: (A) is made in confidence   to a federal, state, or local government official, either directly or indirectly, or to his attorney, that is made solely   for the purpose of reporting or investigating a suspected violation of law; or, (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made   under seal so that it is not made public; and, (2) an individual who pursues a lawsuit for retaliation by an employer for reporting a suspected violation of the law may disclose the trade secret to his attorney and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal, and does not disclose the trade secret, except as permitted by court order.

9.  INTELLECTUAL PROPERTY .  Executive acknowledges that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, original works of authorship, copyrights and all similar or related information (whether or not patentable) that relate to the Companies’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by the Companies (“ Intellectual Property ”) belong to the Companies.  Executive agrees that both during and after his employment with the Companies that he will sign any documents or provide any information necessary for the Companies to protect their rights to such Intellectual Property.  If Executive is unavailable to sign any document that is necessary for the Companies to protect their rights to such Intellectual Property, Executive hereby authorizes the Companies to sign on his behalf.

10.  NON-COMPETITION and NON-SOLICITATION .  During Executive’s employment and for a period of 6 months following the date on which his employment ends for any reason, (the “ Restricted   Period ”), the Executive agrees to the below Non-Competition and Non-Solicitation restrictions.
 
9
a.  Non-Competition .  Executive shall not, directly or indirectly, individually or as part of or on behalf of any other person, company, employer or other entity, except with prior written approval of the Board, (i) own, (ii) manage, (iii) operate, (iv) advise, (v) be employed by (vi) perform services for, (vii) consult with or (viii) control any Competing Business.  “ Competing Business ” means a business that is selling products or services similar to those products or services that any of the Covered Entities is selling as of the date the Executive’s employment ends and continues to offer for sale during the Restricted Period within any city, town or county in which, as of the date Executive’s employment ends, any Covered Entity is actively marketing or has made a significant investment in time and money prior to the date the Executive’s employment ends to begin marketing its products or services beginning within sixty (60) days after the date the Executive’s employment ends.  “ Covered Entities ” include the Company and any affiliated entities in which Executive is actively engaged as an officer, director or employee or about which Executive has received Confidential Information as a result of his Involvement with the Company.

b.  Non-Solicitation.   Executive shall not, directly or indirectly, individually or as part of or on behalf of any other person, company, employer or other entity, except with prior written approval of the Board:

(1)  hire or attempt to hire a Covered Employee, encourage another to hire a Covered Employee, or otherwise seek to adversely influence or alter such Covered Employee’s relationship with the Company.  A “ Covered Employee ” means any person who either is employed by the Company or has been employed by the Company within the preceding sixty (60) days with whom the Executive worked and/or about whom the Executive has material knowledge as to his or her job duties;

(2)  encourage or attempt to persuade a Customer to purchase other than from the Company products or services similar to those that the Company was selling as of the date Executive’s employment ends and is continuing to offer for sale. A “ Customer ” shall mean any person or entity that has purchased products or services from the Company within six (6) months prior to the date Executive’s employment ends; and/or

(3)  encourage, or attempt to persuade any person or entity that the Company is using as a consultant or vendor as of the date Executive’s employment ends to terminate or modify such business relationship with the Company in a manner adverse to the Company.

c.  Nature of Restrictions .  Executive acknowledges that as a result of his employment as Chief Executive Officer, and Executive Chairman of the Company, he has held and will continue to hold a position of utmost trust in which Executive has come to know and will continue to come to know the Company’s employees, customers and Confidential Information.  Executive agrees that the provisions of this entire Section 10 are necessary to protect the Company’s legitimate business interests.   Executive warrants that these provisions shall not unreasonably interfere with his ability to earn a living or to pursue his occupation after his employment ends for any reason.  Executive agrees that upon beginning any new employment or business during the Restricted Period, he will promptly inform the Company of the name and address of his new employer or business and provide such new employer or business with a copy of this Agreement and copy the Company on the letter or e-mail transmitting the Agreement to the appropriate person in such new employer or business.
 
10
11.  CONFLICT OF INTEREST .  During his employment, Executive agrees to have undivided loyalty to the Company.  This means that Executive shall avoid any situation that involves or has the potential to appear to involve a conflict of interest, including, but  not limited to, participating in a business transaction that personally benefits Executive or a relative based on information or relationships developed on the job, failing to disclose that someone who is doing or seeking to do business with or work for the Company is a relative or close personal associate, or receiving direct or indirect compensation from a client or vendor.

12.  RETURN OF PROPERTY .  On the date Executive’s  employment ends for any reason, or at any time during his employment, at the request or direction of the Company, Executive will immediately deliver to the Company any or all equipment, property, material, Confidential Information, Intellectual Property or copies thereof that are owned by the Company and are in Executive’s possession or control.  This includes documents or other information prepared by Executive, on his behalf or provided to him in connection with his duties for the Company and while employed by the Company, regardless of the form in which such document or information are maintained or stored, including by computer, typed, handwritten, electronic, audio, video, micro-fiche, imaged, drawn or any other means of recording or storing documents or other information.  Executive hereby warrants that he will not retain in any form such documents, Confidential Information, Intellectual Property or other information or copies thereof after Executive’s employment ends for any reason, provided that Executive may retain a copy of this Agreement and any other document or information describing any rights he may have after the Termination Date.

13.  COOPERATION WITH LEGAL PROCEEDINGS.   Executive agrees to reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence or that may be brought in the future against or on behalf of any of the Companies, that relate to events or occurrences that transpired while Executive was employed by any of the Companies.  Executive’s reasonable cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with the Companies’ counsel to prepare for discovery or trial and to act as a witness on behalf of any of the Companies.  Executive also agrees to reasonably cooperate with any of the Companies in connection with any investigation or review of any federal, state, or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Executive was employed by any of the Companies.  Executive understands that in any legal action, investigation, or review covered by this Section 13 the Company expects Executive to provide only accurate and truthful information or testimony. The Company agrees to reimburse the Executive for any costs he incurs in cooperation pursuant to this Section 13, including but not limited to travel expenses and attorneys’ fees and costs. Nothing in this Section shall limit any indemnification rights Executive may have on the effective date of this Agreement.

14.  REMEDY

a.  Executive acknowledges that his breach of the obligations contained in Sections 8, 9, 10, 11 and 12 of this Agreement would cause the Company irreparable harm that could not be reasonably or adequately compensated by damages in an action at law.  If Executive breaches or threatens to breach any of the provisions contained in Sections 8, 9, 10, 11 and 12 of this Agreement, the Company shall be entitled to an injunction, without bond, restraining him from committing such breach.  The Company’s right to exercise its option to obtain an injunction shall not limit its right to any other remedies, including damages.
 
11
b.  Any action relating to or arising from this Agreement shall be brought exclusively in a court of competent jurisdiction in the Commonwealth of Virginia, and Executive hereby consents to venue and personal jurisdiction in any such court in the Commonwealth of Virginia.

c.  Executive expressly waives any right to a trial by jury for any action relating to or arising from this Agreement.

15.  SUCCESSORS; BINDING AGREEMENT.

a.  This Agreement shall be binding upon, and inure to the benefit of the parties hereto and their heirs, successors and assigns.

b.  The Company shall require any successor to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

16.   NOTICES.   For the purpose of this Agreement, notices and all other communications provided herein shall be in writing and shall be deemed to have been duly given when delivered in person or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
 
IF TO THE EXECUTIVE:
IF TO THE COMPANY:
   
Phillip G. Norton
Attn:  General Counsel
1166 Chain Bridge Road
c/o ePlus inc.
McLean, VA  22101
13595 Dulles Technology Drive
 
Herndon, VA  20171
WITH A COPY TO:
 
 
Michael Scott
1420 Beverly Road, Suite 240
McLean, VA  22101
 

17.  GOVERNING LAW.   All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.

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18.  SEVERABILITY .  The provisions of this Agreement are severable, and if any part of it is found to be unlawful or unenforceable, the other provisions of this Agreement shall remain fully valid and enforceable to the maximum extent consistent with applicable law.
 
19.  MISCELLANEOUS.   No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company’s General Counsel.  No waiver by either party hereto at any time of any breach by the other party hereto of, or noncompliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of other provisions or conditions at the same or at any prior or subsequent time.  No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement.

20.  CODE SECTION 409A.  It is the intent of this Agreement to either meet an exception from or to comply with the requirements of Section 409A (“ Section 409A” ) of the Internal Revenue Code of 1986, as amended, and any rulings and regulations promulgated thereunder (collectively, the “ Code ”), and any ambiguities herein will be so interpreted and this Agreement will be so administered.  References to a termination of employment in Section 6 and/or 7 of this Agreement shall mean the date of a “separation from service” within the meaning of Section 409A(a)(2)(A)(i).  If the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) at the time of the Executive’s termination of employment, any nonqualified deferred compensation subject to Section 409A that would otherwise have been payable under this Agreement as a result of, and within the first six (6) months following, the Executive’s “separation from service” and not by reason of another event under Section 409A(a)(2)(A), will become payable six (6) months and one (1) day following the date of the Executive’s separation from service or, if earlier, the date of Executive’s death.  Any such “nonqualified deferred compensation” shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment by creditors, or borrowing, to the extent necessary to avoid tax, penalties and/or interest under Section 409A.  The Company agrees that it will pay, indemnify and hold the Executive harmless for any additional tax or interest penalty payable amount by the Executive on account of a violation of Section 409A.  Any payment by the Company of such amount shall include a “gross-up” payment, which shall be the amount required to cause the net amount retained by the Executive after payment of all taxes, including taxes on the “gross-up” payment, to equal the amount of additional tax and interest penalty payable by the Executive on account of the violation of Section 409A.  Such payment shall be made by the Company within thirty (30) days of the date that Executive submits proof of payment of such taxes to the taxing authority and no later than the end of Executive’s taxable year next following the taxable year in which the Executive submits the respective taxes to the taxing authority.  The Executive agrees that the Company may amend this Agreement, with the consent of the Executive, as the Company determines is necessary or advisable so that payments made pursuant to this Agreement will not result in additional taxation of the Executive pursuant to the provisions of Section 409A.  The Executive agrees that he will not withhold his consent under this Section 20 if the proposed amendment does not materially adversely affect the Executive’s rights under this Agreement.
 
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21.  CODE SECTION 280G .  In the event the Company (or its successor) and Executive agree, based on the advice of an independent nationally recognized public accounting firm engaged by the Company, that part or all of the consideration, compensation or benefits to be paid to or for the benefit of Executive under this Agreement constitute “parachute payments” under Section 280G(b)(2) of the Code (“ Section 280G ”), then either (a) or (b) below shall apply.

a.  Except as provided in Section 21.b, if the aggregate present value of such parachute payments, singularly or together with the aggregate present value of any consideration, compensation or benefits to be paid to or for the benefit of Executive under any other plan, arrangement or agreement which constitute “parachute payments”, calculated as provided under Section 280G, (collectively, the “ Parachute Amount ”) exceeds 2.99 times Executive’s “base amount”, as defined in Section 280G(b)(3) (the “ Base Amount ”), the amounts constituting “parachute payments” that would otherwise be payable to Executive or for Executive’s benefit shall be reduced to the extent necessary so that the Parachute Amount is equal to 2.99 times the Base Amount (the “ Reduced Amount ”).

b.  The Parachute Amount shall not be reduced as provided in Section 21.a if, based on the advice of such public accounting firm, without such reduction Executive would be entitled to receive and retain, on a net after-tax basis (including, without limitation, after imposition of any excise taxes payable under Section 4999 of the Code), an amount which is greater than the amount, on a net after-tax basis, that Executive would be entitled to retain upon receipt of the Reduced Amount.

If the determination made above results in a reduction under Section 21.a of the payments that would otherwise be paid to or for the benefit of Executive, such reduction in payments shall be first applied to reduce any cash severance payments that Executive would otherwise be entitled to receive hereunder and shall thereafter be applied to reduce other payments and benefits in a manner that would not result in subjecting Executive to additional taxation under Section 409A.

22.  STATUS OF PRIOR EMPLOYMENT AGREEMENTS.   Executive acknowledges that this Agreement supplants and replaces in full all prior employment agreements between Executive and the Company, effective August 1, 2016, provided the Executive remains in the employment of Company on that date.  Executive waives any and all rights to enforce any and all provisions in any prior employment agreement between Executive and the Company.
 
ePlus inc.
 
Executive
     
/s/ Erica S. Stoecker
 
/s/ Phillip G. Norton
Erica S. Stoecker
 
Phillip G. Norton
General Counsel
 
Executive Chairman
     
Date:
December 12, 2017
 
Date:
December 11, 2017
 
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SCHEDULE A - Section 7.b(1)

Severance Table in the event of Death or Disability

** Plus pro-rated bonus, as if and when performance goals met
 
 
Termination Date
 
Severance Due
 
August 1 - 31, 2016
 
 $1,000,000
 
Sept 1 - 30, 2016
 
 $1,000,000
 
Oct 1 -  31, 2016
 
 $1,000,000
 
Nov 1 -  30, 2016
 
 $1,000,000
 
Dec 1 - 31, 2016
 
 $1,000,000
 
Jan 1 -  31, 2017
 
 $1,000,000
 
Feb 1 -  28, 2017
 
 $750,000
 
March 1 - 31, 2017
 
 $750,000
 
April 1 - 30, 2017
 
 $750,000
 
May 1 - 31, 2017
 
 $750,000
 
June 1 - 30, 2017
 
 $750,000
 
July 1-31, 2017
 
 $750,000
 
Aug 1 - 31, 2017
 
 $500,000
 
Sept 1 - 30, 2017
 
 $500,000
 
Oct 1 - 31, 2017
 
 $500,000
 
Nov 1 - 30, 2017
 
 $500,000
 
Dec 1 - 31, 2017
 
 $500,000
 
Jan 1 - 31, 2018
 
 $500,000
 
Feb 1 - 28, 2018
 
 $-
 
Mar 1 - 31, 2018
 
 $-
 
Apr 1 - 30, 2018
 
 $-
 
May 1 - 31, 2018
 
 $-
 
June 1 - 30, 2018
 
 $-
 
July 1 - 31, 2018
 
 $-

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SCHEDULE B – Section 7.b(2)

Severance Table in case of Termination Without Cause, or by Executive for Good Reason

** Plus pro-rated bonus, as if and when performance goals met
 
 
Termination Date
 
Severance Due
 
August 1 - 31, 2016
 
 $1,575,000
 
Sept 1 - 30, 2016
 
 $1,550,000
 
Oct 1 -  31, 2016
 
 $1,525,000
 
Nov 1 - 30, 2016
 
 $1,500,000
 
Dec 1 - 31, 2016
 
 $1,475,000
 
Jan 1 - 31, 2017
 
 $1,450,000
 
Feb 1 -  28, 2017
 
 $1,175,000
 
March 1 - 31, 2017
 
 $1,150,000
 
April 1 - 30, 2017
 
 $1,125,000
 
May 1 - 31, 2017
 
 $1,100,000
 
June 1 - 30, 2017
 
 $1,075,000
 
July 1-31, 2017
 
 $1,050,000
 
Aug 1 - 31, 2017
 
 $775,000
 
Sept 1 - 30, 2017
 
 $750,000
 
Oct 1 - 31, 2017
 
 $725,000
 
Nov 1 - 30, 2017
 
 $700,000
 
Dec 1 - 31, 2017
 
 $675,000
 
Jan 1 - 31, 2018
 
 $650,000
 
Feb 1 - 28, 2018
 
 $125,000
 
Mar 1 - 31, 2018
 
 $100,000
 
Apr 1 - 30, 2018
 
 $75,000
 
May 1 - 31, 2018
 
 $50,000
 
June 1 - 30, 2018
 
 $25,000
 
July 1 - 31, 2018
 
 $-


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EXHIBIT 1

GENERAL RELEASE

This General Release of Claims (“ Release ”) is entered into by ePlus inc. (hereafter referred to as “ ePlus ” or the “ Company ”) and _______________________ (hereafter referred to as “ Employee ”).

WHEREAS, Employee’s employment with ePlus terminated effective (insert date).

NOW THEREFORE, in consideration of the premises and mutual promises contained in the Employment Agreement between Employee and ePlus, the parties agree as follows:

Employee agrees to and does hereby release ePlus, its past and present officers, directors, agents, shareholders, trustees, partners, employees, in their individual and/or corporate capacities, as well as its employee benefit plans, affiliates, subsidiaries, predecessors, successors and successors in interest (the “ Releasees ”) from all claims, charges, causes of action or other liabilities (hereafter collectively referred to as “ claims ”), whether in contract or tort, known or unknown , arising out of or relating in any way to Employee’s employment and/or termination of employment with ePlus, including, but not limited to, claims under any federal, state or local law, including but not limited to Title VII of the Civil Rights Act of 1964 (“ Title   VII ”); 42 U.S.C. § 1981; the American With Disabilities Act (“ ADA ”); the Age Discrimination in Employment Act (“ ADEA ”); the Employee Retirement Income Security Act of 1974 (“ ERISA ”); the Equal Pay Act; the Genetic Information Nondiscrimination Act; the Family and Medical Leave Act (“ FMLA ”), all as amended; and any common law, statutory, contract, tort, or public policy claims now or hereafter recognized, including but not limited to claims for wrongful discharge; breach of contract, express or implied; constructive discharge; discrimination; harassment; retaliation; defamation; and whistleblower claims (to the fullest extent they may be released under applicable law), as well as all claims for severance pay or benefits or attorneys’ fees and costs.  Any initiation of claims prohibited by this Release shall be a breach of this Release and shall entitle ePlus to recover the consideration as set in Section 7.b of the Employment Agreement, along with reasonable attorneys’ fees incurred by ePlus to litigate any such action, to the extent permitted by law.  Employee acknowledges that as of the date he signs this Release, the Company has paid all wages, salaries, commissions, bonuses, benefits, and other amounts earned and accrued, less any applicable deductions, and has no obligation to pay any additional amounts except as set forth in Employee’s Employment Agreement, if applicable. THIS IS A GENERAL RELEASE OF CLAIMS.

Under the Older Workers Benefits Protections Act (“ OWBPA ”), Employee may, if desired, have a period of twenty-one calendar days to consider this Release.  Employee has also been advised in writing to consult with an attorney (without expense to ePlus) concerning the release of claims under the ADEA prior to executing this Release.  In addition, Employee may revoke this Release within a period of seven calendar days following execution of this Release (the “ Revocation Period ”).  If Employee signs and does not revoke this Release during the Revocation Period, this Release will become fully effective upon the expiration of the Revocation Period.

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Excluded from this Release are any claims which cannot be waived by law.  The Employee is waiving, however, his right to any monetary recovery should any governmental agency or entity, including but not limited to the U.S. Equal Employment Opportunity Commission (“ EEOC ”) or the U.S. Department of Labor (“ DOL ”), pursue any claims on his behalf, whether initiated by Employee or any person, organization, or entity filing on his behalf.  Further, no provision of this Release should be construed or interpreted to preclude or in any way limit or restrict the Employee’s right to initiate an action against the Company under the OWBPA or ADEA challenging, under the ADEA, the waiver and release of claims contained in this Release on the grounds that they were not knowing and voluntary.  To the extent that any provision of this Release is determined to be in violation of the OWBPA or ADEA, it should be severed or modified to comply with the OWBPA or ADEA, without affecting the validity or enforceability of any of the other terms or provisions of this Release.  To the extent that Employee is a Medicare beneficiary, Employee agrees to contact a Company human resources representative for further instruction.

The provisions of this Release shall inure to the benefit of the parties, their successors and assigns and shall be binding upon the parties and their heirs, executors, administrators, successors and assigns.

This Release shall be interpreted, applied and enforced in accordance with and shall be governed by the laws of the state of Delaware, without regard to its conflict of laws provisions.

Employee hereby certifies he has complied with Sections 8, 9, 10, 11 and 12 of his Employment Agreement (confidentiality, intellectual property, non-compete, non-solicit, conflict of interest and return of property provisions).

IN WITNESS WHEREOF, the parties have executed this Release on the date set forth next to each party’s signature.
 
EMPLOYEE
 
ePlus
     
     
Signature
 
Signature
     
     
Date
 
Name/Title
     
     
   
Date
 
 
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EXHIBIT 10.3
 
EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (THE “AGREEMENT”) is effective the 6th day of September, 2017, by and between ePlus inc., a Delaware corporation (the “ Company ”) or collectively, with its subsidiaries, the “ Companies ”) and Elaine D. Marion (the “ Executive ”).

RECITAL

The Executive is employed as the Chief Financial Officer, and the parties have negotiated this Agreement in consideration of the Executive’s valuable services and expertise.

NOW THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties do hereby agree as follows:

1.  EFFECTIVE DATE.   This agreement shall be effective as of the date noted above.

2.  DEFINITIONS.   As used herein, the following terms shall have the following meanings:

(a)  “ Disability ” shall mean the Executive’s physical or mental inability to perform her duties under this Agreement, for, six months in any twelve month period, with at least three months running continuously, and which renders the Executive incapable of performing her customary and usual duties for the Company, with or without a reasonable accommodation as required by law.

(b)  “ Employment Term ” shall be the period from August 1, 2017, through and including July 31, 2018, and any renewal period thereafter.  Unless either the Company or the Executive delivers a written notice of termination to the other party, not less than 60 days prior to the end of the Employment Term, then this Agreement shall automatically renew for successive one-year periods.

(c)  “ Expiration Date ” means the date that the Employment Term (as it may have been extended) expires.

(d)  “ Good Cause ” means that the Compensation Committee of the Company’s Board of Directors (the “ Board ”) in good faith determines that the Executive:

(1)  Failed to satisfactorily perform her duties to the Company and such failure was not cured within 30 days of the Company’s providing Executive written notice of such failure;

(2)  Failed to comply with a material policy of the Company that was applicable to the Executive and such failure was not cured within 30 days of the Company’s providing Executive written notice of such failure;
 
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(3)  Acted or failed to act in a manner that constitutes gross misconduct, embezzlement, misappropriation of corporate assets, breach of the duty of loyalty, fraud, or negligent or willful violations of any laws with which the Company is required to comply;

(4)  Was convicted of or entered a plea of “guilty” or “no contest” to a felony;

(5)  Refused or failed to comply with lawful and reasonable instructions of the Board and such refusal or failure was not cured within 30 days of the Company’s providing Executive written notice of such refusal or failure; or

(6)  Any other material breach of this Agreement by the Executive that is not cured within 30 days of the Company’s providing Executive written notice of such breach.

Good Cause shall not include failures as set forth this Section 2(d) when such failure is a result of the Executive’s illness or injury.

(e)  “ Good Reason ” shall mean that within 30 days prior to the Executive’s providing the notice to the Company required under Section 6(b)(1) of this Agreement that any of the following has occurred:

(1)  A material change in the scope of the Executive’s authority or assigned duties and responsibilities, or the assignment of duties or responsibilities that are inconsistent with the Executive’s level or position without her consent;

(2)  Any material acts of dishonesty by the Company directed toward or affecting Executive;

(3)  Any illegal act or instruction directly affecting Executive by the Company, which is not withdrawn after the Company is notified of the alleged illegality by Executive;

(4)  A reduction by the Company in the Executive’s base salary as set forth herein as may be increased from time to time or a reduction by the Company in the Executive’s incentive compensation;

(5)  A change in the Executive’s principal office to a location outside of a 20 mile radius from the Company’s offices in Herndon, Virginia;

(6) The failure by the Company to continue to provide the Executive with benefits substantially similar to those specified in Section 5 of this Agreement;

(7)  The Company delivers a timely notice (see Section 2(b)) to the Executive that the Agreement will terminate at the end of the Employment Term, and within thirty days after receipt of said notice the Executive tenders her resignation from the Company (to be effective at the end of the Employment Term); or

(8)  Any other material breach of this Agreement by the Company that is not cured within 30 days of the Executive providing the Company written notice of such breach.
 
2
(f)  “ Termination Date ” shall mean the date Executive’s termination is effective, as described in the respective subparts of Section 6.

3.  EMPLOYMENT .  The Company and Executive hereby agree to employ the Executive as set forth herein during the Employment Term and until Executive’s employment terminates pursuant to Section (2)(b) or Section 6 below.

4.  POSITION, DUTIES AND RESPONSIBILITIES .  During the Employment Term, the Executive shall:

(a)  Serve as the Company’s Chief Financial Officer.  The Executive shall be responsible for, but not limited to, the following areas: finance, tax, insurance, budget, treasury, information technology services and accounting.

(b)  Render such other services to the Company as requested provided that such services are consistent with the level of her position; and

(c)  Devote her substantially full business time, attention, skill and energy to the business of the Company and not engage or prepare to engage in any other business activity, whether or not such business activity is pursued for gain, profit or other economic or financial advantage.   Executive may engage in appropriate civic, charitable, or educational activities provided that such activities do not materially interfere or conflict with the Executive’s responsibilities or the Company’s interests.  Nothing in this Agreement shall preclude Executive from acquiring or managing any passive investment she has in publicly traded equity securities in companies that are not in the same line of business as the Company.

5.  COMPENSATION, COMPENSATION PLANS AND BENEFITS .  During the Employment Term, the Executive shall be compensated as follows:

(a)  Effective June 8, 2017, Executive shall receive a base annual salary of four hundred fifty thousand ($450,000 Dollars), which may be increased from time to time.

(b)  Based on applicable MBOs and company performance the Executive shall be eligible to be considered for an annual bonus as set forth in the terms and conditions as outlined in the Executive Incentive Plan (“ EIP ”) and any applicable award agreement thereunder.  The Company shall pay any bonus earned under this Section 5(b) no earlier than the end of the fiscal year for which earned and no later than the next September 30th following the fiscal year in which the bonus was earned, provided that financial filings are timely provided to the Compensation Committee. In no event will any bonus earned under this Section 5(b) be paid later than the next December 31st following the fiscal year for which the bonus was earned, unless calculation of the bonus is not administratively practicable by that date, and further delay would not violate Code Section 409A.

(c)  The Executive shall be entitled to participate in and receive other benefits offered by the Company to all employees, which may include, but are not limited to, vacation, sick, holiday and other leave times, and benefits under any life, health, accident, disability, medical, and dental insurance plans.

3
(d)  The Executive shall be entitled to be reimbursed for the reasonable and necessary out-of-pocket expenses, including entertainment, travel and similar items, and all expenses necessary to maintain her professional, industry association memberships incurred by her in performing her duties, in accordance with the Company’s expense reimbursement policies in place from time to time.  Any reimbursements that are includible in gross income of the Executive under this section 5(d) must meet the following conditions.  Such reimbursements: (i) must be for expenses incurred during the term of this agreement, (ii) shall not be subject to liquidation or exchange for any other benefit, (iii) shall not affect eligibility for reimbursements in any other taxable year of the Executive, and (iv) shall be made no later than the last day of the Executive’s taxable year following the taxable year in which the expense was incurred.

(e)  In the event Executive’s employment with the Company terminates for any reason, any payments and benefits due the Executive under the Company’s employee benefit plans and programs, including any Long-Term Incentive Plan, shall be determined in accordance with the terms of such benefit plans and programs, and shall be in addition to any other payments or benefits herein.

(f)  In the event it is determined that any bonus or other incentive compensation payable by the Company to the Executive was paid based on incorrect financial results, the Compensation Committee will review such payment.  If the amount of the payment would have been lower had the level of achievement of applicable financial performance goals been calculated based on the correct financial results, the Company’s Compensation Committee may, in its sole discretion, adjust (i.e., lower) the amount of such payment so that it reflects the amount that would have applied based on the correct financial results and, to the extent permitted by applicable law, require the reimbursement by Executive of any amount paid to or received by the Executive with respect to such bonus or other incentive compensation.  Additionally, bonuses or other incentive compensation payable to the Executive by the Company are subject to recovery by the Company to the extent required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the Sarbanes-Oxley Act of 2002, including any amendments thereto, and any regulations promulgated thereunder.  Except as required by law, this subsection shall not apply to time-vested stock options, restricted stock or restricted stock units which are not awarded, granted or vested based on financial measure required to be reported under the securities laws.

6.  TERMINATION OF EMPLOYMENT

(a)  Termination by the Company.

(1)  Termination for Good Cause .  During the Employment Term, the Company may terminate the Executive’s employment for Good Cause. In the absence of cure by the Executive as per Section 2(d), if applicable, termination by the Company for Good Cause shall be retroactive to the date the Company provides notice to the Executive of the Good Cause Event.

(2)  Termination without Good Cause .  During the Employment Term, the Company may terminate the Executive’s employment at any time without Good Cause upon the Company’s payment to the Executive for the 30 days’ written notice period to the Executive or 30 days’ pay in lieu of such notice.  Termination is effective 30 days after the date the written notice of termination is provided to the Executive. The Company may, in its sole discretion, place the Executive on paid administrative leave as of any date prior to the end of the 30-day notice period and require that the Executive no longer be present on Company premises.  During any period of paid administrative leave, the Executive is not authorized to act or speak as a representative of the Company.

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(b)  Termination by Executive.

(1)  Termination for Good Reason .  During the Employment Term, the Executive may terminate her employment for Good Reason as defined in Section 2(e) only if the Executive has provided the Board with written notice of her intent to terminate her employment for Good Reason at least 30 days prior to the date of termination and the Company fails to cure the Good Reason within 30 days after receiving Executive’s written notice.  Termination for Good Reason will be effective on the 31st day after the Company receives Executive’s written notice and fails to cure the Good Reason identified in Executive’s notice.

(2)  Termination without Good Reason .  During the Employment Term, the Executive may voluntarily terminate her employment for any (or no) reason with the Company upon 30 days prior written notice.  Termination is effective 30 days after the date the notice is provided to the Company.  The Company may, in its sole discretion, place the Executive on paid administrative leave as of any date prior to the end of the 30-day notice period and require that the Executive no longer be present on Company premises.  During any such period of paid administrative leave, the Executive is not authorized to act or speak as a representative of the Company.

(c)  Termination by Reason of Death or Disability .  Executive’s employment with the Company shall be deemed to have been terminated effective upon the date of Executive’s death, or the date upon which either party provides the other party with notice of Disability.

(d)  At-will Termination .   If the Employment Term ends based on the Company’s delivering a notice of termination under Section 2(e)(7), then the Executive’s employment with the Company may continue on an at-will basis.

7.  EFFECT OF TERMINATION .

(a)  Termination for any reason .  If the Executive’s employment ends at any time (during or after the Employment Term) for any reason, the Company shall pay the Executive her then current base salary and provide the Executive her then current benefits (as provided in Section 5) through the Termination Date.

(b)  Provided that after the Termination Date the Executive (i) signs in the form provided by the Company a general release of all claims Executive has or may have against the Company or its then current or former officers, directors, or employees (hereinafter “ Release ”),attached hereto as Exhibit 1, in the time provided in the Release, and does not revoke it; and (ii) certifies that the Executive has complied with Sections 8, 9, 10,  11 and 12 of this Agreement (confidentiality, intellectual property, non-compete, non-solicit, conflict of interest and return of property provisions), then:

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(1)   Death or Disability .   If, during the Employment Term, the Executive’s employment terminates by reason of death or Disability as described in Section 6(c), then:

(a)  Unvested Stock .  Executive shall be entitled to the acceleration of vesting of any restricted stock, as set forth in the relevant Long-Term Incentive Plan and award agreement;

(b)  Severance .  In the event of Disability only, the Company shall pay to Executive a cash severance in the amount equal to twelve months of her then-base annual salary; and
 
(c)  EIP Award .  The Company shall pay to the Executive, or to her estate, a pro-rated target amount due under any EIP award agreement, as described in Section 5(b), multiplied by a fraction, the numerator of which is the number of months (including partial months) in the period beginning on the first day of the relevant performance period and ending with the date as of which the Executive’s employment with the Company terminated and the denominator of which is the number of months in such performance period.

Notwithstanding anything to the contrary, the release of claims requirement shall be waived if the Executive’s death or Disability renders her unable to sign the Release.

(2)  Termination without Good Cause; Termination for Good Reason .   If, during the Employment Term, the Company terminates the Executive’s employment without Good Cause as described in Section 6(a)(2) or Executive terminates her employment for Good Reason, as described in Section 6(b)(1), then:

(a) The Company shall pay Executive a severance amount equal to twelve months of her then-base annual salary;

(b) The Company shall either, at the Company’s choice: (1) accelerate the vesting of any restricted stock owned by the Executive at the Termination Date or (2) pay to Executive an amount equal to the value of any restricted stock she forfeits at the Termination Date; and

(c) The Company shall pay to the Executive a pro-rated target amount due under any EIP award agreement, as described in Section 5(b), multiplied by a fraction, the numerator of which is the number of months (including partial months) in the period beginning on the first day of the relevant performance period and ending with the date as of which the Executive’s employment with the Company terminated and the denominator of which is the number of months in such performance period;

(d)  Any payment due to the Executive under subsection 7(b) shall be made in a lump sum within sixty (60) days following the Termination Date.
 
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(c)  Notwithstanding the foregoing, if the Executive is a “Specified Employee” (as defined in Section 20), the payments under subsection 7(b) shall be made no earlier than the date provided in Section 20.

(d)  Any release and certification required from the Executive under the first paragraph of Section 7(b) shall be on the form attached as Exhibit 1 .  The applicable release and certification must be signed and returned by Executive to the Company within the time frame set forth in the Release, and not revoked, for Executive to receive payments under Section 7(b).  Except as otherwise provided by subsection 7(b)(2)(d), and provided the requirements of this subsection 7(d) are met, any lump sum payment due Executive under subsection 7(b) shall be paid on the last day of the sixty (60) day period in which the Company may make such payment in compliance with the applicable provision.

(e)  Continued Health Benefits Upon Termination .  In the event Executive’s employment is terminated due to Disability, by the Company Without Good Cause, or by the Executive for Good Reason, the Company shall pay an amount in cash equal to the cost of premiums the Company paid prior to the date of termination for Executive and/or Executive’s qualified dependents’ coverage under the Company’s medical, prescription, dental, and other health benefits each month until the last day of the Employment Term or eighteen months following the termination date, whichever is greater.  Executive agrees that this cash payment is not a reimbursement for her actual premiums for health coverage and that she has complete discretion with respect to the use of these funds.  The Executive shall not be obligated in any way to mitigate the Company’s obligations to her under this Section.

8.  CONFIDENTIALITY .

(a)  During the course of employment, Executive has had and shall continue to have access to the Company’s Confidential Information (as defined below).  Executive shall not disclose or use at any time, either during her employment or after her employment ends for any reason, any Confidential Information (as defined below) of the Company, whether or not patentable, that Executive learns as a result of her involvement with the Company, whether or not she developed such information.  “ Involvement with the Company ” means holding a position as an employee, officer, or director with either the Company or any of its subsidiaries or affiliates.  “ Confidential Information ” means Company information that is material to the Companies’ business and that is not generally known by, or made available to, the public and shall include, without limitation, information regarding:
 
•
“Trade Secrets” (as defined below) or proprietary information;
•
strategic sourcing information or analysis;
•
patents, patent applications, developmental or experimental work, formulas, test data, prototypes, models, and product specifications;
•
accounting and financial information;
•
financial projections and pro forma financial information;
•
sales and marketing strategies, plans and programs
•
product development and product testing information;
•
product sales and inventory information;
•
personnel information, such as employees’ and consultants’ benefits, perquisites, salaries, stock options, compensation, formulas or bonuses;
•
organizational structure and reporting relationships;
•
business plans;
•
names, addresses, phone numbers of customers;
•
contracts, including contracts with clients, suppliers, independent contractors or employees; business plans and forecasts;
•
existing and prospective projects or business opportunities; and
•
passwords and other physical and information security protocols and information.
 
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“ Trade Secrets ” includes any information that derives independent economic value, actually and potentially, from not being generally known to, and is not readily being ascertainable by proper means by, other persons who may obtain economic value from their disclosure or use and that are the subject of efforts that are reasonable under the circumstances to maintain their secrecy.

(b)  Confidential Information excludes any information known to the Executive prior to her employment with the Companies regardless of whether such information would otherwise be deemed Confidential Information.  Information that is or later becomes publicly available in a manner wholly unrelated to any breach of this Agreement by Executive or other improper means will not be considered Confidential Information as of the date it enters the public domain.  If Executive is uncertain whether something is Confidential Information, Executive should treat it as Confidential Information until she receives clarification from the person to whom she reports that it is not Confidential Information.  Confidential Information shall remain at all times the property of the Companies.

(c)  Executive may use or disclose Confidential Information only:

(1)  When she is employed by the Company, as authorized and necessary in performing the responsibilities of her position, provided that she has taken reasonable steps to ensure that the information remains confidential; or

(2)  With prior written consent of the Company’s Chief Executive Officer (“ CEO ”);

(3)  In a legal proceeding between Executive and the Company to establish the rights of either party under this Agreement, provided that Executive stipulates to a protective order to prevent any unnecessary use or disclosure; or

(4)  Where such disclosure is required by law, provided that Executive has complied with the following procedures to ensure that the Companies have an adequate opportunity to protect their legal interests.

Upon receipt of a subpoena or any other compulsory legal process (“ Compulsory Process ”) that could possibly require disclosure of Confidential Information, Executive shall make her best effort to provide within forty-eight (48) hours of receipt a copy of the Compulsory Process as well as complete information regarding the circumstances under which she received Compulsory Process to the General Counsel by hand delivery or by e-mail provided that Executive confirms with the General Counsel by telephone that the General Counsel received the e-mail.  To provide the Company with the greatest opportunity to assess the need for protection from disclosure, Executive shall not make any disclosure until the latest possible date for making such disclosure in accordance with the Compulsory Process (“ Latest Possible Date ”).  If one of the Companies seeks to prevent disclosure in accordance with the applicable legal procedures, and notifies Executive before the Latest Possible Date that it has initiated such procedures, Executive shall not make disclosures of any Confidential Information that is the subject of such procedures, until such objections are withdrawn, or the appropriate tribunal either makes a final determination that the objections are invalid or orders Executive to make the disclosure, unless otherwise required by law.
 
8
(d)  Executive hereby acknowledges that any breach of this Section 8 would cause the Companies irreparable harm.  Nothing in this Agreement prohibits Executive from reporting an event that she reasonably and in good faith believes is a violation of law to the relevant law-enforcement agency (such as the Securities and Exchange Commission, Department of Justice, Equal Employment Opportunity Commission, Department of Labor, National Labor Relations Board, the Congress, or any agency Inspector General),  from cooperating in an investigation conducted by such a government agency, or from making other disclosures that are protected under the whistleblower provisions or state or federal law or regulation.  This may include disclosure of trade secret or confidential information within the limitations permitted by the 2016 Defend Trade Secrets Act (“ DTSA ”).  Executive is hereby provided notice that under the  DTSA, (1) no individual will be held criminally or civilly liable under Federal or State trade secret law for the disclosure of a trade secret (as defined in the Economic Espionage Act) that: (A) is made in confidence   to a Federal, State, or local government official, either directly or indirectly, or to her attorney, that is made solely   for the purpose of reporting or investigating a suspected violation of law; or, (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made   under seal so that it is not made public; and, (2) an individual who pursues a lawsuit for retaliation by an employer for reporting a suspected violation of the law may disclose the trade secret to her attorney and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal, and does not disclose the trade secret, except as permitted by court order.

9.  INTELLECTUAL PROPERTY .  Executive  acknowledges that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, original works of authorship, copyrights and all similar or related information (whether or not patentable) that relate to the Companies’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by the Companies (“ Intellectual Property ”) belong to the Companies.  Executive agrees that both during and after her employment with the Companies that she will sign any documents or provide any information necessary for the Companies to protect their rights to such Intellectual Property.  If Executive is unavailable to sign any document that is necessary for the Companies to protect their rights to such Intellectual Property, Executive hereby authorizes the Companies to sign on her behalf.

10.  NON-COMPETITION and NON-SOLICITATION .  During Executive’s employment and for a period of one year following the date on which her employment ends for any reason, (the “ Restricted Period ”), the Executive agrees to the following below Non-Competition and Non-Solicitation restrictions.
 
9
(a)  Non-Competition .  Executive shall not, directly or indirectly, individually or as part of or on behalf of any other person, company, employer or other entity, except with prior written approval of the Company’s CEO, own, manage, operate,  advise, consult with, control or otherwise be employed by or provide services to or on behalf of a Competing Business.  “ Competing Business ” means a business that is selling products or services similar to those products or services that any of the “Covered Entities” is selling as of the date the Executive’s employment ends “ Covered Entities ” include the Company and any affiliated entities in which Executive is actively engaged as an officer, director or employee or about which Executive has received Confidential Information as a result of her Involvement with the Company.

(b)  Non-Solicitation of Employees .  Executive  shall not,   either directly or indirectly or on behalf of herself or on behalf of any other person or entity, without prior written consent from the Company, solicit or otherwise encourage in any manner: (i) an employee of the Company to leave the employ of the Company; or (ii) a former employee of the Company who was employed by the Company within the past twelve (12) months at the time of the solicitation or encouragement to work for a Competing Business.  For the purpose of this provision, “ employee ” shall mean an employee with whom the Executive worked or about whom the Executive had material knowledge with respect to their skills.

(c)  Non-solicitation of Customers, Potential Customers and Vendors .  Executive shall not, either directly or indirectly or on behalf of herself or on behalf of any other person or entity, without prior written consent from the Company, solicit or otherwise encourage in any manner:

(1) any customer of the Company, whom the Executive, while employed by the Company, rendered services to, contacted or attempted to contact, recruited or attempted to recruit, solicited or attempted to solicit, while employed by the Company to (a) end its relationship with the Company or to (b) enter into or continue a relationship with another person or entity to provide the same or similar service(s) that the Company provides;

(2) any vendor or partner of the Company, or any other third-party, to disclose or discuss any information about any customer of the Company whom the Executive, while employed by the Company, rendered services to, contacted or attempted to contact, recruited or attempted to recruit, solicited or attempted to solicit, while employed by the Company; or

(3) any potential customer of the Company, whom the Executive, while employed by the Company, contacted or attempted to contact, recruited or attempted to recruit, solicited or attempted to solicit,  to enter into or continue a relationship with another person or entity to provide the same or similar service(s) that the Company provides.

(d)  Nature of Restrictions .  Executive acknowledges that as a result of her employment as Chief Financial Officer of the Company, she has held and will continue to hold a position of utmost trust in which Executive has come to know and will continue to come to know the Company’s employees, Customers and Confidential Information.  Executive agrees that the provisions of this entire Section 10 are necessary to protect the Company’s legitimate business interests.  Executive warrants that these provisions shall not unreasonably interfere with her ability to earn a living or to pursue her occupation after her employment ends for any reason.  Executive agrees that upon beginning any new employment or business during the Restricted Period, she will promptly inform the Company of the name and address of her new employer or business and provide such new employer or business with a copy of this Agreement and copy the Company on the letter or e-mail transmitting the Agreement to the appropriate person in such new employer or business.

10
11.  CONFLICT OF INTEREST .  During her employment, Executive agrees to have undivided loyalty to the Company.  This means that Executive shall avoid any situation that involves or has the potential to appear to involve a conflict of interest, including, but not limited to, participating in a business transaction that personally benefits Executive or a relative based on information or relationships developed on the job, failing to disclose that someone who is doing or seeking to do business with or work for the Company is a relative or close personal associate, or receiving direct or indirect compensation from a client or vendor.

12.  RETURN OF PROPERTY .  On the date Executive’s  employment ends for any reason, or at any time during her employment, at the request or direction of the Company, Executive will immediately deliver to the Company any or all equipment, property, material, Confidential Information, Intellectual Property or copies thereof that are owned by the Company and are in Executive’s possession or control.  This includes documents or other information prepared by Executive, or provided to her in connection with her duties while employed by the Company, regardless of the form in which such document or information are maintained or stored, including computer, typed, handwritten, electronic, audio, video, micro-fiche, imaged, drawn or any other means of recording or storing documents or other information.  Executive hereby warrants that she will not retain in any form such documents, Confidential Information, Intellectual Property or other information or copies thereof after Exectuve’s employment ends for any reason, provided that the  Executive may retain a copy of this Agreement and any other document or information describing any rights she may have after the Termination Date.

13.  COOPERATION WITH LEGAL PROCEEDINGS .  Executive agrees to reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence or that may be brought in the future against or on behalf of any of the Companies that relate to events or occurrences that transpired while Executive was employed by any of the Companies.  Executive’s reasonable cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with the Companies’ counsel to prepare for discovery or trial and to act as a witness on behalf of any of the Companies.  Executive also agrees to reasonably cooperate with any of the Companies in connection with any investigation or review of any federal, state, or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Executive was employed by any of the Companies.  Executive understands that in any legal action, investigation, or review covered by this Section 13 the Company expects Executive to provide only accurate and truthful information or testimony. The Company agrees to reimburse the Executive for any costs she incurs in cooperation pursuant to this Section 13, including but not limited to travel expenses and attorneys’ fees and costs. Nothing in this Section shall limit any indemnification rights Executive may have on the effective date of this Agreement.

11
14.  REMEDY .

(a)  Executive acknowledges that her breach of the obligations contained in Sections 8, 9, 10, 11 and 12 of this Agreement would cause the Company irreparable harm that could not be reasonably or adequately compensated by damages in an action at law.  If Executive breaches or threatens to breach any of the provisions contained in Sections 8, 9, 10, 11 and 12 of this Agreement, the Company shall be entitled to an injunction, without bond, restraining her from committing such breach.  The Company’s right to exercise its option to obtain an injunction shall not limit its right to any other remedies, including damages.

(b)  Any action relating to or arising from this Agreement shall be brought exclusively in a court of competent jurisdiction in the Commonwealth of Virginia, and Executive hereby consents to venue and personal jurisdiction in any such court in the Commonwealth of Virginia.

(c)  Executive expressly waives any right to a trial by jury for any action relating to or arising from this Agreement.

15.  SUCCESSORS; BINDING AGREEMENT .

(a)  This Agreement shall be binding upon, and inure to the benefit of the parties hereto and their heirs, successors and assigns.

(b)  The Company shall require any successor to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

16.   NOTICES .  For the purpose of this Agreement, notices and all other communications provided herein shall be in writing and shall be deemed to have been duly given when delivered in person or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
 
IF TO THE EXECUTIVE:
IF TO THE COMPANY:
   
Elaine D. Marion
Attn:  General Counsel
c/o ePlus inc.
ePlus inc.
13595 Dulles Technology Drive
13595 Dulles Technology Drive
Herndon, VA 20171
Herndon, VA  20171
 
17.  GOVERNING LAW .  All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.

18.  SEVERABILITY .  The provisions of this Agreement are severable, and if any part of it is found to be unlawful or unenforceable, the other provisions of this Agreement shall remain fully valid and enforceable to the maximum extent consistent with applicable law.

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19.  MISCELLANEOUS .  No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company’s CEO.  No waiver by either party hereto at any time of any breach by the other party hereto of, or noncompliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of other provisions or conditions at the same or at any prior or subsequent time.  No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement.

20.  CODE SECTION 409A .  It is the intent of this Agreement to either meet an exception from or to comply with the requirements of Section 409A (“ Section 409A ”) of the Internal Revenue Code of 1986, as amended, and any rulings and regulations promulgated thereunder (collectively, the “ Code ”), and any ambiguities herein will be so interpreted and this Agreement will be so administered.  References to a termination of employment in Section 6 and/or 7 of this Agreement shall mean the date of a “separation from service” within the meaning of Section 409A(a)(2)(A)(i).  If the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) at the time of the Executive’s termination of employment, any nonqualified deferred compensation subject to Section 409A that would otherwise have been payable under this Agreement as a result of, and within the first six (6) months following, the Executive’s “separation from service” and not by reason of another event under Section 409A(a)(2)(A), will become payable six (6) months and one (1) day following the date of the Executive’s separation from service or, if earlier, the date of Executive’s death.  Any such “nonqualified deferred compensation” shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment by creditors, or borrowing, to the extent necessary to avoid tax, penalties and/or interest under Section 409A.  The Company agrees that it will pay, indemnify and hold the Executive harmless for any additional tax or interest penalty payable amount by the Executive on account of a violation of Section 409A.  Any payment by the Company of such amount shall include a “gross-up” payment, which shall be the amount required to cause the net amount retained by the Executive after payment of all taxes, including taxes on the “gross-up” payment, to equal the amount of additional tax and interest penalty payable by the Executive on account of the violation of Section 409A.  Such payment shall be made by the Company within thirty (30) days of the date that Executive submits proof of payment of such taxes to the taxing authority and not later than the end of Executive’s taxable year next following the taxable year in which the Executive submits the respective taxes to the taxing authority. The Executive agrees that the Company may amend this Agreement, with the consent of the Executive, as the Company determines is necessary or advisable so that payments made pursuant to this agreement will not result in additional taxation of the Executive pursuant to the provisions of Section 409A.  The Executive agrees that she will not withhold her consent under this Section 20 if the proposed amendment does not materially adversely affect the Executive’s rights under this Agreement.

21.  CODE SECTION 280G .  In the event the Company (or its successor) and Executive agree, based on the advice of an independent nationally recognized public accounting firm engaged by the Company, that part or all of the consideration, compensation or benefits to be paid to or for the benefit of Executive under this Agreement constitute “parachute payments” under Section 280G(b)(2) of the Code (“ Section 280G ”), then either (a) or (b) below shall apply.

13
(a)  Except as provided in Section 21(b), if the aggregate present value of such parachute payments, singularly or together with the aggregate present value of any consideration, compensation or benefits to be paid to or for the benefit of Executive under any other plan, arrangement or agreement which constitute “parachute payments”, calculated as provided under Section 280G, (collectively, the “ Parachute Amount ”) exceeds 2.99 times Executive’s “base amount”, as defined in Section 280G(b)(3) (the “ Base Amount ”), the amounts constituting “parachute payments” that would otherwise be payable to Executive or for Executive’s benefit shall be reduced to the extent necessary so that the Parachute Amount is equal to 2.99 times the Base Amount (the “ Reduced Amount ”).

(b)  The Parachute Amount shall not be reduced as provided in Section 21(a) if, based on the advice of such public accounting firm, without such reduction Executive would be entitled to receive and retain, on a net after-tax basis (including, without limitation, after imposition of any excise taxes payable under Section 4999 of the Code), an amount which is greater than the amount, on a net after-tax basis, that Executive would be entitled to retain upon receipt of the Reduced Amount.

If the determination made above results in a reduction under Section 21(a) of the payments that would otherwise be paid to or for the benefit of Executive, such reduction in payments shall be first applied to reduce any cash severance payments that Executive would otherwise be entitled to receive hereunder and shall thereafter be applied to reduce other payments and benefits in a manner that would not result in subjecting Executive to additional taxation under Section 409A.

22.  STATUS OF PRIOR EMPLOYMENT AGREEMENTS .  Executive acknowledges that this Agreement supplants and replaces in full all prior employment agreements between Executive and the Company.  Executive waives any and all rights to enforce any and all provisions in any prior employment agreement between Executive and the Company.
 
ePlus inc.
 
Executive
     
/s/ Erica S. Stoecker
 
/s/ Elaine D. Marion
Erica S. Stoecker
 
Elaine D. Marion
General Counsel
 
Chief Financial Officer
     
Date:
December 12, 2017
 
Date:
November 20, 2017

14
EXHIBIT 1

GENERAL RELEASE

This General Release of Claims (“ Release ”) is entered into by ePlus inc. (hereafter referred to as “ ePlus ” or the “ Company ”) and _______________________ (hereafter referred to as “ Employee ”).

WHEREAS, Employee’s employment with ePlus terminated effective (insert date).

NOW THEREFORE, in consideration of the premises and mutual promises contained in the Employment Agreement between Employee and ePlus, the parties agree as follows:

Employee agrees to and does hereby release ePlus, its past and present officers, directors, agents, shareholders, trustees, partners, employees, in their individual and/or corporate capacities, as well as its employee benefit plans, affiliates, subsidiaries, predecessors, successors and successors in interest (the “ Releasees ”)  from all claims, charges, causes of action or other liabilities (hereafter collectively referred to as “ claims ”), whether in contract or tort, known or unknown , arising out of or relating in any way to Employee’s employment and/or termination of employment with ePlus, including, but not limited to, claims under any federal, state or local law, including but not limited to Title VII of the Civil Rights Act of 1964 (“ Title VII ”) 42 U.S.C. § 1981; the American With Disabilities Act (“ ADA ”); the Age Discrimination in Employment Act (“ ADEA ”); the Employee Retirement Income Security Act of 1974 (“ ERISA ”); the Equal Pay Act; the Genetic Information Nondiscrimination Act; the Family and Medical Leave Act (“ FMLA ”), all as amended; and any common law, statutory, contract, tort, or public policy claims now or hereafter recognized, including but not limited to claims for wrongful discharge; breach of contract, express or implied; constructive discharge; discrimination; harassment; retaliation; defamation; and whistleblower claims (to the fullest extent they may be released under applicable law), as well as all claims for severance pay or benefits or attorneys’ fees and costs.  Any initiation of claims prohibited by this Release shall be a breach of this Release and shall entitle ePlus to recover the consideration as set in Section 7(b) of the Employment Agreement, along with reasonable attorneys’ fees incurred by ePlus to litigate any such action, to the extent permitted by law.  Employee acknowledges that as of the date she signs this Release, the Company has paid all wages, salaries, commissions, bonuses, benefits, and other amounts earned and accrued, less any applicable deductions, and has no obligation to pay any additional amounts except as set forth in Employee’s Employment Agreement, if applicable.  THIS IS A GENERAL RELEASE OF CLAIMS.

Under the Older Workers Benefits Protections Act (“ OWBPA ”), Employee may, if desired, have a period of twenty-one calendar days to consider this Release.  Employee has also been advised in writing to consult with an attorney (without expense to ePlus) concerning the release of claims under the ADEA prior to executing this Release.  In addition, Employee may revoke this Release within a period of seven calendar days following execution of this Release (the “ Revocation Period ”).  If Employee signs and does not revoke this Release during the Revocation Period, this Release will become fully effective upon the expiration of the Revocation Period.

15
Excluded from this Release are any claims which cannot be waived by law.  The Employee is waiving, however, her right to any monetary recovery should any governmental agency or entity, including but not limited to the U.S. Equal Employment Opportunity Commission (“ EEOC ”) or the U.S. Department of Labor (“ DOL ”), pursue any claims on her behalf, whether initiated by Employee or any person, organization, or entity filing on her behalf.  Further, no provision of this Release should be construed or interpreted to preclude or in any way limit or restrict the Employee’s right to initiate an action against the Company under the OWBPA or ADEA challenging, under the ADEA, the waiver and release of claims contained in this Release on the grounds that they were not knowing and voluntary.  To the extent that any provision of this Release is determined to be in violation of the OWBPA or ADEA, it should be severed or modified to comply with the OWBPA or ADEA, without affecting the validity or enforceability of any of the other terms or provisions of this Release.  To the extent that Employee is a Medicare beneficiary, Employee agrees to contact a Company human resources representative for further instruction.

The provisions of this Release shall inure to the benefit of the parties, their successors and assigns and shall be binding upon the parties and their heirs, executors, administrators, successors and assigns.

This Release shall be interpreted, applied and enforced in accordance with and shall be governed by the laws of the state of Delaware, without regard to its conflict of laws provisions.

Employee hereby certifies she has complied with Sections 8, 9, 10, 11 and 12 of her Employment Agreement (confidentiality, intellectual property, non-compete, non-solicit, conflict of interest and return of property provisions).

IN WITNESS WHEREOF, the parties have executed this Release on the date set forth next to each party’s signature.
 
EMPLOYEE
 
ePlus
 
       
Signature
 
Signature
 
       
Date
 
Name/Title
 
       
   
Date
 
 
 
16
Exhibit 31.1

CERTIFICATION

I, Mark P. Marron, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of e Plus inc.

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 7, 2018

/s/ MARK P. MARRON
 
Mark P. Marron
 
Chief Executive Officer and President
 
(Principal Executive Officer)
 
 
 
Exhibit 31.2

CERTIFICATION

I, Elaine D. Marion, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of e Plus inc;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 7, 2018
 
/s/ ELAINE D. MARION
 
Elaine D. Marion
 
Chief Financial Officer
 
(Principal Financial Officer)
 
 
 
Exhibit 32

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of e Plus inc. on Form 10-Q for the three months ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the undersigned's best knowledge and belief:

a)
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

b)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of e Plus inc.

Date: February 7, 2018
 
/s/ MARK P. MARRON
 
Mark P. Marron, Chief Executive Officer
and President
 
(Principal Executive Officer)
 
   
/s/ ELAINE D. MARION
 
Elaine D. Marion, Chief Financial Officer
 
(Principal Financial Officer)
 

A signed original of this written statement required by Section 906 has been provided to e Plus and will be retained by us and furnished to the Securities and Exchange Commission or its staff upon request.