SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED September 30, 1997 .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO .
Commission file number 0-28892
XLConnect Solutions, Inc.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2832796
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(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 __X__ No ____
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 on November 13, 1997.
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Item 6. Exhibits
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(a) Exhibits
10.1 Amended and Restated Services Agreement dated September
30, 1997, by and among Intelligent Electronics, Inc.,
XLConnect Solutions, Inc. and XLSource, Inc.
10.2 Amendment No. 1 to Stock Registration and Option Agreement
dated as of December 1, 1997, by and among XLConnect
Solutions, Inc., Intelligent Electronics, Inc. and XLSource,
Inc.
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SIGNATURES
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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/ Stephanie D. Cohen
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Stephanie D. Cohen
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
Date: February 6, 1998
Exhibit 10.1
AMENDED AND RESTATED SERVICES AGREEMENT
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This Amended and Restated Services Agreement (this "Agreement") is
made and entered into as of the 30th day of September, 1997, with an
effective date of July 1, 1997, by and among INTELLIGENT ELECTRONICS, INC.,
a Pennsylvania corporation ("IE"), XLCONNECT SOLUTIONS, INC., Pennsylvania
corporation ("XLC"), and XLSOURCE, INC., an Arkansas corporation ("XLS").
BACKGROUND
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A. XLC is an indirect, eighty percent (80%)-owned subsidiary of IE.
B. 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.
C. IE and XLC are parties to that certain Services Agreement dated
as of October 22, 1996 (the "Original Services Agreement"), pursuant to
which the parties provided for the continuation of certain of such
services, on an interim basis, on the terms and conditions set forth
therein.
D. Subsequent to the date of the Original Services Agreement, IE
has requested that XLC provide to it and to XLS certain management,
marketing and administrative services.
E. The parties hereto now desire to revise certain of the terms
and conditions of the Original Services Agreement, and to amend and restate
such agreement in order to provide for the continuation of certain of such
services, to set forth the terms under which XLC will provide to IE and XLS
certain technical, management, marketing and administrative services, and to
more accurately reflect the interrelationships among the parties, all 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 the Commonwealth of Pennsylvania.
(d) "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.
(e) "XLC Account" means that certain deposit account
established by XLC with First Union National Bank.
(f) "XLS Account" means that certain deposit account
established by XLS which account, or a successor thereto, may be subject to
a contingent blocked account agreement with IBM Credit Corporation
("IBMCC") so long as IBMCC is providing financing to XLS.
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 each
of its subsidiaries.
2. Liquidity and Cash Management Services.
(a) Accounts.
(i) XLC Account. XLC has established the XLC
Account. XLC and its subsidiaries shall deposit receipts from operations
and investment activities and the proceeds thereof into the XLC Account.
(ii) XLS Account. XLS has established the XLS account
at PNC Bank, N.A. and shall, on or before January 31, 1998, cause such
account, or a replacement or successor thereto, to become subject to a
contingent blocked account agreement in favor of IBMCC.
(iii) Reconciliation of Accounts. Each of XLC and XLS
shall use their best efforts to ensure (A) proper crediting of all amounts
received on account of accounts receivable and (B) proper allocations of
amounts received for services and/or product provided by both XLC and XLS
in circumstance in which either (i) a customer is paying a single invoice
which reflects amounts owing to both parties; or (ii) a customer improperly
makes payment to a party other than the party to which the amount is owed.
(b) Advances.
(i) IE Advances. 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; 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 a.m. 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. 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. 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. IE and XLC have entered into that
certain Amended and Restated Intercompany Debt Agreement dated as of the
26th day of March, 1997, amounts payable under which shall also be included
in the reconciliation of the intercompany account.
(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 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, Business Development 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) Business Development 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. XLC 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 similar
personnel as are necessary or desirable to assist IE in complying with its
best efforts obligations to GE Capital Information Technology Solutions
Acquisition Corp. ("GE Capital ITS") under that certain Asset Purchase
Agreement among IE, XLS, and certain of their affiliates and GE Capital ITS
dated July 1, 1997.
(c) Marketing and Technical Services. XLC shall manage XLS's
marketing and sales efforts with vendors and provide technical services, as
more particularly described on Exhibit A-2 hereto.
4. Management Services. In addition to the services described in
Section 3 above, XLC shall provide day to day management services for XLS
and IE, which services shall include, without limitation, provision of
executive oversight, operations management at both corporate and local
branch levels (including completion of reorganization transactions and
ongoing compliance with the documentation effecting same), practice
development, sales and sales management, professional recruitment, legal
services (including contract negotiations, litigation management, corporate
maintenance, securities matters, real and personal property leasing and
bank finance matters and employee matters), and financial and accounting
services (including forecasting, budgeting and planning, general ledger,
accounts receivable and accounts payable management, treasury and cash
management supervision).
5. Employee Benefits. IE shall continue to 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 of this
Agreement; provided, however, that nothing contained in this Agreement
shall 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.
6. Referral Fees. Certain XLS personnel will, from time to time,
continue to provide to XLC sales leads and referrals, although they have no
obligation to do so. In the event any such lead or referral directly
results in XLC business, XLC shall compensate XLS 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 XLS.
XLC shall pay to XLS referral fees at a rate of up to five percent (5%) of
revenue billed and collected by XLC for services rendered in connection
with opportunities provided by XLS 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, Advanced
Education and other services which are provided solely by XLC and are not
the direct result of leads or referrals from IE or XLS.
7. Charges for Services and Other Compensation.
(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.
(b) Services Rendered by XLC.
(i) Management Services. As compensation for the serivces
provided by XLC set forth in Sections 3(c) and 4 hereof and Exhibit A-2 hereto,
XLC shall receive the sum of $675,000 per quarter, payable in three install-
ments of $225,000 per month in arrears on the last day of each month commencing
July 1, 1997, as compensation for such services, which sum may be adjusted
quarterly based on the anticipated commitments of personnel, time and resources
required in order for XLC to effectively provide such services.
(ii) Vendor Funding and Marketing. In order to equitably
allocate between the parties vendor marketing funding received by XLS, XLC
shall receive from XLS an amount equal to the greater of $315,000 per
quarter or a 40% allocation of all vendor funding received by XLS other than
XLS Program-Specific Funding received from vendors. "XLS Program-Specific
Funding" means any funding received from a vendor used specifically for a
marketing or sales event hosted by XLS on behalf of its employees or customers.
(iii) Other Costs and Expenses. For all other costs and
expenses, including third-party charges, incurred by XLC in providing the
Services (other than Management 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 other than Management 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.
8. 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.
9. 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 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 of this Agreement.
(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 of this Agreement 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 of
this Agreement, 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.
10. 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 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 10 shall survive any
termination of this Agreement.
11. Term of Agreement. This Agreement shall become effective as of
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 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, 1997. IE will provide 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 and will, in such
event upon the request of XLC, continue to provide the benefits described
in Section 5, for at least ninety (90) days from the date of such notice.
Termination under this Section 11 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.
12. 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 12
shall survive any termination of this Agreement.
13. 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):
If to IE:
411 Eagleview Boulevard
Exton, PA 19341
Attention: Chief Financial Officer
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, the parties hereto have caused this Services Agreement
to be executed on the date first above written.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Eugene E. Marinelli, Jr.
------------------------------------
Name: Eugene E. Marinelli, Jr.
Title: Chief Financial Officer
XLCONNECT SOLUTIONS, INC.
By: /s/ Stephane D. Cohen
------------------------------------
Name: Stephanie D. Cohen
Title: Chief Financial Officer
XLSOURCE, INC.
By: /s/ Eugene E. Marinelli, Jr.
------------------------------------
Name: Eugene E. Marinelli, Jr.
Title: Vice President
PAGE
<PAGE>
EXHIBIT A-1
Administrative Services to be Provided by IE
--------------------------------------------
1. BILLING SERVICES:
----------------
* Use of AS400 for XLC's billing and general ledger and accounts
receivable function
* Payment by XLC shall be consistent with current practices
* Upon termination of XLC's use of the AS400, XLC shall contribute its
interest, if any, in the AS400 to IE at book value
* IE shall not be obligated to maintain the AS400 for more than 180
days after the date hereof
2. INSURANCE AND RISK MANAGEMENT:
-----------------------------
* Provision of insurance coverage through group policies issued under
American Phoenix Programs or successor policies
* 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.
3. TAX:
---
* Preparation and filing of all consolidated tax returns
* Assistance with state and local sales, use and services taxes and
property tax compliance
* Assistance with financial accounting for taxes
* Supervision of all federal, state and local tax audits, protests,
administrative proceedings and litigation
* Qualification and design of all employee benefit plans
* Preparation and submission of all tax ruling requests
* Rendering and obtaining all tax opinions
* 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.
4. HUMAN RESOURCES:
---------------
* Advice and assistance with respect to employee benefits, plan
administration, and other employee matters
* Payment by XLC shall be made as billed, with XLC's allocable share
calculated on the basis of its respective percentage of
compensation.
5. OPERATIONS:
----------
* 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.
* Reserves for such equipment and functions to be retained by IE and,
if collected by XLC, remitted to IE.
PAGE
<PAGE>
EXHIBIT A-2
Management and Administrative Services to be Provided by XLC
------------------------------------------------------------
1. SERVICE CALLS
-------------
* 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.
2. INSURANCE AND RISK MANAGEMENT
-----------------------------
* Administration of risk management matters after December, 1997
3. MDF MANAGEMENT, MARKETING AND TECHNICAL SERVICES
------------------------------------------------
* Administer reporting required by vendors
* Administer and manage vendor funding and marketing programs
* Develop marketing programs including training certification of
employees or activities with end-users
* Oversee vendor relations both at central and local levels,
including the procurement of marketing development funds and other
forms of vendor cooperative funding
* Participate in trade shows and presentations
* Develop and produce advertising brochures, slides or similar
material as needed
* Technical support of local area and wide area networks and information
systems
PAGE
<PAGE>
EXHIBIT B
Employee Benefits Plans
-----------------------
* Intelligent Electronics, Inc. 1995 Employee Stock Purchase Plan
* Intelligent Electronics, Inc. 1995 Long Term Incentive Plan (Stock Option
Plan, including non-wholly-owned subs.)
* Intelligent Electronics, Inc. 1995 Long Term Incentive Plan amended and
restated (Options granted before June 1995 - valid only for employees of
wholly-owned subs.)
* Intelligent Electronics, Inc. 401(k) Tax Deferred Savings Plan
* Intelligent Electronics, Inc. Life AD&D Medical and Dental Plan
* Intelligent Electronics, Inc. Long Term Disability Plan
Exhibit 10.2
AMENDMENT NO. 1 TO STOCK REGISTRATION AND OPTION AGREEMENT
----------------------------------------------------------
THIS AMENDMENT NO. 1 TO STOCK REGISTRATION AND OPTION AGREEMENT
("Amendment No. 1") is made and entered into as of the 1st day of December,
1997, by and among XLCONNECT SOLUTIONS, INC., a Pennsylvania corporation
(the "Company"), INTELLIGENT ELECTRONICS, INC., a Pennsylvania corporation
("IE") and XL SOURCE, INC. (formerly known as The Future Now of Arkansas,
Inc.), an Arkansas corporation ("XLS" and together with IE, the "Holder").
BACKGROUND
----------
The Company and the Holder are each parties to a Stock Registration
and Option Agreement, dated as of May 31, 1996 (the "Original Agreement").
Capitalized terms used in this Amendment No. 1 and not otherwise defined
in this Amendment No. 1 shall have the meanings ascribed to them in the
Original Agreement. The Original Agreement, inter alia, granted to the
Holder certain rights relating to the purchase of shares of the Company's
Common Stock.
Pursuant to the terms of Section 6.1(a) of a Common Stock Purchase
Warrant (the "Warrant"), dated February 28, 1997, issued by the Company to
Microsoft Corporation, a Washington corporation ("Microsoft"), the Company
agreed to grant to Microsoft certain "piggyback" registration rights
relating to the Warrant Shares (as such term is defined in the Warrant).
These registration rights may, under certain circumstances, be inconsistent
with the "demand" registration rights granted to the Holder pursuant to the
Original Agreement. The Company and the Holder therefore each desire to
amend the Original Agreement in order to modify the Holder's demand
registration rights in order to reconcile such rights with Microsoft's
piggyback rights, all as more particularly described below.
Pursuant to the terms of Section 8(b)(ii) of the Original Agreement
the Holder is deemed automatically to exercise the option upon the exercise
of any option or other award granted under the Company Stock Plan. The
parties now desire to amend the Original Agreement to provide for a similar
deemed automatic exercise upon the exercise of that certain Common Stock
Purchase Warrant dated February 28, 1997 and issued by the Company to
Microsoft, and to provide for the making by the Holder, upon any deemed
automatic exercise, of certain representations and warranties to the
Company.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, and intending to be legally bound, the
parties, subject to the terms and conditions set forth herein, agree as
follows:
ARTICLE I
AMENDMENTS TO ORIGINAL AGREEMENT
--------------------------------
1.1. Amendment to Section 1(a) of the Original Agreement.
Notwithstanding the provisions of Section 1(a) of the Original Agreement,
Microsoft shall be entitled to include Warrant Shares in a Demand
Registration (upon Microsoft's request thereof in accordance with the terms
set forth in Section 6.1(a) of the Warrant) without the written consent of
67% of the shares of Restricted Stock to be included in such registration.
1.2. Amendment to Section 1(b) of the Original Agreement. In the
event that Microsoft shall elect to include Warrant Shares in a Demand
Registration that is in the form of an underwritten offering, and the
managing underwriter or underwriters of such offering shall advise that the
aggregate amount of Restricted Stock requested to be included in such
offering (which for purposes of the second sentence of Section 1(b) of the
Original Agreement shall include the number of Warrant Shares requested by
Microsoft to be included in the offering) will materially and adversely
affect the success of such offering, then notwithstanding the provisions
set forth in the second sentence of Section 1(b) of the Original Agreement,
the number of shares of Restricted Stock to be included in the offering
shall be allocated first pro rata among the Holders, on the one hand, and
the holders of the Warrant (or a portion thereof), on the other, in
accordance with each such parties' ownership of the Company's Common Stock
(assuming full exercise of the Warrant in the case of any holder thereof),
and then shall be allocated pro rata among the Holders on the basis of the
number of shares of Restricted Stock to be included in such registration.
1.3. Amendment to Section 8(b)(ii) of the Original Agreement.
Section 8(b)(ii) of the Original Agreement is hereby amended to read, in
its entirety, as follows:
(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 (A) any option or other award granted
under the Company's 1996 Long-Term Incentive Plan (a "Company Stock
Option"), or (B) the Common Stock Purchase Warrant dated February 28, 1997
and issued to Microsoft Corporation (the "Microsoft Warrant"), 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 or the Microsoft
Warrant, as applicable (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 or the Microsoft Warrant, as
applicable. An 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
or the Microsoft Warrant, as applicable, 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.
1.4. Amendment to Section 8(c) of the Original Agreement. A new
sentence is added to the end of Section 8(c) of the Original Agreement,
which sentence shall read, in its entirety, as follows:
Upon any exercise of the Option, the Holder shall be deemed to have
represented and warranted to the Company that (i) it is purchasing the
shares of Common Stock for its own account and for investment purposes, not
with the intention of distributing them, (ii) it has such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits of an investment in the Common Stock, (iii) it
understands that the shares of Common Stock to be purchased upon exercise
of the Option are "restricted securities" within the meaning of the
Securities Act, that they cannot be sold or transferred without
registration under the Securities Act and applicable state securities laws,
or an exemption therefrom and, accordingly, it may have to hold the shares
of Common Stock indefinitely, (iv) it can afford the loss of its entire
investment in the shares of Common Stock, and (v) it has had an opportunity
to review such information and make inquiries of such persons as it
determined was necessary or appropriate in order to make an informed
decision concerning the purchase of the shares upon exercise of the Option.
ARTICLE II
General Provisions
------------------
2.1. Interpretation. When a reference is made in this Amendment No.
1 to a Section, such reference shall be to a Section of this Amendment No.
1 unless otherwise indicated. The headings contained in this Amendment No.
1 are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Amendment No. 1.
2.2. Counterparts. This Amendment No. 1 may be executed in one or
more counterparts, each of which shall be an original, but all of which
together shall constitute but one and the same instrument.
2.3. Entire Agreement; No Third-Party Beneficiaries. This Amendment
No. 1 and the Original Agreement collectively constitute the entire
agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter of
this Amendment No. 1 and are not intended to confer upon any person, other
than Microsoft and the parties hereto, any rights or remedies hereunder.
2.4. Governing Law. This Amendment No. 1 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.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to be executed as of the date first written above.
XLCONNECT SOLUTIONS, INC.
By: /s/ John E. Royer, Jr.
--------------------------------
Title: Vice President
XLSOURCE, INC. (formerly known as
The Future Now of Arkansas, Inc.)
By: /s/ Eugene E. Marinelli, Jr.
--------------------------------
Title: VP
INTELLIGENT ELECTRONICS, INC.
By: /s/ Eugene E. Marinelli, Jr.
--------------------------------
Title: CFO
