-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KWOH2f5LFj3VaAa24t8WrvCEKidi40VuWRo9ynmFtjisoJFUCEYzMmNe1MVkAA5v S0LnBGNXbuLAxX6+2qpMcg== 0001022408-02-000034.txt : 20020814 0001022408-02-000034.hdr.sgml : 20020814 20020814180128 ACCESSION NUMBER: 0001022408-02-000034 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EPLUS INC CENTRAL INDEX KEY: 0001022408 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE LESSORS [6172] IRS NUMBER: 541817218 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28926 FILM NUMBER: 02737751 BUSINESS ADDRESS: STREET 1: 400 HERNDON PARKWAY CITY: HERNDON STATE: VA ZIP: 20176 BUSINESS PHONE: 7038345710 MAIL ADDRESS: STREET 1: 400 HERNDON PARKWAY STREET 2: SUITE B CITY: HERNDON STATE: VA ZIP: 20170 FORMER COMPANY: FORMER CONFORMED NAME: MLC HOLDINGS INC DATE OF NAME CHANGE: 19960906 10-Q/A 1 f_10qa6302.txt AMENDMENT FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . - Commission file number: 0-28926 ePlus inc. (Exact name of registrant as specified in its charter) Delaware 54-1817218 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 Herndon Parkway, Herndon, VA 20170 (Address, including zip code, of principal offices) Registrant's telephone number, including area code: (703) 834-5710 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ___ [ X ] _____ No [ ____ ] The number of shares of Common Stock outstanding as of August 9, 2002, was 10,397,030. TABLE OF CONTENTS ePlus inc. AND SUBSIDIARIES Part I. Financial Information: Item 1. Financial Statements - Unaudited: Condensed Consolidated Balance Sheets as of March 31, 2002 and June 30, 2002 2 Condensed Consolidated Statements of Earnings, Three Months Ended June 30, 2001 and 2002 3 Condensed Consolidated Statements of Cash Flows, Three Months Ended June 30, 2001 and 2002 4 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Part II. Other Information: Item 1. Legal Proceedings 22 Item 2. Changes in Securities and Use of Proceeds 22 Item 3. Defaults Upon Senior Securities 22 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 ePlus inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
As of March 31, 2002 As of June 30, 2002 -------------------- ------------------- ASSETS Cash and cash equivalents ................................... $ 28,223,503 $ 32,260,183 Accounts receivable, net of allowance for doubtful accounts of $3,719,207 and $3,478,403 as of March 31, 2002 and June 30, 2002, respectively ................................. 41,397,320 55,492,421 Notes receivable 227,914 197,432 Employee advances 69,042 62,613 Inventories 871,857 1,470,453 Investment in leases and leased equipment - net 169,087,078 164,505,903 Property and equipment - net 6,144,061 5,853,262 Deferred tax asset 5,471,658 5,076,158 Other assets 27,503,121 28,161,902 ------------- --------------- TOTAL ASSETS $ 278,995,554 $ 293,080,327 ============= =============== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Accounts payable - equipment $ 3,898,999 $ 4,741,272 Accounts payable - trade 15,104,985 27,472,484 Salaries and commissions payable 491,716 510,834 Accrued expenses and other liabilities 19,091,729 23,602,566 Income taxes payable 364,183 1,287,046 Recourse notes payable 4,659,982 3,584,206 Nonrecourse notes payable 129,095,051 123,692,431 -------------------------------- Total Liabilities 172,706,645 184,890,839 COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS' EQUITY Preferred stock, $0.01 par value; 2,000,000 shares authorized; none issued or outstanding -- -- Common stock, $0.01 par value; 50,000,000 shares authorized; 10,395,870 and 10,396,980 issued and outstanding at March 31, 2002 and June 30, 2002, respectively $ 104,619 $ 105,030 Additional paid-in capital 62,414,067 62,686,869 Treasury Stock, at cost, 66,100 and 106,100 shares,respectively (574,800) (921,800) Retained earnings 44,345,023 46,319,070 Other comprehensive income -- 319 ------------------------------ Total Stockholders' Equity 106,288,909 108,189,488 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 278,995,554 $ 293,080,327 =========== =========== See Notes to Condensed Consolidated Financial Statements
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ePlus inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Three Months Ended June 30, 2001 2002 ---- ---- REVENUES Sales of equipment $36,453,739 $ 50,631,880 Sales of leased equipment 452,108 4,611,303 ------- --------- 36,905,847 55,243,183 Lease revenues 10,792,055 10,575,403 Fee and other income 5,595,434 6,356,694 --------- --------- 16,387,489 16,932,097 ---------- ---------- TOTAL REVENUES 53,293,336 72,175,280 ---------- ---------- COSTS AND EXPENSES Cost of sales, equipment 31,351,389 45,389,224 Cost of sales, leased equipment 427,370 4,535,001 ------- --------- 31,778,759 49,924,225 Direct lease costs 3,288,399 910,776 Professional and other fees 720,524 773,073 Salaries and benefits 6,966,460 11,178,983 General and administrative expenses 3,623,994 3,628,301 Interest and financing costs 3,350,257 2,410,584 --------- --------- 17,949,634 18,901,717 ---------- ---------- TOTAL COSTS AND EXPENSES 49,728,393 68,825,942 ---------- ---------- EARNINGS BEFORE PROVISION FOR INCOME TAXES 3,564,943 3,349,338 --------- --------- PROVISION FOR INCOME TAXES 1,425,977 1,373,203 --------- --------- NET EARNINGS $ 2,138,966 1,976,135 ============ ========= NET EARNINGS PER COMMON SHARE - BASIC $ 0.22 $ 0.19 ============ ============ NET EARNINGS PER COMMON SHARE - DILUTED $ 0.21 $ 0.19 ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 9,946,355 10,404,895 WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 10,138,328 10,506,489
See Notes to Condensed Consolidated Financial Statements. -3-
ePlus inc. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended June 30, 2001 2002 ---- ---- Cash Flows From Operating Activities: Net earnings $ 2,138,966 $ 1,976,135 Adjustments to reconcile net earnings to net cash (used) provided by operating activities: Depreciation and amortization 1,274,207 1,497,121 (Recovery of) provision for credit losses (28,155) 222,223 Deferred taxes -- 395,500 Loss on sale of operating lease equipment (1,743) (59,851) Adjustment of basis to fair market value of inventories and investments, 1,001,169 -- Payments from lessees directly to lenders (113,473) -- Loss on disposal of property and equipment 12,420 -- Changes in: Accounts receivable 16,224,951 (13,460,209) Other receivables 1,355,953 (708,952) Employee advances (10,373) 3,114 Inventories 800,153 (598,512) Other assets 111,149 302,276 Accounts payable - equipment (2,529,381) 842,273 Accounts payable - trade (356,279) 11,374,535 Salaries and commissions payable, accrued expenses and other liabilities (4,620,631) 5,369,313 ---------- --------- Net cash provided by operating activities 15,258,933 7,157,966 ---------- --------- Cash Flows From Investing Activities: Purchases of operating lease equipment (887,976) (254,575) Increase in investment in direct financing and sales-type leases (6,307,318) (10,359,732) Purchases of property and equipment (607,882) (424,190) Cash used in acquisitions, net of cash acquired (1,000,000) -- Increase in other assets (420,711) -- -------- ---------- Net cash used in investing activities (9,223,887) (11,038,497) ---------- -----------
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Three Months Ended June 30, 2001 2002 ------------------------------------------ Cash Flows From Financing Activities: Borrowings: Nonrecourse 21,906,914 20,469,775 Repayments: Nonrecourse (12,832,837) (11,400,914) Recourse (830) (75,778) Purchase of treasury stock - (347,000) Proceeds from issuance of capital stock, net of expenses 62,445 271,128 Net payments on lines of credit (5,027,284) (1,000,000) ---------- ---------- Net cash provided by financing activities 4,108,408 7,917,211 --------- --------- Net Increase in Cash and Cash Equivalents 10,143,454 4,036,680 Cash and Cash Equivalents, Beginning of Period 24,534,183 28,223,503 ---------- ---------- Cash and Cash Equivalents, End of Period $ 34,677,637 $ 32,260,183 ================ =============== Supplemental Disclosures of Cash Flow Information: Cash paid for interest $ 125,084 $ 1,797,374 ================ =============== Cash paid for income taxes $ 982,344 $ 261,142 ================ =============== Schedule of Non-Cash Investing and Financing Activities: Common stock issued for assets in acquisition, 422,833 shares at $9.16/share $ 3,873,150 $ - Liabilities assumed in acquisition $ 1,293,534 $ - See Notes To Condensed Consolidated Financial Statements.
-5- ePlus inc. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The condensed consolidated interim financial statements of ePlus inc. and subsidiaries (the "Company") included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments that are, in the opinion of management, necessary for a fair statement of results for the interim periods. All adjustments made were normal, recurring accruals. Certain prior year amounts have been reclassified to conform to the current year's presentation. These interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report on Form 10-K (No. 0-28926) for the year ended March 31, 2002 (the "Company's 2002 Form 10-K"). Operating results for the interim periods are not necessarily indicative of results for an entire year. 2. INVESTMENTS IN LEASES AND LEASED EQUIPMENT - NET Investments in leases and leased equipment - net consists of the following: As of March 31, 2002 June 30, 2002 (In Thousands) ------------------------------ Investment in direct financing and sales-type leases - net $ 167,628 $ 163,516 Investment in operating lease equipment - net 1,459 990 --------------- -------------- $ 169,087 $ 164,506 =============== ============== INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASES The Company's investment in direct financing and sales-type leases consists of the following: As of March 31, 2002 June 30, 2002 (In Thousands) ------------------------------ Minimum lease payments $ 161,788 $ 164,646 Estimated unguaranteed residual value 25,880 24,128 Initial direct costs, net of amortization (1) 3,424 3,320 Less: Unearned lease income (20,412) (25,526) Reserve for credit losses (3,052) (3,052) -------------- -------------- Investment in direct finance and sales type leases, net $ 167,628 $ 163,516 ============== =============== (1) Initial direct costs are shown net of amortization of $5,486 and $5,893 at March 31, and June 30, 2002, respectively. -6- The Company's net investment in direct financing and sales-type leases is collateral for non-recourse and recourse equipment notes. INVESTMENT IN OPERATING LEASE EQUIPMENT Investment in operating leases primarily represents equipment leased for two to three years and leases that are short-term renewals on month-to-month status. The components of the net investment in operating lease equipment are as follows: As of March 31, 2002 June 30, 2002 (In Thousands) -------------------------------- Cost of equipment under operating leases $ 13,916 $ 13,100 Initial direct costs 14 11 Less: Accumulated depreciation and Amortization (12,471) (12,121) ----------------- -------------- ----------------- -------------- Investment in operating lease equipment, net $ 1,459 $ 990 ================= ============== 3. BUSINESS COMBINATIONS On October 4, 2001, the Company purchased all the outstanding stock of SourceOne Computer Corporation, a technology and services company located in Silicon Valley. Total consideration paid of $2,807,500 included $800,006 in cash and 274,999 shares of unregistered common stock, valued at $7.30 per share. The issuance of these securities was made in reliance on an exemption from registration provided by Section 4(2) or Regulation D of the Securities Act, as amended, as a transaction by an issuer not involving any public offering. The shareholders of SourceOne represented their intention to acquire the securities for investment only and not with a view to or for distribution in connection with such transaction, and an appropriate legend was affixed to the share certificates issued in the transaction. The shareholders of SourceOne had adequate access to information about ePlus through information made available to the shareholders of SourceOne. The shareholders of SourceOne were granted certain registration rights in connection with the transaction. On March 29, 2002, the Company purchased certain fixed assets, customer lists, and contracts, and assumed certain liabilities, relating to Elcom International, Inc.'s IT fulfillment and IT professional services business. The Elcom purchase added offices in Boston, San Diego, New Jersey, and New York City. The purchase price included $2.2 million in cash and the assumption of certain liabilities of approximately $0.1 million. The impact of pro-forma financial information as if the acquisitions had occurred at the beginning of the periods presented is not material. -7- 4. ISSUANCES OF COMMON STOCK, WARRANTS AND REPURCHASES OF COMMON STOCK On September 20, 2001, the Company's Board of Directors authorized the repurchase from time to time of up to 750,000 shares of its outstanding common stock to a maximum of $5,000,000. As of June 30, 2002, the Company had repurchased 106,100 shares of its outstanding common stock at an average cost of $8.69 per share for a total of $921,800. 5. SEGMENT REPORTING The Company manages its business segments on the basis of the products and services offered. The Company's reportable segments consist of its traditional financing business unit and technology sales business unit. The financing business unit offers lease-financing solutions to corporations and governmental entities nationwide. The technology sales business unit sells information technology equipment and software and related services primarily to corporate customers on a nationwide basis. The technology sales business unit also provides Internet-based business-to-business supply chain management solutions for information technology and other operating resources. The Company evaluates segment performance on the basis of segment net earnings. Both segments utilize the Company's proprietary software and services throughout the organization. Sales, license, service, maintenance fees and related costs of our proprietary software are included in the technology sales business unit. Fees and other income relative to services generated by our proprietary software and services are included in the financing business unit. The accounting policies of the financing and technology business units are the same as those described in Note 1, "Organization and Summary of Significant Accounting Policies" in the Company's 2002 Form 10-K. Corporate overhead expenses are allocated on the basis of revenue volume, estimates of actual time spent by corporate staff, and asset utilization, depending on the type of expense. The Company changed reporting segments during the year ended March 31, 2002. All prior period balances have been reclassified to conform to the new reporting segments. -8-
Technology Financing Sales Business Business Unit Unit Total ------------- ------------- ------------- Three months ended June 30, 2001 Sales $ 506,737 $ 36,399,110 $ 36,905,847 Lease revenues 10,792,055 -- 10,792,055 Fee and other income 3,926,568 1,668,866 5,595,434 ------------- ------------- ------------- Total revenues 15,225,360 38,067,976 53,293,336 Cost of sales 938,367 30,840,392 31,778,759 Direct lease costs 3,288,399 -- 3,288,399 Selling, general and administrative expenses 5,370,857 5,940,121 11,310,978 ------------- ------------- ------------- Segment earnings 5,627,737 1,287,463 6,915,200 Interest expense 3,331,325 18,932 3,350,257 ------------- ------------- ------------- Earnings before income taxes 2,296,412 1,268,531 3,564,943 ============= ============= ============= Assets $ 247,594,611 $ 55,377,229 $ 302,971,840 Three months ended June 30, 2002 Sales $ 5,034,425 $ 50,208,758 $ 55,243,183 Lease revenues 10,575,403 -- 10,575,403 Fee and other income 3,030,053 3,326,641 6,356,694 ------------- ------------- ------------- Total revenues 18,639,881 53,535,399 72,175,280 Cost of sales 5,249,429 44,674,796 49,924,225 Direct lease costs 910,776 -- 910,776 Selling, general and administrative -- expenses 6,662,813 8,917,544 15,580,357 ------------- ------------- ------------- Segment earnings 5,816,863 (56,941) 5,759,922 Interest expense 2,256,498 154,086 2,410,584 ------------- ------------- ------------- Earnings (Loss) before income taxes 3,560,365 (211,027) 3,349,338 ============= ============= ============= Assets $ 229,781,841 $ 63,298,486 $ 293,080,327
6. NEW ACCOUNTING PRONOUNCEMENTS Effective April 1, 2001, the Company adopted SFAS No. 140, "Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125," which revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries over the majority of SFAS No. 125's provisions without reconsideration. The Company's adoption of SFAS No. 140 did not have a material impact on its financial position or results of operations. In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No. 141 addresses the accounting and reporting for business combinations and broadens the criteria for recording intangible assets separate from goodwill. On July 1, 2001, the Company adopted SFAS No. 141 which requires the use of the -9- purchase method of accounting for all business combinations initiated after June 30, 2001. The Company's adoption of SFAS No. 141 did not have a material impact on its financial statements. On July 20, 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." The Company has adopted SFAS No. 142 retroactive to April 1, 2001, as permitted. SFAS No. 142 requires that goodwill and other intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. As of June 30, 2002, the Company had goodwill, net of accumulated amortization, of $22,106,292, an increase of $22,984 during the three months ending June 30, 2002. This increase relates to legal expenses incurred relating to the SourceOne acquisition. Goodwill, net of accumulated amortization, was $17,445,572 as of June 30, 2001. No goodwill amortization expense was recognized during the three month periods ended June 30, 2002 and 2001. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion and analysis of results of operations and financial condition of the Company should be read in conjunction with the Condensed Consolidated Financial Statements and the related Notes thereto included elsewhere in this report, and the Company's 2002 Form 10-K. Overview Certain statements contained herein are not based on historical fact, but are forward-looking statements that are based upon numerous assumptions about future conditions that may not occur. 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 existence, demand for, and acceptance of, the Company's services, economic conditions, the impact of competition and pricing, results of financing efforts and other factors affecting the Company's business that are beyond our control. The Company undertakes no obligation and does not intend to update, revise or otherwise publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances. 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, interest rate fluctuations 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 the sale of equipment in our lease portfolio prior to the expiration of the lease term to the lessee or to a third party. Such sales of leased equipment prior to the expiration of the lease term may have the effect of increasing revenues and net earnings during the period in which the sale occurs, and reducing revenues and net earnings otherwise expected in subsequent periods. We currently derive the majority of our revenue from sales and financing of information technology and other assets. We have expanded our product and service offerings under the Enterprise Cost Management, or ECM, model which -10- represents the continued evolution of our original implementation of ePlus e-commerce products entitled ePlusSuite. Our ECM model is our framework for combining IT sales and professional services, leasing and financing services, asset management software and services, procurement software, and electronic catalog content management software and services. We have expanded our sales and marketing personnel to approximately 186 people from both hiring personnel and from the acquisitions of SourceOne Computer Corporation and Elcom International, Inc. Both are information technology sales and services entities. These two acquisitions and our hiring of other sales persons have expanded our current locations to 36, all of which are in the United States. On May 15, 2001, we acquired from ProcureNet, Inc. the e-commerce procurement software asset products and software technology for cleaning and categorizing product descriptions for e-commerce catalogues. These products and services and associated expenses with this business acquisition have substantially increased our expenses, and the ability to sell these services and products is expected to fluctuate depending on the customer demand for these products and services, which to date is still unproven. These products and services are included in our Technology Sales Business Unit segment combined with our other sales of IT products and services. Our leasing and financing activities are included in our financing sales business unit segment in our financial statements. As a result of our acquisitions and expansion of sales locations, the Company's historical results of operations and financial position may not be indicative of its future performance over time. SELECTED ACCOUNTING POLICIES The manner in which lease finance transactions are characterized and reported for accounting purposes has a major impact upon reported revenue and net earnings. Lease accounting methods significant to our business are discussed below. We classify our lease transactions, as required by the Statement of Financial Accounting Standards No. 13, "Accounting for Leases", or FASB No. 13, as: (1) direct financing; (2) sales type; or (3) operating leases. Revenues and expenses between accounting periods for each lease term will vary depending upon the lease classification. For financial statement purposes, we present revenue from all three classifications in lease revenues, and costs related to these leases in direct lease costs. Direct Financing and Sales-Type Leases. Direct financing and sales-type leases transfer substantially all benefits and risks of equipment ownership to the customer. A lease is a direct financing or sales-type lease if the creditworthiness of the customer and the collectibility of lease payments are reasonably certain and it meets one of the following criteria: (1) the lease transfers ownership of the equipment to the customer by the end of the lease term; (2) the lease contains a bargain purchase option; (3) the lease term at inception is at least 75% of the estimated economic life of the leased equipment; or (4) the present value of the minimum lease payments is at least 90% of the fair market value of the leased equipment at the inception of the lease. Direct financing leases are recorded as investment in direct financing leases upon acceptance of the equipment by the customer. At the inception of the lease, unearned lease income is recorded which represents the amount by which the gross lease payments receivable plus the estimated residual value of the equipment -11- exceeds the equipment cost. Unearned lease income is recognized, using the interest method, as lease revenue over the lease term. Sales-type leases include a dealer profit or loss that is recorded by the lessor at the inception of the lease. The dealer's profit or loss represents the difference, at the inception of the lease, between the fair value of the leased property and its cost or carrying amount. The equipment subject to such leases may be obtained in the secondary marketplace, but most frequently is the result of re-leasing our own portfolio. This profit or loss that is recognized at lease inception is included in net margin on sales-type leases. For equipment supplied from our technology sales business unit subsidiaries, the dealer margin is presented in equipment sales revenue and cost of equipment sales. Interest earned on the present value of the lease payments and residual value is recognized over the lease term using the interest method and is included as part of our lease revenues. Operating Leases. All leases that do not meet the criteria to be classified as direct financing or sales-type leases are accounted for as operating leases. Rental amounts are accrued on a straight-line basis over the lease term and are recognized as lease revenue. Our cost of the leased equipment is recorded on the balance sheet as investment in leases and lease equipment and is depreciated on a straight-line basis over the lease term to our estimate of residual value. Revenue, depreciation expense and the resulting profit for operating leases are recorded on a straight-line basis over the life of the lease. As a result of these three classifications of leases for accounting purposes, the revenues resulting from the "mix" of lease classifications during an accounting period will affect the profit margin percentage for such period and such profit margin percentage generally increases as revenues from direct financing and sales-type leases increase. Should a lease be financed, the interest expense declines over the term of the financing as the principal is reduced. Residual Values. Residual values represent our estimated value of the equipment at the end of the initial lease term. The residual values for direct financing and sales-type leases are reported as part of the investment in direct financing and sales-type leases, on a net present value basis. The residual values for operating leases are included in the leased equipment's net book value and are reported in the investment in operating lease equipment. The estimated residual values will vary, both in amount and as a percentage of the original equipment cost, and depend upon several factors, including the equipment type, manufacturer's discount, market conditions and the term of the lease. We evaluate residual values on an ongoing basis and record any required changes in accordance with FASB No. 13. Residual values are affected by equipment supply and demand and by new product announcements by manufacturers. In accordance with generally accepted accounting principles, residual value estimates are adjusted downward when such assets are impaired. We seek to realize the estimated residual value at lease termination through: (1) renewal or extension of the original lease; (2) sale of the equipment either to the lessee or the secondary market; or (3) lease of the equipment to a new user. The difference between the proceeds of a sale and the remaining estimated residual value is recorded as a gain or loss in lease revenues when title is transferred to the lessee, or, if the equipment is sold on the secondary market, in equipment sales revenues and cost of equipment sales when title is transferred to the buyer. The proceeds from any subsequent lease are accounted for as lease revenues at the time such transaction is entered into. -12- Initial Direct Costs. Initial direct costs related to the origination of direct financing or operating leases are capitalized and recorded as part of the net investment in direct financing leases, or net operating lease equipment, and are amortized over the lease term. Sales. Sales revenue includes the following types of transactions: (1) sales of new or used equipment which is not subject to any type of lease; (2) sales of equipment subject to an existing lease, under which we are lessor, including any underlying financing related to the lease; (3) sales of off-lease equipment to the secondary market; and (4) sales of procurement software. Sales of new or used equipment are recognized upon shipment. Sales of equipment subject to an existing lease and off-lease equipment are recognized when constructive title passes to the purchaser. Revenue from sales of procurement software is recognized in accordance with the Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9. We recognize revenue when all the following criteria exist: when there is persuasive evidence that an arrangement exists, delivery has occurred, no significant obligations by the Company with regard to implementation remain, the sales price is determinable, and it is probable that collection will occur. Our accounting policy requires that revenue earned on software arrangements involving multiple elements be allocated to each element on the relative fair values of the elements and recognized when earned. Revenue relative to maintenance and support is recognized ratably over the maintenance term (usually one year) and revenue allocated to training, implementation or other services is recognized as the services are performed. Other Sources of Revenue. Amounts charged for Procure(+) are recognized as services are rendered. Amounts charged for the Manage(+) service are recognized on a straight-line basis over the period the services are provided. Fee and other income results from: (1) income from events that occur after the initial sale of a financial asset; (2) re-marketing fees; (3) brokerage fees earned for the placement of financing transactions; and (4) interest and other miscellaneous income. These revenues are included in fee and other income in our consolidated statements of earnings. Reserve for Credit Losses. The reserve for credit losses is maintained at a level believed by management to be adequate to absorb potential losses inherent in the Company's lease and accounts receivable portfolio. As of June 30, 2001 and 2002, the Company's reserve for credit losses was $4,167,315 and $6,530,585, respectively. Management's determination of the adequacy of the reserve is based on an evaluation of historical credit loss experience, current economic conditions, volume, growth, the composition of the lease portfolio, and other relevant factors. The reserve is increased by provisions for potential credit losses charged against income. Accounts are either written off or written down when the loss is both probable and determinable, after giving consideration to the customer's financial condition, the value of the underlying collateral and funding status (i.e., discounted on a non-recourse or recourse basis). The company's reserves for credit losses are segregated between our accounts receivable and our investment in direct financing leases as follows (in thousands): -13-
Investment Accounts in Direct Receivable Financing Leases Total ------------------------------------------------------------------------- Balance April 1, 2001 $ 1,392 $ 2,887 $ 4,279 Bad Debts Expense 1,324 165 1,489 Recoveries (184) - (184) Assumed in Acquisitions 73 - 73 Other 1,114 - 1,114 ------------------------------------------------------------------------- Balance March 31, 2002 $ 3,719 $ 3,052 $ 6,771 ========================================================================= Bad Debts Expense (222) - (222) Recoveries - - - Assumed in Acquisitions - - - Other (19) - (19) ------------------------------------------------------------------------- Balance June 30, 2002 $ 3,478 $ 3,052 $ 6,530 =========================================================================
Balances in "Other" include reclasses from prior years. The Company assumed $72,631 in reserve for credit losses in the acquisition of SourceOne Computer Corporation. Investments. The Company had a 5% membership interest in MLC/CLC LLC, a joint venture to which the Company sold leased equipment. MLC/CLC LLC stopped purchasing leased equipment prior to the year ending March 31, 2002. Other assets reflects the Company's investment in MLC/CLC LLC of $628,218 as of June 30, 2001, accounted for using the cost method. The company recorded an impairment of $628,218 during the quarter ended June 30, 2001 on this investment. Also included in other assets was an investment of $420,711 as of June 30, 2001, which the Company wrote off during the quarter ending June 30, 2001 as the underlying equity in the start-up venture did not support the carrying amount of the Company's investment. Capitalization of Software Costs for Internal Use. The Company has capitalized certain costs for the development of internal-use software under the guidelines of Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Approximately, $0.0 and $0.2 million of internal use software was capitalized during the three months ended June 30, 2002 and 2001, respectively, which is included in the accompanying consolidated balance sheet as a component of property and equipment. Capitalization of Software Costs Available to Customers. In accordance with SFAS No. 86, "Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed", software development costs are expensed as incurred until technological feasibility has been established, at such time such costs are capitalized until the product is made available for release to customers. No development costs have been capitalized for the three months ended June 30, 2002 or 2001 relative to software costs available to customers. -14- RESULTS OF OPERATIONS - Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001 Total revenues generated by the Company during the three-month period ended June 30, 2002 were $72,175,280 compared to revenues of $53,293,336 during the comparable period in the prior fiscal year, an increase of 35.4%. The increase is primarily the result of increased sales of equipment and leased equipment. The Company's revenues are composed of sales and other revenue, and may vary considerably from period to period. See "POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS". Sales revenue, which includes sales of equipment and sales of leased equipment, increased 49.7% to $55,243,183 during the three-month period ended June 30, 2002, as compared to $36,905,847 generated during the corresponding period in the prior fiscal year. Sales of equipment are generated primarily through the Company's technology sales business unit subsidiaries and represented 91.7% and 98.8% of total sales revenue for the three months ended June 30, 2002 and 2001, respectively. Sales of equipment increased 38.9% to $50,631,880 during the current period compared to $36,453,739 generated during the comparable period in the prior fiscal year. The increase was a result of higher sales within our technology sales business unit subsidiaries as well as additional sales resulting from the acquisition of SourceOne in October 2001 and Elcom in March 2002. The Company realized a gross margin on sales of equipment of 10.4% and 14.0% for the three-month periods ended June 30, 2002 and 2001, respectively. The Company's gross margin on sales of equipment is affected by the mix and volume of products sold. The Company also recognizes revenue from the sale of leased equipment. During the three months ended June 30, 2002, sales of leased equipment increased 920.0%. During the three months ended June 30, 2002 and 2001, the Company recognized a gross margin of 1.7% and 5.5% on leased equipment sales of $4,611,303 and $452,108, respectively. The significant increase in leased equipment sales reflects the higher volume of lease equity that the Company sold to outside investors. Leases that are not equity-sold to investors remain on the Company's books and lease earnings are recognized accordingly. In addition, the revenue and gross margin recognized on sales of leased equipment can vary significantly depending on the nature and timing of the sale, as well as the timing of any debt funding recognized in accordance with SFAS No. 140. The Company's lease revenues decreased 2.0% to $10,575,403 for the three months ended June 30, 2002 compared with the corresponding period in the prior fiscal year. The decrease is primarily the result of small decrease in our lease portfolio. For the three months ended June 30, 2002, fee and other income increased 13.6% over the comparable period in the prior fiscal year. Fee and other income includes revenues from adjunct services and fees, including broker fees, support fees, warranty reimbursements, and learning center revenues generated by the Company's technology sales business unit subsidiaries. The current period increase in fee and other income is attributable to additional revenues resulting from the purchase of SourceOne in October 2001 and Elcom in March 2002. We also received settlement money of $2.0 million from Toshiba for the three months ending June 30, 2002 compared to $2.5 million for the three months ending June 30, 2001. The Company's fee and other income contains earnings from certain transactions which are in the Company's normal course of business but there is no guarantee that future transactions of the same nature, size or profitability will occur. The Company's ability to consummate such transactions, -15- and the timing thereof, may depend largely upon factors outside the direct control of management. The earnings from these types of transactions in a particular period may not be indicative of the earnings that can be expected in future periods. The Company's direct lease costs decreased 72.3% during the three-month period ended June 30, 2002 as compared to the same period in the prior fiscal year. The decrease is primarily the result a lease impairment charge of approximately $1.0 million taken in the June 2001 quarter and a decrease in lease depreciation, specifically depreciation on the Company's matured lease portfolio. The increase in professional and other fees of 7.3%, or $52,549, for the current period over the comparable period in the prior fiscal year, was primarily the result of expenses related to the Company's outside technical services. Salaries and benefits expenses increased 60.5% during the three-month period ended June 30, 2002 over the same period in the prior year. The increase is the result of additional expense related to the Company's recent acquisitions, SourceOne Computer Corporation and Elcom International, Inc., which is offset by reduced commission expenses in the Company's lease financing and technology sales units. The Company's general and administrative expenses increased 0.1% to $3,628,301 during the three months ended June 30, 2002, as compared to the same period in the prior fiscal year. Interest and financing costs incurred by the Company for the three months ended June 30, 2002 decreased 28.0% and relates to interest costs on the Company's indebtedness, both lease-specific and general working capital. Payments for interest costs on the majority of the Company's non-recourse and certain recourse notes are typically remitted directly to the lender by the lessee. The Company's provision for income taxes decreased to $1,373,203 for the three months ended June 30, 2002 from $1,425,977 for the three months ended June 30, 2001, reflecting effective income tax rates of 41% for the three months ending June 30, 2002 and 40% for the three months ending June 30, 2001. The foregoing resulted in a 7.6% decrease in net earnings for the three-month period ended June 30, 2002 as compared to the same period in the prior fiscal year. Basic and fully diluted earnings per common share were $0.19 and $0.19 for the three months ended June 30, 2002, as compared to $0.22 for basic and $0.21 for fully diluted earnings for the three months ended June 30, 2001. Basic and diluted weighted average common shares outstanding for the three months ended June 30, 2002 were 10,404,895 and 10,506,489 respectively. For the three months ended June 30, 2001, the basic and diluted weighted average shares outstanding were 9,946,355 and 10,138,328, respectively. LIQUIDITY AND CAPITAL RESOURCES During the three-month period ended June 30, 2002, the Company generated cash flows from operations of $7,157,965 and used cash flows from investing activities of $11,038,497. Cash flows generated by financing activities amounted to $7,917,211 during the same period. The net effect of these cash flows was a net increase in cash and cash equivalents of $4,036,680 during the three-month period. During the same period, the Company's total assets increased $14,084,773, or 5.0%. The cash balance at June 30, 2002 was $32,260,183 as compared to $28,223,503 at March 31, 2002. -16- The Company's debt financing activities typically provide approximately 80% to 100% of the purchase price of the equipment purchased by the Company for lease to its customers. Any balance of the purchase price (the Company's equity investment in the equipment) must generally be financed by cash flow from its operations, the sale of the equipment leased to third parties, or other internal means. Although the Company expects that the credit quality of its leases and its residual return history will continue to allow it to obtain such financing, no assurances can be given that such financing will be available on acceptable terms, or at all. The financing necessary to support the Company's leasing activities has principally been provided by non-recourse and recourse borrowings. Historically, the Company has obtained recourse and non-recourse borrowings from 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 lease payments under the lease at a fixed rate of interest, and the lender secures a lien on the financed assets. When the lender is fully repaid from the lease payment, the lien is released and all further rental or sale proceeds are ours. We are not liable for the repayment of non-recourse loans unless we breach our representations and warranties in the loan agreements. The lender assumes the credit risk of each lease, and their only recourse, upon default by the lessee, is against the lessee and the specific equipment under lease. The Company has formal programs with Key Corporate Capital, Inc. and Fleet Business Credit Corporation. In addition to these programs, recently the Company has regularly funded its leasing activities with Citizens Leasing Corporation, GE Capital Corporation, De Lage Landen Financial Services, Inc., Hitachi Leasing America, and Fifth Third Bank, among others. These programs require that each transaction is specifically approved and done solely at the lender's discretion. During the three-month period ending June 30, 2002, the Company's lease related non-recourse debt portfolio decreased 4.2% to $123,692,431. Whenever possible and desirable, the Company arranges for equity investment financing which includes selling assets, including the residual portions, to third parties and financing the equity investment on a non-recourse basis. The Company generally retains customer control and operational services, and has minimal residual risk. The Company usually preserves the right to share in remarketing proceeds of the equipment on a subordinated basis after the investor has received an agreed to return on its investment. We actively sell or finance our equity investment with Bank of America, Fleet Business Credit Corporation and GE Capital Corporation, among others. The Company's "Accounts payable - equipment" represents equipment costs that have been placed on a lease schedule, but for which the Company has not yet paid. The balance of unpaid equipment cost can vary depending on vendor terms and the timing of lease originations. As of June 30, 2002, the Company had $4,741,272 of unpaid equipment cost, as compared to $3,898,999 at March 31, 2002. The Company's "Accrued expenses and other liabilities" includes deferred income, reserves for credit losses, and amounts collected and payable, such as sales taxes and lease rental payments due to third parties. As of June 30, 2002, the Company had $23,602,566 of accrued expenses and other liabilities. Working capital for our leasing business is provided through a credit facility which is a revolving $35 million limit and expires on April 17, 2004. Participating in this facility are, among others, Branch Banking and Trust -17- Company ($10 million), PNC Bank N.A. ($5 million) and National City the agent. The ability to borrow under this facility is limited to the amount of eligible collateral at any given time. The credit facility has full recourse to the Company and is secured by a blanket lien against all of the Company's assets including the common stock of all wholly-owned subsidiaries. The credit facility contains certain financial covenants and certain restrictions on, among other things, the Company's ability to make certain investments, and sell assets or merge with another company. The interest rates charged on borrowings are the LIBOR interest rate plus 1.75% to 2.5%. As of June 30, 2002, the Company had no outstanding balance on the facility. The loss of this relationship could have a material adverse effect on our future results as we may have to use this facility for daily working capital and liquidity for our leasing business. In general, we use the National City facility to pay the cost of equipment to be put on lease, and we repay borrowings from the proceeds of: (1) long-term, non-recourse, fixed rate financing which we obtain from lenders after the underlying lease transaction is finalized or (2) sales of leases to third parties. The Company has a $3.1 million subordinated recourse note payable due to Centura Bank resulting from the acquisition of CLG, Inc. This note comes due in October, 2006 and has an 11% interest rate payable monthly. ePlus Technology of NC, inc., ePlus Technology of PA, inc. and ePlus Technology, inc. have separate credit facilities to finance their working capital requirements for inventories and accounts receivable. Their traditional business as sellers of computer technology and related network equipment and software products is financed through agreements known as "floor planning" financing in which interest expense for the first thirty to forty-five days is not charged but is paid by the supplier/distributor. The floor planning liabilities are recorded as accounts payable-trade, as they are normally repaid within the thirty to forty-five day time-frame and represent an assigned accounts payable originally generated with the supplier/distributor. If the thirty to forty-five day obligation is not paid timely, interest is then assessed at stated contractual rates. In addition to the floor planning financing, ePlus Technology, inc. and ePlus Technology of NC, inc. have accounts receivable facilities through Deutsche Financial Services Corporation. Of the total $33 million dollar facility provided by Deutsche Financial Services Corporation, $26 million is for traditional inventory floor planning and $7 million is available for accounts receivable financing. The maximum available under the accounts receivable facilities for ePlus Technology, inc. and ePlus Technology of PA, inc. are $5 million and $2 million respectively and as of June 30, 2002 there was no outstanding balance on these account receivable facilities. Availability under the lines of credit may be limited by the asset value of equipment purchased by the Company and may be further limited by certain covenants and terms and conditions of the facilities. -18- As of June 30, 2002, the respective floor planning inventory agreement maximum credit limits and actual outstanding balances are as follows:
Balance at Entity Floor Plan Supplier Credit Limit June 30, 2002 ------------------------------- -------------------------------- ---------------- ------------------- ePlus Technology of NC, inc. Deutsche Financial Services, $3,500,000 $ 2,426,820 Inc. IBM Credit Corporation $ 250,000 $ 276,406 ePlus Technology of PA, inc. Deutsche Financial Services, $9,000,000 $ 6,753,189 Inc. IBM Credit Corporation $1,250,000 $ 1,132,116 ePlus Technology, inc. Deutsche Financial Services, $13,500,000 $ 3,836,411 Inc.
The facilities provided by Deutsche Financial Services Corporation for ePlus Technology of PA, inc. and ePlus Technology, inc. require a separate guaranty of up to $4,900,000 and $2,000,000, respectively, by ePlus inc. The floor planning facility provided by IBM Credit Corporation to ePlus Technology of PA, inc. also requires a guaranty by ePlus inc. for the total balance outstanding. The loss of the Deutsche Financial Services Corporation or the IBM Credit Corporation relationship could have a material adverse effect on our future results as we rely on these facilities for daily working capital and liquidity for our technology sales business The continued implementation of the Company's ECM business model could require a significant investment in both cash and managerial focus. In addition, the Company may selectively acquire other companies that have attractive customer relationships and skilled sales forces. The Company may also acquire technology companies to expand and enhance the ECM platform to provide additional functionality and value added services. As a result, the Company may require additional financing to fund its strategy implementation and potential future acquisitions, which may include additional debt and equity financing. POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The Company's future quarterly operating results and the market price of its stock may fluctuate. In the event the Company's revenues or earnings for any quarter are less than the level expected by securities analysts or the market in general, such shortfall could have an immediate and significant adverse impact on the market price of the Company's stock. Any such adverse impact could be greater if any such shortfall occurs near the time of any material decrease in any widely followed stock index or in the market price of the stock of one or more public equipment leasing and financing companies or major customers or vendors of the Company. The Company's quarterly operating results are also susceptible to fluctuations for a number of other reasons, including, without limitation, its entry into the e-commerce market, any reduction of expected residual values related to the equipment under the Company's leases, and timing of specific factors that may -19- affect future operating results. Quarterly operating results could also fluctuate as a result of the sale by the Company of equipment in its lease portfolio, at the expiration of a lease term or prior to such expiration, to a lessee or to a third party. Such sales of equipment 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. The Company believes that comparisons of quarterly results of its operations are not necessarily meaningful and that results for one quarter should not be relied upon as an indication of future performance. FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS Certain statements contained herein are not based on historical fact, but are forward-looking statements that are based upon numerous assumptions about future conditions that may not occur. Actual events, transactions and results may materially differ from the anticipated events, transactions, or results described in such statements. The Company's 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. Our traditional businesses of equipment leasing and financing and technology sales have the following risks: o we may not be able to realize our entire investment in the equipment we lease; o we depend on creditworthy customers and may not have reserved adequately for credit losses; o capital spending may decrease; o direct marketing by manufacturers rather than through distributors may affect future sales; and o inventory and accounts receivable financing may not be available. Our eECM solution introduced in May 2002 has had a limited operating history. Although we have been in the business of financing and selling information technology equipment since 1990, we will encounter some of the challenges, risks, difficulties and uncertainties frequently encountered by early-stage companies using new business models in evolving markets. As a result, the Company will encounter some of the challenges, risks, difficulties and uncertainties frequently encountered by early stage companies using new and unproven business models in new and rapidly evolving markets. Some of these challenges relate to the Company's ability to: o increase the total number of users of ECM services; o adapt to meet changes in its markets and competitive developments; and o continue to update its technology to enhance the features and functionality of its suite of products. We cannot be certain that our business strategy will be successful or that it will successfully address these and other challenges, risks and uncertainties. -20- Over the longer term, the Company expects to derive a significant portion of its revenues from its ECM business model, which is unproven. The Company expects to incur expenses that may negatively impact profitability. The Company also expects to incur significant sales and marketing, research and development, and general and administrative expenses in connection with the development of this business. As a result, the Company may incur significant expenses, which may have a material adverse effect on the future operating results of the Company as a whole. Broad and timely acceptance of the ECM services, which is critical to the Company's future success, is subject to a number of significant risks. These risks include: o the electronic commerce business-to-business solutions market is highly competitive; o the system's ability to support large numbers of buyers and suppliers is unproven; o significant enhancement of the features and services of our Enterprise Cost Management solution may be needed to achieve widespread commercial initial and continued acceptance of the system; o the pricing model may not be acceptable to customers; o if the Company is unable to develop and increase volume from our Enterprise Cost Management Services, it is unlikely that it will ever achieve or maintain profitability in this business; o businesses that have already made substantial up-front payments for e-commerce solutions may be reluctant to replace their current solution and adopt the Company's solution; o the Company's ability to adapt to a new market that is characterized by rapidly changing technology, evolving industry standards, frequent new product announcements and established competition; o we may be unable to protect our intellectual property rights or face claims from third parties for infringement of their products. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Although a substantial portion of the Company's liabilities are non-recourse, fixed interest rate instruments, the Company is reliant upon lines of credit and other financing facilities which are subject to fluctuations in interest rates. These instruments were entered into for other than trading purposes, are denominated in U.S. Dollars, and, with the exception of amounts drawn under the National City Bank and Deutsche facilities, 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 National City and Deutsche facilities bear interest at a market-based variable rate. Due to the relatively short nature of the interest rate periods, we do not expect our operating results or cash flow to be materially affected by changes in market interest rates. As of June 30, 2002, the aggregate fair value of our recourse borrowings approximated their carrying value. -21- PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Not Applicable Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable Item 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable Item 5. OTHER INFORMATION Not Applicable Item 6(a) EXHIBITS Exhibit No. Exhibit Description ----------- ------------------- 3.1(1) Certificate of Incorporation of the Company, as amended 3.2 Certificate of Amendment to Certificate of Incorporation 3.3(2) Bylaws of the Company 4.1(2) Speciman certificate of Common Stock of the Company 10.1 Lease Agreement, dated as of November 1, 2001, by and between the Company, as Tenant, and Phillip G. Norton, Trustee, as Landlord 99.1 Certification of Chief Executive Officer and Chief Financial Officer ----------- (1) Incorporated herein by reference to the indicated exhibit filed as part of the Registrant's Form 10-Q filed on November 14, 1997. (2) Incorporated herein by reference to the indicated exhibit filed as part of the Registrant's Registration Statement on Form S-1 (No. 333-11737). Item 6(b) REPORTS ON FORM 8-K Form 8-K dated March 29, 2002 and filed with the SEC on April 5, 2002 to report that the Company had purchased fixed assets, customer lists, and contracts and assumed certain limited liabilities relating to the IT fulfillment and IT professional services business from Elcom International, Inc. Total consideration was approximately $2.3 million consisting of cash of $2,150,000 and the assumption of certain liabilities of approximately $113,000. -22- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. ePlus inc. /s/ PHILLIP G. NORTON -------------------------------------------- By: Phillip G. Norton, Chairman of the Board, President and Chief Executive Officer Date: August 14, 2002 /s/ STEVEN J. MENCARINI -------------------------------------------- By: Steven J. Mencarini, Senior Vice President and Chief Financial Officer Date: August 14, 2002 -23- EX-10 3 ex10_63002.txt AMENDMENT Exhibit 10.1 LEASE AGREEMENT THIS LEASE AGREEMENT (the "Lease") is made as of the 1st day of November, 2001, by and between ePLUS, INC. ("Tenant"), and PHILLIP G. NORTON, TRUSTEE ("Landlord"). WHEREAS, the Landlord is the owner of certain property, located in Fairfax County, Virginia, with a street address of 13595 Dulles Technology Drive, Herndon, Virginia (the "Property"), improved by a two-story office building located thereon (the "Building"); and WHEREAS, the Tenant and Landlord desire to enter into this Lease, upon the terms and conditions more particularly set forth herein. NOW, THEREFORE, the parties hereto, intending legally to be bound, hereby covenant and agree as set forth below. ARTICLE I BASIC TERMS Section 1.1 Defined Terms. In addition to the terms defined in the recitals above, the following definitions shall apply to this Lease: (a) "Premises" shall mean approximately 14,000 square feet of rentable area, which comprises a portion of the second floor of the Building, as generally set forth in Exhibit A attached hereto and incorporated herein. The approximation of square footage shall in no way affect the amount of rent payable hereunder, should any variance be found to exist between the approximation and actual square footage. (b) "Base Rent" shall mean the fixed rent paid monthly during the Lease Term, in the amount of TWENTY-EIGHT THOUSAND DOLLARS ($28,000.00) per month. (c) "Commencement Date" shall mean November 1, 2001. (d) "Expiration Date" shall mean October 31, 2002. (e) "Lease Term" shall mean the period commencing on the Commencement Date and continuing through and including the Expiration Date. ARTICLE II THE PREMISES AND THE LEASE TERM Section 2.1 Demise of the Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises for the Lease Term, upon the terms, conditions, covenants and agreements herein provided. Tenant's right to lease the Premises includes Tenant's right to use 52 parking spaces in the parking lot located upon the Property. ARTICLE III BASE RENT Section 3.1 Base Rent. Tenant shall pay to Landlord the Base Rent for the Premises, without setoff, deduction or demand. Base Rent shall be payable on the Commencement Date and thereafter monthly, in advance, on the first day of each month during the Lease Term. Section 3.2 Payment of Rent. All rent shall be paid to Landlord in legal tender of the United States at the address to which notices to Landlord are to be given or to such other party or to such other address as Landlord may designate from time to time by written notice to Tenant. If Landlord shall at any time accept rent after it shall become due and payable, such acceptance shall not excuse a delay upon subsequent occasions, or constitute or be construed as a waiver of any of Landlord's rights hereunder. ARTICLE IV ADDITIONAL RENT Section 4.1 Operating Charges and Real Estate Taxes. In addition to the Base Rent under this Lease, the Tenant shall be responsible for a 25% proportionate share of operating charges and real estate tax payments. It is acknowledged that the present monthly operating charge is $2,466, and the present monthly real estate tax payment is $1,241, such that Tenant shall be responsible for $616.50 per month for operating charges, and $310.25 per month for real estate tax payments. The Tenant acknowledges that it has reviewed materials and documents related to the computation of operating charges and real estate tax payments, and understands that these charges may increase. Section 4.2 Utilities. All accounts for utility services to the Premises shall be in the name of Tenant and shall be paid directly to the utility company. Section 4.3 Treatment as Additional Rent. All payments required to be made by Tenant pursuant to this Article IV shall be additional rent for the Premises and shall be paid, without setoff or deduction, on the first day of each month. ARTICLE V USE OF PREMISES Section 5.1 Use of Premises. Tenant may use and occupy the Premises for any lawful purpose. Tenant shall not use or occupy the Premises for any unlawful purpose or in any manner that will constitute waste, nuisance or unreasonable annoyance. Tenant shall comply with all present and future laws, ordinances (including zoning ordinances and land use requirements), regulations, and orders of the United States of America, the Commonwealth of Virginia, Fairfax County, and any other public or quasi-public authority having jurisdiction over the Premises, concerning the use, occupancy and condition of the Premises, and all machinery, equipment and furnishings therein. It is expressly understood that if any present or future law, ordinance, regulation or order requires an occupancy permit for the Premises, Tenant will obtain such permit at Tenant's own expense. ARTICLE VI ASSIGNMENT AND SUBLETTING Section 6.1 Landlord Consent Required. Tenant shall not assign, transfer, mortgage or otherwise encumber this Lease or its interest therein, or sublet, rent or permit anyone to occupy the Premises, or any part thereof, without giving Landlord thirty (30) days' prior written notice of Tenant's intention to assign or sublet the Premises and obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld. The consent by Landlord to any assignment or subletting shall not be construed as a waiver or release of Tenant from liability for the performance of all covenants and obligations to be performed by Tenant under this Lease, nor shall the collection or acceptance of rent from any assignee, subtenant or occupant constitute a waiver or release of Tenant from any of its liabilities or obligations under this Lease. Landlord's consent to any assignment or subletting shall not be construed as relieving Tenant from the obligation of obtaining Landlord's prior written consent to any subsequent assignment or subletting. If an Event of Default has occurred and is continuing, Tenant hereby assigns to Landlord the rent due from any subtenant of Tenant and hereby authorizes each such subtenant to pay said rent directly to Landlord. ARTICLE VII TENANT'S MAINTENANCE AND REPAIR Section 7.1 Tenant to Maintain Premises. Tenant will keep and maintain the Premises and all fixtures and equipment located therein in a clean, safe and sanitary condition, will take good care there of, in accordance with the terms of this Lease, and will suffer no waste or injury thereto, and will, at the expiration or other termination of the Lease Term, surrender the Premises broom clean, in the same order and condition in which they are in on the Commencement Date, ordinary wear and tear excepted. 2 Section 7.2 Tenant to Comply with Laws. Tenant shall, at its own cost and expense, promptly observe and comply with all present and future laws, ordinances, requirements, orders, directives, rules and regulations of the federal and local governments and of all other governmental authorities affecting the Premises or appurtenances thereto or any part thereof whether the same are in force as of the Commencement Date or may in the future be passed, enacted or directed, and Tenant shall pay all costs, expenses, liabilities, losses, damages, fines, penalties, claims and demands, including reasonable counsel fees, that may in any manner arise out of or be imposed because of the failure of Tenant to comply with the covenants of this Section 7.2. ARTICLE VIII TENANT ALTERATIONS Section 8.1 "AS IS". Tenant has had the opportunity to inspect the Premises (including, without limitation, all mechanical, electric, and plumbing systems therein), and accepts the Premises, and the land upon which the Premises is located in their condition "AS IS" as of the date hereof. Landlord will not make, and is under no obligation to make, any structural or other alterations, decorations, additions or improvements in or to the Premises. Tenant will not make or permit anyone to make any alterations, decorations, additions or improvements (hereinafter referred to collectively as "improvements"), structural or otherwise, in or to the Premises, without the prior written consent of Landlord, which consent shall not be unreasonably withheld. ARTICLE IX LANDLORD INSPECTION Section 9.1 Inspection by Landlord. Upon reasonable prior oral or written notice from Landlord, Tenant will permit Landlord, or its agents or representatives (including, without limitation, any prospective purchasers, mortgagees or prospective mortgagees) to enter the Premises, at all reasonable times and from time to time, without charge therefor to Landlord and without diminution of the rent payable by Tenant, to examine and inspect the Premises. Notwithstanding anything to the contrary contained herein, in the event of an emergency, Landlord shall have the right to enter the Premises at any time and without prior notice to Tenant. During the Lease Term, Landlord may show the Premises to prospective tenants. In connection with any such entry, Landlord shall endeavor to minimize the disruption to Tenant's use of the Premises. ARTICLE X INSURANCE Section 10.1 Required Insurance and Terms of Insurance Policies. Throughout the Lease Term, Tenant, at its sole cost and expense, must provide insurance policies and certificates of insurance reasonably satisfactory to Landlord as to amounts, types of coverage and the companies underwriting these coverages. In no event will such policies be terminated or otherwise allowed to lapse. Tenant shall be responsible for its own deductibles. Tenant shall also pay for any insurance, or any increase of policy limits, not described in this Lease which Tenant requires for its own protection or for compliance with government statutes. Tenant's insurance shall be primary and without contribution from any insurance Landlord may, at Landlord's option, procure. Landlord's interest must be clearly stated by endorsement in the insurance policies described in this Article X, as follows: (A) Each policy shall contain an endorsement that it shall remain in full force and effect notwithstanding that the insured has waived its right of action against any party prior to the occurrence of a loss, shall contain a standard waiver of subrogation endorsement, and, at the request of Landlord, shall include any mortgagee or ground lessor as additional insureds. (B) Receipts evidencing payment of the premium for such insurance shall be delivered by Tenant upon the execution of this Lease, and each such policy shall contain an endorsement prohibiting cancellation or reduction of coverage without first giving Landlord thirty (30) days' prior written notice of such proposed action. 3 All the insurance companies must be authorized to do business in the Commonwealth of Virginia and be approved by Landlord. Certified copies of the policies, and any endorsements, shall be made available for inspection by Landlord upon request. If any policy is canceled before the Lease Term has expired, and Tenant fails to immediately procure replacement insurance, Landlord reserves the right but shall not have the obligation immediately to procure replacement insurance at Tenant's cost. ARTICLE XI LIABILITY OF LANDLORD Section 11.1 Liability of Landlord Limited. Landlord shall not be liable to Tenant, its employees, agents, business invitees, licensees, customers, clients, or guests for any damage, injury, loss compensation or claim (other than any damage, injury, or loss resulting from Landlord's gross negligence or willful misconduct), including but not limited to claims for the interruption of or loss to Tenant's business, based on, arising out of or resulting from any cause whatsoever, including but not limited to the following: repairs to any portion of the Premises; interruption in the use of the Premises; any accident or damage resulting from the use or operation (by Landlord, Tenant, or any other person or persons) of the heating, cooling, electrical or plumbing equipment or apparatus; the termination of this Lease by reason of the destruction of the Premises; any fire, robbery, theft, mysterious disappearance and/or any other casualty; the actions of any other tenants of the Premises or of any other person or persons; and any leakage in any part or portion of the Premises, or from water, rain or snow that may leak into, or flow from, any part of the Premises, or from drains, pipes or plumbing work in the Premises. Any goods, property or personal effects stored or placed by Tenant or its employees in or about the Premises shall be at the sole risk of Tenant, and Landlord shall not in any manner be held responsible therefor. Section 11.2 Tenant to Indemnify Landlord. Tenant hereby agrees to indemnify and hold Landlord and Landlord's agents and its and their officers, directors, and employees, harmless from and against all costs, damages, claims, liabilities and expenses (including reasonable attorneys' fees) suffered by or claimed against Landlord and Landlord's agents and its and their officers, directors, and employees, directly or indirectly, based on, arising out of or resulting from (i) Tenant's use and occupancy of the Premises or the business conducted by Tenant therein, (ii) any act or omission by Tenant or its employees, agents or invitees, or (iii) any breach or default by Tenant in the performance or observance of its covenants or obligations under this Lease. Section 11.3 Transfer of Premises. In the event that at any time Landlord shall sell or transfer the Premises, the Landlord named herein shall not be liable to Tenant for any obligations or liabilities based on or arising out of events or conditions occurring on or after the date of such sale or transfer and the new owner of the Premises shall not be liable to Tenant for any obligations or liabilities based on or arising out of events or conditions occurring before the date of such sale or transfer. Section 11.4 No Recourse Against Landlord. In the event Tenant is awarded a money judgment against Landlord, Tenant's sole recourse for satisfaction of such judgment shall be limited to execution against Landlord's interest in the Premises. In no event shall any partner, shareholder, officer, director or any principal of Landlord or any other persons be held to have any personal liability for satisfaction of any claims or judgments that Tenant may have against Landlord. ARTICLE XII DAMAGE OR DESTRUCTION Section 12.1 Restoration. If during the Lease Term the Premises are totally or partially inaccessible or unusable, Tenant at its option, shall diligently restore and repair the Premises to substantially the same condition they were in prior to such damage, or terminate this Lease and deliver the insurance proceeds 4 to the Landlord as required under Section 10.1, and upon such termination, the parties shall be relieved of any and all further liability under this Lease. In the event the Tenant does not elect to terminate this Lease, as provided in the preceding sentence, the Tenant shall be required to pay Base Rent and additional rent during the restoration whether or not Tenant is actually occupying all or any part of the Premises. ARTICLE XIII CONDEMNATION Section 13.1 Effect of Condemnation. If the whole or a substantial part (as hereinafter defined) of the Premises or the use or occupancy of the Premises, shall be taken or condemned by any governmental or quasi-governmental authority for any public or quasi-public use or purpose (including a sale thereof under threat of such a taking), then this Lease shall terminate on the date title thereto vests in such governmental or quasi-governmental authority, and all rent payable hereunder shall be apportioned as of such date. If less than a substantial part of the Premises (or the use and occupancy thereof) is taken or condemned by any governmental or quasi-governmental authority for any public or quasi-public use or purpose (including a sale thereof under threat of such a taking), this Lease shall continue in full force and effect, but the Base Rent and additional rent thereafter payable hereunder shall be equitably adjusted (on the basis of the ratio of the number of square feet of rentable area taken to the total rentable area in the Premises prior to such taking) as of the date title vests in the governmental or quasi-governmental authority. For purposes of this Section, a substantial part of the Premises shall be considered to have been taken if more than fifty percent (50%) of the Premises is rendered unusable as a result of such taking. Section 13.2 Condemnation Proceeds. All awards, damages and other compensation paid by the condemning authority on account of the taking or condemnation (or sale under threat of such a taking) shall belong to Landlord, and Tenant hereby assigns to Landlord all rights to such awards, damages and compensation. Tenant agrees not to make any claim against Landlord or the condemning authority for any portion of such award or compensation attributable to damages to the Premises, the value of the unexpired Lease Term, the loss of profits or goodwill, leasehold improvements or severance damages. Nothing contained herein, however, shall prevent Tenant from pursuing a separate claim against the condemning authority for the value of furnishings, equipment and trade fixtures installed in the Premises at Tenant's expense and for relocation expenses, provided that such claim shall in no way diminish the award nor compensation payable to or recoverable by Landlord in connection with such taking or condemnation. ARTICLE XIV DEFAULT BY TENANT Section 14.1 Tenant Default. The occurrence of any of the following shall constitute an event of default ("Event of Default") by Tenant under this Lease: (a) If Tenant shall fail to pay any payment of Base Rent or additional rent when due, or shall fail to make any other payment required by this Lease when due. (b) If Tenant shall violate or fail to perform any other term, condition, covenant or agreement to be performed or observed by Tenant under this Lease. (c) If Tenant shall vacate or abandon the Premises. (d) If the Tenant (i) is voluntarily adjudicated a bankrupt or insolvent, (ii) seeks or consents to the appointment of a receiver or trustee for itself or for all or a part of its property, (iii) files a petition seeking relief under the bankruptcy or similar laws of the United States or any local or any other jurisdiction, (iv) makes a general assignment for the benefit of creditors, or (v) admits in writing its inability to pay its debts as they mature. (e) If a petition shall be filed against the Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal, local, or other statute, 5 law or regulation and shall remain undismissed or unstayed for thirty (30) days, or if any trustee, receiver or liquidator of the Tenant, or of all or any substantial part of its properties, shall be appointed without the consent or acquiescence of the Tenant and such appointment shall remain unvacated or unstayed for thirty (30) days. Notwithstanding the provisions of this Section 14.1, an Event of Default shall not be deemed to have occurred with respect to the failure of payment of any installment of rent or additional rent unless such failure shall continue for a period of seven (7) days, after written notice is given to Tenant, nor shall any Event of Default be deemed to have occurred if Tenant shall fail to comply with any term, provision or covenant of this Lease, other than payment of rent or additional rent, if such failure is cured or removed within thirty (30) days after written notice is given to Tenant by Landlord setting forth the nature of such default, or in respect to a default which cannot be cured within such period, so long as Tenant shall commence to remove the same within such ten-day period and shall diligently and expeditiously proceed to complete the cure or removal thereof within an additional twenty-day period. Section 14.2 Landlord's Remedies. Upon the occurrence of any of the Events of Default described or referred to in Section 14.1, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever, concurrently or consecutively and not alternatively: (a) Landlord may, at its election, terminate this Lease or terminate Tenant's right to possession only, without terminating the Lease. (b) Upon any termination of this Lease, whether by lapse of time or otherwise, or upon any termination of Tenant's right to possession without termination of the Lease, Tenant shall surrender possession and vacate the entire Premises immediately, and deliver possession thereof to Landlord, and Tenant hereby grants to Landlord full and free license to enter into and upon the Premises in such event and to repossess Landlord of the Premises as of Landlord's former estate and to expel or remove Tenant and any others who may be occupying or be within the Premises and to remove Tenant's signs and other evidence of tenancy and all other property of Tenant therefrom without being deemed in any manner guilty of trespass, eviction or forcible entry or detainer, and without incurring any liability for any damage resulting therefrom, Tenant waiving any right to claim damages for such re-entry and expulsion, and without relinquishing Landlord's right to rent or any other right given to Landlord under this Lease or by operation of law. (c) Upon any termination of this Lease, whether by lapse of time or otherwise, Landlord shall be entitled to recover as damages, all rent, including any amounts treated as additional rent under this Lease, and other sums due and payable by Tenant on the date of termination, plus as liquidated damages and not as a penalty, an amount equal to the sum of: (i) an amount equal to the then present value of the rent reserved in this Lease for the residue of the Lease Term including any amounts treated as additional rent and all other sums provided in this Lease to be paid by Tenant, minus the fair rental value of the Premises for such residue; (ii) the value of the time and expense necessary to obtain a replacement tenant or tenants, and the estimated expenses relating to recovery of the Premises, preparation for reletting and for reletting itself; and (iii) the cost of performing any other covenants which would have otherwise been performed by Tenant. (d) Upon any termination of Tenant's right to possession only without termination of the Lease: (i) Neither such termination of Tenant's right to possession nor Landlord's taking and holding possession thereof shall terminate the Lease or release Tenant, in whole or in part, from any obligation, including Tenant's obligation to pay the rent or additional rent under this Lease for the full Lease Term, and if Landlord so elects Tenant shall pay forthwith to Landlord the sum equal to the entire amount of the rent and additional rent under this Lease for the remainder of the Lease Term plus any other sums provided in this Lease to be paid by Tenant for the remainder of the Term. 6 (ii) Landlord may, but need not, relet the Premises or any part thereof for such rent and upon such terms as Landlord, in its sole discretion, shall determine (including the right to relet the Premises for a greater or lesser term than that remaining under this Lease, the right to relet the Premises as a part of a larger area, and the right to change the character or use made of the Premises). In connection with or in preparation for any reletting, Landlord may, but shall not be required to, make repairs, alterations and additions in or to the Premises and redecorate the same to the extent Landlord deems necessary or desirable, and Tenant shall, upon demand, pay the cost thereof, together with Landlord's expenses of reletting, including, without limitation, any commission incurred by Landlord. If Landlord decides to relet the Premises or a duty to relet is imposed upon Landlord by law, Landlord and Tenant agree that nevertheless Landlord shall at most be required to use only the same efforts Landlord then uses to lease premises in the Premises generally and that in any case that Landlord shall not be required to give any preference or priority to the showing or leasing of the Premises over any other space that Landlord may be leasing or have available and may place a suitable prospective tenant in any such other space regardless of when such other space becomes available. Landlord shall not be required to observe any instruction given by Tenant about any reletting or accept any tenant offered by Tenant unless such offered tenant has a creditworthiness acceptable to Landlord and leases the entire Premises upon terms and conditions including a rate of rent (after giving effect to all expenditures by Landlord for tenant improvements, broker's commissions and other leasing costs) all no less favorable to Landlord than as called for in this Lease, nor shall Landlord be required to make or permit any assignment or sublease for more than the current term. In any proceedings to enforce this Lease, Landlord shall be presumed to have complied with any duty now or hereafter imposed by law to relet the Premises in order to mitigate its damages, and Tenant shall bear the burden of proof to establish otherwise. (iii) Until such time as Landlord shall elect to terminate the Lease and shall thereupon be entitled to recover the amounts specified in such case, Tenant shall pay to Landlord upon demand the full amount of all rent, including any amounts treated as additional rent under this Lease, together with the costs of repairs, alterations, additions, redecorating and Landlord's expenses of reletting and the collection of the rent accruing therefrom (including reasonable attorney's fees and broker's commissions), as the same shall then be due or become due from time to time, less only such consideration as Landlord may have received from any reletting of the Premises; and Tenant agrees that Landlord may file suits from time to time to recover any sums falling due under this Article as they become due. Any proceeds of reletting by Landlord in excess of the amount then owed by Tenant to Landlord from time to time shall be credited against Tenant's future obligations under this Lease but shall not otherwise be refunded to Tenant or inure to Tenant's benefit. (e) Landlord may, at Landlord's option, enter into and upon the Premises if Landlord determines in its sole discretion that Tenant is not acting within a commercially reasonable time to maintain, repair or replace anything for which Tenant is responsible under this Lease and correct the same, without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer and without incurring any liability for any damage or interruption of Tenant's business resulting therefrom. If Tenant shall have vacated the Premises, Landlord may at Landlord's option re-enter the Premises at any time during the last six (6) months of the then current Lease Term and make any and all such changes, alterations, revisions, additions and tenant and other improvements in or about the Premises as Landlord shall elect, all without any abatement of any of the rent otherwise to be paid by Tenant under this Lease. 7 (f) If, on account of any breach or default by Tenant in Tenant's obligations under the terms and conditions of this Lease, it shall become necessary or appropriate for Landlord to employ or consult with an attorney concerning or to enforce or defend any of Landlord's rights or remedies arising under this Lease, Tenant agrees to pay all Landlord's reasonable attorneys' fees so incurred. Tenant expressly waives any right to: (a) trial by jury and (b) service of any notice required by any present or future law or ordinance applicable to landlords or tenants but not required by the terms of this Lease. (g) Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies provided in this Lease or any other remedies provided by law (all such remedies being cumulative), nor shall pursuit of any remedy provided in this Lease constitute a forfeiture or waiver of any rent due to Landlord under this Lease or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants contained in this Lease. (h) No act or thing done by Landlord or its agents during the Lease Term shall be deemed a termination of this Lease or an acceptance of the surrender of the Premises, and no agreement to terminate this Lease or accept a surrender of the Premises shall be valid, unless in writing signed by Landlord. No waiver by Landlord of any violation or breach of any of the terms, provisions and covenants contained in this Lease shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions and covenants contained in this Lease. Landlord's acceptance of the payment of rental or other payments after the occurrence of an Event of Default shall not be construed as a waiver of such default, unless Landlord so notifies Tenant in writing. Forbearance by Landlord in enforcing one or more of the remedies provided in this Lease upon an Event of Default shall not be deemed or construed to constitute a waiver of such default or of Landlord's right to enforce any such remedies with respect to such default or any subsequent default. (i) To secure the payment of all rentals and other sums of money becoming due from Tenant under this Lease, Landlord shall have and Tenant grants to Landlord a first lien upon the leasehold interest of Tenant under this Lease, which lien may be enforced in equity, and a continuing security interest upon all goods, wares, equipment, fixtures, furniture, inventory, accounts, contract rights, chattel paper and other personal property of Tenant (collectively, the "Personal Property") situated on the Premises, and such Personal Property shall not be removed therefrom without the consent of Landlord until all arrearages in rent as well as any and all other sums of money then due to Landlord under this Lease shall first have been paid and discharged. In the event of a default under this Lease, Landlord shall have, in addition to any other remedies provided in this Lease or by law, all rights and remedies under the Uniform Commercial Code, including without limitation the right to sell the Personal Property at public or private sale upon five (5) days' notice to Tenant. Tenant shall execute all such financing statements and other instruments as shall be deemed necessary or desirable in Landlord's discretion to perfect the security interest hereby created. Notwithstanding the foregoing, Landlord agrees to subordinate such lien and security interest granted by Tenant in the Personal Property to the liens of Tenant's creditors in connection with any financing of Tenant's business in the Premises. (j) Any and all property which may be removed from the Premises by Landlord pursuant to the authority of this Lease or of law, to which Tenant is or may be entitled, may be handled, removed and/or stored, as the case may be, by or at the direction of Landlord but at the risk, cost and expense of Tenant, and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage charges against such property so long as the same shall be in Landlord's possession or under Landlord's control. Any such property of Tenant not retaken by Tenant from storage within thirty (30) days after removal from the Premises shall, at Landlord's option, be deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale without further payment or credit by Landlord to Tenant. 8 Section 14.3 No Accord and Satisfaction. If Landlord shall institute proceedings against Tenant and a compromise or settlement thereof shall be made, the same shall not constitute a waiver of the same or of any other covenant, condition or agreement set forth herein, nor of any of Landlord's rights hereunder. Neither the payment by Tenant of a lesser amount than the installments of fixed rent, additional rent or of any sums due hereunder nor any endorsement or statement on any check or letter accompanying a check for payment of rent or other sums payable hereunder shall be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or other sums or to pursue any other remedy available to Landlord. No re-entry by Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an acceptance of a surrender of this Lease. Section 14.4 Interest and Late Charge. If Tenant fails to make any payment of Base Rent or of additional rent within seven (7) days of the date such payment is due and payable, Tenant shall pay to Landlord a late charge of five percent (5%) of the amount of such payment. In addition, such payment shall bear interest at the rate per annum which is two percent (2%) higher than the "prime rate" then being charged by Bank of America from the date such payment became due to the date of payment thereof by Tenant; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum legal rate then allowed by law. Such late charge and interest shall constitute additional rent due and payable hereunder within two (2) days of written demand therefor. ARTICLE XV SUBORDINATION AND ATTORNMENT Section 15.1 Subordination. This Lease is and shall remain subject and subordinate to the lien of any and all current and future mortgages and/or any ground leases (which term "mortgages" shall include both construction and permanent financing and shall include deeds of trust and similar security instruments) which may now encumber the Premises and/or the land on which the Premises is located and to all and any renewals, extensions, modifications, recastings or refinancings thereof. At any time after the execution of this Lease, the holder of any mortgage to which this Lease is subordinate shall have the right to declare this Lease to be superior to the lien of such mortgage and Tenant agrees to execute all documents required by such holder in confirmation thereof. Tenant shall, at Landlord's request, promptly execute any requisite or appropriate certificate or other document to effect the subordination of this Lease. Tenant hereby constitutes and appoints Landlord as Tenant's attorney-in-fact to execute any such certificate or other document for or on behalf of Tenant if Tenant fails to sign and return any such certificate or other document within ten (10) days after receipt by Tenant. As of the date hereof, no mortgage or deed of trust is encumbering the Property. However, provided no Event of Default by Tenant has occurred and remains uncured, Landlord shall obtain for Tenant a non-disturbance agreement from the holder of any future mortgage on such mortgagee's standard form. Section 15.2 Attornment. Tenant agrees that in the event any proceedings are brought for the foreclosure of any mortgage encumbering the Premises or the termination of any ground lease affecting the Premises, Tenant shall attorn to the Purchaser at such foreclosure sale or any ground lessor, as the case may be, if requested to do so by such party, and shall recognize such party as Landlord, under this Lease, and Tenant waives the provisions of any statute or rule of law, now or hereafter in effect, which may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease and the obligations of Tenant hereunder in the event any such foreclosure proceeding is prosecuted or completed. 9 Section 15.3 Mortgagee Rights. Tenant shall, at its own expense, comply with all reasonable notices of Landlord's mortgagee or other financial institution providing funds which are secured by a mortgage or deed of trust placed on the whole or any part of the real property of which the Premises are a part, respecting all matters of occupancy, use, condition or maintenance of the Premises, provided the same shall not unreasonably interfere with the conduct of Tenant's business nor materially limit or affect the rights of the parties under this Lease. Tenant shall give Landlord's mortgagee a copy of any notice of default served upon Landlord by Tenant, provided that prior to such notice, Tenant has been notified in writing of the address of the mortgagee. Notice shall be provided to the mortgagee in accordance with the Notice provision of this Lease. Tenant further agrees that if Landlord shall have failed to cure such default within the cure period, if any, provided in this Lease, the mortgagee shall have an additional thirty (30) days within which to cure such default, or if such default cannot be cured within that time, then such additional time as may be necessary if within such thirty (30) days any mortgagee a has commenced and is diligently pursuing the remedies necessary to cure such default (including, but not limited to, commencement of foreclosure proceedings if necessary to effect such cure), in which event this Lease shall not be terminated while such remedies are being diligently pursued. ARTICLE XVI HOLD OVER Section 16.1 Hold Over. In the event that Tenant shall not immediately surrender the entire Premises on the date of the expiration of the Lease Term, Tenant shall become a Tenant by the month at 125% of the Base Rent and all additional rent in effect during the last month of the Lease Term. Said monthly tenancy shall commence on the first day following the expiration of the Lease Term. As a monthly Tenant, Tenant shall be subject to all the terms, conditions, covenants and agreements of this Lease (including, without limitation, one payment of all additional rent), except for the amount of the Base Rent, which shall be in the amount specified in this paragraph. ARTICLE XVII COVENANTS OF LANDLORD Section 17.1 Right of Quiet Enjoyment. Landlord covenants that it has the right to make this Lease for the term aforesaid, and that if Tenant shall pay all rent when due and punctually perform all the covenants, terms, conditions and agreements of this Lease to be performed by Tenant, Tenant shall have the right to, during the Lease Term, freely, peaceably and quietly occupy and enjoy the full possession of the Premises without molestation or hindrance by Landlord or any party claiming through or under Landlord, subject to the provisions of Sections 15.1 and 15.2 hereof. ARTICLE XVIII GENERAL PROVISIONS Section 18.1 No Representations. Tenant acknowledges that neither Landlord nor any broker, agent or employee of Landlord has made any representations or promises with respect to the Premises or the land on which the Premises is located, except as herein expressly set forth, and no rights, privileges, easements or licenses are acquired by Tenant except as herein expressly set forth. Section 18.2 No Partnership. Nothing contained in this Lease shall be construed as creating a partnership or joint venture of or between Landlord and Tenant, or to create any other relationship between the parties hereto other than that of Landlord and Tenant. Section 18.3 Brokers. Landlord and Tenant each represent and warrant to the other that neither of them has employed or dealt with any broker, agent, or finder in carrying on the negotiations relating to this Lease. Landlord shall indemnify and hold Tenant harmless, and Tenant shall indemnify and hold Landlord harmless, from and against any claims for brokerage or other commissions arising from or out of any breach of the foregoing representation and warranty by the respective indemnitor. 10 Section 18.4 Estoppel Certificates. At any time from time to time, upon not less than five (5) business days' prior written notice by Landlord, Tenant shall execute, acknowledge and deliver to Landlord a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the Lease is in full force and effect as modified and stating the modifications); (ii) stating the dates to which the rent and any other charges hereunder have been paid by Tenant; (iii) stating whether or not, to the best knowledge of Tenant, Landlord is in default in the performance of any covenant, agreement or condition contained in this Lease, and if so, specifying the nature of such default; (iv) stating that all Tenant work has been satisfactorily completed, or if not, a list of items excepted; (v) any other certification reasonably required by Landlord; and (vi) stating the address to which notices to Tenant are to be sent. Any statement delivered by Tenant may be relied upon by any owner of the Premises or the land upon which it is situated, any prospective purchaser of the Premises or such land mortgage or prospective mortgagee of the Premises or such land or of Landlord's interest therein, or any prospective assignee of any such mortgagee. Section 18.5 Waiver of Jury Trial. LANDLORD AND TENANT EACH HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OR INJURY OR DAMAGE. Section 18.6 Notices. Whenever notice is required or desired to be given under this Lease, such notice shall be in writing (unless otherwise stated) and shall deemed to have been given when hand-delivered, sent by overnight delivery or courier service, or sent by certified or registered mail, return receipt requested, and addressed as follows: (i) if to Landlord, at ________________________________________________________; (ii) if to Tenant, at __________________________________. Either party may change its address for the giving of notices by notice given in accordance with this Section. Section 18.7 Severability. If any provision of this Lease or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and enforced to the fullest extent permitted by law. Section 18.8 Successors and Assigns. The provisions of this Lease shall be binding upon, and shall inure to the benefit of, the parties hereto and each of their respective representatives, successors and assigns, subject to the provisions hereof prohibiting assignment or subletting by Tenant. Section 18.9 Entire Agreement. This Lease contains and embodies the entire agreement of the parties hereto, and no representations, inducements or agreements, oral or otherwise, not contained in this Lease shall be of any force or effect. This Lease may not be modified or changed in whole or in part in any manner other than by an instrument in writing duly signed by both parties hereto. Section 18.10 Headings. Article and section headings are used herein for the convenience of reference and shall not be considered when construing or interpreting this Lease. Section 18.11 Execution and Delivery. The submission of an unsigned copy of this document to Tenant for Tenant's consideration does not constitute an offer to lease the Premises or an option to or for the Premises. This document shall become effective and binding only upon the execution and delivery of this Lease by both Landlord and Tenant. Section 18.12 Counterparts. This Lease may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. 11 Section 18.13 Calendar Days/Business Days. As used in this Lease and the exhibits thereto, all references to "days" shall be calendar days unless business days are specified. Time is of the essence with respect to obligations of Tenant under this Lease. Section 18.14 Corporate Authority. Tenant represents and warrants to Landlord that the person executing this Lease on behalf of Tenant is authorized to do so on behalf of Tenant. Section 18.15 Consent to Jurisdiction and Forum. Any litigation in connection with, or arising out of, this Lease shall be brought in the federal or state courts for the Commonwealth of Virginia. Landlord and Tenant hereby consent to such court's exercise of personal jurisdiction Section 18.16 Recordation. Neither this Lease nor a memorandum thereof shall be recorded without the consent of Landlord. If Landlord so consents, Tenant shall pay all costs of recordation, including any transfer or recordation taxes incurred therewith. Section 18.17 Governing Law. This Lease shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal on the day and year first above written. TENANT: ePLUS, INC. By: /s/ Bruce M. Bowen [SEAL] ------------------------------ Name: Bruce M. Bowen Title: Chief Operating Officer LANDLORD: By: /s/ Phillip G. Norton -------------------------- Phillip G. Norton, Trustee 12 EX-99 4 ex99_63002.txt EXHIBIT 99.1 Exhibit 99.1 STATEMENT OF THE CHIEF EXECUTIVE OFFICER AND THE CHIEF FINANCIAL OFFICER OF EPLUS INC. PURSUANT TO 18 U.S.C.SS.1350 Each of the undersigned hereby certifies in his capacity as an officer of ePlus inc. (the "Company") that this Quarterly Report on Form 10-Q for the period ended June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (this "Report"), fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934, and the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 14, 2002 /s/ Phillip G. Norton --------------------- Phillip G. Norton President and Chief Executive Officer Dated: August 14, 2002 /s/ Steven J. Mencarini ----------------------- Steven J. Mencarini Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----