SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED September 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO .
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Commission file number 0-28892
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XLConnect Solutions, Inc.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2832796
- ------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
411 Eagleview Boulevard, Exton, PA 19341
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(Address of principal executive offices) (Zip Code)
(610) 458-5500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
--- ---
(Registrant became subject to the filing requirements on October 16, 1996)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 16,655,000 shares of Common
Stock, par value $0.01 per share were outstanding at November 27, 1996.
1
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XLCONNECT SOLUTIONS, INC. AND SUBSIDIARIES
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Combined Financial Statements
Combined Balance Sheets
September 30, 1996 and December 31, 1995 3
Combined Statements of Operations
Three and Nine Months Ended September 30, 1996
and 1995 4
Combined Statements of Cash Flows
Nine Months Ended September 30, 1996
and 1995 5
Notes to Combined Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports Filed on Form 8-K 15
SIGNATURES 16
2
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XLCONNECT SOLUTIONS, INC.
Combined Balance Sheets
(In thousands, except share-related data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ -- $ --
Trade accounts receivable, less allowance of $839 at September 30, 1996
and $710 at December 31, 1995 23,056 18,460
Deferred tax asset 1,285 2,210
Prepayments and other current assets 2,022 219
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Total current assets 26,363 20,889
Property and equipment, net of accumulated depreciation 4,928 4,389
Intangible assets, net of accumulated amortization 27,369 28,456
Other long-term assets 620 739
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Total assets $59,280 $54,473
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt $ 51 $ 113
Accounts payable 2,690 2,705
Accrued expenses 5,528 5,525
Deferred income and other 1,217 1,444
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Total current liabilities 9,486 9,787
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Long-term liabilities:
Long-term debt 34 101
Due to parent 42,913 39,455
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Total liabilities 52,433 49,343
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Commitments and contingencies (Notes 4, 6 and 8)
Shareholder's equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
no shares issued and outstanding as of September 30, 1996
and December 31, 1995 -- --
Common stock, $.01 par value, 100,000,000 shares authorized; 13,325,000
shares issued and outstanding as of September 30, 1996
and no shares issued and outstanding as of December 31, 1995 133 --
Additional paid-in capital 4,997 --
Retained earnings 1,717 --
Shareholder's net investment -- 5,130
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Total shareholder's equity 6,847 5,130
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Total liabilities and shareholder's equity $59,280 $54,473
======= =======
</TABLE>
See accompanying notes to unaudited financial statements
3
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XLCONNECT SOLUTIONS, INC.
Combined Statements of Operations
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 31,644 $ 21,019 $ 83,645 $ 57,628
Cost of revenues 21,905 15,093 58,279 41,003
----------- ----------- ----------- -----------
Gross profit 9,739 5,926 25,366 16,625
Operating expenses:
Selling and marketing 2,360 888 5,867 2,915
General and administrative 3,750 2,657 8,963 6,638
Depreciation and amortization 1,080 895 3,572 2,006
----------- ----------- ----------- -----------
7,190 4,440 18,402 11,559
----------- ----------- ----------- -----------
Income from operations 2,549 1,486 6,964 5,066
Other expense, net:
Interest 1,022 725 3,081 1,536
Other 84 -- 237 (9)
----------- ----------- ----------- -----------
1,106 725 3,318 1,527
----------- ----------- ----------- -----------
Income before income taxes 1,443 761 3,646 3,539
Provision for income taxes 740 384 1,929 1,686
----------- ----------- ----------- -----------
Net income $ 703 $ 377 $ 1,717 $ 1,853
=========== =========== =========== ===========
Unaudited Pro Forma Data (Note 5)
Net income per common share $ 0.05 $ 0.12
Shares used in computing net income per
common share 13,888 13,888
</TABLE>
See accompanying notes to unaudited financial statements
4
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XLCONNECT SOLUTIONS, INC.
Combined Statements of Cash Flows
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,717 $ 1,853
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,572 2,006
Loss on disposal of property and equipment 17 20
Provision for allowance on trade accounts receivable 129 336
Deferred income taxes 1,002 (540)
Changes in assets and liabilities, net of effects of acquisition:
Trade accounts receivable (4,725) (1,872)
Prepayments and other current assets (1,803) 394
Other long-term assets 42 507
Accounts payable (15) (3,281)
Accrued expenses 3 1,702
Deferred income and other (227) (111)
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Net cash provided by (used in) operating activities (288) 1,014
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Cash flows from investing activities:
Purchases of property and equipment (3,041) (1,250)
Repayment of note receivable -- 2,783
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Net cash provided by (used in) investing activities (3,041) 1,533
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Cash flows from financing activities:
Net repayments of long-term debt (129) (2,468)
Net changes in due to parent 3,458 (79)
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Net cash provided by (used in) financing activities 3,329 (2,547)
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Net change in cash -- --
Cash-beginning of period -- --
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Cash-end of period $ -- $ --
======= =======
</TABLE>
See accompanying notes to unaudited financial statements
5
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XLConnect Solutions, Inc. and Subsidiaries
Notes to Combined Financial Statements
(Dollars in thousands)
(unaudited)
(1) Formation and Operations
The accompanying combined financial statements of XLConnect Solutions, Inc. (the
Company) include the operations of the professional services organization (PSO)
of The Future Now, Inc. (TFN) and IntelliCom Solutions, Inc. (IntelliCom),
formerly a wholly-owned subsidiary of Intelligent Electronics, Inc. (IE). TFN
established PSO in 1990 and was acquired by IE in August 1995. Prior to January
1, 1996, the Company had no separate legal status or existence. The Company was
incorporated under the laws of the Commonwealth of Pennsylvania in January 1996
and issued 1,000 shares of Common Stock to IE at such time in connection with
its initial capitalization. The Company changed its name to XLConnect Solutions,
Inc. in May 1996. In addition, (i) as of May 31, 1996, IE contributed to the
Company the stock of IntelliCom and the assets and liabilities, including
intercompany debt, relating to the PSO business, (ii) the Company and IE have
entered into certain contractual arrangements effective as of the date set forth
on each agreement for the purpose of defining certain relationships between them
(see Note 6), and (iii) on September 6, 1996, the Company effected a
13,325-for-1 stock split of the Company's issued and outstanding shares of
Common Stock.
(2) Basis of Presentation
The accompanying combined financial statements consist of the financial
statements of the Company as described in Note 1. These statements are presented
as if the Company had existed as a corporation separate from IE, and include
historical assets, liabilities, sales and expenses directly related to the
Company's operations that were either specifically identifiable or allocable
using methods which took into consideration personnel, business volume or other
appropriate factors. As part of IE's central cash management system, all cash
generated from and cash required to support the Company's operations were
deposited and received through IE's corporate operating cash accounts. As a
result, there were no separate bank accounts or accounting records for these
transactions. Accordingly, the amounts represented by the caption "Net changes
in due to parent" to the Company's Combined Statements of Cash Flows represent
the net effect of all cash transactions between the Company and IE. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and use assumptions
that affect certain reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. All material transactions
between entities included in these combined statements have been eliminated.
For the periods presented, certain general and administrative expenses reflected
in the combined financial statements include allocations of certain corporate
expenses from IE. These allocations took into consideration personnel, business
volume or other appropriate bases and generally include administrative expenses
related to general management, insurance, information management and other
miscellaneous services. Allocations of corporate expenses are estimates based on
management's best estimate of actual expenses. It is management's opinion that
the expenses charged to the Company are reasonable.
Interest expense shown in the combined financial statements reflect interest
expense associated with the Company's share of the aggregate borrowings of IE
and all of its subsidiaries for each of the periods presented. Additionally,
income taxes are calculated on a separate tax return basis. Management believes
that such allocations are reasonable.
The financial information included herein may not necessarily reflect the
financial position, results of operations or cash flows of the Company in the
future or what the balance sheets, results of operations or cash flows of the
Company would have been if it had been a separate, stand-alone publicly-held
corporation during the periods presented.
This information is unaudited but, in the opinion of management, reflects all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position and operating results for the interim
periods presented. These financial statements should be read in conjunction with
the audited combined financial statements and notes thereto included in the
Company's Prospectus dated October 17, 1996 and filed with the Securities and
Exchange Commission with respect to the Company's initial public offering
(the IPO).
6
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(3) Revenue and Cost Recognition
Revenues from internetworking and applications development service contracts are
primarily recognized as services are provided to the client and billed on a time
and materials basis, and to a lesser extent, are recognized on the
percentage-of-completion basis for fixed price contracts. Costs are recognized
as incurred. Revenues associated with managed service contracts are recorded
ratably over the service period of the contract while costs are also recognized
as incurred. Revenues and costs from telecommunications services are recognized
on the basis of client usage or pursuant to a fixed rate. Funds received through
IE from vendors for training, capital expenditures and marketing programs are
accounted for as a reduction of cost of revenues, capitalized costs or selling
and marketing expenses, according to the nature of the program when earned. The
Company received allocations of IE's total vendor funding related to the
businesses of the Company and of TFN in the amounts of $315 and $82 for the
three months ended September 30, 1996 and 1995, respectively, and $883 and $475
for the nine months ended September 30, 1996 and 1995, respectively. These
allocations were based on the relationship of services business volumes to total
business volumes of the Company and TFN except for funding specifically related
to IntelliCom's telecommunications services after January 1, 1996.
(4) Debt Obligations
For purposes of the Combined Financial Statements presented herein, amounts Due
to Parent represent intercompany borrowings from IE necessary to fund the
Company's operations and acquisitions since its inception in 1990. These amounts
have been classified as noncurrent since there were no repayment terms between
IE and the Company. Interest expense charged to the Company was based on the
weighted average interest rates on IE's borrowings.
The Company is a party to IE's credit facility with IBM Credit Corporation
(IBMCC). The IE credit facility allows for total borrowings by IE of up to
$225,000, subject to a collateral-based formula, and is secured by all of the
assets of IE and its subsidiaries, including the Company. During October 1996,
IE amended its credit facility to allow the Company to borrow directly from
IBMCC up to $20,000 of the total $225,000, subject to a collateral-based
formula, and to limit the Company's joint and several liability to IBMCC at
$20,000 (whether arising from direct borrowings or a guaranty of IE's
outstanding indebtedness). Outstanding balances under the $20,000 sub-facility
initially bore interest at the prime rate plus 1.5% and the sub-facility has a
maturity date of April 5, 1997. IE is permitted under the credit facility to
borrow up to the total amount of the credit facility, including amounts not then
outstanding to the Company under the $20,000 sub-facility, provided IE satisfies
its collateral-based formula, inclusive of the Company's assets. However, the
Company and IE have entered into an Intercompany Debt Agreement dated October
22, 1996 which permits IE to borrow against the Company's assets only up to an
amount of borrowing equal to any remaining intercompany indebtedness owed by the
Company to IE from time to time. Effective November 1, 1996, the interest rate
under the $20,000 sub-facility was changed to prime plus .875%.
(5) Unaudited Pro Forma Net Income Per Common Share
Unaudited pro forma net income per common share for the periods presented is
computed using the number of common shares and common share equivalents
outstanding after the organization of the Company and before the IPO assuming
the consummation of the Company's stock split at the date of incorporation.
Common share equivalents consists of the Company's common shares issuable upon
exercise of options to purchase shares of Common Stock granted under the
Company's 1996 Long-Term Incentive Plan. Pursuant to the requirements of the
Securities and Exchange Commission (SEC), stock options issued by the Company
during the twelve months immediately preceding the IPO have been included in the
number of common shares and common shares equivalents used in computing pro
forma net income per share as if they were outstanding for the latest year using
the treasury stock method.
(6) Related Party Transactions
The Company and IE have entered into a number of agreements, in addition to the
Intercompany Debt Agreement referred to above, for the purpose of defining
certain relationships between them. As a result of IE's approximately 80%
ownership interest in the Company, the terms of such agreements were not, and
the terms of any future amendments to those agreements may not be, the result of
arms-length negotiation. The following summaries of these agreements are
qualified in all material respects by the terms and conditions of the
agreements.
Services Agreement
The Company and IE have entered into a Services Agreement pursuant to which IE
will continue, on an interim basis, to provide the Company, upon the Company's
request, various services, including insurance and risk management, employee
benefit administration and similar administrative and management services, that
IE has historically provided to the Company, and the Company will continue on an
interim basis to provide service call support to IE. The Company will pay the
direct costs of services provided by IE, and IE will pay the Company for service
call support at the Company's standard billing rates. To the extent that the
direct costs of services provided by IE cannot at be separately measured, the
Company will
7
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(6) Related Party Transactions, continued
pay its allocable portion of the total cost to IE for any such services,
determined in accordance with described methodologies, using such objective
factors as are available to IE and the Company. The Services Agreement also
provides that IE will furnish additional services as may be reasonably requested
by the Company on similar terms. The Services Agreement will automatically
terminate on (i) the occurrence of a pro rata distribution to IE's shareholders
of the shares of Common Stock of the Company held by IE by means of a tax-free
or taxable transaction (the Distribution) or (ii) such time that IE no longer
owns a majority of the outstanding shares of Common Stock. In addition, the
Services Agreement may also be terminable by either party on 90 days' prior
written notice, except that no such written notice will result in termination
prior to December 31, 1996.
Under the Services Agreement, IE and the Company each have the option to make
advances from time to time to the other upon request. In the case of the
Company, such advances would be made as directed or within specific parameters
prescribed by its Board of Directors.
Interest is payable monthly in arrears at market rates on all net advances by
the Company or IE, as the case may be, and, prior to termination of the Services
Agreement, will be accounted for as additional advances. Advances will be
repayable on the date specified in the request for such advance. Funds advanced
by the Company to IE will not be segregated from other funds of IE, and IE may
use such funds for its own benefit, subject to certain limitations under the
IBMCC credit facility. Consequently, the Company will be subject to risk of loss
in respect to such funds. Upon termination of the Services Agreement, all
outstanding advances and accrued but unpaid interest will become due and
payable.
In addition, the Services Agreement provides that IE will permit employees of
the Company to continue to participate in the benefit plans and programs
sponsored by IE until the termination of the Services Agreement.
The Services Agreement also recognizes that IE's direct sales force may continue
to provide to the Company sales leads and referrals. The Services Agreement
provides that the Company shall continue to compensate IE at least through
December 31, 1997 for such leads and referrals that result in revenues to the
Company in a manner consistent with and substantially similar to current
practices between the companies.
The Services Agreement further provides that the Company will continue to
receive from IE for an interim period, consistent with past practices, a portion
of the funds received by IE from vendors for training, capital expenditures and
marketing programs.
Space Sharing Agreement
The Company and IE have entered into a Space Sharing Agreement providing for
sharing by the Company and IE of certain office facilities, including the
offices located in Exton, Pennsylvania at which the Company's and IE's principal
executive offices are located. Under the Space Sharing Agreement, the costs
associated with leasing and maintaining facilities will, in general, be
allocated between the Company and IE on a pro rata basis determined by the
square footage utilized by each Company or the number of employees of each
Company at the specified location, in accordance with historical practice. The
Company's rights to use portions of the shared facilities leased from third
parties and the corresponding obligations to pay for such use, may be terminated
as to any facility by either the Company or IE on 90 days' prior written notice.
On November 13, 1996, the Company submitted the requisite 90 day written notice
under the Space Sharing Agreement to terminate its use of IE's executive offices
located in Exton, PA.
Tax Allocation Agreement
The Company and IE have entered into a Tax Allocation Agreement to provide for
(i) the allocation of payments of taxes for periods during which the Company and
IE are included in the same consolidated group for Federal income tax purposes
or the same consolidated, combined or unitary tax returns for state, local or
foreign tax purposes, (ii) the allocation of responsibility for the filing of
tax returns, (iii) the conduct of tax audits and the handling of tax
controversies, and (iv) various related matters. For periods during which the
Company is included in the aforementioned returns, the Company will be required
to pay IE its allocable
8
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(6) Related Party Transactions, continued
share of any tax benefit attributable to the use of the Company's losses, if
any. The Company will be responsible for the filing of Federal, state, local and
foreign tax returns and related liabilities for itself for all periods, to the
extent not included in IE's combined or consolidated tax returns.
Notwithstanding the Tax Allocation Agreement, under Federal income tax law, each
member of a consolidated group for Federal income tax purposes is also jointly
and severally liable for the Federal income tax liability of each member of the
consolidated group. Similar rules may apply under state income tax laws.
Indemnification Agreement
The Company and IE have entered into an Indemnification Agreement under which,
among other things and subject to limited exceptions, the Company is required to
indemnify IE and its directors, officers, employees, agents and representatives
for all liabilities relating to the Company's business and operations and for
all contingent liabilities relating to the Company's business and operations or
otherwise assigned to the Company. In addition, indemnification will be granted
to IE for liabilities arising out of or based upon alleged misrepresentations in
or omissions from the Registration Statement relating to the IPO.
The Indemnification Agreement also provides that each party thereto (the Obligor
Party) (i) will use reasonable efforts to obtain the release of the other party
thereto (the Guarantor Party) from its obligations under or in respect of all
material guarantees, surety and performance bonds, letters of credit and other
arrangements guaranteeing or securing any liability or obligation of the Obligor
Party (except with respect to the Company's obligations under the IBMCC credit
facility), (ii) will indemnify the Guarantor Party for any liabilities incurred
under such guarantees, bonds, letters of credit and other arrangements, and
(iii) will reimburse the Guarantor Party for its direct costs (or, in certain
circumstances, the Obligor Party's pro rata share of such direct costs) of
maintaining such guarantees, bonds, letters of credit and other arrangements
pending the release of the Guarantor Party thereunder.
Stock Registration and Option Agreement
The Company has provided IE with certain registration rights, including demand
registration rights and "piggy-back" registration rights, with respect to Common
Stock owned by IE. The Company's obligation is subject to certain limitations
relating to a minimum amount of Common Stock required for registration, the
timing of registration and other similar matters. The Company is obligated to
pay all expenses incidental to such registration, excluding underwriters'
discounts and commissions and certain legal fees and expenses. The Company has
also granted to IE, pursuant to the Stock Registration and Option Agreement, the
earlier to occur of (i) the completion of the Distribution and (ii) the sale by
IE of such number of shares of Common Stock that IE is no longer eligible to
make the Distribution tax free or to include the Company in IE's consolidated
Federal income tax return, a continuous, cumulative option to purchase from the
Company at then-current market prices such number of shares of Common Stock as
IE may determine to be necessary to (a) allow IE to continue to include the
Company in IE's consolidated Federal income tax return or (b) increase the
likelihood that the Distribution would be tax-free to IE and its shareholders.
This number of shares is expected to be the number necessary for IE to continue
to own at least 80% of the outstanding shares of Common Stock. The option may
only be exercised upon the original issuance of shares by the Company.
Existing Telecommunications Services Agreement
Pursuant to the terms of a services agreement between IE and the Company dated
as of January 1, 1996, IE has agreed to purchase from the Company all of the
telecommunications services required by IE. The services agreement requires IE
to purchase sufficient telecommunications services to permit the Company to meet
the minimum volume requirements imposed by the Company's agreement with MCI
Telecommunications Corporation (MCI). The services agreement has a term of five
years and will renew automatically for six successive two year periods, unless
terminated earlier in accordance with its terms. IE may terminate the services
agreement at the conclusion of any such term if it provides the Company with at
least 90 days' notice prior to the expiration of such term that it has received
a bona fide offer to provide telecommunications services that in quantity,
quality and duration are equal to or better than the services being provided to
IE by the Company at a price of 5% or more below the price of the Company
charges for such services and the Company does not match the offer.
9
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(7) Supplemental Cash Flow Information
As a result of the Company participating in IE's central cash management system,
the Company made no cash payments for interest and income taxes. Non-cash
investing activities of $22,819 for the nine months ended September 30, 1995
related to the allocation of goodwill from IE's acquisition of TFN.
(8) Contingencies
The Company continuously evaluates contingencies based upon the best available
evidence. Management believes that allowances for loss have been provided to the
extent necessary and that its assessment of contingencies is reasonable.
The Company entered into an agreement with MCI in December 1994, whereby the
Company is authorized to sell certain of MCI's data and voice communications
services under the Company's name. This relationship generates recurring
revenues for the Company from clients' monthly usages. The Company is required
to meet certain minimum billing levels, $1,000 in 1995, $1,200 in 1996 and
$2,000 in 1997, or pay MCI the shortfall. The Company has exceeded its minimum
under this agreement in the past and believes that it will exceed its minimum in
1996. In addition, pursuant to the terms of the existing telecommunications
services agreement between IE and the Company, IE has agreed to purchase from
the Company all of the telecommunications services required by IE which is
sufficient to permit the Company to meet the minimum volume requirements imposed
by the Company's agreement with MCI.
(9) Subsequent Event
On October 17, 1996, the Company consummated an initial public offering of
3,330,000 of its authorized and unissued shares of Common Stock, or
approximately 20% of the Company's outstanding shares after the IPO.
Approximately $41,208 of the total net proceeds of approximately $45,500 were
used to repay the Company's then outstanding indebtedness to IE, with the
remaining proceeds to be used for working capital and general corporate
purposes. As a result of the IPO, the Company currently is an indirect, 80%
owned subsidiary of IE.
10
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three and Nine Months Ended September 30, 1996 Compared to Three and Nine Months
Ended September 30,1995
The following table sets forth the components of revenues of the Company for the
periods presented:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 3O,
-------------------------------------- ------------------------------------------
1996 1995 1996 1995
------------------ ---------------- -------------------- -------------------
% of % of % of % of
Amount Revenue Amount Revenue Amount Revenue Amount Revenue
--------- ------- ------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Internetworking $ 8,510 26.8% $ 6,870 32.7% $ 22,185 26.5% $ 19,541 33.9%
Applications development 4,732 15.0 3,260 15.5 12,824 15.3 9,017 15.6
Managed services 16,822 53.2 10,889 51 8 44,219 52.9 29,070 50.5
Telecommunications 1,580 5.0 -- -- 4,417 5.3 -- --
-------- ----- ------- ----- -------- ----- -------- -----
Total Revenues $ 31,644 100.0% $21,019 100.0% $ 83,645 100.0% $ 57,628 100.0%
======== ===== ======= ===== ======== ===== ======== =====
</TABLE>
Revenues. The Company's revenues increased 50.5% for the quarter ended September
30, 1996 (3Q96) to $31.6 million from $21.0 million for the quarter ended
September 30, 1995 (3Q95). The increase in revenues from 3Q95 to 3Q96 was
primarily due to the growth in applications development and managed services
combined with the introduction of telecommunications services as of January 1,
1996. Revenues increased 45.1% for the nine months ended September 30, 1996 to
$83.6 million from $57.6 million for the comparable period in 1995. The increase
in revenues resulted principally from growth in managed services, particularly
LAN and desktop support and administration and the Power-by-the-Hour (PBTH)
program. The Company's new telecommunications services accounted for $4.4
million, or 5.3% of revenues for the nine months ended September 30, 1996.
Cost of Revenues. Cost of revenues increased 45.1% for 3Q96 to $21.9 million
from $15.1 million for 3Q95. The increase from 3Q95 to 3Q96 was primarily the
result of an increased number of technical personnel necessary to support the
growth in revenues combined with incremental costs associated with revenues from
telecommunications services. Cost of revenues as a percentage of revenues
decreased to 69.2% for 3Q96 as compared to 71.8% for 3Q95 resulting from an
improvement in the utilization of the Company's engineers and technicians. This
improvement in cost of revenues in 3Q96 was partially offset by the introduction
of lower margin telecommunications services and growth in certain managed
service areas, which provide recurring or repeat revenues at lower margins. Cost
of revenues increased 42.1% for the nine months ended September 30, 1996 to
$58.3 million from $41.0 million for the comparable period for 1995, primarily
as a result of an increased number of technical personnel necessary to support
increased revenues, and in part due to the expansions of the Company's San Mateo
branch office and the Company's help desk operations. The increase also reflects
incremental costs associated with revenues from telecommunications services.
Cost of revenues as a percentage of revenues decreased to 69.7% for the nine
months ended September 30, 1996 from 71.2% for the comparable period in 1995 as
a result of improved utilization of the Company's engineers and technicians,
partially offset by the lower margin telecommunications and managed services.
Selling and Marketing. Selling and marketing expenses increased 165.8% for 3Q96
to $2.4 million from $888,000 for 3Q95 and increased as a percentage of revenues
to 7.5% for 3Q96 from 4.2% for 3Q95. The dollar increase was primarily due to
continued development of the Company's direct sales force and increased
commissions associated with the increased revenues. The increase as a percentage
of revenues also primarily resulted from the development of a direct sales
channel, combined with an increase in marketing programs to further the
Company's presence in the marketplace. Selling and marketing expenses increased
101.3% for the nine months ended September 30, 1996 to $5.9 million from $2.9
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million for the comparable period in 1995 and increased as a percentage of
revenues to 7.0% for the first nine months of 1996 from 5.0% for the comparable
period in 1995. The increase was a result of the Company adding sales personnel
as it continued to develop its direct sales channel.
General and Administrative. General and Administrative expenses increased 41.1%
for 3Q96 to $3.8 million from $2.7 million for 3Q95 and decreased as a
percentage of revenues to 11.9% for 3Q96 from 12.6% in 3Q95. The dollar increase
was due to increased overhead costs required to support the Company's growth and
to enable it to operate as a separate company, including an expanded management
team, increased facility costs to support overall personnel growth and the
additional overhead costs associated with providing telecommunications services.
The decrease as a percentage of revenues was attributable to the Company's
improved return on fixed costs combined with effective management of variable
costs. General and administrative expenses increased 35.0% for the nine months
ended September 30, 1996 to $9.0 million from $6.6 million for the comparable
period in 1995. As a percentage of revenues, general and administrative expenses
decreased to 10.7% for the first nine months of 1996 from 11.5% for the first
nine months of 1995. The increase in costs was due to the incremental overhead
required to support the Company's growth and to enable it to operate as a
separate company combined with the overhead costs associated with its
telecommunications services offering, while the decrease as a percentage of
revenues was attributable to improved return on fixed costs combined with
effective management of variable costs.
Depreciation and Amortization. Depreciation and amortization increased 20.8% for
3Q96 to $1.1 million from $895,000 for 3Q95 and decreased as a percentage of
revenues to 3.3% in 3Q96 from 4.3% in 3Q95. The dollar increase was primarily
due to amortization of the incremental goodwill associated with IE's acquisition
of TFN in August 1995; the decline as a percentage of revenues was primarily due
to the growth in revenues exceeding such incremental amortization. Depreciation
and amortization increased 78.0% for the nine months ended 1996 to $3.6 million
from $2.0 million for the comparable period in 1995. As a percentage of
revenues, depreciation and amortization increased to 4.3% for the first nine
months of 1996 from 3.5% for the first nine months of 1995. The increase was
primarily due to amortization of the incremental goodwill associated with IE's
acquisition of TFN, combined with depreciation of new computer equipment
acquired to support the increased number of technical services personnel and new
training rooms to support the Company's applications development service
programs.
Income from Operations. Income from operations increased 71.5% for 3Q96 to $2.5
million from $1.5 million for 3Q95 and increased as a percentage of revenues to
8.1% in 3Q96 from 7.1% in 3Q95, for the reasons stated above. Income from
operations increased 37.5% for the nine months ended September 30,1996 to $7.0
million from $5.1 million for the comparable period in 1995 and decreased as a
percentage of revenues to 8.3% for the nine months of 1996 from 8.8% for the
nine months of 1995, for the reasons stated above.
Other Expense, Net. Other expense, net increased 52.6% for the quarter ended
3Q96 to $1.1 million from $325,000 for 3Q95 which was primarily a result of an
increase in interest expense. The increase in interest expense for 3Q96 was
primarily due to intercompany borrowings attributable to IE's acquisition of TFN
and incremental debt required to support the Company's higher working capital
needs. Other expense, net increased 117.3% for the nine months ended September
30,1996 to $3.3 million from $1.5 for the comparable period in 1995, also as a
result of an increase in interest expense. Interest expense for the nine months
ended September 30,1996 was $3.1 million, comparable to $1.5 million for the
nine months ended September 30, 1995, as a result of increased intercompany
borrowings attributable to IE's acquisition of TFN and incremental debt required
to support the Company's higher working capital needs.
Provision for Income Taxes. Provision for income taxes increased 92.7% for 3Q96
to $740,000 from $384,000 for 3Q95 which was primarily due to higher income
before income taxes. The effective income tax rate increased modestly to 51.3%
for 3Q96 from 50.5% for 3Q95. The provision for income taxes increased 14.4% for
the nine months ended September 30, 1996 to $1.9 million from $1.7 million for
the comparable period in 1995, primarily as a result of higher income before
income taxes. The effective income tax rate increased to 52.9% for the first
nine months of 1996 from 47.6% for the comparable period in 1995, primarily due
to the increase in nondeductible goodwill amortization associated with the
acquisition of TFN by IE in August 1995.
12
<PAGE>
Quarterly Results and Seasonality
The Company's quarterly operating results may vary depending upon such factors
as changes in the levels of revenues derived from internetworking, applications
development, managed services and telecommunications services, the size and
timing of significant projects, changes in the mix of employee and subcontractor
technicians on client engagements, the timing of new service offerings by the
Company or its competitors, new branch office openings by the Company, changes
in pricing policies by the Company or its competitors, market acceptance of new
and enhanced services offered by the Company or its competitors, changes in
operating expenses, the availability of qualified technical personnel,
disruptions in sources of supply of computer, telecommunications and related
products and services, the effect of acquisitions and industry and general
economic factors. In addition, the Company believes that its business is subject
to some seasonality, the effects of which currently are partially obscured by
the Company's revenue growth. Nonetheless, the Company believes that weaker
sales may be experienced during the fourth and first quarters due to fewer
business days and by some clients' decisions at year end to postpone large
internetworking and applications development projects until the following year
when capital budgets are renewed.
Effects of Inflation
The Company believes it has not been adversely affected by inflation during the
past three years.
Liquidity and Capital Resources
The Company's operating activities used cash of $288,000 for the nine months
ended September 30, 1996 due to the increase in working capital requirements,
primarily accounts receivable resulting from the significant growth in revenues,
and the deferral of costs related to the IPO which were applied against the
proceeds thereof in October 1996. The Company currently does not believe that
the use of cash during the nine months ended September 30, 1996 constitutes a
trend that will continue beyond the short term.
The Company's investing activities used cash of $3.0 million for the nine months
ended September 30, 1996 relating to capital expenditures necessary to support
the continued growth in the number of technical service and administrative
personnel.
The Company's financing activities provided cash of $3.3 million for the nine
months ended September 30, 1996 resulting from intercompany borrowings from IE
partially offset by the repayment of other long-term debt.
The foregoing cash flows are not necessarily indicative of the cash flows that
would have resulted if the Company were a stand-alone entity.
Prior to October 17, 1996, the Company participated in IE's central cash
management system, pursuant to which all cash generated from the Company's
operations was transferred to IE on a daily basis, and all cash required to
operate the Company's business was transferred back to the Company from IE.
Consequently, during the periods presented the Company did not maintain separate
cash accounts.
The Company is currently a party to, but has not yet borrowed directly under,
the IBMCC Credit Facility (Credit Facility). The Credit Facility allows for
total borrowings by IE of up to $225 million, the availability under which is
limited by a collateral-based formula. During October 1996, IE amended its
Credit Facility to allow the Company to borrow directly from IBMCC up to $20
million ($20 million Sub-facility) of the total $225 million, subject to a
collateral-based formula, and to limit the Company's joint and several liability
to IBMCC to $20 million, whether arising from direct borrowings by the Company
under the $20 million Sub-facility or pursuant to the Company's guaranty of IE's
indebtedness to IBMCC. Outstanding balances under the $20 million Sub-facility
initially bore interest at prime plus 1.5% and the $20 million Sub-facility has
a maturity date of April 5, 1997. IE is permitted under the credit facility to
borrow up to the total amount of the credit facility, including amounts not then
outstanding to the Company under the $20 million Sub-facility, provided IE
satisfies its collateral-based formula, inclusive of the Company's assets.
However, the Company and IE have entered into an Intercompany Debt Agreement
dated October 22, 1996 which permits IE
13
<PAGE>
to borrow against the Company's assets only up to an amount of borrowing equal
to any remaining intercompany indebtedness owed by the Company to IE from time
to time. As of November 15, 1996, there were no outstanding borrowings by the
Company under the $20 million Sub-facility while, under the collateral-based
formula, approximately $13.4 was available to be borrowed by the Company. The
Credit Facility is secured by all of the assets of IE and its subsidiaries,
including the Company. Effective November 1, 1996, the interest rate under the
$20 million Sub-facility was changed to prime plus .875%.
The Company intends to seek its own credit facility prior to the termination of
the $20 million Sub-facility, although there can be no assurance that the
Company will be able to do so on terms acceptable to the Company, or that the
Company will be permitted to be removed as a party to the IBMCC Credit Facility.
After termination of the $20 million Sub-facility, the Company's principal
sources of liquidity will consist of cash from operations, borrowings under such
credit facilities as may be available to the Company from time to time, the use
of operating or capital leases and advances, if any, under the Services
Agreement.
On October 17, 1996, the Company completed the sale of 3,330,000 shares of
its authorized and unissued Common Stock at an initial public offering price of
$15 per share. Approximately $41.2 million of the total net proceeds of
approximately $45.5 million were used to repay the Company's then outstanding
indebtedness to IE, with the remaining proceeds to be used for working capital
and general corporate purposes.
During the remainder of 1996 and 1997, the Company anticipates making
approximately $7 million in capital expenditures, expected to be funded from
cash flows from operations and available external financing sources. These
expenditures will include the acquisition and implementation of a new remote
time, billing and contract management system, additional purchases of computers
to support the technical staff and completion of an executive briefing center to
be used to demonstrate the Company's network management and help desk
capabilities to clients. The Company has no current plans for any additional
material capital expenditures through December 31, 1997.
The Company believes that its cash flows from operations, funds available from
the $20 million Sub-facility, or a replacement line of credit that may become
available to the Company, the use of operating or capital leases and advances,
if any, under the Services Agreement will be sufficient to satisfy its working
capital needs and planned growth through the next twelve months, except to the
extent that additional financing may be required in connection with any
acquisition.
Forward Looking Statements
The matters discussed in this Form 10-Q that are forward looking statements are
based on current management expectations that involve risks and uncertainties.
Potential risks and uncertainties include, without limitation: the risk of loss
of the Company's largest customer, GE Aircraft Engines, with whom the Company is
currently in discussions regarding continued participation in the PBTH program,
availability of financing and capital to the Company on acceptable terms after
termination of the $20 million Sub-facility, any legal proceedings that
could be instituted in the future, the factors described under "Quarterly
Results and Seasonality" and the risk factors described generally in the
Company's Prospectus dated October 17, 1996 filed with the Securities and
Exchange Commission in connection with the IPO.
14
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 -- Contribution Agreement between IE, TFN, The Future Now of
Arkansas, Inc. and the Company dated as of May 31, 1996
10.3 -- Services Agreement between the Company and IE dated as of
October 22, 1996
10.4 -- Space Sharing Agreement between the Company, IE and TFN, with
respect to the Company's principal executive offices and branch
offices dated as of May 31, 1996
10.5 -- Tax Allocation Agreement between the Company, IE and IE's other
subsidiaries effective as of January 29, 1995
10.6 -- Stock Registration and Option Agreement between the Company, IE
and The Future Now, Inc. of Arkansas dated as of May 31, 1996
10.7 -- Indemnification Agreement between the Company and IE dated as of
October 22, 1996
10.9 -- Amended Credit Facility between IBMCC, IE and the Company
creating the $20 million Sub-facility
10.10 -- Intercompany Debt Agreement dated October 22, 1996 by and
between IE and the Company.
10.11 -- Services Agreement for Telecommunications Services by and
between XLConnect Services, Inc. (a wholly-owned subsidiary of
the Company formerly named IntelliCom Solutions, Inc.) and IE
dated as of January 1, 1996
27.1 -- Financial Data Schedule (submitted electronically only to
Securities and Exchange Commission)
(b) Reports filed on Form 8-K.
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
XLConnect Solutions, Inc.
/s/ Richard G. Ellenberger
--------------------------------
Richard G. Ellenberger
President and
Chief Executive Officer
/s/ Stephanie D. Cohen
--------------------------------
Stephanie D. Cohen
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
Date: November 27, 1996
16
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of the 31st
day of May, 1996 by and between Intelligent Electronics, Inc., a Pennsylvania
corporation ("IE"), The Future Now, Inc., an Ohio corporation ("TFN") , The
Future Now, Inc. of Arkansas, an Arkansas corporation ("TFNA") and XLConnect
Solutions, Inc., a Pennsylvania corporation ("XLC").
Background
A. XLC and TFN are a wholly owned subsidiaries of IE, and TFNA is a
wholly owned subsidiary of TFN.
B. IE and XLC intend to effect an initial public offering of shares of
common stock of XLC (the "Offering").
C. In order to facilitate the Offering, the parties will effect a
restructuring of the corporate organization, following which XLC will be a
wholly owned subsidiary of TFNA.
D. Each of IE, TFN and TFNA (collectively referred to hereinafter as
"IE", except where the context requires "IE" to mean Intelligent Electronics,
Inc.) desires to contribute to XLC, and XLC desires to accept and receive,
certain of the assets and liabilities of IE, TFN and TFNA, respectively.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises and covenants contained in this Agreement, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Assigned Contracts" has the meaning ascribed thereto in Section
3 hereof.
(b) "Business Day" means any calendar day which is not a Saturday,
Sunday or public holiday under the laws of the Commonwealth of Pennsylvania.
(c) "Contract" means any written or oral contract, agreement,
commitment, lease, license, consulting agreement, supply contract, repair
contract, distribution agreement, purchase order, technology and know-how
agreement, instrument or any other contractual commitment that is binding on any
Person or its property.
(d) "Governmental Entity" means any government and political
subdivisions thereof, court, arbitral tribunal, administrative agency, tribunal
or commission or any other governmental or regulatory body, instrumentality or
authority, whether domestic (federal, state or local) or foreign.
<PAGE>
(e) "Liability" means any direct or indirect liability, loss,
damage, cost, expense, contingent liability, loss contingency, indebtedness,
obligation, responsibility, claim, deficiency (including deferred income tax and
other net tax deficiencies), guaranty or endorsement of or by any person,
whether accrued, absolute, or contingent, known or unknown, fixed or unfixed,
liquidated or unliquidated, secured or unsecured, and any other items which, in
accordance with GAAP, would be classified as a Liability.
(f) "Lien" means any mortgage, lien, security interest, pledge,
negative pledge, encumbrance, assessment, title retention agreement, restriction
or restraint on transfer, defect of title, change in the nature of a lien or
security interest, or option (whether consensual, statutory or otherwise).
(g) "Permitted Liens" means (a) Liens for current taxes not yet
delinquent for which appropriate reserves in accordance with GAAP have been
created; (b) statutory liens imposed by law which are incurred in the ordinary
course of business for obligations not yet due to carriers, warehousemen,
laborers and materialmen; and (c) consensual Liens granted on Contributed Assets
with respect to financing obligations assumed by XLC.
(h) "Person" means an individual, a sole proprietorship, a
corporation, a partnership, a joint venture, an association, a trust, or any
other entity or organization, including a government or a political subdivision,
agency or instrumentality thereof.
(i) "Required Consents" means any and all licenses, waivers,
consents or approvals of or from any Governmental Entity, including the
expiration of any periods of time under statutory and regulatory notice
provisions without action on the part of any Governmental Entity, and any and
all approvals, consents or waivers from other parties to leases, licenses,
franchises, permits, indentures, Contracts and other instruments necessary to
consummate the transaction contemplated hereby.
2. Contributions of Assets by IE. Subject to the terms and conditions
contained herein, IE hereby contributes to XLC, free and clear of all Liens
(other than Permitted Liens), the assets of IE which are listed on Schedule A
attached hereto (collectively, the "Contributed Assets").
3. Assignment of Contracts and Contract Rights. IE hereby assigns,
transfers and delivers to XLC all of its right, title and interest in and to all
of the Contracts and contract rights identified on Schedule B hereto (the
"Assigned Contracts") and XLC hereby accepts the Assigned Contracts and agrees
to perform and comply with such Assigned Contracts as if XLC were the original
signatory thereunder.
4. Assumption of Liabilities. XLC hereby assumes only those debts,
liabilities and obligations of IE listed on Schedule C attached hereto (the "IE
Assumed Liabilities"). Except as set forth on Schedule C, XLC does not and will
not otherwise
-2-
<PAGE>
acquire, discharge, assume, or become responsible for any debts, liabilities or
obligations of IE. IE agrees to pay and satisfy when due those liabilities and
obligations not assumed by XLC, which, if not paid or satisfied, could result in
a liability to XLC which is not being assumed by XLC. To the extent a
Contributed Asset of IE being sold or contributed to XLC pursuant to Section 2
or 3 hereof is subject to a Lien that is not an IE Assumed Liability, IE
expressly acknowledges that it is retaining such Liability and agrees to pay and
discharge such Liability as the same shall become due.
5. Representations and Warranties.
(a) IE, TFN and TFNA, as applicable, represent and warrant to XLC as
follows:
(1) Corporate Power and Authority. Each of IE, TFN and TFNA has the
requisite power and authority to execute, deliver and perform this Agreement and
to contribute to XLC the Contributed Assets. The execution delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action (corporate
or otherwise) on the part of each of IE, TFN and TFNA. This Agreement
constitutes the legal, valid and binding obligation of each of IE, TFN and TFNA,
enforceable in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium or similar laws
affecting the enforcement of creditors' rights generally.
(2) Validity of Contemplated Transactions. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (a) violate, breach or contravene any of
the terms, conditions or provisions of the Articles of Incorporation or Bylaws
of IE, TFN or TFNA, (b) violate, or constitute a default under, any material
contract by which such entity or its property is bound, or (c) violate any
material provision of law.
(3) Title to Contributed Assets. Each of IE, TFN and TFNA is in
possession of and has good, valid and marketable title to, or has valid
leasehold interests in or valid rights under contract to use, all of the
Contributed Assets in which it has interest and IE, on a consolidated basis,
with TFN and TFNA, has such title to all of the Contributed Assets. All of the
Contributed Assets are free and clear of all Liens, other than Permitted Liens.
All tangible personal property comprising Contributed Assets is in good
operating condition (ordinary wear and tear excepted) and will be usable by XLC
for its intended purposes.
(4) Accounts Receivable. The accounts receivable that are included
in the Contributed Assets (the "Accounts Receivable") constitute valid
receivables, have arisen in the ordinary course of business consistent with past
practices, and are not subject to any setoff or counterclaim. No part of the
Accounts Receivable is contingent upon performance by IE or any other party of
any obligation, and no agreements for deductions or discounts have been made
with respect to any part of such Accounts Receivable.
-3-
<PAGE>
(b) XLC represents and warrants to IE, TFN and TFNA as follows:
(1) Corporate Power and Authority. XLC has the requisite power and
authority to execute, deliver and perform this Agreement and to accept the
Contributed Assets. The execution delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary action (corporate or otherwise) on the part of XLC.
This Agreement constitutes the legal, valid and binding obligation of XLC,
enforceable in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium or similar laws
affecting the enforcement of creditors' rights generally.
(2) Validity of Contemplated Transactions. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (a) violate, breach or contravene any of
the terms, conditions or provisions of the Articles of Incorporation or Bylaws
of XLC, (b) violate, or constitute a default under, any material contract by
which such entity or its property is bound, or (c) violate any material
provision of law.
6. Further Assurances. Each party hereto agrees to cooperate with each
other to obtain, execute and deliver or cause to be so obtained, executed or
delivered, such other instruments, notices, documents, agreements,
acknowledgements or consents (including without limitation, the Required
Consents) and to such further acts as reasonably may be required for the
effective confirmation and consummation of the transactions contemplated
thereby, including without limitation the transfer, or confirmation thereof, of
such other assets as are reasonably necessary or desirable in connection with
the operation of the business of XLC, as such business is described in that
certain Registration Statement dated July 24, 1996, as amended from time to
time, filed with the Securities and Exchange Commission under the Securities Act
of 1933 with respect to a proposed underwritten public offering of the shares of
common stock of XLC.
7. Miscellaneous.
(a) Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned by either
party hereto to any other person except that either party may assign this
Agreement to any of its affiliates.
(b) No Third-Party Beneficiaries. Nothing expressed or implied in
this Agreement shall be construed to give any person or entity other than the
parties hereto any legal or equitable rights hereunder.
(c) Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof.
-4-
<PAGE>
(d) Amendment. This Agreement may not be amended except by an
instrument signed by the parties hereto.
(e) Waivers. Either party hereto may (i) extend the time for the
performance of any of the obligations or other act of the other party or (ii)
waive compliance with any of the agreements contained herein. No waiver of any
term shall be construed as a subsequent waiver of the same term, or a waiver of
any other term, of this Agreement. The failure of any party to assert any of its
rights hereunder will not constitute a waiver of any such rights.
(f) Severability. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, such
provision shall be deemed severable and all other provisions of this Agreement
shall nevertheless remain in full force and effect.
(g) Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
(h) Notices. All notices given in connection with this Agreement
shall be in writing. Service of such notices shall be deemed complete (i) if
hand delivered, on the date of delivery, (ii) if by mail, on the fourth business
day following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid, (iii) if sent by FedEx or
equivalent courier service, on the next business day, or (iv) if by telecopier,
upon receipt by the sender of written confirmation of successful transmission.
Such notices shall be addressed to the parties at the following addresses or at
such other address for a party as shall be specified by like notice (except that
notices of change of address shall be effective upon receipt):
If to IE, TFN or TFNA:
411 Eagleview Boulevard
Exton, PA 19341
Attention: President
Telecopier: (610) 458-0599
If to XLC:
411 Eagleview Boulevard
Exton, PA 19341
Attention: President
Telecopier: (610) 458-8217
-5-
<PAGE>
(i) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania,
without giving effect to the principles of conflict of laws thereof.
(j) Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties to this Contribution Agreement have
caused this Agreement to be duly executed as of the date first written above.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Kathleen R. Mayo
-------------------------------
Name: Kathleen R. Mayo
Title: Secretary
THE FUTURE NOW, INC.
By: /s/ Kathleen R. Mayo
-------------------------------
Name: Kathleen R. Mayo
Title: Secretary
THE FUTURE NOW, INC. OF
ARKANSAS
By: /s/ Kathleen R. Mayo
--------------------------------
Name: Kathleen R. Mayo
Title: Secretary
XLCONNECT SOLUTIONS, INC.
By: /s/ Stephanie Cohen
--------------------------------
Name: Stephanie Cohen
Title: Chief Financial Officer
-6-
<PAGE>
SCHEDULE A
CONTRIBUTED ASSETS
I. Capital Stock:
IE hereby contributes to TFN all of the issued and outstanding shares of:
XLConnect Solutions, Inc.
XLConnect Services, Inc. (f/k/a Intellicom Solutions, Inc.)
TFN hereby contributes to TFNA all of the issued and outstanding shares of:
XLConnect Solutions, Inc.
XLConnect Services, Inc.
TFNA hereby contributes to XLC all of the issued and outstanding shares of:
XLConnect Services, Inc.
II. Employees: Listing as of May 31, 1996 attached as Annex A-1
III. Accounts Receivable: Listing as of May 31, 1996 attached as Annex A-2
IV. Other Tangible Assets: Listing as of May 31, 1996 attached as Annex A-3
V. Intangible Assets: Listing as of May 31, 1996 attached as Annex A-4
VI. Deferred Items: Deferred taxes and associated accumulated depreciation as of
May 31, 1996, if any.
SA (1)
<PAGE>
SCHEDULE B
----------
ASSIGNED CONTRACTS
All service agreements, and all service components included in bundled
agreements, either in effect as of May 31, 1996 or arising thereafter, relating
to Internetworking, Applications Development, Telecommunications and Managed
Services.
SB (1)
<PAGE>
SCHEDULE C
----------
ASSUMED LIABILITIES
o Accounts Payable: Trade payables relating to the provision of services
(primarily subcontractors) and accounts payable for service parts
o Accrued Expenses:
o XLConnect employee relocation costs;
o legal and other professional fees and expenses;
o restructuring costs for Oracle-based systems supporting PBTH;
o current payroll and benefits liabilities;
o reserves for receivables delinquency.
o Deferred income: Service fees billed and not provided
o Due to Parent: Allocated indebtedness owed to IE
o Litigation: limited to pending XLConnect trademark issue
o Assumed Contracts: Liabilities arising under those service agreements and
service components included in bundled agreements assumed hereunder;
specifically excluding, however, the hardware risk (including without
limitation, risk of return, technical obsolescence, inability to redeploy or
delays with respect thereto) expressly being retained by IE.
SC (1)
<PAGE>
ANNEX A-1
---------
EMPLOYEES
SC (2)
<PAGE>
ANNEX A-2
---------
ACCOUNTS RECEIVABLE
SC (3)
<PAGE>
ANNEX A-3
---------
OTHER TANGIBLE ASSETS (PROPERTY AND EQUIPMENT)
SC (4)
<PAGE>
ANNEX A-4
---------
INTANGIBLE ASSETS
All assets of each IE entity which would be
classified in accordance with GAAP as intangible
assets, including without limitation, all franchises,
licenses, permits, patents, patent applications,
copyrights, trademarks, trade-names, goodwill,
experimental or organization expenses and other like
intangibles, used in connection with the business to
be conducted by XLC.
SC (5)
SERVICES AGREEMENT
This Services Agreement (this "Agreement") is made and entered into as
of the 22nd day of October, 1996 by and between Intelligent Electronics, Inc., a
Pennsylvania corporation ("IE"), and XLConnect Solutions, Inc., Pennsylvania
corporation ("XLC").
BACKGROUND
A. XLC is a wholly-owned, indirect subsidiary of IE.
B. IE and XLC intend to effect an initial public offering of shares of
common stock of XLC (the "Offering").
C. Historically, IE has provided to its subsidiaries, including XLC and
its subsidiaries, cash management, insurance and risk management and certain
other administrative and management services and has permitted employees of its
subsidiaries, including XLC and its subsidiaries, to participate in certain
employee benefit plans and programs sponsored and administered by IE.
D. The parties hereto desire to provide for the continuation of certain
of such services, on an interim basis, on the terms and conditions set forth
herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Advance" means an IE Advance or an XLC Advance, as the case may
be.
(b) "Average Balance" means, with respect to an Interest Period, the
average net daily balance (positive or negative) in the intercompany account
maintained by IE pursuant to Section 2(c) hereof, which shall equal the quotient
of (i) the algebraic sum of the balances of XLC Advances or IE Advances, as the
case may be, which have not been repaid by the close of business on each day of
the applicable Interest Period, with IE Advances treated as negative amounts,
divided by (ii) the number of days in such Interest Period.
(c) "Business Day" means a day on which banks are not required or
permitted to close in New York City, New York.
(d) "Effective Date" means the date on which the purchase and sale
of shares of common stock of XLC pursuant to the Offering first occurs.
(e) "Financing Agreement" means that certain Amended and Restated
Inventory and Working Capital Financing Agreement dated as of April 5, 1996,
<PAGE>
among IBM Credit Corporation ("IBMCC"), and IE and its subsidiaries, as the same
may be amended from time to time.
(f) "Interest Period" means a period of one month's duration;
provided, however, that the Interest Period applicable to the month in which
this Agreement terminates shall end on the third Business Day following such
termination.
(g) "XLC Account" means that certain deposit account to be
established by XLC.
(h) "XLC Lockbox Account" means that certain Lockbox Account to be
established, with the consent of IBMCC, if necessary.
In addition, as used in Sections 3 and 5 hereof, and otherwise as the
context may require, the term "IE" shall include the subsidiaries of IE, other
than XLC and its subsidiaries, and the term "XLC" shall include its
subsidiaries.
2. Liquidity and Cash Management Services.
(a) XLC Account and Lockbox Account. XLC shall establish the XLC
Account and the XLC Lockbox Account. XLC and its subsidiaries shall deposit
receipts from operations and investment activities and the proceeds thereof into
the XLC Account. So long as XLC is a party to the Financing Agreement: (i) the
XLC Account shall be subject to a contingent blocked account agreement for the
benefit of IBMCC; and (ii) the XLC Account and the XLC Lockbox Account shall be
maintained, and transactions therein conducted, in accordance with the
applicable provisions of the Financing Agreement. Pursuant to and in accordance
with the Financing Agreement, funds available under the line of credit provided
thereby shall be available to XLC up to a maximum principal amount not to exceed
$20,000,000.
(b) Advances.
(i) IE Advances. From and after the Effective Date, IE may, at the
request of XLC, as directed, or within specific parameters prescribed, from time
to time, by its board of directors, advance to XLC and/or one or more
subsidiaries of XLC, as XLC may request, funds that are requested by XLC in
order to meet any additional cash requirements (each, an "IE Advance") not met
from the proceeds of the XLC Account and the XLC Lockbox Account; provided IE
receives a request for any such IE Advance (other than an IE Advance consisting
of interest payable by XLC) no later than by 11:30 on the date on which funds
are to be transferred, which notice shall specify (i) the amount of funds to be
transferred; (ii) the account to which such funds are to be transferred; and
(iii) the repayment date with respect to such IE Advance. Any interest payable
by XLC on an IE Advance (other than interest payable on or after termination of
this Agreement) shall be treated (effective as of the fifth (5th) Business Day
next following the last day of the Interest Period in respect of which such
interest is payable) as a separate IE Advance for purposes of this Agreement.
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Each IE Advance under this Section 2(b)(i) shall be deemed to be an Advance made
to XLC notwithstanding that such Advance may be made directly to one or more
subsidiaries of XLC.
(ii) XLC Advances. From and after the Effective Date, XLC may, as
directed, or within specific parameters prescribed, from time to time, by its
board of directors, advance to IE such funds as are not necessary to meet XLC's
daily cash requirements for short-term investment (each, an "XLC Advance") in
connection with IE's Cash Management System provided that XLC notifies IE that
it will make an XLC Advance (other than an XLC Advance consisting of interest
payable in connection with previously made XLC Advances) no later than 11:30
a.m. (New York City time) on the date funds are to be transferred, which notice
shall specify (i) the amount of funds to be transferred; and (ii) the account to
which such funds are to be transferred. Such notice shall specify the duration
of the investment requested by XLC. Any interest payable by IE on an XLC Advance
(other than interest payable on or after termination of this Agreement) shall be
treated (effective as of the day next following the last day of the Interest
Period in respect of which such interest is payable) as a separate XLC Advance
for purposes of this Agreement.
(c) Intercompany Account. Each of IE and XLC shall maintain on its
respective books an intercompany account in which all Advances and all payments
made with respect to such Advances shall be recorded. Each of IE and XLC shall
afford to the other party access, during normal business hours, to its
respective books and records relating to Advances and payments made with respect
thereto.
(d) Interest. (i) Subject to the other provisions of this Section
2(d), interest shall accrue on all Advances at a rate of interest equal to the
rate available on the date of the requested Advance under the commercial credit
facilities then available to the entity making such Advance. Interest shall be
calculated on the basis of a 360-day year consisting of 12 months having 30 days
each and shall be payable in arrears on the first day of each month for the
Interest Period ending on the immediately preceding day, and on the third (3rd)
Business Day next following termination of this Agreement. Any Advances not
repaid when they become due and payable upon the termination of this Agreement
as provided in Section 2(e) shall bear interest from and after the date of
termination to, but excluding, the date of payment at a rate per annum equal to
two percent (2%) in excess of otherwise applicable interest rates, and such
interest shall be payable upon demand.
(ii) Interest payable under this Agreement shall be calculated by
applying the interest rate specified in Section 2(d)(i) hereof to the Average
Balance for the applicable Interest Period. To the extent the Average Balance is
positive, interest shall be payable by IE, and to the extent the Average Balance
is negative, interest shall be payable by XLC. Except for interest payable upon
or after the termination of this Agreement, interest not paid by either party on
or before the fifth (5th) Business Day following the last day of the Interest
Period in respect of which such interest is payable, shall be treated as an
additional Advance to the party owing such interest, as provided in Section 2(b)
hereof, effective as of such fifth (5th) Business Day. The applicable party
shall calculate the amount of interest payable for each Interest Period, and
provide notice thereof to the other party not later than
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the Business Day next following the last day of the Interest Period in respect
of which such interest is payable. Upon the request of IE or XLC, as the case
may be, XLC or IE shall promptly provide to the other a calculation of any such
interest charge, together with reasonable support therefor.
(e) Repayment. During the term of this Agreement, IE Advances shall
be repaid to IE on the date identified in accordance with Section 2(b)(i) hereof
and XLC Advances shall be repaid to XLC upon the expiration of the investment
period identified in accordance with Section 2(b)(ii) hereof; provided that all
Advances received by either party under this Agreement shall be offset and shall
be treated as repaid to the extent of any Advances made by such party to the
other. Upon termination of this Agreement, any Advances which have not
theretofore been repaid as provided in the immediately preceding sentence will
become due and payable in full.
3. Administrative and Marketing Services.
(a) Administrative Services. In addition to the foregoing Liquidity
Services, each of IE and XLC shall provide or cause to be provided to the other,
if, when and to the extent required by such other party, the administrative
services described in Exhibit A-1 and Exhibit A-2, respectively, and such other
services that IE or XLC, as the case may be, is capable of providing with its
then-current personnel and facilities without unreasonable interference with
IE's or XLC's respective normal business operations (the "Administrative
Services" and, collectively with the Liquidity Services and the Marketing
Services (defined below), the "Services").
(b) Marketing Services. IE and its subsidiaries will allow XLC the
opportunity to evaluate and participate in service opportunities which may come
to IE's attention, at competitive rates, provided that reasonable service levels
can be provided by XLC. Similarly, XLC will allow IE the opportunity to evaluate
and participate in hardware and systems opportunities which may come to XLC's
attention, at competitive rates, provided that reasonable product can be
provided by IE on reasonable terms and conditions. IE shall use its best
efforts, in the exercise of sound business judgment, to continue the employment
of or associations with such employees, business consultants and sales
associates as are necessary or desirable to assist in market and business
development activities, promote effective cooperative selling and cross selling
of hardware and services, provide technical skill transfer and cross training,
and preserve and enhance the mutual reputations of IE and XLC; provided that in
the event that IE determines that it desires to terminate any such employee, it
shall first provide to XLC at least two weeks' prior notice and an opportunity
to hire such employee.
4. Employee Benefits. From and after the Effective Date, IE shall
permit the employees of XLC and its subsidiaries (the "XLC Employees") to
continue to participate in the employee benefit plans and programs listed on
Exhibit B hereto (collectively, the "Employee Benefit Plans") on the same basis
as such employees participated immediately prior to the Effective Date;
provided, however, that nothing contained in this Agreement shall
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prohibit IE from modifying or terminating the Employee Benefit Plans so long as
such modification or termination shall apply to all participants in such
Employee Benefit Plans or, with respect to any modification or termination that
does not apply to all participants in such Employee Benefit Plans, XLC consents
thereto (any such consent not to be unreasonably withheld). IE shall provide to
XLC ninety (90) days prior written notice of its intent to terminate any
Employee Benefit Plan or effect the modification thereof in a manner adverse to
either XLC or any XLC Employee. Notwithstanding anything to the contrary
contained herein, XLC may (or with respect to the circumstance described in
clause (b) below, IE may) terminate the participation of the XLC Employees in
any Employee Benefit Plan upon the occurrence of the following: (a) the receipt
of notice of IE's intent to terminate any Employee Benefit Plan or effect the
modification thereof in a manner adverse to either XLC or any XLC Employee; or
(b) the disposition by IE of a sufficient number of shares of XLC Common Stock,
in the aggregate, such that the ability of XLC Employees to be included in such
a Plan may be terminated. The contributions of XLC Employees to any Employee
Benefit Plan shall be accounted for separately from contributions of persons who
are not XLC employees. XLC shall pay or reimburse IE for the costs associated
with participation by the XLC Employees in the Employee Benefit Plans calculated
on the basis of its respective percentage of compensation (including benefits)
of participants covered by such Plans.
5. Referral Fees. IE's direct sales force intends to continue to
provide to XLC sales leads and referrals, but is not obligated to do so. XLC
shall compensate IE for such leads and referrals that result in revenues to XLC
consistent with and substantially similar to current practices between the
companies ("referral fees"); provided, however, that nothing contained in this
Agreement shall prohibit XLC from terminating its referral fee program,
effective on or after December 31, 1997, upon XLC's provision of written notice
thereof to IE. XLC shall pay to TFN referral fees at a rate of five percent (5%)
of revenue billed and collected by XLC for services rendered in connection with
opportunities provided by TFN on behalf of XLC; provided, however, that no such
referral fees shall be payable with respect to services rendered by XLC in
connection with Power by the Hour, Break Fix, Network Management Center, Help
Desk, Telecommunications Services, and other services which are provided solely
by XLC and are not the direct result of leads or referrals from IE.
6. Charges for Services.
(a) Services Rendered by IE. For all costs and expenses, including
third-party charges, incurred by IE in providing the Services to XLC or any of
its subsidiaries that are separately identifiable, XLC shall pay to IE the
actual cost thereof. For all costs and expenses, including third-party charges,
incurred by IE in providing the Services to XLC or any of its subsidiaries that
are not separately identifiable, XLC shall pay to IE that portion of such costs
and expenses reasonably attributable to XLC based on such methodology as is
described on Exhibit A-1 hereto, which methodology the parties have mutually
determined to be appropriate.
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<PAGE>
(b) Services Rendered by XLC. For all costs and expenses, including
third-party charges, incurred by XLC in providing the Services to IE or any of
its subsidiaries that are separately identifiable, IE shall pay to XLC the
actual cost thereof. For all costs and expenses, including third-party charges,
incurred by XLC in providing the Services to IE or any of its subsidiaries that
are not separately identifiable, IE shall pay to XLC that portion of such costs
and expenses reasonably attributable to IE based on such methodology as is
described on Exhibit A-2 hereto, which methodology the parties have mutually
determined to be appropriate.
7. Payments.
(a) Invoices. Except for items as to which other payment
arrangements have been made, IE or XLC, as applicable, shall submit to the other
party, by the 15th day of each month an invoice for all charges associated with
the Services (and, in the case of IE, Employee Benefit Plans) for the preceding
month and any adjustments for prior months. All invoices shall describe in
reasonable detail (i) the Services provided during the preceding month and the
charges associated therewith, (ii) the charges to XLC associated with
participation by the XLC Employees in the Employee Benefit Plans during the
preceding month, and (iii) any prior month adjustments. Except as provided in
Section 7(b) hereof, each of XLC and IE, as applicable, shall remit payment in
full for all charges invoiced on or before the last day of the month in which
the invoice is received, unless such invoice is received after the 15th day of
such month, in which event, such invoice shall be paid on or before the last day
of the next succeeding month. Notwithstanding any other provision of this
Section 7(a), IE shall timely make any and all payments to third parties
necessary to ensure continued services of the types contemplated in this
Agreement.
(b) Disputes. In the event of a dispute as to an invoiced amount,
the obligor with respect to such invoice shall promptly pay all undisputed
amounts, but shall be entitled to withhold amounts in dispute. Each party shall
promptly notify the other of any such dispute. Each party will provide the other
sufficient records and information to resolve any such dispute and, without
limiting the rights and remedies of the parties hereunder, will negotiate in
good faith a resolution thereto.
(c) Method of Payment. Transfer of funds pursuant to this Agreement
shall be made in U.S. dollars by company check or wire transfer of immediately
available funds to an account or accounts specified by the party receiving such
payment. Whenever any payment hereunder is required or requested on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day, and any such extension of time shall be included in the computation of the
payment of interest.
8. Performance of Services.
(a) Degree of Care. Each party performing Services hereunder shall
perform such Services with the same degree of care, skill and prudence
customarily exercised by it in respect of its own business, operations and
affairs. It is understood and agreed that
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the Services shall be substantially identical in nature and quality to the
Services performed by such party for the other party immediately prior to the
Effective Date.
(b) Certain Limitations. Each party acknowledges that the Services
shall be provided only with respect to the respective businesses of IE and XLC
and their respective subsidiaries as such businesses exist as of the Effective
Date or as otherwise mutually agreed by the parties. IE will not be obligated to
provide Services for the benefit of entities other than XLC and its
subsidiaries; and XLC will not be obligated to provide Services for the benefit
of entities other than IE and its subsidiaries (other than XLC and its
subsidiaries). Each party shall use the Services only in accordance with all
applicable federal, state and local laws and regulations.
(c) Certain Information. Each of IE and XLC shall provide, and shall
cause each of its subsidiaries to provide, in a manner consistent with the
practices employed by the parties prior to the Effective Date, any information
needed by the other party or its subsidiaries, as the case may be, to perform
the Services pursuant hereto. If the failure to provide such information renders
the performance of any requested Service impossible or unreasonably difficult,
IE or XLC, as applicable, may, upon reasonable notice to the other party hereto,
refuse to provide such Service.
(d) Further Assurances. During the term of this Agreement, each of
IE and XLC shall use their best efforts, but exercising sound business judgment,
to: (i) preserve their respective and mutual reputations and market positions in
strategic markets; (ii) promote their mutual businesses and cause the retention
and expansion of common clients (including without limitation, mutual assistance
in market and business development activities); (iii) provide technical skill
transfer and cross training to employees of each entity; and (iv) delay taking
any action which may jeopardize any such client relationships (whether now
existing or hereafter arising or developed) until it has notified the other and
has attempted less intrusive or adverse measures, including without limitation,
releasing or transferring mutually beneficial employees, including business
consultants and sales associates in branch locations; placing holds and limits
on customer credit; commencing or continuing collection and enforcement action
as to any accounts; and undertaking billing practices deviating from ordinary
course in the industry and present and past practices.
9. Limitations on Liability and Indemnification.
(a) Limitations on Liability. Neither party shall have any liability
under this Agreement (including any liability for its own negligence) for
damages, losses or expenses suffered by the other party or its subsidiaries as a
result of the performance or non-performance of such party's obligations
hereunder, unless such damages, losses or expenses are caused by or arise out of
the willful misconduct or gross negligence of such party or a breach by such
party of any of the express provisions hereof. In no event shall either party
have any liability to the other party for indirect, incidental or consequential
damages that such other party or its subsidiaries or any third party may incur
or experience on account of the performance or non-performance of such party's
obligations hereunder. Notwithstanding the foregoing, each
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party shall use its best efforts to timely cure any defect in or failure of
performance (whether as a result of negligence or otherwise) and to otherwise
correct or improve the level of performance in order to render services
substantively and qualitatively equal to or better than those presently being
rendered.
(b) Indemnification. Subject to the limitations on liability set
forth in the penultimate sentence of Section 9(a) hereof, each party shall
indemnify, defend and hold harmless the other party and its directors, officers,
employees, agents and representatives from and against all claims, liabilities,
damages, losses and expenses (including reasonable attorneys fees and expenses)
caused by or arising out of the willful misconduct or gross negligence of such
indemnifying party in the performance or non-performance of its obligations
hereunder or the breach by such indemnifying party of any of the express
provisions hereof.
(c) The provisions of this Section 9 shall survive any termination
of this Agreement.
10. Term of Agreement. This Agreement shall become effective on the
Effective Date and shall automatically terminate on the first Business Day
following the occurrence of either (a) a pro rata distribution (the
"Distribution") by IE to its shareholders of shares of common stock of XLC (the
"XLC Shares") or (b) upon the sale by IE of a sufficient number of the XLC
Shares, in the aggregate, such that IE no longer owns a majority of the
outstanding XLC Shares; in each case unless earlier terminated (i) on the date
specified on Exhibit A with respect to particular Service; or (ii) by either
party upon not less than 90 days' prior written notice to the other party;
provided, however, that, except as provided otherwise in Section 5 and Exhibit
A-2 hereof, neither party may give a notice that would result in a termination
of this Agreement or any service contemplated hereby prior to December 31, 1996.
IE will provide (i) at least five (5) Business Days' prior written notice to XLC
of the date of any Distribution, and (ii) at least thirty (30) days' prior
written notice of any sale of XLC Shares as a result of which IE will no longer
hold a majority of the outstanding XLC Shares. Termination under this Section 10
or otherwise shall have no effect on the respective obligations of the parties
prior to the effective date of such termination or their respective obligations
to make any payment required to be made pursuant to the terms hereof.
11. Confidentiality. Each party will hold in trust and maintain
confidential and, except as required by law, not disclose to others without the
prior written approval of the other party, any information received by it from
the other party or developed or otherwise obtained by it in connection with the
performance of its obligations hereunder (the "Information"). Within ninety (90)
days after the date of termination of this Agreement, each party will return to
the other party, or, with the written consent of the other party, destroy all
documents, data and other materials of whatever nature relating to the
businesses of the other and its subsidiaries that it obtained in connection with
the performance of its obligations hereunder, provided that the parties may
retain any Information to the extent reasonably needed to comply with applicable
tax, accounting or financial reporting requirements or to resolve any legal
issues identified at the time of termination. The provisions of this Section 11
shall survive any termination of this Agreement.
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12. Miscellaneous.
(a) Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned by either
party hereto to any other person except that either party may assign this
Agreement to any of its affiliates.
(b) No Third-Party Beneficiaries. Except for the persons entitled to
indemnification pursuant to Section 9(b) hereof, each of whom is an intended
third-party beneficiary hereunder, nothing expressed or implied in this
Agreement shall be construed to give any person or entity other than the parties
hereto any legal or equitable rights hereunder.
(c) Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof.
(d) Amendment. This Agreement may not be amended except by an
instrument signed by the parties hereto.
(e) Waivers. Either party hereto may (i) extend the time for the
performance of any of the obligations or other act of the other party or (ii)
waive compliance with any of the agreements contained herein. No waiver of any
term shall be construed as a waiver of the same term, or a waiver of any other
term, of this Agreement. The failure of any party to assert any of its rights
hereunder will not constitute a waiver of any such rights.
(f) Severability. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, such
provision shall be deemed severable and all other provisions of this Agreement
shall nevertheless remain in full force and effect.
(g) Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
(h) Notices. All notices given in connection with this Agreement
shall be in writing. Service of such notices shall be deemed complete (i) if
hand delivered, on the date of delivery, (ii) if by mail, on the fourth business
day following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid, or (iii) if sent by FedEx or
equivalent courier service, on the next business day, or (iv) if by telecopier,
upon receipt by the sender of confirmation of successful transmission. Such
notices shall be addressed to the parties at the following addresses or at such
other address for a party as shall be specified by like notice (except that
notices of change of address shall be effective upon receipt):
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If to IE:
411 Eagleview Boulevard
Exton, PA 19341
Attention: President
Telecopier: 610-458-0599
If to XLC:
411 Eagleview Boulevard
Exton, PA 19341
Attention: President
Telecopier: 610-458-8217
(i) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the Commonwealth of Pennsylvania,
without giving effect to the principles of conflict of laws thereof.
(j) Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, IE and XLC have caused this Services Agreement to
be executed on the date first above written.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Kathleen R. Mayo
-----------------------------
Name: Kathleen R. Mayo
Title: Secretary
XLCONNECT SOLUTIONS, INC.
By: /s/ Stephanie Cohen
-----------------------------
Name: Stephanie Cohen
Title: Chief Financial Officer
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EXHIBIT A-1
Administrative Services to be Provided by IE
1. BILLING SERVICES:
o Use of AS400 for XLC's billing and general ledger and accounts receivable
function o Payment by XLC shall be consistent with current practices
o Upon termination of XLC's use of the AS400, XLC shall contribute its
interest, if any, in the AS400 to IE at book value
o IE shall not be obligated to maintain the AS400 for more than 180 days
after the date herein
2. PAYROLL:
o Use of ADP or other common paymaster
o Payment by XLC shall be made as billed by IE, with XLC's allocable share
calculated on the basis of its respective number of employees
3. TREASURY FUNCTIONS:
o Daily reports
o Account reconciliation
o Cash Management as needed
4. INSURANCE AND RISK MANAGEMENT:
o Provision of insurance coverage through group policies issued under
American Phoenix Programs or successor policies
o Administration of risk management matters
o Insurance premiums shall be paid either directly by XLC to American
Phoenix as billed for the account of XLC, or to IE on account of XLC's
portion of the aggregate premium for IE and all of its subsidiaries,
consistent with the premiums described in Annex 1 hereto, based on a
reasonable allocation methodology for each type of coverage.
5. TAX:
o Preparation and filing of all consolidated tax returns
o Assistance with state and local sales, use and services taxes and property
tax compliance
o Assistance with financial accounting for taxes
o Supervision of all federal, state and local tax audits, protests,
administrative proceedings and litigation
o Qualification and design of all employee benefit plans
o Preparation and submission of all tax ruling requests
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o Rendering and obtaining all tax opinions
o Qualification and reporting of stock options o Services provided by the
Tax Director and his or her support personnel shall be billed to XLC on
the basis of reasonable, actual time spent at reasonable hourly rates to
be mutually agreed, from time to time, by IE and XLC.
6. HUMAN RESOURCES:
o Advice and assistance with respect to employee benefits, plan
administration, and other employee matters
o Payment by XLC shall be made as billed, with XLC's allocable share
calculated on the basis of its respective percentage of compensation.
7. OPERATION AND UTILITIES:
o Phone and communications services, water and sewer, electricity, gas and
other fuel
o Mechanisms will be established to permit employees to specifically identify
services provided for XLC.
o To the extent amounts are not specifically identifiable, allocation will
be consistent with current practices and calculated based on the respective
portion of space in a given facility occupied by each party in accordance
with the Space Sharing Agreement dated as of May 31, 1996.
8. MATTERS RELATING TO HARDWARE
o Sales of hardware, configuration and distribution, including with respect
to returns and "refresh" of hardware used in XLC service programs; provided
that with respect to service program arrangements arising after the date
hereof, IE shall be consulted with respect to the hardware component of any
such program and shall use its best efforts to make reasonable
accommodations in connection with the retention of hardware risk.
o Reserves for such equipment and functions to be retained by IE and, if
collected by XLC, remitted to IE.
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EXHIBIT A-2
Administrative Services to be Provided by XLC
1. VENDOR FUNDING
o XLC will continue to receive an allocated share of vendor funding revenues
for XLC's training of technical staff and sales force and assistance in
certain marketing and advertising programs.
o Allocation, calculated in a manner consistent with present practices, is
$315,000 per quarter, payable in three monthly installments, until
September 30, 1997.
2. SERVICE CALLS
o XLC will bill IE and its subsidiaries, at XLC's standard billing rates, for
services rendered to IE or its subsidiaries in connection with service
calls. Such services may include break fix, on-site configuration.
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EXHIBIT B
Employee Benefits Plans
o Intelligent Electronics, Inc. 1995 Employee Stock Purchase Plan
o Intelligent Electronics, Inc. 1995 Long Term Incentive Plan (Stock Option
Plan, including non-wholly-owned subs.)
o Intelligent Electronics, Inc. 1995 Long Term Incentive Plan amended and
restated (Options granted before June 1995 - valid only for employees of
wholly-owned subs.)
o Intelligent Electronics, Inc. 401(k) Tax Deferred Savings Plan
o Intelligent Electronics, Inc. Life AD&D Medical and Dental Plan
o Intelligent Electronics, Inc. Long Term Disability Plan
B-1
SPACE SHARING AGREEMENT
This Space Sharing Agreement (the "Agreement") is made as of the 31st
day of May, 1996 by and between Intelligent Electronics, Inc., a Pennsylvania
corporation ("IE"), The Future Now, Inc., an Ohio corporation ("TFN") and
XLConnect Solutions, Inc., a Pennsylvania corporation, and XLConnect Systems,
Inc., a Pennsylvania corporation (XLConnect Solutions, Inc., and XLConnect
Systems, Inc., collectively "XLC").
RECITALS
A. IE is a party to a lease agreement (the "Headquarter Lease")
pursuant to which IE leases certain office space for its corporate headquarters
(the "Premises").
B. TFN and/or certain of its subsidiaries are parties to leases for
other facilities (such facilities, together with the Premises, are collectively
referred to herein as the "IE Facilities") as listed on Exhibit A hereto.
C. XLC desires to use a portion of the Premises and certain of the
other IE Facilities and, subject to the terms and provisions herein (IE, TFN,
and the applicable subsidiaries are collectively referred to hereinafter as
"IE") IE agrees that XLC shall be permitted to use a portion of the Premises.
NOW, THEREFORE, in consideration of the agreements set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Premises. IE agrees that XLC shall be permitted to use a portion of
the Premises for the purposes permitted under the Headquarter Lease subject to
the terms and conditions set forth in this Agreement. XLC's right to use a
portion of the Premises (and its obligation to pay consideration therefore as
required pursuant to Section 3 hereof) shall terminate on the earlier of (i)
ninety (90) days after XLC notifies IE that XLC no longer desires to use any
portion of the Premises, or (ii) ninety (90) days after IE notifies XLC that XLC
may no longer use any portion of the Premises.
2. Shared Facilities. IE and XLC acknowledge that as of the date hereof
(i) XLC and its subsidiaries are using space at the other IE Facilities. IE
agrees that XLC shall be permitted to continue to use the portion of the other
IE Facilities described on Exhibit A for the purposes permitted under the
applicable lease agreements (the "IE Leases"), subject to the terms and
conditions of this Agreement. XLC's right to use any other IE Facility (and its
obligation to pay consideration therefore as required pursuant to Section 3
hereof) shall terminate on the earliest of (i) ninety (90) days after IE
notifies XLC that XLC may no longer use such IE Facility, (ii) ninety (90) days
after XLC notifies IE that XLC no longer desires to use such IE Facility, and
(iii) upon termination of the applicable IE Lease.
3. Consideration. So long as XLC uses any IE Facility, XLC shall pay to
IE on the first day of each calendar month the amount shown on Exhibit A with
respect to
<PAGE>
such IE Facility as the "Monthly Allocable Rent". Such Monthly Allocable Rent
shall be increased, as to any IE Facility, by the same percentage as any rent
increase (including without limitation, for rent adjustments based on increases
in operating expenses, common area maintenance charges and similar items)
provided under the terms of the applicable IE Lease, such increase to be
effective on the date such increase becomes effective under the applicable IE
Lease. IE shall use its best efforts to provide or cause XLC to be provided with
at least thirty (30) days' prior written notice of any such increase. Payments
for any partial calendar month shall be prorated on a per diem basis.
4. Modification and Termination.
(a) Modification. If either party hereto desires to increase or
decrease the portion of any IE Facility used pursuant to this Agreement, XLC and
IE will negotiate in good faith with respect to such increase and decrease and
the adjustment to the rent resulting therefrom.
(b) Term; Termination Rights. This Agreement shall become effective on
the effective date of that certain Contribution Agreement dated the date hereof,
by and among, inter alia, the parties hereto, and shall terminate as to any of
the IE Facilities (including the Premises) on the effective date of the
termination contemplated by Section 2 hereof.
5. Compliance with Leases. IE has provided to XLC a copy of the
Headquarter Lease and each other IE Lease and XLC acknowledges receipt thereof.
Each of IE and XLC hereby agrees not to take any action or fail to take any
action in connection with its use of a portion of the Premises and the other IE
Facilities a result of which would be IE's violation of any of the terms and
conditions of the Headquarter Lease or such other IE Lease, the provisions of
which are hereby incorporated by reference. XLC agrees to comply with the terms
and provisions (other than with respect to payment of monies) of the Headquarter
Lease and any other IE Lease with respect to its use of a portion of the
applicable IE Facilities or Premises, it being understood, acknowledged and
agreed that XLC's obligations to make payments on account of rent, additional
rent, or operating expense or common area maintenance surcharges with respect to
any and all IE Facilities or the Premises shall be governed solely by the terms
of this Agreement.
6. Modification of Leases. XLC acknowledges and agrees that IE has the
right to modify or otherwise amend the Headquarter Lease and each other IE Lease
without the consent of XLC; provided, however, that in the event such
modification results in an increase in the rent or other amounts payable
thereunder or a decrease or diminution of the services or space provided
therein, XLC's rights and obligations with respect to such IE Facility shall
nonetheless remain as they were prior to such modification unless XLC consents,
in writing, to any such modifications. IE will provide XLC with prior notice of,
and a copy of, any such amendment.
-2-
<PAGE>
7. Indemnity.
(a) By XLC. XLC will indemnify and hold harmless IE and IE's
directors, officers, employees and agents (collectively, the "IE Indemnities")
from and against all liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including without limitation reasonable
attorneys' fees and expenses) imposed upon or incurred by or asserted against
any one or more of the IE Indemnities by reason of (a) any accident, injury to
or death of persons, (b) any failure on the part of XLC to perform or comply
with any of the terms of this Agreement, the Headquarter Lease or the IE Leases
or (c) IE being held in default under the terms and provisions of the
Headquarter Lease or the IE Leases, in any such case as a result of any act or
omission on the part of XLC.
(b) By IE. IE will indemnify and hold harmless XLC and XLC's
directors, officers, employees and agents (collectively, the "XLC Indemnities")
from and against all liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including without limitation reasonable
attorneys' fees and expenses) imposed upon or incurred by or asserted against
any one or more of the XLC Indemnities by reason of (a) any accident, injury to
or death of persons, (b) any failure on the part of IE to perform or comply with
any of the terms of this Agreement, the Headquarter Lease or the XLC Leases or
(c) XLC being held in default under the terms and provisions of the Headquarter
Lease or the XLC Leases, in any such case as a result of any act or omission on
the part of IE.
8. Relocation. XLC acknowledges that IE may relocate its corporate
headquarters in which case IE shall provide XLC with ninety (90) days prior
written notice of its intention. The parties hereto acknowledge and agree that,
in such event, IE may vacate the Premises and, upon request by XLC, shall use
its best efforts to cause XLC to become successor lessee under such lease.
9. Insurance. The parties acknowledge that IE presently maintains and
will continue to maintain, pursuant to the terms of that certain Services
Agreement entered into or to be entered into by and between IE and XLC (the
"Services Agreement"), insurance coverage with respect to IE's leasehold
interests (and following the effective date of this agreement, XLC's interests)
in any and all of the IE Facilities and the contents (whether owned by IE or
XLC) of such IE Facilities until the earlier to occur of (i) the termination of
this Agreement; or (ii) notification in writing by XLC that such coverage is no
longer required. IE shall continue to maintain in full force and effect
(including, without limitation, the timely payment of premiums therefor) such
insurance coverage in amounts no less than, and for coverages at least as
comprehensive as, those maintained as of the date hereof. Notwithstanding the
foregoing, XLC shall reimburse IE with respect to XLC's allocable share of the
premiums for such insurance coverage in accordance with the terms of the
Services Agreement.
10. Notices. All notices given in connection with this Agreement shall
be in writing. Service of such notices shall be deemed complete (i) if hand
delivered, on the date of delivery, (ii) if by mail, on the fourth business day
following the day of deposit in the
-3-
<PAGE>
United States mail, by certified or registered mail, first-class postage
prepaid, (iii) if sent by FedEx or equivalent courier service, on the next
business day, or (iv) if by telecopier, upon receipt by the sender of written
confirmation of successful transmission. Such notices shall be addressed to the
parties at the following addresses or at such other address for a party as shall
be specified by like notice (except that notices of change of address shall be
effective upon receipt):
If to IE or TFN:
411 Eagleview Boulevard
Exton, PA 19341
Attention: President
Telecopy: 610-458-0599
If to XLC:
411 Eagleview Boulevard
Exton, PA 19341
Attention: President
Telecopy: 610-458-8217
11. Governing Law. This Agreement shall be governed by, and be
construed in accordance with, the substantive laws of the Commonwealth of
Pennsylvania, without giving effect to the principles of the conflict of laws
thereof.
12. Amendment. This Agreement may be amended or supplemented at any
time provided that any such amendment or supplement shall be made in writing and
signed by each of the parties hereto.
13. Assignment. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto and their respective successors and
permitted assigns. This Agreement and the rights, duties, obligations and
privileges hereunder may not be assigned by either party without the prior
written consent of the other party.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all which
together will constitute but one agreement.
-4-
<PAGE>
16. Section Headings. The section headings contained herein are for
convenience only and shall not affect in any way the interpretation of any of
the provisions contained herein.
IN WITNESS WHEREOF, the parties hereto have executed this Space Sharing
Agreement as of the date first above written.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Kathleen R. Mayo
---------------------------------
Name: Kathleen R. Mayo
Title: Secretary
THE FUTURE NOW, INC.
By: /s/ Kathleen R. Mayo
---------------------------------
Name: Kathleen R. Mayo
Title: Secretary
XLCONNECT SOLUTIONS, INC.
By: /s/ Stephanie Cohen
---------------------------------
Name: Stephanie Cohen
Title: Chief Financial Officer
XLCONNECT SYSTEMS, INC.
By: /s/ Stephanie Cohen
---------------------------------
Name: Stephanie Cohen
Title: Chief Financial Officer
-5-
<PAGE>
EXHIBIT A
ALLOCATION OF LEASES AND SPACE TO XLC
<TABLE>
<CAPTION>
===================================================================================================================================
ALLOCATED ALLOCATED/ ALLOCATED
LOCATION/BRANCH SQUARE FEET TOTAL SQUARE FEET ANNUAL RENT MONTHLY RENT
===================================================================================================================================
<S> <C> <C> <C> <C>
Exton-Corp, Hdqt. 5,000 31,000 104,516 8,710
- -----------------------------------------------------------------------------------------------------------------------------------
Chicago 1,428 4,500 21,523 1,794
- -----------------------------------------------------------------------------------------------------------------------------------
Cincinnati 9,850 32,834 77,738 6,478
- -----------------------------------------------------------------------------------------------------------------------------------
GE Whse 12,121 30,302 47,184 3,932
- -----------------------------------------------------------------------------------------------------------------------------------
Cleveland 5,225 17,416 60,206 5,017
- -----------------------------------------------------------------------------------------------------------------------------------
Columbus 2,874 9,580 45,634 3,803
- -----------------------------------------------------------------------------------------------------------------------------------
Dallas 5,000 38,607 62,336 5,196
- -----------------------------------------------------------------------------------------------------------------------------------
Detroit 1,498 4,993 17,478 1,457
- -----------------------------------------------------------------------------------------------------------------------------------
Houston 2,350 12,582 32,430 2,703
- -----------------------------------------------------------------------------------------------------------------------------------
Indianapolis 7,500 25,000 55,339 4,612
- -----------------------------------------------------------------------------------------------------------------------------------
Little Rock 5,110 15,600 37,188 3,099
- -----------------------------------------------------------------------------------------------------------------------------------
Louisville 3,587 12,815 46,134 3,845
- -----------------------------------------------------------------------------------------------------------------------------------
Memphis 1,029 11,916 12,344 1,029
- -----------------------------------------------------------------------------------------------------------------------------------
Milwaukee 2,212 7,932 34,965 2,914
- -----------------------------------------------------------------------------------------------------------------------------------
[Nashville 1,736 5,088 24,737 2,061]
- -----------------------------------------------------------------------------------------------------------------------------------
A-1
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
Pittsburgh 4,557 15,190 50,756 4,230
- -----------------------------------------------------------------------------------------------------------------------------------
Quad Cities 5,822 7,500 98,734 8,228
- -----------------------------------------------------------------------------------------------------------------------------------
St. Louis 1,370 4,565 6,390 533
- -----------------------------------------------------------------------------------------------------------------------------------
[New York 4,880 24,000 83,970 6,998]
- -----------------------------------------------------------------------------------------------------------------------------------
Orange County 4,046 13,485 37,440 3,120
- -----------------------------------------------------------------------------------------------------------------------------------
San Mateo 900 4,500 15,574 1,298
- -----------------------------------------------------------------------------------------------------------------------------------
Washington 4,260 14,201 82,714 6,893
- -----------------------------------------------------------------------------------------------------------------------------------
Atlanta 9,790 17,596 227,871 18,989
- -----------------------------------------------------------------------------------------------------------------------------------
NMC 35,976 2,998
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
</TABLE>
- ----------
1. Although IE has additional leases for active locations, including in
Dayton, Baltimore, New Jersey, Fort Wayne and Long Island, as well as a
number of locations in which no activity occurs, XLC will not be occupying
these locations and therefore, no allocation has been made.
A-2
TAX ALLOCATION AGREEMENT
This Tax Allocation Agreement is effective as of January 29, 1995 by
and among Intelligent Electronics, Inc. ("IE") and each of the undersigned
corporations (the "Subsidiaries").
Missing Link Communications, Inc.
XLConnect Services, Inc.
Intellinet, Ltd.
Intelligent Advanced Systems, Inc.
Intelligent Distribution Services, Inc.
Intelligent Express, Inc.
Intelligent SP, Inc.
Intelligent Systems Group, Inc.
RND, Inc.
The Future Now, Inc.
XLConnect Solutions, Inc.
Intelevest Holdings, Inc.
The Future Now, Inc. of Arkansas
Intellicom Solutions, Inc.
BACKGROUND
Intelligent Electronics, Inc. ("IE") and its affiliated subsidiaries
have been filing a consolidated federal income tax return in accordance with
Section 1501 of the Internal Revenue Code of 1986. No affirmative elections have
been made by IE or its affiliates concerning the allocation or payment of the
consolidated Federal Income Tax Liability. It is the intent and desire of IE and
its affiliates to make the elections described below for the allocation of the
Federal Income Tax Liability, to agree on the payment of such allocations, to
establish a method for compensating a member of the group for tax savings
created by the member, to deal with the administration of the federal income tax
liability and to provide for the allocation and payment of any refund received
in subsequent years.
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. Definitions. The following defined terms shall have the following
meanings when used in this Agreement:
(a) "Agreement" means this Tax Allocation Agreement.
(b) "Affiliates" means all Members of the Consolidated Group, other
than IE.
(c) "Consolidated Group" means the "affiliated group" of
corporations of which IE is the "common parent corporation" as such terms are
defined in (section)1504(a)(1) of the Code.
<PAGE>
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Consolidated Return" means the consolidated federal income tax
return of the Consolidated Group for each year to be filed by IE on behalf of
the Consolidated Group.
(f) "Consolidated Tax Liability" shall mean with respect to a
taxable year or portion thereof the consolidated federal income tax liability
shown on a Consolidated Return.
(g) "CR Tax" shall mean that portion of the Consolidated Tax
Liability allocated to a Member pursuant to Section 4(a)(i) of this Agreement.
(h) "IRS" means the Internal Revenue Service.
(i) "Loss Member" shall mean a Member whose losses and/or credits
have resulted in Tax Savings for one or more Members.
(j) "Member" shall mean IE and each Subsidiary listed above which is
part of the Consolidated Group, including any corporation which subsequent to
the date of this Agreement is an "includible corporation" as defined in
(section)1504(b) of the Code, for which the ownership requirements of
(section)1504(1) are met, and which becomes a party to this Agreement pursuant
to Section 15 of this Agreement.
(k) "Other Taxes" shall mean any taxes (including any penalties and
interest) other than federal income taxes (e.g., state and local income taxes,
franchise taxes, and various taxes, foreign income, transfer taxes).
(l) "SR Tax" shall mean with respect to a particular tax year the
"separate return tax liability" of a Member as determined pursuant to Treas.
Reg. (section)1.1552-1(a)(2)(ii) except that such determination shall not take
into account any net operating losses or tax credits which are not utilized in
the computation of Consolidated Tax Liability.
(m) "Tax Savings" shall mean with respect to a Member for any
particular tax year, the excess of such corporation's SR Tax over such
corporation's CR Tax.
(n) "Tax Savings Member" with respect to a particular tax year shall
mean a Member who has a Tax Savings.
(o) "Treas. Reg." shall mean the regulations promulgated under the
Code by the United States Department of the Treasury, as such regulations may be
amended from time to time.
-2-
<PAGE>
2. Filing Consolidated Return. A Consolidated Return shall be filed by
IE for the taxable year ended February 3, 1996, and for each year thereafter in
which the Consolidated Group is permitted to so file, unless IE, in its sole
discretion, elects to no longer file a Consolidated Return.
(a) The Affiliates agree to furnish all information, execute all
consents and elections, and provide all other documents which may be required or
appropriate to evidence such consent and to prepare and file such Consolidated
Returns, including extensions, as IE may request.
(b) IE shall have the exclusive authority to represent any Member
before the IRS or any other governmental agency or authority or any court
regarding all federal income tax matters relating to the Consolidated Return,
including (i) the exclusive control of any response to any examination by the
IRS or any other taxing authority, and (ii) the exclusive control over any
contest or controversies relating to the Consolidated Return, including whether
and in what forum to conduct such contest and whether and on what basis to
settle such contest. IE shall notify the relevant Affiliate of any
correspondence or other inquiry from the IRS concerning such Affiliate and will
allow such Affiliate to consult with IE concerning the inquiry, examination or
controversy. The agreement in this section 2(b) shall survive the termination of
this Agreement with respect to any taxable year (or portion thereof) ending on
or prior to termination of this Agreement.
3. Allocation of Consolidated Tax Liability. With respect to the
determination of earnings and profits for federal income tax purposes, the
Consolidated Tax Liability for each taxable year shall be allocated among the
Members in accordance with the methods prescribed in Treas. Reg.
(section)1.1552-1(a)(2) and Treas. Reg. (section)1.1502-33(d)(2)(ii) commencing
with the tax year ending February 3, 1996. The fixed percentage to be used for
purposes of Treas. Reg. (section)1.1502-33(d)(2)(ii)(b) is 100 percent.
4. Compensation for Tax Savings.
(a) In order to compensate a Member for the use of its net operating
losses or tax credits in arriving at the Consolidated Tax Liability, the
following steps shall be taken:
(i) The Consolidated Tax Liability shall be determined under
Treasury Regulation (section) 1.1502-2 and shall be allocated to each Member in
accordance with Treasury Regulation (section) 1.1552-1(a)(2). Each Member shall
be liable to IE for the amount of Consolidated Tax Liability allocated to it
pursuant to the provisions of this Section 4(a)(i).
(ii) The Tax Savings shall be calculated with respect to each
Member.
(iii) Each Tax Savings Member shall be liable for and pay,
pursuant to the provisions of paragraph 5 of this Agreement, the amount of its
Tax Savings to
-3-
<PAGE>
IE. Any Loss Member or Loss Members which cause a Tax Savings shall be paid the
amount of such Tax Savings by IE in accordance with the "consistent method"
requirements of Treas. Reg. (section)1.1502-33(d)(ii)(c). Such payments will
generally be deemed consistent if the payment to the Loss Member is equal to (a)
in the case of net operating losses, the product of (i) the amount of net
operating losses of such Loss Member claimed as deductions in computing the
Consolidated Tax Liability used in the calculation of the Tax Savings times (ii)
the effective overall tax rate applicable to the Consolidated Return filed for
the taxable year in which the net operating losses are so claimed as deductions
and (b) in the case of tax credits, (i) 100 percent of the tax credits of such
Loss Member utilized in the determination of Consolidated Tax Liability, reduced
by (ii) the amount by which the SR Tax of the Loss Member computed without
regard to such credits exceeds the CR Tax of the Loss Member.
(b) In determining the "net operating loss" of a Loss Member, the
principles of Revenue Ruling 66-374, 1966-2 C.B. 427, shall be utilized; thus,
the "net operating loss" of a Loss Member is the deduction which such Loss
Member would have had available if it actually filed a separate return for the
year and would not include any portion of a Loss Member's net operating loss
sustained in a prior or subsequent year which had been absorbed by the
Consolidated Group or by the Loss Member in computing the Consolidated Tax
Liability or an SR Tax.
(c) In no event shall a Tax Savings payment be made to a Loss Member
unless the net operating loss and/or tax credit to which such payment relates
resulted in a reduction in the Consolidated Tax Liability.
(d) In calculating the amount of Tax Savings resulting from a
carryback or carryover of net operating losses, adjustment shall be made to the
SR Tax for such prior or subsequent year as required under Section 172(b)(2) and
172(d) of the Code. For purposes of this calculation, the election under Section
172(b)(3)(C) of the Code shall be made on a separate return basis; provided,
however, the decision to make any such election under Section 172(d)(3)(C) shall
be in the sole discretion of IE.
(e) The liability of an Affiliate to IE for the amount of such
Affiliate's CR Tax shall be represented on the books of such Affiliate and IE,
as an account payable and account receivable, respectively. The liability of a
Tax Savings Member to pay the amount of its Tax Savings to IE shall be
represented on the books of such Tax Savings Member as an account payable, and
the right of a Loss Member to receive payments of Tax Savings from IE shall be
represented on the books of such Loss Member as an account receivable. Payment
of such accounts shall be made in accordance with the provisions of paragraph 5
of this Agreement.
5. Payments by and to Members. With respect to each taxable year (or
relevant portion thereof), each Affiliate shall pay to IE the amount of such
Affiliate's CR Tax. With respect to the discharge of intercompany accounts
relating to payments of Tax Savings, a Tax Savings Member shall pay the amount
of its Tax Savings to IE. With respect to payment of Tax Savings to Loss
Members, IE shall pay to each Loss Member such Loss
-4-
<PAGE>
Member's allocable share of the total Tax Savings. All payments to be made
pursuant to this paragraph 5 shall be made within 30 days of the date of filing
of the Consolidated Return to which such payments relate.
6. Estimated Consolidated Tax Liability Payments. IE shall have the
right to assess each Affiliate for its share of estimated federal income tax
payments to be made with respect to the projected Consolidated Tax Liability for
each taxable year. Each Affiliate shall make such payment to IE within fifteen
days after such assessment. Each Affiliate that makes payments under this
section will receive credit for its payments of estimated federal income tax in
the computation of the payments under Section 5 of this Agreement.
7. Carrybacks and Carryovers of Losses and Credits. If part of or all
of an unused consolidated net operating loss or tax credit is allocated to a
Member pursuant to Treas. Reg. (section)1.1502-79, and it is carried back or
forward to a year in which such Member filed a separate income tax return or was
included in a consolidated federal income tax return with another affiliated
group, any refund or reduction in federal income tax liability arising from the
carryback or carryover shall be retained by such Member (or, if appropriate,
paid to such Member if a refund is received by another Member).
8. Adjustments to Consolidated Tax Liability.
(a) If Consolidated Tax Liability is adjusted for any taxable
period, whether by means of an amended return, claim for refund, or examination
by the IRS, the computations made under Sections 3 and 4 of this Agreement shall
be recomputed taking into account such adjustments, and appropriate conforming
payments made. In the case of a refund, if any, IE shall make payment to the
appropriate Member within fifteen days after the refund is received by IE. In
the case of an increase in the Consolidated Tax Liability, each Member obligated
to make payment under the recomputed allocation shall pay such amount to IE upon
the receipt of notice of such liability from IE.
(b) If any interest is to be paid or received as a result of a
consolidated federal income tax deficiency or refund, such interest shall be
allocated to the Members in the ratio that each Member's allocated share of the
change in Consolidated Tax Liability bears to the total change in Consolidated
Tax Liability. Any penalty not specifically allocated to a Member by the IRS
shall be allocated upon such basis as interest is allocable as described above;
provided, however, that if XLConnect disagrees with any reporting position taken
by IE as agent for XLConnect on a Consolidated Return for any taxable year in
which XLConnect has shareholders other than Members, and XLConnect obtains an
opinion of counsel or a national accounting firm that such reporting position
would result in the imposition of one or more penalties by the IRS, IE agrees to
indemnify and reimburse XLConnect for any penalties paid by or allocated to it
which are attributable to such reporting position.
9. Term of this Agreement. This Agreement shall apply to the taxable
year ending February 3, 1996, and all subsequent years, unless the Members agree
in writing
-5-
<PAGE>
to terminate the Agreement. Notwithstanding such termination, this Agreement
shall continue in effect with respect to any payment or refunds due for all
taxable periods prior to termination. Nothing herein shall be construed to
prevent IE from terminating its election to file a Consolidated Return.
10. Assignability. This Agreement may not be assigned by a party
without the prior written consent of the other parties to this Agreement.
11. Effect of Changes to the Code. Any alteration, modification,
addition, deletion, or other change in the federal income tax laws or
regulations relating to consolidated federal income tax returns shall
automatically be applicable to this Agreement, provided, however, that if all of
the parties to this Agreement agree, this Agreement shall be amended or
terminated in the event of any such alteration, modification, addition, deletion
or other change.
12. Other Taxes. To the extent two or more Members are permitted or
required to file consolidated, combined or unitary tax returns with respect to
Other Taxes, the provisions of this Agreement relating to federal income tax
matters shall apply to such Other Taxes as if they were federal income taxes. If
such a consolidated, combined or unitary tax return with respect to any other
Taxes is not filed, each Member shall be responsible for the reporting and
payment of any Other Taxes applicable to such Member.
13. Record Retention. Records relating to the calculation and reporting
of the Consolidated Tax Liability, including returns, supporting schedules,
workpapers, correspondence, software and data bases, shall be retained by the
Members in accord with IE's record retention policy, but for at least as long as
they may be material to the determination of such liability or refunds. IE shall
make reasonably available to Members all such materials.
14. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns of the parties hereto; but
no assignment shall relieve any party's obligations hereunder without the
written consent of the other parties. If a Member leaves the Consolidated Group,
they shall continue to be bound by this Agreement with respect to any matter
which involves a taxable year (or portion thereof) during which such Member was
included in a Consolidated Return.
15. New Members. The Members recognize that from time to time other
corporations may become Members of the Consolidated Group and agree that such
new Members may become parties to this Agreement by signing a joinder
substantially in the form of that attached as Exhibit A.
-6-
<PAGE>
S
16. Governing Law. This Agreement shall be governed by the laws of the
state of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have caused their names to be
subscribed and executed by their respective authorized officers on the dates
indicated, effective as of the date first written above.
NTELLIGENT ELECTRONICS, INC.
Date: 10/21/96 By: /s/ Kathleen R. Mayo
------------------------ -------------------------------------
MISSING LINK COMMUNICATIONS, INC.
Date: 10/21/96 By: /s/ Stephanie Cohen
------------------------ -------------------------------------
XLCONNECT SERVICES, INC.
Date: 10/21/96 By: /s/ Stephanie Cohen
------------------------ -------------------------------------
INTELLINET, LTD.
Date: 10/21/96 By: /s/ Kathleen R. Mayo
------------------------ -------------------------------------
INTELLIGENT ADVANCED SYSTEMS, INC.
Date: 10/21/96 By: /s/ Kathleen R. Mayo
------------------------ -------------------------------------
INTELLIGENT DISTRIBUTION SERVICES, INC.
Date: 10/21/96 By: /s/ Kathleen R. Mayo
------------------------ -------------------------------------
INTELLIGENT EXPRESS, INC.
Date: 10/21/96 By: /s/ Kathleen R. Mayo
------------------------ -------------------------------------
[EXECUTIONS CONTINUED]
-7-
<PAGE>
INTELLIGENT SP, INC.
Date: 10/21/96 By: /s/ Kathleen R. Mayo
------------------------ -------------------------------------
INTELLIGENT SYSTEMS GROUP, INC.
Date: 10/21/96 By: /s/ Stephanie Cohen
------------------------ -------------------------------------
RND, INC.
Date: 10/21/96 By: /s/ Kathleen R. Mayo
------------------------ -------------------------------------
THE FUTURE NOW, INC.
Date: 10/21/96 By: /s/ Kathleen R. Mayo
------------------------ -------------------------------------
XLCONNECT SOLUTIONS, INC.
Date: 10/21/96 By: /s/ Stephanie Cohen
------------------------ -------------------------------------
INTELEVEST HOLDINGS, INC.
Date: 10/21/96 By: /s/ Alan Resneck
------------------------ -------------------------------------
THE FUTURE NOW, INC. OF
ARKANSAS
Date: 10/21/96 By: /s/ Kathleen R. Mayo
------------------------ -------------------------------------
Date:_________________________ INTELLICOM SOLUTIONS, INC.
By: /s/ Stephanie Cohen
-------------------------------------
-8-
<PAGE>
Exhibit A
to
Tax Allocation Agreement
This instrument forms part of the Tax Allocation Agreement dated
January 29, 1996 among Intelligent Electronics, Inc. and its subsidiaries (the
"Agreement"). The Agreement provides that a corporation which becomes a Member
of the Consolidated Group (as such capitalized words are used in the Agreement)
may become a party to the Agreement by signing this joinder. The below
identified authorized officer of The Future Now acknowledges having received a
copy of the Agreement and having read the Agreement, hereby agrees that The
Future Now as of August 17, 1985 shall be a party to the Agreement for the
taxable year ending February 3, 1996 and all subsequent years and shall be a
Member as defined in the Agreement.
11/6/96 The Future Now
- -------------
Date
By: /s/ Kathleen Mayo
------------------------
Title: Secretary
-------------------
<PAGE>
Exhibit A
to
Tax Allocation Agreement
This instrument forms part of the Tax Allocation Agreement dated
January 29, 1996 among Intelligent Electronics, Inc. and its subsidiaries (the
"Agreement"). The Agreement provides that a corporation which becomes a Member
of the Consolidated Group (as such capitalized words are used in the Agreement)
may become a party to the Agreement by signing this joinder. The below
identified authorized officer of XLConnect Systems, Inc. acknowledges having
received a copy of the Agreement and having read the Agreement, hereby agrees
that XLConnect Systems, Inc. as of April 25, 1996 shall be a party to the
Agreement for the taxable year ending February 1, 1997 and all subsequent years
and shall be a Member as defined in the Agreement.
11/6/96 XLConnect Systems, Inc.
- -------------
Date
By: /s/ Stephanie Cohen
------------------------
Title: Secretary
-------------------
<PAGE>
Exhibit A
to
Tax Allocation Agreement
This instrument forms part of the Tax Allocation Agreement dated
January 29, 1996 among Intelligent Electronics, Inc. and its subsidiaries (the
"Agreement"). The Agreement provides that a corporation which becomes a Member
of the Consolidated Group (as such capitalized words are used in the Agreement)
may become a party to the Agreement by signing this joinder. The below
identified authorized officer of XLConnect Solutions, Inc. acknowledges having
received a copy of the Agreement and having read the Agreement, hereby agrees
that XLConnect Solutions, Inc. as of January 5, 1996 shall be a party to the
Agreement for the taxable year ending February 3, 1996 and all subsequent years
and shall be a Member as defined in the Agreement.
11/6/96 XLConnect Systems, Inc.
- -------------
Date
By: /s/ Stephanie Cohen
------------------------
Title: Secretary
-------------------
<PAGE>
Exhibit A
to
Tax Allocation Agreement
This instrument forms part of the Tax Allocation Agreement dated
January 29, 1996 among Intelligent Electronics, Inc. and its subsidiaries (the
"Agreement"). The Agreement provides that a corporation which becomes a Member
of the Consolidated Group (as such capitalized words are used in the Agreement)
may become a party to the Agreement by signing this joinder. The below
identified authorized officer of The Future Now, Inc. of Arkansas acknowledges
having received a copy of the Agreement and having read the Agreement, hereby
agrees that The Future Now, Inc. of Arkansas as of August 17, 1995 shall be a
party to the Agreement for the taxable year ending February 3, 1996 and all
subsequent years and shall be a Member as defined in the Agreement.
11/6/96 The Future Now, Inc. of Arkansas
- -------------
Date
By: /s/ Kathleen Mayo
------------------------
Title: Secretary
-------------------
<PAGE>
Exhibit A
to
Tax Allocation Agreement
This instrument forms part of the Tax Allocation Agreement dated
January 29, 1996 among Intelligent Electronics, Inc. and its subsidiaries (the
"Agreement"). The Agreement provides that a corporation which becomes a Member
of the Consolidated Group (as such capitalized words are used in the Agreement)
may become a party to the Agreement by signing this joinder. The below
identified authorized officer of The Future Now, Inc. of Delaware acknowledges
having received a copy of the Agreement and having read the Agreement, hereby
agrees that The Future Now, Inc. of Delaware as of August 17, 1995 shall be a
party to the Agreement for the taxable year ending February 3, 1996 and all
subsequent years and shall be a Member as defined in the Agreement.
11/6/96 The Future Now, Inc. of Delaware
- -------------
Date
By: /s/ Kathleen Mayo
------------------------
Title: Secretary
-------------------
<PAGE>
Exhibit A
to
Tax Allocation Agreement
This instrument forms part of the Tax Allocation Agreement dated
January 29, 1996 among Intelligent Electronics, Inc. and its subsidiaries (the
"Agreement"). The Agreement provides that a corporation which becomes a Member
of the Consolidated Group (as such capitalized words are used in the Agreement)
may become a party to the Agreement by signing this joinder. The below
identified authorized officer of The Future Now, Inc. of Massachusetts
acknowledges having received a copy of the Agreement and having read the
Agreement, hereby agrees that The Future Now, Inc. of Massachusetts as of August
17, 1995 shall be a party to the Agreement for the taxable year ending February
3, 1996 and all subsequent years and shall be a Member as defined in the
Agreement.
11/6/96 The Future Now, Inc. of Massachusetts
- -------------
Date
By: /s/ Kathleen Mayo
------------------------
Title: Secretary
-------------------
<PAGE>
Exhibit A
to
Tax Allocation Agreement
This instrument forms part of the Tax Allocation Agreement dated
January 29, 1996 among Intelligent Electronics, Inc. and its subsidiaries (the
"Agreement"). The Agreement provides that a corporation which becomes a Member
of the Consolidated Group (as such capitalized words are used in the Agreement)
may become a party to the Agreement by signing this joinder. The below
identified authorized officer of The Future Now, Inc. of Texas acknowledges
having received a copy of the Agreement and having read the Agreement, hereby
agrees that The Future Now, Inc. of Texas as of August 17, 1995 shall be a party
to the Agreement for the taxable year ending February 3, 1996 and all subsequent
years and shall be a Member as defined in the Agreement.
11/6/96 The Future Now, Inc. of Texas
- -------------
Date
By: /s/ Kathleen Mayo
------------------------
Title: Secretary
-------------------
<PAGE>
Exhibit A
to
Tax Allocation Agreement
This instrument forms part of the Tax Allocation Agreement dated
January 29, 1996 among Intelligent Electronics, Inc. and its subsidiaries (the
"Agreement"). The Agreement provides that a corporation which becomes a Member
of the Consolidated Group (as such capitalized words are used in the Agreement)
may become a party to the Agreement by signing this joinder. The below
identified authorized officer of Monterey-Waldec, Inc. acknowledges having
received a copy of the Agreement and having read the Agreement, hereby agrees
that Monterey-Waldec, Inc. as of August 17, 1995 shall be a party to the
Agreement for the taxable year ending February 3, 1996 and all subsequent years
and shall be a Member as defined in the Agreement.
11/6/96 Monterey-Waldec, Inc.
- -------------
Date
By: /s/ Stephanie Cohen
------------------------
Title: VP, Secretary & Treasurer
---------------------------------
<PAGE>
Exhibit A
to
Tax Allocation Agreement
This instrument forms part of the Tax Allocation Agreement dated
January 29, 1996 among Intelligent Electronics, Inc. and its subsidiaries (the
"Agreement"). The Agreement provides that a corporation which becomes a Member
of the Consolidated Group (as such capitalized words are used in the Agreement)
may become a party to the Agreement by signing this joinder. The below
identified authorized officer of Premium Computer Corporate Center acknowledges
having received a copy of the Agreement and having read the Agreement, hereby
agrees that Premium Computer Corporate Center as of August 17, 1995 shall be a
party to the Agreement for the taxable year ending February 3, 1996 and all
subsequent years and shall be a Member as defined in the Agreement.
11/6/96 Premium Computer Corporate Center
- -------------
Date
By: /s/ Stephanie Cohen
------------------------
Title: VP, Secretary & Treasurer
---------------------------------
<PAGE>
Exhibit A
to
Tax Allocation Agreement
This instrument forms part of the Tax Allocation Agreement dated
January 29, 1996 among Intelligent Electronics, Inc. and its subsidiaries (the
"Agreement"). The Agreement provides that a corporation which becomes a Member
of the Consolidated Group (as such capitalized words are used in the Agreement)
may become a party to the Agreement by signing this joinder. The below
identified authorized officer of Entre Computer Centers of Virginia, Inc.
acknowledges having received a copy of the Agreement and having read the
Agreement, hereby agrees that Entre Computer Centers of Virginia, Inc. as of
August 17, 1995 shall be a party to the Agreement for the taxable year ending
February 3, 1996 and all subsequent years and shall be a Member as defined in
the Agreement.
11/6/96 Entre Computer Centers of Virginia, Inc.
- -------------
Date
By: /s/ Stephanie Cohen
------------------------
Title: VP, Secretary & Treasurer
---------------------------------
STOCK REGISTRATION AND OPTION AGREEMENT
THIS STOCK REGISTRATION AND OPTION AGREEMENT (the "Agreement") is made
and entered into as of May 31, 1996, by and between XLCONNECT SOLUTIONS, INC., a
Pennsylvania corporation (the "Company"), on the one hand, and INTELLIGENT
ELECTRONICS, INC., a Pennsylvania corporation ("IE"), and THE FUTURE NOW OF
ARKANSAS, INC., an Arkansas corporation, the parent of the Company and an
indirect, wholly-owned subsidiary of IE ("TFNA"), on the other hand (IE and TFNA
are sometimes together referred to herein as the "Holder").
RECITALS
A. Upon the completion of the initial public offering of shares of
common stock, par value $0.01 per share ("Common Stock"), of the Company (the
"Initial Public Offering"), the Company will cease to be a wholly-owned
subsidiary of the Holder. IE has informed the Company that it has no current
plan or intention other than to hold its shares of Common Stock for the
foreseeable future. After the Initial Public Offering, other options which may
be considered by the Holder regarding its interest in the Company are whether to
sell all or a portion of its shares of Common Stock to the public in another
public offering or to a strategic investor or to distribute pro rata to IE's
shareholders its remaining shares in a tax-free or taxable distribution (the
"Distribution").
B. In connection with the Initial Public Offering, the Company is
preparing to file a registration statement with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act").
C. Following the Initial Public Offering, the Common Stock will be
registered under Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
D. The Holder may desire to cause one or more of the potential
alternative transactions that it may pursue involving its shares of Common Stock
to be registered under the Securities Act and other applicable securities laws.
E. The Holder may desire to maintain a sufficient equity ownership in
the Company prior to the Distribution, if it were to occur, or any alternative
transaction involving its shares of Common Stock to allow the Company and its
subsidiaries to continue to be included in IE's consolidated federal income tax
returns and to increase the likelihood that the Distribution would be tax-free
to the Holder and its shareholders.
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
1. Demand Registration.
(a) Request for Registration. As used in this Agreement, "Restricted
Stock" shall mean all shares of Common Stock owned by the Holder as of the date
of the consummation of the Initial Public Offering and any shares of Common
Stock acquired by the Holder pursuant to the continuing option granted under
Section 8 hereof, together with any securities issued or issuable by the Company
or any successor thereto with respect to any such Common Stock by way of stock
dividend or in connection with a stock split, combination of shares,
recapitalization, merger, consolidation, reorganization or otherwise. As to any
particular outstanding shares of Restricted Stock, such securities shall cease
to be Restricted Stock when (i) a registration statement with respect to the
offer and sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) such securities shall have been
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (iii) such securities shall have been distributed to
the Holder's shareholders in the Distribution, (iv) such securities shall have
otherwise become freely distributable by the Holder thereof in a public offering
or otherwise without the necessity of registration or qualification of such
securities under the Securities Act or any similar state law then in force or
compliance with the volume and manner of sale or similar limitations under Rule
144 (or any successor provision) under the Securities Act, (v) such securities
shall have ceased to be outstanding, or (vi) the Holder thereof shall agree in
writing that such Restricted Stock shall no longer be Restricted Stock. The
Holder and any permitted assignee of the Holder's rights hereunder are referred
to herein as "Holders" and a Holder selling or distributing Restricted Stock
pursuant hereto is referred to herein as a "Selling Holder." Subject to the
provisions of Section 4 hereof, at any time and from time to time any Holder or
Holders holding in the aggregate 50% or more of the shares of the Restricted
Stock then outstanding may make a written request for registration under the
Securities Act of all or part of its or their Restricted Stock pursuant to this
Section 1 (a "Demand Registration"), provided that the number of shares of
Restricted Stock proposed to be sold or distributed pursuant to such
registration shall be equal to 20% or more of the aggregate number of shares of
Restricted Stock then outstanding, but (if fewer than all outstanding shares of
Restricted Stock are proposed to be so sold or distributed) in no event less
than 5% of the initial aggregate number of shares of Restricted Stock (subject
to appropriate adjustment for any stock dividend, stock split, combination,
recapitalization, merger, consolidation, reorganization or other occurrence
affecting the number of shares of Restricted Stock then outstanding). Such
request will specify the aggregate number of shares of Restricted Stock proposed
to be sold or distributed and will also specify the intended method of
disposition thereof. Within 10 business days after receipt of such request, the
Company will give written notice of such registration request to all other
Holders of Restricted Stock and include in such registration all Restricted
Stock with respect to which the Company has received written requests for
inclusion therein within 15 business days after the date on which such notice is
so given. Each such request will also specify the number of shares of Restricted
Stock to be registered and the intended method of disposition
-2-
<PAGE>
thereof. No party other than a Holder shall be permitted to include securities
in any Demand Registration unless the Holder or Holders of 67% of the shares of
Restricted Stock to be included therein shall have consented thereto in writing.
(b) Priority on Demand Registration. If the Holders of a majority of
the shares of the Restricted Stock to be included in a Demand Registration so
elect, the offering of such Restricted Stock pursuant to such Demand
Registration shall be in the form of an underwritten offering. In such event, if
the managing underwriter or underwriters of such offering advise the Company and
the Holders in writing that in their opinion the aggregate amount of Restricted
Stock requested to be included in such offering is so large that it will
materially and adversely affect the success of such offering, the Company will
include in such registration the aggregate number of shares of Restricted Stock
which in the opinion of such managing underwriter or underwriters can be sold
without any such material adverse effect, and such number of shares shall be
allocated pro rata among the Holders of Restricted Stock on the basis of the
number of shares of Restricted Stock requested by such Holders to be included in
such registration. To the extent that 10% or more of the Restricted Stock so
requested to be registered is excluded from the registration, then the Holders
of such excluded Restricted Stock shall have the right to one additional Demand
Registration under this Section 1 with respect to such Restricted Stock,
provided that the failure of such Restricted Stock to be registered is through
no fault of such Holders, and provided, further, that such right to one
additional Demand Registration applies only to the first time that shares of
Restricted Stock are so excluded.
(c) Selection of Underwriters and Counsel. If any Demand Registration
is in the form of an underwritten offering, the Holders of a majority of the
shares of Restricted Stock to be registered will select and obtain the services
of the managing underwriter or underwriters that will administer the offering
and the counsel to such managing underwriter or underwriters; provided that such
managing underwriter or underwriters and counsel must be reasonably satisfactory
to the Company.
2. Piggyback Registration. If the Company proposes to file a
registration statement under the Securities Act with respect to an offering for
its own account of any class of its equity securities (other than a registration
statement on Form S-8 (or any successor form) or any other registration
statement relating solely to employee benefit plans or filed in connection with
an exchange offer, a transaction to which Rule 145 (or any successor provision)
under the Securities Act applies or an offering of securities solely to the
Company's existing shareholders), then the Company shall in each case give
written notice of such proposed filing to the Holders as soon as practicable
(but no later than 20 business days) before the anticipated filing date, and
such notice shall offer each Holder the opportunity to register such number of
shares of Restricted Stock as such Holder may request. Each Holder desiring to
have Restricted Stock included in such registration statement shall so advise
the Company in writing within 10 business days after the date on which the
Company's notice is so given, setting forth the number of shares of Restricted
Stock for which registration is requested. If the Company's offering is to be an
underwritten offering, the Company shall, subject to the further provisions of
this Agreement, use its reasonable best efforts to cause the
-3-
<PAGE>
managing underwriter or underwriters to permit the Holders of the Restricted
Stock requested to be included in the registration for such offering to include
such Restricted Stock in such offering on the same terms and conditions as any
similar securities of the Company included therein. The right of each Holder to
registration pursuant to this Section 2 in connection with an underwritten
offering by the Company shall, unless the Company otherwise assents, be
conditioned upon such Holder's participation as a seller in such underwritten
offering and its execution of an underwriting agreement with the managing
underwriter or underwriters selected by the Company. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering deliver
a written opinion to the Company that either because of (a) the kind of
securities that the Company, the Holders and any other persons or entities
intend to include in such offering or (b) the size of the offering that the
Company, the Holders and any other persons or entities intend to make, the
success of the offering would be materially and adversely affected by inclusion
of the Restricted Stock requested to be included, then (i) in the event that the
size of the offering is the basis of such managing underwriter's opinion, the
number of shares of Restricted Stock to be registered and offered for the
accounts of Holders shall be reduced pro rata on the basis of the number of
securities requested by such Holders to be registered and offered to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter or underwriters
(provided that if securities are being registered and offered for the account of
other persons or entities in addition to the Company, such reduction shall not
be proportionally greater than any similar reductions imposed on such other
persons or entities) and (ii) in the event that the combination of securities to
be offered is the basis of such managing underwriters opinion, (x) the
Restricted Stock to be included in such registration and offering shall be
reduced as described in clause (i) above or (y) if such actions would, in the
judgment of the managing underwriter, be insufficient to substantially eliminate
the adverse effect that inclusion of the Restricted Stock requested to be
included would have on such offering, such Restricted Stock will be excluded
entirely from such registration and offering. Any Restricted Stock excluded from
an underwriting shall, if applicable, be withdrawn from registration and shall
not, without the consent of the Company, be transferred in a public distribution
prior to the earlier of 90 days (or such other shorter period of time as the
managing underwriter may require) after the effective date of the registration
statement or 150 days after the date the Holders of such Restricted Stock are
notified of such exclusion.
3. Registration Procedures. Whenever, pursuant to Section 1 or 2
hereof, Holders of Restricted Stock have requested that any Restricted Stock be
registered, the Company shall, subject to the provisions of Section 4 hereof,
use its reasonable best efforts to effect the registration and the sale or
distribution of such Restricted Stock in accordance with the intended method of
disposition thereof as promptly as practicable, and in connection with any such
request, the Company shall:
(a) in connection with a request pursuant to Section 1 hereof, prepare
and file with the SEC, not later than 45 days after receipt of such a request, a
registration statement on any form for which the Company then qualifies and
which counsel for the Company shall deem appropriate and which form shall be
available for the sale or distribution
-4-
<PAGE>
of such Restricted Stock in accordance with the intended method of distribution
thereof, and use its reasonable best efforts to cause such registration
statement to become effective; provided that, if the Company shall furnish to
the Holders making such a request a certificate signed by either the Chief
Executive Officer or the Chief Financial Officer of the Company stating that in
his or her good faith judgment it would be significantly disadvantageous to the
Company for such a registration statement to be filed on or before the date
filing would otherwise be required hereunder and explaining the reasons
therefor, the Company shall have an additional period of not more than 90 days
within which to file such registration statement; and, provided further, that
(i) before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to one counsel selected by the
Holders of a majority of the shares of Restricted Stock covered by such
registration statement copies of all such documents proposed to be filed, which
documents will be subject to the review and comment of such counsel and (ii)
after the filing of the registration statement, the Company shall promptly
notify each Selling Holder of Restricted Stock of any stop order issued or, to
the knowledge of the Company, threatened by the SEC and take all reasonable
actions to prevent the entry of such stop order or to remove it if entered;
(b) in connection with a request pursuant to Section 1 hereof, prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period of not less than 90 days
or such shorter period as shall terminate when the distribution of all
Restricted Stock covered by such registration statement shall have terminated
(but not before the expiration of the 90-day period referred to in Section 4(3)
of the Securities Act and Rule 174 thereunder, if applicable) and comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Selling Holders
thereof set forth in such registration statement;
(c) as soon as reasonably practicable, furnish to each Selling Holder,
prior to filing a registration statement, copies of such registration statement
as proposed to be filed and thereafter furnish to such Selling Holder such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration Statement (including each
preliminary prospectus) and such other documents as such Selling Holder may
reasonably request in order to facilitate the disposition of the Restricted
Stock owned by such Selling Holder;
(d) use its reasonable best efforts to register or qualify such
Restricted Stock under such other securities or blue sky laws of such
jurisdictions within the United States and Canada as any Selling Holder
reasonably (in light of such Selling Holder's intended plan of distribution)
requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Selling Holder to consummate the
disposition in such jurisdictions of the Restricted Stock owned by such Selling
Holder; provided that the Company shall not be required to (i) qualify generally
to do business or file a general consent to service of process in any
jurisdiction or (ii) take any action that would subject itself to taxation in
any such jurisdiction;
-5-
<PAGE>
(e) promptly notify each Selling Holder of such Restricted Stock, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the occurrence of any event known to the Company
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers or recipients of such Restricted
Stock, such prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and promptly make available to each
Selling Holder any such supplement or amendment;
(f) in connection with a request pursuant to Section 1 hereof, enter
into an underwriting agreement in customary form, the form and substance of such
underwriting agreement being subject to the reasonable satisfaction of the
Company and a majority in interest of the Selling Holders;
(g) make available for inspection by any Selling Holder, any
underwriter participating in any sale or distribution pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such Selling Holder or underwriter (collectively, the "Inspectors") all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records") as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the Company's
officers and employees to supply all information reasonably requested for such
purpose by any such Inspector in connection with such registration statement;
provided that the Company shall have no obligation to permit such access to the
Records or its officers or employees in a manner that would unreasonably disrupt
the normal conduct of its business operations. Each such Selling Holder and
Inspector that actually reviews Records supplied by the Company that include
information that the Company identifies, in good faith, as being confidential or
proprietary ("Confidential Information") shall be required at the Company's
option, prior to any such review, to execute an agreement with the Company
providing that such Inspector shall not publicly disclose any Confidential
Information unless such disclosure is required by applicable law or legal
process and shall not use such information for any purpose other than the
limited purpose contemplated by this subsection (g). Each such Selling Holder
and Inspector shall be required further to agree that it shall, upon learning
that disclosure of Confidential Information is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of the Confidential
Information;
(h) in the event such sale is pursuant to an underwritten offering, use
its reasonable best efforts to obtain a comfort letter or letters from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by comfort letters as the managing
underwriter reasonably requests; and
(i) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the SEC and make available to its security holders, as
soon as reasonably practicable, an earnings statement complying with the
provisions of Section 11(a) of the
-6-
<PAGE>
Securities Act (including, at the option of the Company, pursuant to Rule 158
(or any successor provision) under the Securities Act).
Upon receipt of any notice from the Company of the occurrence of any
event of the kind described in subsection (e) hereof, such Selling Holder shall
forthwith discontinue all offerings, sales and other dispositions of Restricted
Stock pursuant to the registration statement covering such Restricted Stock
until such Selling Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by subsection (e) hereof. In the event the Company shall
give any such notice, the Company shall extend the period during which such
registration statement shall be maintained effective pursuant to this Agreement
(including the period referred to in subsection (b) hereof) by the number of
days during the period from and including the date of the giving of such notice
pursuant to subsection (b) hereof to and including the first date on which each
Selling Holder of Restricted Stock covered by such registration statement shall
have received the copies of the supplemented or amended prospectus contemplated
by subsection (e) hereof. Each Selling Holder shall notify the Company if any
event relating to such Selling Holder occurs which would require the preparation
of a supplement or amendment to the prospectus so that such prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
4. Conditions and Limitations.
(a) The Company's obligations under Section 1 hereof shall be subject
to the following limitations:
(i) the Holders rights to registration hereunder shall not become
effective until the end of the 180 day period immediately following the closing
of the Initial Public Offering and shall expire on the tenth anniversary of the
date of such closing;
(ii) the Company need not file a registration statement either (x)
during the period starting with the date 60 days prior to the Company's
estimated date of filing of, and ending 90 days after the effective date of, any
registration statement pertaining to securities of the Company (other than a
registration of securities on Form S-4 (or any successor form) with respect to a
transaction to which Rule 145 (or any successor provision) under the Securities
Act applies, or in an exchange offer, or on Form S-8 (or any successor form)
with respect to any employee benefit plan or dividend reinvestment plan);
provided that if such Company registration statement is not filed within 90 days
after the first date on which the Company notifies a Holder of Restricted Stock
that it will delay a Demand Registration pursuant to this clause (x), the
Company may not further postpone such Demand Registration pursuant to this
clause (x), or (y) during the period specified in the first proviso of
subparagraph (a) of Section 3 hereof;
(iii) except as provided in Section 1(b) hereof, the Company shall
not be required to cause to become effective more than three Demand
Registrations in total, and no more than two Demand Registration Statements
within any six month period; and
-7-
<PAGE>
(iv) the Company shall have received the information and documents
specified in Section 5 hereof and each Selling Holder shall have observed or
performed its other covenants contained in Sections 5 and 7 hereof.
(b) The Company's obligation under Section 2 hereof shall be subject to
the limitations and conditions specified in such section and in clause (iii) of
subsection (a) of this Section 4, and to the condition that the Company may at
any time terminate its proposal to register equity securities for its own
account and discontinue its efforts to cause a registration statement to become
or remain effective as to any and all shares of Restricted Stock that would
otherwise have been eligible for inclusion in such registration.
5. Information from and Certain Covenants of Holders of Restricted
Stock. Notices and requests delivered to the Company by Holders for whom
Restricted Stock is to be registered pursuant to this Agreement shall contain
such information regarding the Restricted Stock to be so registered, the Holder
and the intended method of disposition of such Restricted Stock as shall
reasonably be required in connection with the actions contemplated to be taken
pursuant to this Agreement. Any Holder whose Restricted Stock is included in a
registration statement pursuant to this Agreement shall execute all consents,
powers of attorney, registration statements and other documents reasonably
required to be executed by it in order to cause such registration statement to
become effective. Each Selling Holder covenants that, in disposing of such
Holder's shares, such Holder will comply with Rules 10b-2, 10b-5, 10b-6 and
10b-7 (or any successor provisions) under the Exchange Act and all other
requirements of applicable law.
6. Registration Expenses.
(a) All Registration Expenses (as defined herein) will be borne by the
Company. Underwriting discounts and commissions applicable to the sale of
Restricted Stock shall be borne by the Holder of the Restricted Stock to which
such discount or commission relates, and each Selling Holder shall be
responsible for the fees and expenses of any legal counsel, accountants or other
agents retained by such Selling Holder and all other out-of-pocket expenses
incurred by such Selling Holder in connection with any registration under this
Agreement.
(b) As used herein, the term Registration Expenses means all expenses
incident to the Company's performance of or compliance with this Agreement
(whether or not the registration in connection with which such expenses are
incurred ultimately becomes effective), including without limitation all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications of the Restricted Stock), rating agency
fees, printing expenses, the fees and expenses incurred in connection with the
listing or admission for quotation of the securities to be registered an any
securities exchange or quotation system and fees and disbursements of counsel
for the Company and its independent certified public accountants (including the
expenses of any special audit or comfort letters required by or incident to such
performance), securities act liability insurance (if the Company elects to
-8-
<PAGE>
obtain such insurance), the reasonable fees and expenses of any special expert
retained by the Company in connection with such registration and the fees and
expenses of other persons retained by the Company.
7. Indemnification; Contribution.
(a) Indemnification by the Company. In connection with any offering of
Restricted Stock pursuant to this Agreement, the Company shall indemnify and
hold harmless each Selling Holder, its officers, directors and agents and each
person, if any, who controls such Selling Holder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable fees and disbursements of counsel) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to Restricted Stock or in any
amendment or supplement thereto or in any preliminary prospectus relating to
Restricted Stock or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any such
untrue statement or alleged untrue statement or omission or alleged omission
based upon information furnished in writing to the Company by such Selling
Holder or on such Selling Holder's behalf expressly for use therein. In
connection with any underwritten offering of Restricted Stock registered
pursuant to this Agreement, the Company shall cause to be included in any
underwriting agreement with the underwriters of such offering provisions
indemnifying and providing for contribution to such underwriters and their
officers and directors and each person who controls such underwriters on
substantially the same basis as the provisions of this Section 7 indemnifying
and providing for contribution to the Selling Holders.
(b) Indemnification by Holders of Restricted Stock. In connection with
any offering of Restricted Stock pursuant to this Agreement, each Selling
Holder, severally and not jointly, shall indemnify and hold harmless the
Company, its officers, directors and agents and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, and, in accordance with industry
practice, in the case of an offering of Restricted Stock pursuant to Section 2
of this Agreement, each underwriter of such Restricted Stock if requested by
such underwriter, from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable fees and disbursements of
counsel) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus relating to Restricted Stock or in any amendment or supplement
thereto or in any preliminary prospectus relating to Restricted Stock, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made,
provided that (i) such losses, claims, damages, liabilities or expenses arise
out of, or are based upon, any such untrue statement or alleged untrue statement
or omission or alleged omission based upon information furnished in writing to
the Company by
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<PAGE>
such Selling Holder or on such Selling Holder's behalf expressly for use therein
and (ii) no Selling Holder shall be liable for any indemnification under this
Section 7 in an aggregate amount which exceeds the total net proceeds received
by such Selling Holder from such offering. In connection with any underwritten
offering of Restricted Stock registered pursuant to this Agreement, each Selling
Holder shall cause to be included in any underwriting agreement with the
underwriters of such offering provisions indemnifying and providing for
contribution to such underwriters, their officers and directors and each person
who controls such underwriters on substantially the same basis as the provisions
of this Section 7 indemnifying and providing for contribution to the Company.
(c) Conduct of Indemnification Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted against
any indemnified party hereunder in respect of which indemnity may be sought from
an indemnifying party hereunder, such indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such indemnified party, and shall assume the payment of all expenses. Such
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expenses of such indemnified party unless (i) the
indemnifying party has agreed to pay such fees and expenses, (ii) the
indemnifying party shall have failed to assume the defense of such action or
proceeding and employ counsel reasonably satisfactory to such indemnified party,
or (iii) the named parties to any such action or proceeding (including any
impleaded parties) include both such indemnified party and such indemnifying
party, and such indemnified party shall have been advised by counsel that there
may be one or more legal defenses available to such indemnified party which are
different from or additional to those available to the indemnifying party (in
which case, if such indemnified party notifies the indemnifying party in writing
that it elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such action or proceeding on behalf of such indemnified party; it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for such indemnified party, which firm shall be designated
in writing by such indemnified party and reasonably satisfactory to the
indemnifying party). The indemnifying party shall not be liable for any
settlement of any such action or proceeding erected without its written consent,
but if settled with its written consent, or if there is a final judgment for the
plaintiff in any such action or proceeding, the indemnifying party shall
indemnify and hold harmless the indemnified party from and against any loss or
liability (to the extent stated above) by reason of such settlement or judgment.
(d) Contribution. If the indemnification provided for in this Section 7
is unavailable to the Company or the Selling Holders in respect of any losses,
claims, damages, liabilities or judgments referred to herein, then each such
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such
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<PAGE>
indemnified party as a result of such losses, claims, damages, liabilities and
judgments in such proportion as is appropriate to reflect the relative fault of
each such party in connection with such statements or omissions or alleged
statements or omissions, as well as any other relevant equitable considerations.
The relative fault of each such party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 7(d) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
sentences. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding sentences shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claims.
Notwithstanding the provisions of this Section 7(d), no Selling Holder shall be
required to contribute an amount in excess of the amount by which the total
price at which the Restricted Stock of such Selling Holder was offered to the
public exceeds the amount of any fee which such Selling Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) or the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
8. Option to Purchase Shares.
(a) Grant of Option. The Company hereby grants to the Holder an option
(the "Option"), exercisable at any time or from time to time prior to the
Expiration Date (as defined below) upon the original issuance of shares of
Common Stock by the Company, to purchase from the Company such number of shares
of Common Stock (and/or preferred stock of the Company if any shall be issued
and outstanding), as the Holder may determine in its sole judgment (i) to be
appropriate to ensure that the Holder may continue to include the Company and
its subsidiaries in the Holder's consolidated federal income tax returns (in
accordance with Section 1504 of the Internal Revenue Code of 1986, as amended
(including the regulations thereto, the "Code"), or any successor or additional
section dealing with the inclusion of any entity within an affiliated group for
purposes of filing a consolidated return), regardless of the circumstances which
may give rise to such determination by the Holder, or (ii) to permit the
Distribution to be tax free under Section 355 of the Code or any successor or
additional section dealing with the tax-free distribution of subsidiary stock.
Upon the original issuance of any Common Stock or equity securities convertible
into or exercisable for Common Stock, the Company will give notice of such
issuance to the Holder within ten business days thereof. The per share purchase
price for any shares purchased pursuant to the Option shall be the closing
price, on the business day immediately preceding the payment of such purchase
price, for shares of Common Stock (or, to the extent applicable, preferred
stock) on the Nasdaq National Market, as published in the Wall Street Journal,
or if the
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<PAGE>
Common Stock (or, to the extent applicable, preferred stock) was not traded on
the Nasdaq National Market, then the closing price for shares of Common Stock
(or, to the extent applicable, preferred stock) on such day on such other
securities exchange or recognized trading system as published in the Wall Street
Journal, and if the Common Stock (or, to the extent applicable, preferred stock)
was not traded on any exchange or recognized trading system, then the fair
market value of a share of Common Stock (or, to the extent applicable, preferred
stock) on such day. The purchase price for any shares purchased pursuant to the
Option may be paid, at the option of the Holder, in cash or in property of a
type used by the Company in its business, such property to be valued pursuant to
the mutual agreement of the Company and the Holder. The Option shall expire and
cease to be exercisable upon the earlier to occur of (i) the Distribution, (ii)
the sale by the Holder of such number of shares of Common Stock that the Holder
is no longer eligible to make the Distribution tax free or to include the
Company and its subsidiaries in the Holder's consolidated federal income tax
returns pursuant to the provisions of the Code and (iii) the tenth anniversary
of the date hereof (subject to extension for one or more successive 10-year
terms at the Holder's option, upon delivery by the Holder to the Company of a
written notice to that effect), the date of such expiration being the
"Expiration Date."
(b) Exercise of Option; Time and Place of Closing.
(i) the Holder may, at any time or from time to time prior to the
Expiration Date, exercise the Option by delivering to the Company a written
notice (an "Exercise Notice") to such effect specifying the number of shares of
Common Stock and/or preferred stock of the Company that the Holder has
determined to purchase. Except to the extent that the parties may otherwise
agree, the closing of the purchase and of the shares specified in any Exercise
Notice shall occur at the principal executive offices of the Company at 10:00
a.m. local time on the third business day following the date at which such
Exercise Notice is delivered to the Company. At each such closing, the Company
shall deliver to the Holder one or more certificates representing the shares
specified in the Exercise Notice, registered in the name at the Holder, against
delivery by the Holder to the Company of the aggregate purchase price therefor,
the election of the Holder, in cash or in property of a type used by the Company
in its business, such property to be valued pursuant to the mutual agreement of
the Company and the Holder.
(ii) notwithstanding anything to the contrary herein contained, in
the event that any shares of Common Stock are issued prior to the Distribution
upon the exercise of any option or other award granted under the Company's 1996
Long-Term Incentive Plan (a "Company Stock Option"), the Option shall
automatically be deemed to have been exercised in respect of a number of shares
of Common Stock equal to 4 times the number of shares of Common Stock issued
upon the exercise of the Company Stock Option (unless the Holder shall have
theretofore notified the Company in writing that the Holder shall have
terminated the foregoing automatic exercise feature of the option), and the
closing of the purchase and sale of the shares of Common Stock subject to such
automatic exercise of the Option (the "Automatic Exercise Shares") shall occur
(or shall be deemed to have occurred) concurrently with the issuance of shares
of Common Stock pursuant to the Company Stock Option. An
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<PAGE>
exercise pursuant to this subsection shall be revocable by the Holder within
five business days after exercise. In the event that it shall have been
impractical to effect the deliveries contemplated by the second preceding
sentence at the time that the closing of the purchase and sale of the Automatic
Exercise Shares shall have been deemed to have occurred, such deliveries shall
be made as promptly as practicable thereafter; provided, however, that such
Automatic Exercise Shares shall nonetheless be deemed to have been issued to the
Holder concurrently with the issuance of shares of Common Stock pursuant to the
Company Stock Option and legal title to funds of the Holder (which shall be held
in trust by the Holder for the benefit of the Company pending the delivery
thereof to the Company) in an amount equal to the aggregate purchase price for
the Automatic Exercise Shares shall be deemed to have concurrently passed to the
Company in consideration of such issuance of the Automatic Exercise Shares.
(c) Representations and Warranties: Corporate Action. The Company
hereby represents and warrants to the Holder that all shares of Common Stock
(or, to the extent applicable, preferred stock) issued to the Holder upon any
exercise of the Option shall, upon issuance thereof as provided herein against
payment of the purchase price therefor as provided herein, be duly authorized,
validly issued, fully paid and nonassessable, and hereby undertakes (i) to cause
any and all corporate and other actions required in connection therewith to be
taken in a timely manner and (ii) not to take any action that would prevent the
foregoing representations and warranties from being true and correct.
9. Miscellaneous.
(a) Effectiveness. This Agreement shall become effective on the date on
which the purchase and sale of shares of Common Stock pursuant to the Initial
Public Offering first occurs.
(b) Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors and permitted assigns and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned by either party hereto to
any other person, except that either party may assign this Agreement to any of
its affiliates, and the Holder may assign its rights hereunder to any transferee
of at least 25% of the shares of Restricted Stock that are outstanding on the
date of the closing of the Initial Public Offering.
(c) No Third-Party Beneficiaries. Nothing expressed or implied in this
Agreement shall be construed to give any person or entity other than the parties
hereto any legal or equitable rights hereunder.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof.
(e) Amendment. This Agreement may not be amended except by an
instrument signed by the parties hereto.
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<PAGE>
(f) Waivers. Either party hereto may (i) extend the time for the
performance of any of the obligations or other act of the other party, (ii)
waive any inaccuracies in the representations and warranties contained herein,
or (iii) waive compliance with any of the agreements contained herein. No waiver
of any term shall be construed as a waiver of the same term, or a waiver of any
other term, of this Agreement. The failure of any party to assert any of its
rights hereunder will not constitute a waiver of any such rights.
(g) Severability. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, such
provision shall be deemed severable and all other provisions of this Agreement
shall nevertheless remain in full force and effect.
(h) Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
(i) Notices. All notices given in connection with this Agreement shall
be in writing. Service of such notices shall be deemed complete (i) if hand
delivered, on the date of delivery, (ii) if by mail, on the fourth business day
following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid, (iii) if sent by Federal Express
or equivalent courier service, on the next business day, or (iv) if sent by
telecopier facsimile, on the date of the confirmation of delivery. Such notices
shall be addressed to the parties at the following addresses or at such other
address for a party as shall be specified by like notice (except that notices of
change of address shall be effective upon receipt):
If to Holder: Intelligent Electronics, Inc.
411 Eagleview Boulevard
Exton, Pennsylvania 19341
Attn: President
Telecopy No.: (610) 458-5500
If to the Company: XLConnect Solutions, Inc.
411 Eagleview Boulevard
Exton, Pennsylvania 19341
Attn: President
Telecopy No.: (610) 458-5500
(j) Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Pennsylvania, without giving
effect to the principles of conflict of laws of such Commonwealth.
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<PAGE>
(k) Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the Company and the Holder have caused this
Agreement to be executed on the date first above written.
XLCONNECT SOLUTIONS, INC.
By: /s/ Stephanie Cohen
-----------------------
Name: Stephanie Cohen
Title: Chief Financial Officer
THE FUTURE NOW OF ARKANSAS, INC.
By: /s/ Thomas Coffey
-----------------------
Name: Thomas Coffey
Title: Chief Financial Officer
INTELLIGENT ELECTRONICS, INC.
By: /s/ Thomas Coffey
-----------------------
Name: Thomas Coffey
Title: Chief Financial Officer
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INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") is made as of the
22nd day of October, 1996, by and between Intelligent Electronics, Inc., a
Pennsylvania corporation ("IE"), and XLConnect Solutions, Inc., a Pennsylvania
corporation ("XLC").
RECITALS
A. XLC is a wholly-owned, indirect subsidiary of IE.
B. IE and XLC intend to effect an initial public offering of shares of
common stock of XLC (the "Offering").
C. Upon completion of the Offering, XLC will cease to be a wholly-owned
subsidiary of IE.
D. In connection with the Offering, XLC has filed a registration
statement with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "1933 Act").
E. Each of IE and XLC desires to indemnify the other, and to be
indemnified by the other, against certain liabilities relating to, arising out
of or resulting from their respective businesses, operations and assets and the
above-mentioned registration statement, on the terms set forth in this
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Business Day" means any calendar day which is not a Saturday,
Sunday or public holiday under the laws of the Commonwealth of Pennsylvania.
(b) "Closing" means the consummation of the first purchase and sale
of shares of common stock of XLC pursuant to the Offering.
(c) "Closing Date" means the date on which the Closing occurs.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Effective Date" means the date on which the purchase and sale
of shares of common stock of XLC pursuant to the Offering first occurs.
(f) "Excluded Employees" means all persons who as of the Closing
Date are employees of both (i) any XLC Company and (ii) any IE Company.
<PAGE>
(g) "IBMCC Guaranty" means the guaranty by the XLC Companies of
indebtedness of IE to IBM Credit Corporation ("IBMCC") under that certain
Amended and Restated Inventory and Working Capital Financing Agreement dated as
of April 5, 1996, by and among IMBCC, as lender, and IE and its Subsidiaries, as
borrowers, as the same has been and may be amended from time to time.
(h) "IE Companies" means (unless otherwise expressly provided)
Intelligent Electronics, Inc. and each of its direct and indirect subsidiaries
at the time of, or at any time after, the Closing, other than XLC and its
subsidiaries.
(i) "IE Employees" means all employees or former employees of any of
the IE Companies other than the XLC Employees and the Excluded Employees.
(j) "IE Guarantee" means any guarantee, surety or performance bond,
letter of credit or other contractual arrangement in effect as of the Closing
pursuant to which any IE Company has guaranteed or secured or caused a third
party to guarantee or secure any liability or obligation of any XLC Company.
(k) "IE Liabilities" means all Liabilities (other than Liabilities
for Taxes that are allocated pursuant to the Tax Allocation Agreement) relating
to, resulting from or arising out of the businesses or operations conducted or
formerly conducted or assets owned or formerly owned by any of the IE Companies,
other than XLC Liabilities. "IE Liabilities" shall also include all liabilities
for any benefits due and payable in respect of IE Employees under any "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), maintained or formerly maintained by
any of the IE Companies or such a plan maintained or formerly maintained by any
of the IE Companies or, in respect of periods prior to May 31, 1996, any of the
XLC Companies in which any IE Employee has at any time participated, as well as
any taxes, penalties, interest or other charges imposed by any governmental
agency with respect to the maintenance and administration of any such plan,
whether by any of the IE Companies or any of the XLC Companies; provided,
however, that (i) any such liability for taxes, penalties, interest or other
charges posed by any governmental agency with respect to any such employee
benefit plan shall be limited to that portion of the tax, penalty, interest or
other charge which bears the same relationship to the whole as the benefit
liabilities under such plan attributable to IE Employees bears to all benefit
liabilities under such plan, calculated as of the last day of the plan year to
which such change relates, (ii) "IE Liabilities" shall include all taxes,
penalties, interest and other charges imposed solely in relation to the
participation of IE Employees and shall not include any taxes, penalties,
interest or other charges imposed solely in relation to the participation of XLC
Employees, and (iii) "IE Liabilities" shall not include any taxes, penalties,
interest and other charges imposed as a result of any error or omission by XLC
or its failure to take any action within XLC's exclusive control in connection
with the maintenance and administration of any plan.
(l) "IE Securities Liabilities" means any Liability under the 1933
Act, the Securities Exchange Act of 1934, as amended (the "1934 Act") or any
other federal
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<PAGE>
or state securities law or regulation resulting from or arising out of the
Offering and arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in a registration statement filed with
the Securities and Exchange Commission in connection with the Offering, or any
amendment or supplement thereto (a "Registration Statement"), or in any
prospectus relating to the Offering or in any amendment or supplement thereto (a
"Prospectus"), or the omission or alleged omission to state in a Registration
Statement or Prospectus a material fact required to be stated therein or
necessary to make the statements made therein not misleading, but only to the
extent that such Liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission concerning
the business and operations of any of the IE Companies or relating to any IE
Employee or otherwise contained in material furnished in writing by IE expressly
for use therein.
(m) "Liabilities" means all liabilities and obligations, actual or
contingent, liquidated or unliquidated, accrued or unaccrued, known or unknown,
whenever and however arising, including all costs and expenses (including
reasonable fees and disbursements of counsel) relating thereto, and including
without limitation liabilities and obligations arising in connection with any
actual or threatened claim, action, suit or proceeding by or before any court or
regulatory or administrative agency or commission or any arbitration panel.
(n) "Litigation" means any and all actions, suits, proceedings or
claims which as of the date hereof are pending or threatened against IE or XLC
or both of them, including without limitation those listed on Schedule A hereto.
(o) "Registration Rights Agreement" means the Stock Registration and
Option Agreement between IE and XLC dated as of the date hereof.
(p) "Tax Allocation Agreement" means the Tax Allocation Agreement
between IE and XLC dated as of the date hereof.
(q) "Taxes" means any and all taxes (including interest, penalties
and additions to tax), fees and charges (including sales, use, excise, value
added, personal property and other taxes) imposed by any federal, state or local
or government tax authority in the United States of America or by any foreign
government or taxing authority.
(r) "Trademark Litigation" means the activity commenced as a result
of a letter dated April 17, 1996, from counsel for an entity named USConnect,
Inc. ("USCI") to IE demanding that XLC cease using the term "XLCONNECT" either
as a corporate name or as a service mark because such use was allegedly
confusingly similar to USCI's use of the term "USCONNECT".
(s) "Underwriting Agreement" means the Underwriting Agreement
between and among Alex. Brown & Sons Incorporated, Montgomery Securities and
Janney
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Montgomery Scott Inc. (as representatives of the several underwriters) and IE
and XLC dated October 17, 1996.
(t) "XLC Companies" means XLConnect Solutions, Inc. and each of its
direct and indirect subsidiaries at the time of, or at any time after, the
Closing.
(u) "XLC Employees" means all employees or former employees of any
of the XLC Companies other than any person who as of the Closing Date is an
employee of any of the IE Companies.
(v) "XLC Guarantee" means any guarantee, surety or performance bond,
letter of credit or other contractual arrangement in effect as of the Closing
pursuant to which any XLC Company has guaranteed or secured or caused a third
party to guarantee or secure any liability or obligation of any IE Company.
(w) "XLC Liabilities" means all Liabilities (other than Liabilities
for Taxes that are allocated pursuant to the Tax Allocation Agreement) relating
to, resulting from or arising out of the businesses or operations conducted or
formerly conducted or assets owned or formerly owned by any of the XLC
Companies, including without limitation those Liabilities expressly assumed by
XLC under that certain Contribution Agreement dated as of May 31, 1996, by and
among IE, certain of its subsidiaries and XLC. "XLC Liabilities" shall also
include all liabilities for any benefits due and payable in respect of XLC
Employees accruing from and after May 31, 1996, under any "employee benefit
plan," as defined in Section 3(3) of ERISA, maintained or formerly maintained by
any of the XLC Companies or any of the IE Companies in which any XLC Employee
has at any time participated, as well as any taxes, penalties, interest or other
charges imposed by any governmental agency and caused by or resulting from any
action or omission by XLC with respect to the maintenance and administration of
any such plan, whether by any of the IE Companies or any of the XLC Companies;
provided, however, that (i) any such liability, including without limitation,
liability for taxes, penalties, interest or other charges imposed by any
governmental agency with respect to an employee benefit plan maintained or
formerly maintained by any of the IE Companies shall be limited to that portion
of such liability or other charge which bears the same relationship to the whole
as the benefit liabilities under such plan attributable to XLC Employees bears
to all benefit liabilities under such plan, calculated as of the last day of the
plan year to which such change relates, (ii) "XLC Liabilities" shall include all
taxes, penalties, interest and other charges imposed solely in relation to the
participation of XLC Employees and shall not include any taxes, penalties,
interest or other charges imposed solely in relation to the participation of IE
Employees; and (iii) "XLC Liabilities" shall not include any taxes, penalties,
interest and other charges imposed as a result of any error or omission by IE or
failure to take any action within IE's exclusive control in connection with the
maintenance and administration of any plan.
(x) "XLC Securities Liabilities" means any Liability under the 1933
Act, the 1934 Act, or any other federal or state securities law or regulation
resulting from or arising out of the Offering, including without limitation any
such Liability arising out of or
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<PAGE>
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement, or in any Prospectus, or (ii) the
omission or alleged omission to state in a Registration Statement or Prospectus
a material fact required to be stated therein or necessary to make the
statements made therein not misleading, but only to the extent that such
Liability arises out of or is based upon any such untrue statement or alleged
untrue statement or any such omission or alleged omission concerning the
businesses and operations of any of the XLC Companies, or relating to any XLC
Employee or otherwise contained in material furnished in writing by XLC
expressly for use therein.
2. Indemnification by XLC. XLC shall indemnify, defend and hold
harmless the IE Companies and the respective past, present and future directors,
officers, employees, agents and representatives thereof (regardless in each case
of whether any such person serves in one or more similar capacities for XLC and
its subsidiaries) from and against any and all losses, claims, damages,
liabilities, demands, suits and actions, including all reasonable attorneys'
fees and disbursements and other costs and expenses incurred in connection
therewith (collectively, "Indemnifiable Losses"), relating to, resulting from or
arising out of (a) any XLC Liabilities, (b) any XLC Securities Liabilities, (c)
any misrepresentation or material breach by XLC of any covenant of XLC, or any
failure by XLC to satisfy any condition required to be satisfied by XLC,
contained in this Agreement, the Underwriting Agreement or any other agreement
executed by XLC in connection with the Offering, except to the extent that such
misrepresentation, breach or failure was caused by or resulted from any
statement, act or omission within the exclusive knowledge or control of IE, or
(d) the Trademark Litigation.
3. Indemnification by IE. IE shall indemnify, defend and hold harmless
the XLC Companies and the respective past, present and future directors,
officers, employees, agents and representatives thereof (regardless in each case
of whether any such person serves in one or more similar capacities for IE and
its subsidiaries) from and against any and all Indemnifiable Losses relating to,
resulting from or arising out of (a) any IE Liabilities, (b) any IE Securities
Liabilities, or (c) any misrepresentation or material breach by IE of any
covenant of IE, or any failure of IE to satisfy and condition required to be
satisfied by IE, contained in this Agreement, the Underwriting Agreement, or any
other agreement executed by IE in connection with the Offering, except to the
extent that such misrepresentation, breach or failure was caused by or resulted
from any statement, act or omission within the exclusive knowledge or control of
XLC or (d) the Litigation, other than the Trademark Litigation.
4. Guarantees
(a) XLC shall use reasonable efforts to obtain promptly the release
of each of the IE Companies from all of their respective obligations under or in
respect of all material IE Guarantees, and IE shall cooperate with XLC in
obtaining such releases, provided that neither party shall be required to incur
any non-de minimis liability or unreimbursed expense in doing so. XLC shall
indemnify, defend and hold harmless the IE Companies, and their respective
directors, officers, employees, agents and representatives, from and against any
Indemnifiable Losses relating to, resulting from, or arising out of, any IE
Guarantee. IE
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<PAGE>
shall not terminate unilaterally or withdraw any IE Guarantee and shall abide by
the terms of the IE Guarantees. XLC shall reimburse each IE Company for its
direct costs (or, in the case of an IE Guaranty that relates to both liabilities
or obligations of both one or more XLC Companies and one or more third parties,
a pro rata share of such direct costs), if any, of maintaining the IE Guarantees
pending the procurement of the releases contemplated hereby.
(b) IE shall use reasonable efforts to obtain promptly the release
of each of the XLC Companies from all of their respective obligations under or
in respect of all material XLC Guarantees other than the IBMCC Guaranty, and XLC
shall cooperate with IE in obtaining such releases, provided that neither party
shall be required to incur any non-de minimis liability or unreimbursed expense
in doing so. IE shall indemnify, defend and hold harmless XLC and its
subsidiaries, and their respective directors, officers, employees, agents and
representatives, from and against any Indemnifiable Losses relating to,
resulting from, or arising out of, any XLC Guarantee. XLC shall not terminate
unilaterally or withdraw any XLC Guarantee and shall abide by the terms of the
XLC Guarantees. IE shall reimburse each XLC Company for its direct costs (or, in
the case of an XLC Guaranty that relates to both liabilities or obligations of
both one or more IE Companies and one or more third parties, a pro rata share of
such direct costs), if any, of maintaining the XLC Guarantees pending the
procurement of the releases contemplated hereby.
5. Third Party Claims.
(a) If any person entitled to indemnification under this Agreement
(an "Indemnitee") receives notice of the assertion of any claim or of the
commencement of any action or proceeding by any person that is not a party to
this Agreement or a subsidiary of any such party (a "Third Party Claim") against
such Indemnitee, the Indemnitee shall promptly provide written notice thereof
(including a description of the Third Party Claim and an estimate of any
Indemnifiable Losses (which estimate shall not be conclusive as to the final
amount of such Indemnifiable Losses) to the party required to provide
indemnification under this Agreement (the "Indemnifying Party") within ten (10)
Business Days after the Indemnitee's receipt of notice of such Third Party
Claim. Any delay by the Indemnitee in providing such written notice shall not
relieve the Indemnifying Party of any liability for indemnification hereunder
except to the extent that the rights of the Indemnifying Party are materially
prejudiced by such delay.
(b) The Indemnifying Party shall have the right to participate in
or, by giving written notice to the Indemnitee, to assume the defense of any
Third Party Claim at such Indemnifying Party's expense and by such Indemnifying
Party's own counsel (which shall be reasonably satisfactory to the Indemnitee),
and the Indemnitee will cooperate in good faith in such defense. The
Indemnifying Party shall not be liable for any legal expenses incurred by the
Indemnitee after the Indemnitee has received notice of the Indemnifying Party's
intent to assume the defense of a Third Party Claim; provided, however, that if
the Indemnifying Party fails to take steps reasonably necessary to diligently
pursue the defense of such Third Party Claim within ten (10) Business Days of
receipt of notice from the
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<PAGE>
Indemnitee that such steps are not being taken, the Indemnitee may assume its
own defense and the Indemnifying Party shall be liable for the reasonable costs
thereof.
(c) The Indemnifying Party may settle any Third Party Claim which it
has elected to defend so long as the written consent of the Indemnitee to such
settlement is first obtained (which consent shall not be unreasonably withheld).
The Indemnified Party shall not settle any Third Party Claim without the written
consent of the Indemnifying Party (which consent shall not be unreasonably
withheld).
(d) In the event that a Third Party Claim involves a proceeding as
to which both IE and XLC may be Indemnifying Parties, the parties hereto agree
to cooperate in good faith in a joint defense of such Third Party Claim.
6. Contribution. If the indemnification provided for in this Agreement
with respect to XLC Securities Liabilities or IE Securities Liabilities is for
any reason held by a court or other tribunal to be unavailable on policy grounds
or otherwise, IE and XLC shall contribute to any Indemnifiable Losses relating
to, resulting from or arising out of the XLC Securities Liabilities or the IE
Securities Liabilities in such proportion as to reflect each party's relative
fault in connection with such Indemnifiable Losses. The relative fault of the
parties shall be determined by reference to, among other things, whether the
conduct or information giving rise to the Indemnifiable Losses is attributable
to IE or XLC and each party's relative intent, access to information and
opportunity to prevent or correct the Indemnifiable Losses. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who is not guilty of
fraudulent misrepresentation.
7. Allocations Relating to Excluded Employees. Liabilities for any
benefits due and payable in respect of Excluded Employees under any "employee
benefit plan," as defined in Section 3(3) of ERISA, maintained or formerly
maintained by any of the XLC Companies or any of the IE Companies in which any
Excluded Employee has at any time participated shall be allocated as between the
XLC Companies, on the one hand, and the IE Companies, on the other hand as
follows: (a) to the extent such liabilities are directly attributable to periods
prior to May 31, 1996, they shall be allocated entirely to the IE Companies; (b)
to the extent such liabilities are directly attributable to periods on or after
the Closing Date and are directly attributable to an Excluded Employee's service
to one or more XLC Companies on the one hand or one or more IE Companies on the
other hand, they shall be allocated entirely to the XLC Companies or the IE
Companies, respectively; and (c) in all other events, such liabilities shall be
allocated in a manner as nearly proportionate to the services rendered by such
Excluded Employee to the XLC Companies and the IE Companies, respectively, as
may be practicable under the circumstances or as otherwise mutually agreed by
XLC and IE. Liabilities allocated to the XLC Companies pursuant to this Section
7 shall be deemed to be XLC Liabilities for all purposes of this Agreement, and
liabilities allocated to the IE Companies pursuant to this Section 7 shall be
deemed to be IE Liabilities for all purposes of this Agreement.
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<PAGE>
8. Cooperation. So long as any books, records and files retained after
the Closing Date by IE (or any of the other IE Companies), on the one hand, or
XLC (or any of the other XLC Companies), on the other hand, relating to the
businesses, operations or assets of the other party and its subsidiaries
(including any books, records and files retained by the XLC Companies relating
to the conduct of their businesses or operations or the ownership of their
assets prior to the Closing) remain in existence and available, such other party
shall have the right upon prior written notice to inspect and copy the same at
any time during business hours for any proper purpose, provided that such right
will not extend to any books, records or files the disclosure of which in
accordance herewith would result in a waiver of the attorney-client, work
product or other privileges which permit non-disclosure of otherwise relevant
material in litigation or other proceedings, or which are subject on the date
hereof and at the time inspection is requested to a non-disclosure agreement
with a third party and a waiver cannot reasonably be obtained. IE and XLC agree
that neither they nor any of their subsidiaries shall destroy any such books,
records or files without reasonable notice to the other party or if such party
receives within ten (10) Business Days of such notice any reasonable objection
from the other party to such destruction. Except in the case of dispute between
the parties hereto, IE and XLC shall cooperate with one another in a timely
manner in any administrative or judicial proceeding involving any matter
affecting the actual or potential liability of either party hereunder. Such
cooperation shall include, without limitation, making available to the other
party during normal business hours all books, records and information, and
officers and employees (without substantial disruption of operations or
employment) necessary or useful in connection with any inquiry, audit,
investigation or dispute, any litigation or any other matter requiring any such
books, records, information, officers or employees for any reasonable business
purpose. The party requesting or otherwise entitled to any books, records,
information, officers or employees pursuant to this Section 7 shall bear all
reasonable out-of-pocket costs and expenses (except for salaries, employee
benefits and general overhead) incurred in connection with providing such books,
records, information, officers or employees.
9. Effectiveness. This Agreement shall become effective on the Closing
Date.
10. Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors and permitted assigns and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned by either party hereto to
any other person except that either party may assign this Agreement to any of
its affiliates.
11. No Third-Party Beneficiaries. Except for the persons entitled to
indemnification pursuant to Section 2 or Section 3 hereof, each of whom is an
intended third-party beneficiary hereunder, nothing expressed or implied in this
Agreement shall be construed to give any person or entity other than the parties
hereto any legal or equitable rights hereunder.
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<PAGE>
12. Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof.
13. Amendment. This Agreement may not be amended except by an
instrument signed by the parties hereto.
14. Waivers. Either party hereto may (i) extend the time for the
performance of any of the obligations or other act of the other party, (ii)
waive any inaccuracies in the representations and warranties contained herein,
or (iii) waive compliance with any of the agreements contained herein. No waiver
shall be effective unless signed by the parties hereto. No waiver of any term
shall be construed as a subsequent waiver of the same term, or a waiver of any
other term, of this Agreement. The failure of any party to assert any of its
rights hereunder will not constitute a waiver of any such rights.
15. Severability. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, such
provision shall be deemed severable and all other provisions of this Agreement
shall nevertheless remain in full force and effect.
16. Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
17. Notices. All notices given in connection with this Agreement shall
be in writing. Service of such notices shall be deemed complete (i) if hand
delivered, on the date of delivery, (ii) if by mail, on the fourth business day
following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid, (iii) if sent by FedEx or
equivalent courier service, on the next business day, or (iv) if by telecopier,
upon receipt by the sender of confirmation of successful transmission. Such
notices shall be addressed to the parties at the following addresses or at such
other address for a party as shall be specified by like notice (except that
notices of change of address shall be effective upon receipt):
If to IE: Intelligent Electronics, Inc.
411 Eagleview Boulevard
Exton, PA 19341
Attn: President
Telecopy No.: (610) 458-0599
If to XLC: XLConnect Solutions, Inc.
411 Eagleview Boulevard
Exton, PA 19341
Attn: President
Telecopy No.: (610) 458-0599
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<PAGE>
18. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the Commonwealth of Pennsylvania, without giving
effect to the principles of conflict of laws of such Commonwealth.
19. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Indemnification
Agreement as of the date first above written.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Kathleen R. Mayo
------------------------
Name: Kathleen R. Mayo
Title: Secretary
XLCONNECT SOLUTIONS, INC.
By: /s/ Stephanie Cohen
------------------------
Name: Stephanie Cohen
Title: Chief Financial Officer
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<PAGE>
SCHEDULE A
LITIGATION
A-1
EXHIBIT 10.9
AMENDMENT #2 TO THE INTELLIGENT ELECTRONICS, INC.
AMENDED AND RESTATED INVENTORY
AND WORKING CAPITAL FINANCING AGREEMENT
THIS AMENDMENT dated as of October 16, 1996 (this "Amendment"), hereby
amends that certain Amended and Restated Inventory and Working Capital Financing
Agreement by and among Intelligent Electronics, Inc., a Pennsylvania corporation
("IE"), various direct and indirect subsidiaries of IE who are signatories
thereto, and IBM Credit Corporation, a Delaware corporation ("IBM Credit").
W I T N E S S E T H
WHEREAS, the Existing Borrowers (as defined below) and IBM Credit have
entered into that certain Amended and Restated Inventory and Working Capital
Financing Agreement dated as of April 5, 1996 (as amended, supplemented or
otherwise modified from time to time, the "Agreement");
WHEREAS, the Agreement was amended by that certain Acknowledgment, Waiver
and Amendment No. 1 dated September 16, 1996, by and among the Customer (as
defined below) and IBM Credit (the "Waiver");
WHEREAS, the Existing Borrowers and the Restricted Subsidiaries (as defined
below) have requested that IBM Credit finance the working capital requirements
of the Restricted Subsidiaries, all indirect subsidiaries of IE, by allowing the
Restricted Subsidiaries to become co-borrowers with the Existing Borrowers under
the Agreement;
WHEREAS, the Existing Borrowers and the Restricted Subsidiaries will
receive substantial direct and indirect benefit if IBM Credit provides such
financing on such terms; and
WHEREAS, IBM Credit has agreed to allow the Restricted Subsidiaries to
become co-borrowers under the Agreement and to extend such financing to the
Restricted Subsidiaries on the terms and subject to the conditions set forth in
the Agreement and this Amendment.
NOW, THEREFORE, in consideration of the premises set forth above and the
mutual agreements provided for herein and for other valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Customer and IBM Credit
hereby agree as follows:
Section 1. Definitions. All capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Agreement.
<PAGE>
(a) "Restricted Subsidiary" or "Restricted Subsidiaries" shall mean
individually or collectively, as the context shall require, XLConnect
Solutions, Inc., XLConnect Systems, Inc. and XLConnect Services, Inc.
(b) "Existing Borrowers" shall mean IE, The Future Now, Inc., an Ohio
corporation, XLSource, Inc. (formerly known as The Future Now, Inc. of
Arkansas), an Arkansas corporation, Intelligent Advanced Systems, Inc., a
Delaware corporation, Intelligent Express, Inc., a Pennsylvania
corporation, RND, Inc., a Colorado corporation, Intellinet, Ltd., a
Pennsylvania corporation, Intelligent Distribution Services, Inc., a
Delaware corporation, Intelligent SP, Inc., a Colorado corporation,
XLConnect Services, Inc. (formerly, Intellicom Solutions, Inc.), a
Pennsylvania corporation, and Entre Computer Centers of New York, Inc.
(c) "Customer" shall mean, without duplication, the Existing Borrowers
and the Restricted Subsidiaries, jointly and severally.
Section 2. Acknowledgment of Agreement; Conflict. Subject to the terms and
conditions set forth herein, the Restricted Subsidiaries acknowledge and agree
to all terms and conditions of the Agreement, as the same may be modified
hereby, as if such Restricted Subsidiaries had executed the Agreement on the
date thereof; provided, however, that the Restricted Subsidiaries'
acknowledgement and agreement with the representations set forth in the
Agreement shall be made as of the date hereof. Any conflict between the terms of
the Agreement and this Amendment shall be governed by this Amendment.
Section 3. Acknowledgment and Grant of Security Interest. To secure the
Existing Borrowers' and the Restricted Subsidiaries' full and punctual payment
and performance of the Obligations when due (whether at the stated maturity, by
acceleration or otherwise), the Existing Borrowers reaffirm the security
interest granted to IBM Credit in the Agreement and the Restricted Subsidiaries
hereby grant IBM Credit a security interest in all the Restricted Subsidiaries'
right, title and interest in and to the following property, whether now owned or
hereafter acquired or existing and wherever located:
(a) all inventory and equipment, and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents
therefor;
(b) all accounts, contract rights, chattel paper, instruments, deposit
accounts, obligations of any kind owing to the Existing Borrowers and the
Restricted Subsidiaries, whether or not arising out of or in connection
with the sale or lease of goods or the rendering of services and all books,
invoices, documents and other records in any form evidencing or relating to
any of the foregoing;
(c) general intangibles;
(d) all rights now or hereafter existing in and to all mortgages,
security agreements, leases or other contracts securing or otherwise
relating to any of the foregoing; and
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<PAGE>
(e) all substitutions and replacements for all of the foregoing, all
proceeds of all of the foregoing and, to the extent not otherwise included,
all payments under insurance or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of
the foregoing.
The Existing Borrowers and the Restricted Subsidiaries covenant and agree
with IBM Credit that: (a) the security interest granted pursuant to the
Agreement and this Amendment is in addition to any other security from time to
time held by IBM Credit and (b) the security interest hereby created is a
continuing security interest and will cover and secure the payment of all
Obligations both present and future of Customer to IBM Credit pursuant to the
Agreement, this Amendment and the Other Documents, to the extent provided
herein.
Section 4. Attachment A. Attachment A, dated April 5, 1996 (the "First
Attachment A"), to the Agreement shall be replaced with the Attachment A dated
the date hereof and attached hereto. The attached Attachment A shall modify the
First Attachment A as follows:
(a) Credit Line.
(i) availability under the Credit Line for the Existing Borrowers
shall be equal to $225 million minus any outstanding indebtedness
directly borrowed by the Restricted Subsidiaries plus other
obligations attributed to the Restricted Subsidiaries including, but
not limited to, interest, fees and costs;
(ii) the Credit Line for the Restricted Subsidiaries shall be equal
to $20 million minus the excess, if any, of the Existing Borrowers'
outstanding Obligations minus $205 million.
(b) Borrowing Base. The Borrowing Base for the Existing Borrowers and
the Restricted Subsidiaries shall be as set forth in the Attachment A
attached hereto, provided, however that the Borrowing Base for the Existing
Borrowers and the Borrowing Base for the Restricted Subsidiaries shall be
calculated separately.
Section 5. Conditions Precedent to the Effectiveness of this Amendment. The
effectiveness of this Amendment is subject to receipt by IBM Credit of, or
waiver in writing by IBM Credit of compliance with, the following conditions
precedent:
(a) this Amendment executed and delivered by Customer and IBM Credit;
(b) (i) copies of the resolutions of the Board of Directors of each
Restricted Subsidiary certified by the secretary or assistant
secretary of each Restricted Subsidiary authorizing the execution,
delivery and performance of this Amendment and acknowledging and
agreeing to each and every term and condition in the Agreement, as
modified by this Amendment,
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<PAGE>
and each of the Other Documents executed and delivered in connection
with the Agreement and this Amendment, and (ii) a certificate of the
secretary or an assistant secretary of each Restricted Subsidiary
authorized to sign this Amendment, and (iii) copies of the articles
of incorporation and by-laws of each Restricted Subsidiary certified
by the secretary or assistant secretary of each Restricted
Subsidiary;
(c) certificates dated as of a recent date from the Secretary of State
or other appropriate authority evidencing the good standing of each
Restricted Subsidiary in the jurisdiction of its organization and in each
other jurisdiction where the ownership or lease of its property or the
conduct of its business requires it to qualify to do business;
(d) copies of all approvals and consents from any Person, in each case
in form and substance satisfactory to IBM Credit, which are required to
enable each Restricted Subsidiary to authorize, or are required in
connection with, (a) the execution, delivery or performance of the
Agreement and this Amendment, and (b) the legality, validity, binding
effect or enforceability of the Agreement, this Amendment and each of the
Other Documents;
(e) a favorable opinion of counsel for the Restricted Subsidiaries in
substantially the form of Attachment I;
(f) intercreditor agreements, if any, in form and substance satisfactory
to IBM Credit, executed by each other secured creditor of each Restricted
Subsidiary;
(g) UCC-1 financing statements for each jurisdiction reasonably
requested by IBM Credit executed by each Restricted Subsidiary and each
guarantor whose guaranty to IBM Credit is intended to be secured by a
pledge of its assets;
(h) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and
Attachment B to the Agreement;
(i) all such other statements, certificates, documents, instruments,
financing statements, agreements and other information with respect to the
matters contemplated by the Agreement and this Amendment as IBM Credit
shall have reasonably requested; and
Section 6. Affirmative Covenant. In addition to the affirmative covenants
in Section 7 of the Agreement, and until termination of the Agreement and the
indefeasible payment and satisfaction of all Obligations,
(a) the Restricted Subsidiaries shall:
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<PAGE>
(i) as soon as possible and in any event prior to December 15, 1996,
establish one or more lockbox agreements to be executed by each
Restricted Subsidiary and each Bank, in form and substance
satisfactory to IBM Credit;
(ii) as soon as possible and in any event prior to December 15,
1996, establish a contingent blocked account agreement to be
executed by each Restricted Subsidiary and each Bank in form and
substance satisfactory to IBM Credit.
(b) the Existing Borrowers shall:
(i) as soon as possible and in any event prior to December 15, 1996,
establish one or more lockbox agreements to be executed by the
Existing Borrowers and each Bank, in form and substance satisfactory
to IBM Credit;
(ii) as soon as possible and in any event prior to December 15,
1996, establish a contingent blocked account agreement to be
executed by the Existing Borrowers and each Bank in form and
substance satisfactory to IBM Credit.
(c) the Customer shall, prior to January 1, 1997, provide a favorable
follow-up opinion of counsel for Customer in form and substance
satisfactory to IBM Credit.
Section 7. XLConnect Solutions, Inc. Capital Stock. IE, as indirect owner
of substantially all the issued and outstanding capital stock of XLConnect
Solutions, Inc. immediately prior to the XLConnect Solutions, Inc. Initial
Public Offering, shall at all times maintain ownership of not less than 51% of
the outstanding shares of XLConnect Solutions, Inc. common stock and will not
permit its ownership interest to be reduced below 51% without IBM Credit's prior
written consent.
Section 8. Representations and Warranties. Customer makes to IBM Credit the
following representations and warranties all of which are material and are made
to induce IBM Credit to enter into this Agreement.
8.1. Accuracy and Completeness of Warranties and Representations.
The representations and warranties contained in the Agreement are true and
correct in all material respects on and as of the date of this Amendment except
to the extent waived by IBM Credit in writing.
8.2. Violation of Other Agreements. The execution and delivery of
this Amendment and the performance and observance of the covenants to be
performed and observed under the Agreement as amended by the Amendment do not
violate or cause Customer not to be in compliance with the terms of any material
agreement to which Customer is a party.
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<PAGE>
8.3. Enforceability of Amendment. This Amendment has been duly
authorized, executed and delivered by Customer and is enforceable against
Customer in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws now or hereafter in effect relating to creditors'
rights generally.
Section 9. Joint and Several Guaranty. Customer acknowledges that the
transactions contemplated by this Amendment confer a substantial direct and
indirect benefit to the Existing Borrowers and the Restricted Subsidiaries and
that IBM Credit is relying on the joint and several guaranty of Customer in
executing this Amendment. The Restricted Subsidiaries explicitly acknowledge and
agree to be bound by Section 7.17 of the Agreement (Joint and Several Guaranty).
Notwithstanding the foregoing, it is understood that the guaranty by the
Restricted Subsidiaries of the Obligations of the Existing Borrowers shall not
exceed the principal sum of Twenty Million Dollars ($20,000,000) minus the
amount of funds, if any, borrowed by the Restricted Subsidiaries under the
Credit Line established in this Amendment (such outstanding Obligations directly
borrowed by or attributed to the Restricted Subsidiaries shall be referred to
herein as the "Primary Obligations"). Such amount guaranteed shall be exclusive
of interest, fees, and expenses of collection, it being expressly understood and
agreed that the Restricted Subsidiaries shall be liable for the same. It is
understood that the Obligations may from time to time exceed $20,000,000,
without impairing or affecting the guaranty. The Restricted Subsidiaries'
guaranty of the Obligations of the Existing Borrowers shall terminate upon the
receipt by IBM Credit of (a) the payment by the Restricted Subsidiaries for all
of the Primary Obligations, as provided in Section 14 hereof, and (b) the
payment by the Existing Borrowers of any existing Shortfall (as defined in the
Agreement) attributed to the Existing Borrowers.
Section 10. Modifications to Agreement.
10.1. Collateral Management Report. Customer acknowledges and
agrees that the term "Collateral Management Report" as used in Sections 1.1,
6.20, 7.1(K), 7.1(L) and any other sections of the Agreement shall mean a
separate Collateral Management Report for the Existing Borrowers and the
Restricted Subsidiaries.
10.2. Compliance Certificate. Customer acknowledges and agrees that
the term "Compliance Certificate" as used in Sections 7.1(A), 7.1(B), 7.1(C) and
any other sections of the Agreement shall mean a separate Compliance Certificate
for the Existing Borrowers and the Restricted Subsidiaries.
Section 11. Waiver. The Waiver is hereby specifically incorporated herein
by reference and made a part of this Amendment.
Section 12. Affiliate Transactions. Exhibit A hereto sets forth certain
agreements entered into or contemplated between the Existing Borrowers and the
Restricted Subsidiaries. IBM Credit hereby acknowledges and consents to the
transactions contemplated by such agreements.
Section 13. Ratification of Agreement. Except as specifically amended
hereby, all of the provisions of the Agreement shall remain unamended and in
full force and effect.
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<PAGE>
Customer hereby ratifies, confirms and agrees that the Agreement, as amended
hereby, represents a valid and enforceable obligation of Customer, and is not
subject to any claims, offsets or defenses, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws now or hereafter in effect relating to creditors'
rights generally.
Section 14. Termination. This Amendment shall remain in force until the
earlier of (1) the date the Agreement expires or is terminated for any reason,
and (2) April 4, 1997. Upon the date that this Amendment expires or is
terminated, all of the Primary Obligations shall be immediately due and payable
in their entirety, even if they are not yet due under their terms, and the
Existing Borrowers shall continue to borrow pursuant to the terms and conditions
set forth in the Agreement.
Section 15. Appointment of Agent. XLConnect Solutions, Inc. and XLConnect
Systems, Inc. hereby appoint XLConnect Services, Inc. as agent for each of them
to request Advances from IBM Credit under the Agreement and hereunder and to
direct the bank account into which funds are to be disbursed.
Section 16. Governing Law. This Amendment shall be governed by and
interpreted in accordance with the laws of the State of New York.
Section 17. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement. This Amendment may be delivered via telecopy or other
similar facsimile transmission pursuant to Section 10.12 of the Agreement;
provided, however, that if this Amendment is delivered via facsimile
transmission, the original executed document shall be deposited, postage
pre-paid, with an overnight courier on the date of such facsimile delivery with
instructions for next day delivery.
IN WITNESS WHEREOF, this Amendment has been executed by the duly authorized
officers of the undersigned as of the day and year first above written.
IBM CREDIT CORPORATION INTELLIGENT ELECTRONICS, INC.
By: /s/ Paul M. Leiba By: /s/ Thomas Coffey
--------------------------- -------------------------------
Name: Paul M. Leiba Name: Thomas Coffey
--------------------- -----------------------------
Title: Credit Manager Title: Chief Financial Officer
-------------------- ----------------------------
THE FUTURE NOW, INC.
By: /s/ Thomas Coffey
-------------------------------
Name: Thomas Coffey
-----------------------------
Title: Chief Financial Officer
----------------------------
[EXECUTIONS CONTINUED]
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INTELLIGENT ADVANCED SYSTEMS, INC.
By: /s/ Thomas Coffey
-------------------------------
Name: Thomas Coffey
-----------------------------
Title: Chief Financial Officer
----------------------------
INTELLIGENT EXPRESS, INC.
By: /s/ Thomas Coffey
-------------------------------
Name: Thomas Coffey
-----------------------------
Title: Chief Financial Officer
----------------------------
RND, INC.
By: /s/ Thomas Coffey
-------------------------------
Name: Thomas Coffey
-----------------------------
Title: Chief Financial Officer
----------------------------
INTELLINET, LTD.
By: /s/ Thomas Coffey
-------------------------------
Name: Thomas Coffey
-----------------------------
Title: Chief Financial Officer
----------------------------
INTELLIGENT DISTRIBUTION SERVICES, INC.
By: /s/ Thomas Coffey
-------------------------------
Name: Thomas Coffey
-----------------------------
Title: Chief Financial Officer
----------------------------
INTELLIGENT SP, INC.
By: /s/ Thomas Coffey
-------------------------------
Name: Thomas Coffey
-----------------------------
Title: Chief Financial Officer
----------------------------
[EXECUTIONS CONTINUED]
-8-
<PAGE>
ENTRE COMPUTER CENTERS OF NEW
YORK, INC.
By: /s/ Thomas Coffey
-------------------------------
Name: Thomas Coffey
-----------------------------
Title: Chief Financial Officer
----------------------------
XLSOURCE, INC. (formerly known as THE
FUTURE NOW, INC. OF ARKANSAS)
By: /s/ Gregory A. Pratt
-----------------------------
Name: Gregory A. Pratt
------------------------
Title: President & CEO
-----------------------
XLCONNECT SERVICES, INC. (formerly known
as INTELLICOM SOLUTIONS, INC.)
By: /s/ Stephanie Cohen
----------------------------
Name: Stephanie Cohen
-----------------------
Title: VP & Secretary
----------------------
XLCONNECT SOLUTIONS, INC.
By: /s/ Stephanie Cohen
----------------------------
Name: Stephanie Cohen
-----------------------
Title: VP & Secretary
----------------------
XLCONNECT SYSTEMS, INC.
By: /s/ Stephanie Cohen
----------------------------
Name: Stephanie Cohen
-----------------------
Title: VP & Secretary
----------------------
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<PAGE>
EXHIBIT A
AFFILIATE TRANSACTIONS
1. The Contribution Agreement made as of May 31, 1996, by and among IE, The
Future Now, Inc., The Future Now, Inc. of Arkansas and XLConnect Solutions, Inc.
2. The Indemnification Agreement made as of October __, 1996, by and between
IE and XLConnect Solutions, Inc.
3. The Services Agreement made as of October __, 1996, by and between IE and
XLConnect Solutions, Inc.
4. The Space Sharing Agreement made as of October __, 1996, by and among IE,
The Future Now, Inc. and XLConnect Solutions, Inc.
INTERCOMPANY DEBT AGREEMENT
This Intercompany Debt Agreement (this "Agreement") is made
and entered into as of the 22nd day of October, 1996 by and between Intelligent
Electronics, Inc., a Pennsylvania corporation ("IE"), and XLConnect Solutions,
Inc., a Pennsylvania corporation ("XLC").
BACKGROUND
A. XLC is an indirect wholly-owned subsidiary of IE.
B. IE and XLC have contemporaneously herewith effected an initial
public offering of shares of common stock of XLC (the "Offering").
C. IE and its subsidiaries have available to them a $225 million credit
facility (the "Credit Facility") pursuant to that certain Amended and Restated
Inventory and Working Capital Financing Agreement dated as of April 5, 1996,
among IBM Credit Corporation ("IBMCC"), and IE and its subsidiaries (as amended
from time to time, including without limitation, by Amendment No. 2 (defined
below), (the "Financing Agreement").
D. The Credit Facility is secured by all assets of IE and its
subsidiaries, including XLC and its subsidiaries, and borrowings thereunder are
subject to a collateral-based formula (the "Borrowing Base").
E. Historically, IE has provided to its subsidiaries, including XLC and
its subsidiaries, funds to support liquidity and working capital needs and cash
management, and related services.
F. Immediately preceding the Offering, XLC was indebted to IE in the
amount of $41,208,000 (the "Pre-Offering Intercompany Debt") as a result of IE's
provision of such funds to XLC.
G. In addition, immediately preceding the Offering, availability under
the Credit Facility based on the assets of XLC and its subsidiaries (the "XLC
Borrowing Base") was calculated to be an amount equal to $13,365,000 (the
"Pre-Offering XLC Borrowing Base").
H. Pursuant to Amendment No. 2 to the Intelligent Electronics Amended
and Restated Inventory and Working Capital Financing Agreement dated October 16,
1996, and effective as of the Effective Date (defined below) ("Amendment No.
2"), XLC will have borrowing availability under, and joint and several liability
with IE for up to $20,000,000 in principal amount of, the Credit Facility (the
"Sublimit").
I. As a result of the Offering, IE will receive approximately
$41,208,000 in proceeds, in reduction of the "Pre-Offering Intercompany Debt",
resulting in a deficiency of approximately $0 (the "Initial Remaining
Balance").
<PAGE>
J. The parties hereto have agreed to (a) cause the Initial Remaining
Balance to be treated as long term debt, and (b) set forth additional
limitations on, and conditions for, the use of the Credit Facility, all on the
terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
A. Definitions. As used in this Agreement, in addition to the terms
defined in the "Background Section" hereof, the following terms shall have the
following meanings:
1. "Advance" means an IE Advance or an XLC Advance, as the case may
be.
2. "Business Day" means a day on which banks are not required or
permitted to close in New York City, New York.
3. "Effective Date" means the date on which the purchase and sale of
shares of common stock of XLC pursuant to the Offering first occurs.
4. "Interest Period" means each fiscal quarter of XLC, commencing
with the fiscal quarter ending on December 31, 1996.
5. "Indirect IBMCC Liabilities" means any and all indebtedness and
obligations of every kind and description of XLC owing to IBMCC under the
Financing Agreement, other than direct borrowings of XLC under the Sublimit and
other Primary IBMCC Liabilities, and shall include indebtedness or obligations
that are secondary, indirect, absolute or contingent, joint or several, secured
or unsecured, due or to become due, contractual or tortious, arising by
operation of law or otherwise, or now or hereafter existing, whether incurred by
IE or any of its subsidiaries other than XLC and its subsidiaries, and whether
as surety, endorser, guarantor, accommodation party or otherwise, including,
without limitation, principal, interest, fees, including, without limitation,
late fees and expenses, and including attorneys' fees and costs.
6. "IE Maturity Date" means January 1, 1998.
7. "Primary IBMCC Liabilities" means indebtedness and obligations of
every kind and description owing to IBMCC in connection with or as a result of
XLC's borrowing of funds from IBMCC under the Sublimit, including without
limitation, principal, interest, fees and costs (including cost of collection of
amounts owed by XLC that are Primary Obligations), but shall not include
Indirect IBMCC Liabilities.
8. "Remaining Balance" means the Initial Remaining Balance, as
reduced from time to time by payments, prepayments and credits, including
without limitation, as a result of (a) XLC's receipt of additional proceeds
realized from the sale of additional shares of XLC stock in connection with the
exercise of that certain over-allotment option in
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<PAGE>
connection with the Offering, (b) the exercise by XLC of its right of setoff
pursuant to Section D hereof, or (c) advances to IE under that certain Services
Agreement dated as of the date hereof, by and between IE and XLC.
9. "XLC Account" means that certain deposit account to be
established by XLC at a financial institution to be selected by XLC.
10. "XLC Lockbox Account" means that certain Lockbox Account to be
established, with the consent of IBMCC, if necessary, at a financial institution
to be selected by XLC.
B. Terms Relating to Intercompany Debt.
1. Repayment of Principal. The Remaining Balance, together with any
accrued, unpaid interest thereon shall be due and payable on the IE Maturity
Date. Prepayment of all or any portion of the Remaining Balance then outstanding
may be made at any time without penalty or premium.
2. Payment of Interest. XLC shall pay to IE interest in arrears on
the Remaining Balance on the last day of each Interest Period. Interest on the
principal portion of the Remaining Balance outstanding from time to time shall
accrue at a per annum rate equal at all times to the rate available to IE for
long term debt under the Financing Agreement, which, as of the date hereof, is
10.75% per annum. Interest shall be calculated on the basis of a 365 day year
for the actual number of days elapsed.
C. Limitation on Use of XLC Borrowing Base.
1. Initial Repayment; Initial Borrowing Availability. Immediately
upon IE's receipt of proceeds of the offering, IE shall pay to IBMCC the net
proceeds of the Offering to reduce IE's borrowings against the XLC Borrowing
Base under the Credit Facility to an amount equal to the Initial Remaining
Balance. As of such date, XLC shall be permitted to borrow under the Sublimit in
an amount equal to the excess, if any, of the XLC Borrowing Base over the
Remaining Balance.
2. Continuing Borrowings Against XLC's Assets. From and after the
Effective Date, IE may continue to borrow the entire amount available under the
Credit Facility, including amounts otherwise available to the Company under the
Sublimit; provided, however, that notwithstanding anything to the contrary
contained in or permitted under the Financing Agreement, IE's borrowings against
the XLC Borrowing Base under the Credit Facility may not at any time exceed an
amount equal to the then applicable Remaining Balance.
3. Upon Expiration of Amendment No. 2. Upon the expiration of
Amendment No. 2, IE shall repay to IBMCC an amount representing the then
outstanding borrowing against the XLC Borrowing Base.
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<PAGE>
4. XLC Account and Lockbox Account. In order to facilitate the
calculation of the XLC Borrowing Base, XLC shall establish the XLC Account and
the XLC Lockbox Account and shall maintain such accounts and in accordance with,
and otherwise comply with the provisions of the Services Agreement and the
Financing Agreement with respect to such XLC Account and XLC Lockbox Account.
D. Right of Setoff. If any of the Indirect IBMCC Liabilities shall have
been paid by XLC or any of its subsidiaries, or if IBMCC has realized on the
assets of XLC or any of its subsidiaries on account of Indirect IBMCC
Liabilities, whether by foreclosure, repossession, UCC sale or otherwise, XLC
shall have the right and is specifically authorized hereby to set-off against
and reduce to the then Remaining Balance by any amounts so paid by XLC or any of
its subsidiaries.
E. Rights of Indemnity and Subrogation.
(a) IE shall indemnify, defend and hold harmless XLC and its
subsidiaries, and their respective officers, directors, employees, agents and
representatives, successors and assigns, from, against and with respect to any
and all claims, expenses, demands, losses, costs, fines or liabilities of any
kind (including, without limitation, attorneys' fees and costs) arising from or
in any way related to payments made by XLC under the Finance Agreement in
respect of Indirect IBMCC Liabilities. The provisions of this paragraph shall
survive the termination of this Agreement and the Finance Agreement, and shall
be and remain effective notwithstanding the payment of the Indirect IBMCC
Liabilities, the release of any security interest, lien or encumbrance securing
the Indirect IBMCC Liabilities or any other action IBMCC may have taken in
reliance upon its receipt of such payment.
(b) XLC shall indemnify, defend and hold harmless IE and its
subsidiaries, and their respective officers, directors, employees, agents and
representatives, successors and assigns, from, against and with respect to any
and all claims, expenses, demands, losses, costs, fines or liabilities of any
kind (including, without limitation, attorneys' fees and costs) arising from or
in any way related to payments made by IE under the Finance Agreement in respect
of Primary IBMCC Liabilities. The provisions of this paragraph shall survive the
termination of this Agreement and the Finance Agreement, and shall be and remain
effective notwithstanding the payment of the Primary IBMCC Liabilities, the
release of any security interest, lien or encumbrance securing the Primary IBMCC
Liabilities or any other action IBMCC may have taken in reliance upon its
receipt of such payment.
(c) The provisions of this Section E shall survive any termination
of this Agreement.
F. Term of Agreement. This Agreement shall become effective on the
Effective Date and shall automatically terminate on the later of (a) date on
which the Remaining Balance, together with any accrued, unpaid interest thereon,
has been paid, or (b) the date on
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<PAGE>
which XLC no longer has any liability, whether liquidated, contingent or
otherwise, for Indirect IBMCC Liabilities.
G. Miscellaneous.
1. Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned by either
party hereto to any other person except that either party may assign this
Agreement to any of its affiliates.
2. No Third-Party Beneficiaries. Except for the persons entitled to
indemnification pursuant to Section E hereof, each of whom is an intended
third-party beneficiary hereunder, nothing expressed or implied in this
Agreement shall be construed to give any person or entity other than the parties
hereto any legal or equitable rights hereunder.
3. Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof.
4. Amendment. This Agreement may not be amended except by an
instrument signed by the parties hereto.
5. Waivers. Either party hereto may (i) extend the time for the
performance of any of the obligations or other act of the other party or (ii)
waive compliance with any of the agreements contained herein. No waiver of any
term shall be construed as a waiver of the same term, or a waiver of any other
term, of this Agreement. The failure of any party to assert any of its rights
hereunder will not constitute a waiver of any such rights.
6. Severability. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, such
provision shall be deemed severable and all other provisions of this Agreement
shall nevertheless remain in full force and effect.
7. Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
8. Notices. All notices given in connection with this Agreement
shall be in writing. Service of such notices shall be deemed complete (i) if
hand delivered, on the date of delivery, (ii) if by mail, on the fourth business
day following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid, or (iii) if sent by FedEx or
equivalent courier service, on the next business day, or (iv) if by telecopier,
upon receipt by the sender of confirmation of successful transmission. Such
notices shall be addressed to the parties at the following addresses or at such
other address for a party as shall be specified by like notice (except that
notices of change of address shall be effective upon receipt):
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<PAGE>
If to IE:
411 Eagleview Boulevard
Exton, PA 19341
Attention: President
Telecopier: 610-458-0599
If to XLC:
411 Eagleview Boulevard
Exton, PA 19341
Attention: President
Telecopier: 610-458-8217
9. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the Commonwealth of Pennsylvania, without giving
effect to the principles of conflict of laws thereof.
10. Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, IE and XLC have caused this Intercompany Debt
Agreement to be executed on the date first above written.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Kathleen R. Mayo
---------------------------------
Name: Kathleen R. Mayo
Title: Secretary
XLCONNECT SOLUTIONS, INC.
By: /s/ Stephanie Cohen
----------------------------------
Name: Stephanie Cohen
Title: Chief Financial Officer
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INTELLICOM SOLUTIONS, INC.
Services Agreement
This Agreement is entered into as of this 1st day of January, 1996 by
and between IntelliCom Solutions, Inc. ("IntelliCom"), a Pennsylvania
corporation with offices at 411 Eagleview Boulevard, Exton, PA 19341, and
Intelligent Electronics, Inc., ("Customer") a Pennsylvania corporation with
offices at 411 Eagleview Boulevard, Exton, PA 19341.
WHEREAS, IntelliCom is in the business of providing Consulting Services
(as defined below) and Telecommunications Services (as defined below);
WHEREAS, Customer wishes to obtain certain Consulting Services and all
of its requirements for Telecommunications Services from and through IntelliCom,
and IntelliCom wishes to provide such services, in each case on the terms set
forth in this Agreement;
NOW THEREFORE, in exchange for the mutual consideration set forth
herein, the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound, the parties hereby agree as follows:
1. DEFINITIONS. For the purposes of this Agreement:
a. "Affiliate" means any corporation or legal entity that controls,
or is controlled by, or is under common control with Customer as of January 1,
1995 or at the time IntelliCom provides the service contemplated by
this Agreement, except that the term "Affiliate" shall not be construed to
include CS Computers, Inc., CS Computers of California, Inc., The Future Now or
any of The Future Now's subsidiaries.
b. "Consulting Services" means the capacity planning, traffic
engineering, network design, telecommunications management and other
Telecommunications-related consulting services described in Attachment A to this
Agreement.
c. "Telecommunications Service" means a service for transmitting
voice, data, video or other information between two or more locations, including
without limitation (i) any and all intraLATA, interLATA and interstate common
carrier communications services, and (ii) any enhanced telecommunications
services, including without limitation frame relay, asynchronous transfer mode
transmission, packet switching services and any other similar service.
2. SCOPE OF SERVICES. Subject to the terms and conditions of this
Agreement, IntelliCom agrees to provide the following Consulting Services:
a. IntelliCom shall assign an IntelliCom account manager, reasonably
satisfactory to Customer, to manage IntelliCom's performance of this Agreement.
<PAGE>
b. IntelliCom shall provide the capacity planning, call accounting,
network design and similar services.
c. IntelliCom shall (i) assist Customer's Denver-based operations to
order Telecommunications Services and to resolve problems and disputes
associated with such Telecommunications Services, and (ii) provide, or act as
agent for the remaining operations of Customer and its Affiliates in
provisioning and otherwise arranging for the purchase of, all of Customer's and
its Affiliates' respective requirements for Telecommunications Services during
the term of this Agreement.
d. IntelliCom shall provide to Customer and its Affiliates such
other Consulting Services as Customer may reasonably require from time to time,
including without limitation those Consulting Services described in Attachment A
to this Agreement not otherwise referred to in this Section 2.
3. TELECOMMUNICATIONS SERVICES. The Telecommunications Services
obtained by Customer and its Affiliates pursuant to this Agreement shall be
governed by the following additional terms:
a. Customer agrees that Customer and its Affiliates shall purchase
pursuant to this Agreement all of their requirements for Telecommunications
Services, but in no event less than the minimum requirements imposed by
IntelliCom's existing agreements with MCI Telecommunications, Inc. and
CompuServe and as described more fully in Attachment B hereto. In the event
Customer and its Affiliates fail during any relevant period to meet this minimum
requirement, Customer agrees to reimburse IntelliCom in full for any penalties
or similar payments IntelliCom is required to pay the applicable carrier or
other provider (net of any credits granted by such carrier or provider for
failure to provide service as required by its underlying agreement with
IntelliCom) as a result of such shortfall. Nothing in this Agreement shall
preclude Customer from obtaining from other sources services that Intellicom is
unable or unwilling to provide pursuant to this Agreement.
b. Customer agrees that Customer and its Affiliates shall execute
such documents as IntelliCom may reasonably request for the purposes of
designating IntelliCom as the authorized agent of Customer and its Affiliates
for the purposes of arranging Telecommunications Services for Customer and its
Affiliates, authorizing IntelliCom to receive invoices for such
Telecommunications Services on behalf of Customer and its Affiliates, and to
take such other actions in the performance of this Agreement as IntelliCom
reasonably considers necessary.
c. Customer acknowledges that certain of the Telecommunications
Services to be provided pursuant to this Agreement are governed by tariffs filed
with the Federal Communications Commission or the governments of one or more
states. In the event of conflict between this Agreement and the applicable
tariff, the applicable tariff shall control.
2
<PAGE>
d. IntelliCom at Customer's request may from time to time arrange
for services supplied by companies other than IntelliCom. Customer acknowledges
that all such Telecommunications Services are supplied by carriers and other
providers pursuant to tariffs, agreements between IntelliCom and the providers,
or a combination thereof. Customer further acknowledges that the quality and
reliability of such Telecommunications Services is beyond IntelliCom's direct
control. Customer accordingly agrees that IntelliCom's sole responsibility with
respect to such Telecommunications Services shall be to make all commercially
reasonable efforts to enforce such tariffs and agreements for the benefit of
Customer and its Affiliates, including all covenants, representations and
warranties set forth therein.
4. PAYMENT.
a. Fees and Charges. In exchange for the services contemplated by
this Agreement, Customer agrees to pay IntelliCom the following fees and
charges:
(1) For Consulting Services, time and materials charges at the
rates established by Attachment A hereto.
(2) For IntelliCom's tariffed Telecommunications Services, the
fees and charges specified by the applicable tariffs. The rates applicable as of
the date of this Agreement are set forth in Attachment C hereto.
(3) For IntelliCom's non-tariffed Telecommunications Services, an
amount comparable to the rates IntelliCom charges its best commercial customers
for similar volumes of such services. The rates applicable as of the date of
this Agreement are set forth in Attachment D hereto.
(4) For Telecommunications Services provided by carriers other
than IntelliCom, an administrative fee equal to the applicable percentage
(described below) of the time and other usage charges billed by carriers and
other companies for Telecommunications Services provided to Customer and its
Affiliates, provided, that such fees and charges shall be in addition to the
amounts invoiced by carriers and other providers of Telecommunications Services
as contemplated by Section 2.c hereof, which amounts Customer and its Affiliates
shall pay within twenty days of IntelliCom's request. For the Telecommunications
Services listed in Attachment E to this Agreement, the applicable percentage
shall be five and one-quarter percent (5.25%). For other Telecommunications
Services, the percentage shall be determined by mutual agreement of the parties.
b. Invoices. IntelliCom from time to time, but not more frequently
than monthly, shall invoice Customer for Consulting Services and
Telecommunications Services provided pursuant to this Agreement. In addition to
the other amounts due under this Agreement, Customer agrees to pay an amount
equal to the applicable sales, use and excise taxes resulting or arising from
the parties' performance of this Agreement. Customer shall pay such invoices
within thirty (30) days of the invoice date.
3
<PAGE>
c. Late Charges. In the event Customer fails to pay any monies when
due (other than amounts subject to a bona fide dispute between the parties),
Customer agrees to pay on demand a late charge equal to the lesser of (i) 1 1/2%
for each month or portion thereof that the monies remain past due, or (ii) the
highest amount permitted by law.
5. TERM.
The initial term of this Agreement shall commence on January 1, 1996
and shall continue for a period of five (5) years. Thereafter, this Agreement
automatically shall renew for six (6) consecutive two (2) year terms, except
this Agreement will expire at the conclusion of any term if:
(i) Customer, at least ninety (90) days prior to the expiration of
such term notifies IntelliCom that it has received from an
unrelated third party a bona fide offer to provide (or has
received from multiple unrelated third parties bona fide
offers that in combination would provide) Telecommunications
Services that in quantity, quality and duration are equal to
or better than the services then being provided to Customer by
IntelliCom, and
(ii) the aggregate dollar cost to Customer for such
Telecommunications Services is five percent (5%) or more below
the aggregate amounts charged by IntelliCom for such
Telecommunications Services, and
(iii) IntelliCom fails at least thirty (30) days prior to the
expiration of such term to notify Customer that it will match
such bona fide offer commencing at the beginning of the
succeeding renewal term, and
(iv) Customer notifies IntelliCom at least ten (10) days prior to
the expiration of such term of Customer's intention to permit
this Agreement to expire.
Notwithstanding the foregoing, if IntelliCom defaults on its obligations with
respect to the provision of Consulting Services, Customer shall be entitled to
terminate this Agreement insofar as it relates to Consulting Services, provided,
however, that such termination shall not affect the parties' obligations with
respect to Telecommunications Services.
6. WARRANTY; DISCLAIMERS.
a. IntelliCom warrants that (i) the Consulting Services provided by
it pursuant to this Agreement shall be performed in a professional manner and in
conformity with the standards prevailing in the industry, and (ii) the
non-tariffed Telecommunications Services supplied by IntelliCom shall in all
material respects comply with IntelliCom's specifications therefor.
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<PAGE>
b. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 6.a HEREOF AND THE
APPLICABLE TARIFFS, INTELLICOM MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT
TO THE SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS ALL OTHER
WARRANTIES AND CONDITIONS, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR IMPLIED WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE. WITHOUT LIMITING THE FOREGOING, INTELLICOM MAKES NO
REPRESENTATION OR WARRANTY CONCERNING TELECOMMUNICATIONS SERVICES OBTAINED BY
CUSTOMER AND ITS AFFILIATES PURSUANT TO THIS AGREEMENT, AND INTELLICOM SHALL
HAVE NO RESPONSIBILITY FOR SUCH TELECOMMUNICATIONS SERVICES EXCEPT AS EXPRESSLY
SET FORTH IN THIS AGREEMENT.
7. LIMITATION OF LIABILITY.
a. INTELLICOM'S LIABILITY TO CUSTOMER FOR ANY LOSS OR DAMAGE TO
CUSTOMER, CUSTOMER'S AFFILIATES, AGENTS OR LICENSEES OR END USERS ARISING OUT OF
THE EQUIPMENT AND SERVICES PROVIDED PURSUANT TO THIS AGREEMENT, WHETHER SUCH
LIABILITY SHALL ARISE BY REASON OF NEGLIGENCE, BREACH OF CONTRACT, BREACH OF
WARRANTY OR ANY OTHER THEORY, SHALL BE LIMITED TO (i) THE REPAIR OR REPLACEMENT
OF THE DEFECTIVE EQUIPMENT OR CORRECTION OF THE DEFECTIVE SERVICE, AND
(ii) REFUNDS OR CREDITS, AT INTELLICOM'S OPTION, FOR TELECOMMUNICATIONS SERVICES
PAID FOR BUT NOT PROVIDED AS REQUIRED.
b. INTELLICOM SHALL NOT UNDER ANY CIRCUMSTANCES BE LIABLE FOR
(i) DELAYS IN ITS PERFORMANCE ATTRIBUTABLE TO CUSTOMER, (ii) DAMAGE TO OR LOSS
BY CUSTOMER OF EQUIPMENT OR MATERIALS CAUSED BY CUSTOMER OR TO SUBCONTRACTORS,
AGENTS OR EMPLOYEES, OR (iii) LOSSES OR DELAYS CAUSED BY FORCE MAJEURE EVENTS.
IN NO EVENT SHALL INTELLICOM BE LIABLE TO CUSTOMER FOR LOST PROFITS OR FOR ANY
CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES ARISING OUT OF THIS
AGREEMENT, EVEN IF INTELLICOM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. NO ACTION, REGARDLESS OF FORM, ARISING OUT OF THIS AGREEMENT MAY BE
BROUGHT MORE THAN ONE YEAR AFTER THE CAUSE OF ACTION ACCRUES. THE AGGREGATE
LIABILITY OF INTELLICOM HEREUNDER SHALL NOT EXCEED THE PAYMENTS RECEIVED BY
INTELLICOM PURSUANT TO THIS AGREEMENT.
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<PAGE>
8. GENERAL PROVISIONS.
8.1 Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be properly addressed to the other party at the
following address or to such other address as may be provided in writing by
either party from time to time, shall be sent by any recognized commercial
overnight courier or United States registered or certified mail, return receipt
requested, and shall be concurrently sent by facsimile:
To IntelliCom: IntelliCom Solutions, Inc.
411 Eagleview Blvd.
Exton, PA 19341
Attention: Vice President,
Operations
Fax Number: (610) 458-8217
To Customer: Intelligent Electronics, Inc.
411 Eagleview Boulevard
Exton, PA 19341
Attention: Legal Department
Fax Number: (610) 458-8453
8.2 Independent Contractors. In performing their respective
obligations hereunder, each of the parties shall operate as and have the status
of an independent contractor and shall not act as or be a partner, or employee
of the other party.
8.3 Assignment and Binding Effect. Neither party shall transfer,
assign, subcontract or delegate in whole or in part any of its rights or
obligations under this Agreement without the prior written consent of the other
party, provided, that such consent shall not be required for the assignment of
this Agreement by either party in connection with the sale of substantially all
of such party's business to which this Agreement relates.
8.4 Waiver. Any waiver of any right or default hereunder shall be
effective only in the instance given and shall not operate as or imply a waiver
of any similar right or default on any other occasion. Either party may elect to
continue performance notwithstanding such breach by the other party but such
performance shall not constitute a waiver of such breach nor otherwise limit the
non-breaching party's remedies. No waiver of any provision of this Agreement
shall be effective unless in writing and signed by the party against whom it is
sought to be performed.
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<PAGE>
8.5 Sole Agreement. This Agreement, including the Attachments
hereto, set forth the entire agreement and understanding of the parties relating
to its subject matter, and supersede and merge all prior and contemporaneous
agreements, negotiations and understandings between the parties, both oral and
written, with respect thereto. Neither Customer nor IntelliCom shall be bound by
any oral agreement or representation irrespective of by whom or when made. No
change or modification to this Agreement will be binding unless it is in writing
and signed by an authorized representative of IntelliCom and Customer.
8.6 Authority. Each of the parties to this Agreement hereby
represents and warrants that all required corporate authorizations have been
procured prior to execution of this Agreement and the parties designated as
signatories on behalf of IntelliCom and Customer each have the requisite
corporate authority to do so.
8.7 Force Majeure. Neither party shall be deemed in default of this
Agreement to the extent that performance of the party's respective obligations
or attempts to cure any breach are delayed or prevented by reason of any act of
God, fire, natural disaster, act of government, or any other cause beyond the
reasonable control of such party, provided that such party gives the other party
written notice of the condition within ten (10) business days of discovery
thereof. Except for Customer's obligations to make payments pursuant to this
Agreement, if proper notice is given, the time for performance or cure shall be
extended for a period equal to the duration of the force majeure event or
circumstance described in the notice.
8.8 Surviving Provisions. The warranties, disclaimers and
limitations of liability provision shall survive the termination of this
Agreement.
8.9 Choice of Law; Jurisdiction and Venue. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania and any action under this Agreement may be brought in the United
States District Court for the Eastern District of Pennsylvania or in the Courts
of the Commonwealth of Pennsylvania.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the Effective Date.
INTELLIGENT ELECTRONICS, INC.
BY: /s/ Gregory A. Pratt
------------------------
Title: President and Chief Operating Officer
INTELLICOM SOLUTIONS, INC.
BY: /s/ Patrice Johnson
------------------------
Title: Chief Operating Officer
8
<PAGE>
List of Attachments
Attachment A Consulting Services
Attachment B Minimum Purchase Requirements
Attachment C IntelliCom Tariffed Services -- Current Rates and Charges
Attachment D IntelliCom Non-Tariffed Services -- Current Rates and Charges
Attachment E Third Party Services
9
<PAGE>
ATTACHMENT A
CONSULTING SERVICES
Value Added Services.
Rate: No additional hourly charge
o Assistance to IE personnel in understanding voice and data carrier programs.
o Assisting with the development of existing data networks (additional lines ad
equipment).
o New order generation to Long Distance Carrier.
o Trouble Ticket generation to carrier(s) for problems/outages.
o Monitor trouble ticket and provide status reports to close of ticket.
o Work with IE personnel/carriers to perform regular maintenance on circuits.
o Assistance with billing problems.
Knowledge Services.
Rate: $150.00 per hour
o Provide ongoing management and monitoring of the IE program, circuits, and
systems.
o Busy/peak hour monitoring.
o Development of design and implementation plans for new phone and voice mail
systems/applications.
o Development of Corporate Policy for departmental and personal calling.
o Development of design and implementation strategies for LAN/WAN/Remote Access
networks (i.e. CDF 1-4, IRIS to IQ Pro migration, Network Management System,
and Broadband migration strategy (voice, data, and video over same
transport)).
o Interoperability (Bridge/Router configuration, protocol engineering,
equipment testing/recommendations).
o Internet Services (Development of IE Web page to allow users access to view
IE Sourcebook, marketing materials, new programs, view graphical product
displays, and potentially place orders on-line).
o Computer/Telephony Services (Making the PBX's communicate to computer systems
as requested by Mark Briggs and Stephanie Sissler).
o Performance Monitoring - monitoring network traffic patterns/peak utilization
periods and recommend/implement changes when necessary.
o Contingency Planning (Disaster Recovery site re-design).
o LAN/WAN Integration and Transport training.
10
<PAGE>
Account Management Services.
Rate: $1000.00 per month
o Provide circuit configuration, coordination, and installation.
o Provide voice traffic management reports and make recommendations for
re-engineering as necessary.
o X.25/Frame Relay billing to IRIS users.
o Frame Relay billing for corporate locations - summary and detail billing and
network management reports.
o Frame Relay billing for reseller locations (50% to DG/50% to reseller) -
summary and detail billing and network management reports.
o Assist IE sales reps with customers who require ISDN circuits for new
products such as Digiboard, Intel, IBM, and AT&T ISDN products.
o Provision and order ISDN for corporate use.
o Data Network Management - manage and monitor routers and transport links and
provide management reports.
o Remote network changes and re-configurations.
o Train appropriate IE personnel on the efficient use of videoconferencing
systems.
o Set-up video conferences as necessary.
Note: Out-of-pocket expenses and materials costs are billed at cost.
11
<PAGE>
ATTACHMENT B
MINIMUM PURCHASE REQUIREMENTS
TELECOMMUNICATIONS SERVICES
Tariffed Services: $1,000,000 per year, including:
o Four (4) T1 Circuits
o $65,000 per month of dedicated
access and/or egress
Non-tariffed Services: $1,200,000 per year
Additional Tariffed or
Non-Tariffed: $2,000,000 per year
CONSULTING SERVICES:
At discretion of the Customer.
12
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