SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 17, 1995
Intelligent Electronics, Inc.
-------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 0-15991 23-2208404
---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
411 Eagleview Boulevard, Exton PA 19341
--------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (610) 458-5500
Page 1 of 12
Exhibit Index is on page 2
<PAGE>
Item 2. Acquisition or Disposition of Assets.
------------------------------------
On August 17, 1995, the registrant acquired The Future Now, Inc.
("FNOW"), a computer sales and service company, pursuant to an Agreement and
Plan of Merger dated as of April 28, 1995, as amended (the "Merger Agreement"),
by a merger of a wholly-owned subsidiary of the registrant into FNOW.
Under terms of the Merger Agreement, FNOW shareholders received 0.5640 shares
of the registrant's Common Stock in exchange for each share of FNOW Common
Stock. At August 17, 1995, FNOW had 7,578,566 shares of Common Stock
outstanding, of which 2,344,024 shares were owned by the registrant and its
wholly-owned subsidiaries. Based on the conversion ratio, the registrant will
issue 2,952,282 shares of its Common Stock. FNOW also had 583,300 warrants and
options outstanding to purchase its Common Stock (excluding warrants held by the
registrant), which will be converted to options and warrants, based on the same
conversion ratio, to purchase the registrant's Common Stock.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
------------------------------------------------------------------
(a) Financial Statements of Business to be Acquired.
------------------------------------------------
The financial statements for FNOW for the year ended
December 31, 1994 are incorporated herein by reference to pages F-28 through
F-46 in Proxy Statement/Prospectus dated August 7, 1995 filed under Rule 424
under the Securities Act of 1933 in connection with the Registrant's
Registration Statement on Form S-4 (Registration No. 33-61605) ("Proxy
Statement/Prospectus").
The financial statements for FNOW for the six months ended
June 30, 1995 are filed as pages 3 to 11 of this report.
(c) Exhibits.
* 2.1 Agreement and Plan of Merger dated as of April 28, 1995
(Annex A to the Proxy Statement/Prospectus).
* 2.2 Amendment No. 1 to Agreement and Plan of Merger dated as
of July 6, 1995 (Annex A to the Proxy Statement/Prospectus).
* 10.1 Amendment No. 1 to Employment Agreement among FNOW, the
registrant, and Terry L. Theye dated June 21, 1995
(Exhibit 99.2 of Proxy Statement/Prospectus).
* 10.2 Amendment No. 1 to Employment Agreement among FNOW, the
registrant, and Lewis E. Miller dated June 21, 1995
(Exhibit 99.3 of Proxy Statement/Prospectus).
__________________________
* Incorporated by reference.
<PAGE>
<TABLE>
<CAPTION>
ITEM I. FINANCIAL STATEMENTS
THE FUTURE NOW, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994
-------------- --------------
ASSETS
Current Assets
Receivables:
<S> <C> <C>
Trade $ 100,744,854 $ 98,451,119
Due from Intelligent Electronics, Inc. 7,629,930 19,579,190
Other 11,516,844 19,143,376
-------------- --------------
119,891,628 137,173,685
Allowance (2,520,963) (1,437,412)
-------------- --------------
117,370,665 135,736,273
Inventories 39,352,503 44,075,416
Prepayments and Other 712,319 1,565,688
-------------- --------------
Total Current Assets 157,435,487 181,377,377
-------------- --------------
Property and Equipment 15,597,153 14,884,796
Accumulated Depreciation (5,384,268) (3,849,482)
-------------- --------------
Property and Equipment, Net 10,212,885 11,035,314
-------------- --------------
Intangible Assets, Net 31,744,614 32,681,359
Other Assets 7,173,452 4,283,055
-------------- --------------
Total Assets $ 206,566,438 $ 229,377,105
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-Term Debt $ 56,721,810 $ 39,927,060
Current Portion of Long-Term Debt 580,682 687,964
Accounts Payable (net of receivable from Intelligent
Electronics, Inc. for returned product of $5.7 million
and $6.3 million as of June 30, 1995 and December 31,
1994, respectively) 108,226,440 129,893,674
Accrued Expenses 13,962,722 20,964,525
Deferred Income and Other 1,824,196 1,789,909
-------------- --------------
Total Current Liabilities 181,315,850 193,263,132
-------------- --------------
Long-Term Liabilities
Long-Term Debt 354,329 560,275
Other 2,003,320 2,264,284
-------------- --------------
Total Long-Term Liabilities 2,357,649 2,824,559
-------------- --------------
<PAGE>
Shareholders' Equity
Common Stock-no par value-20,000,000 shares authorized;
7,578,566 shares issued and outstanding in 1995 and
1994 58,353,808 58,215,267
Accumulated Deficit (35,460,869) (24,925,853)
-------------- --------------
Total Shareholders' Equity 22,892,939 33,289,414
-------------- --------------
Total Liabilities and Shareholders' Equity $ 206,566,438 $ 229,377,105
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION> THE FUTURE NOW, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
Revenue
<S> <C> <C> <C> <C>
Sales-Equipment and Supplies $ 138,750,448 $ 177,496,149 $ 263,644,524 $ 345,301,972
Sales-Software 8,798,748 13,490,572 20,395,360 27,609,323
Professional Services 17,261,563 13,596,130 32,765,556 25,359,150
------------- ------------- ------------- -------------
164,810,759 204,582,851 316,805,440 398,270,445
Cost of Sales
Equipment and Supplies (including
purchases of approximately
$106,938,000 and $203,683,000 in the
three and six months ended June 30,
1995, respectively, and $147,727,000 and
$268,105,000 in the three and six
months ended June 30, 1994, respectively
from Intelligent Electronics, Inc.) 130,075,685 168,002,027 244,124,623 319,398,674
Other (including purchases of
approximately $5,628,000 and
$10,720,000 in the three and six months
ended June 30, 1995, respectively, and
$7,775,000 and $14,111,000 in the three and
six months ended June 30, 1994, respectively
from Intelligent Electronics, Inc.) 8,608,238 13,164,658 19,582,777 26,453,979
------------- ------------- ------------- -------------
138,683,923 181,166,685 63,707,400 345,852,653
------------- ------------- ------------- -------------
Gross Profit 26,126,836 23,416,166 53,098,040 52,417,792
------------- ------------- ------------- -------------
Operating Expenses
Selling 5,908,286 9,207,987 11,321,013 17,550,468
Professional Services 11,328,267 8,986,177 21,750,904 16,072,786
Warehouse 535,067 721,340 1,051,794 1,595,728
General and Administrative 12,289,919 11,757,110 21,654,593 21,187,428
Restructuring 3,732,000 33,000,000 3,732,000 33,000,000
Goodwill Impairment - 6,984,642 - 6,984,642
------------- ------------- ------------- -------------
33,793,539 70,657,256 59,510,304 96,391,052
------------- ------------- ------------- -------------
Loss from Operations (7,666,703) (47,241,090) (6,412,264) (43,973,260)
Interest Expense 2,302,482 2,226,675 4,072,752 3,727,706
------------- ------------- ------------- -------------
Loss Before Income Taxes (9,969,185) (49,467,765) (10,485,016) (47,700,966)
Income Taxes (Benefit) - (3,110,411) 50,000 (2,367,411)
------------- ------------- ------------- -------------
Net Loss $ (9,969,185) $ (46,357,354) $ (10,535,016) $ (45,333,555)
============= ============= ============= =============
<PAGE>
Weighted Average Shares Outstanding 7,578,566 7,555,100 7,578,566 7,558,861
============= ============= ============= =============
Loss Per Share $ (1.32) $ (6.14) $ (1.39) $ (6.00)
============= ============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
THE FUTURE NOW, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Retained
Earnings
Common Stock (Accumulated
Shares Amount Deficit)
--------- ------------ -------------
<S> <C> <C> <C>
Balance- December 31, 1993 7,473,666 $ 57,697,549 $ 20,061,699
Restricted Stock Compensation Earned 40,000 222,639 -
Exercise of Warrants:
Intelligent Electronics, Inc. 24,200 99,468 -
Other 41,200 203,041 -
Treasury Stock (500) (7,430) -
Net Loss - - (44,987,552)
--------- ------------ -------------
Balance- December 31, 1994 7,578,566 58,215,267 (24,925,853)
Restricted Stock Compensation Earned - 138,541 -
Net Loss - - (10,535,016)
--------- ------------ -------------
Balance- June 30, 1995 7,578,566 $ 58,353,808 $ (35,460,869)
========= ============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
THE FUTURE NOW, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
1995 1994
--------------- ---------------
Cash Flows from Operating Activities
<S> <C> <C>
Receipts from Customers $ 309,644,160 $ 421,081,100
Payments to Suppliers and Employees (325,314,331) (415,603,857)
Income Taxes (Paid) Refunded, Net (146,635) 1,183,299
Interest Paid (4,594,568) (3,174,752)
--------------- ---------------
Net Cash Provided (Used) by Operating Activities (20,411,374) 3,485,790
--------------- ---------------
Cash Flows from Investing Activities
Acquisition of Businesses, Net of Cash Acquired. - (636,999)
Purchases of Property and Equipment, Net (1,051,852) (1,026,920)
Proceeds from Sale of Branches to Intelligent Electronics, Inc. 4,981,704 -
--------------- ---------------
Net Cash Provided (Used) by Investing Activities 3,929,852 (1,663,919)
--------------- ---------------
Cash Flows from Financing Activities
Borrowings (Repayments), Net 16,481,522 (1,900,150)
Proceeds from Exercise of Stock Options - 78,279
--------------- ---------------
Net Cash Provided (Used) by Financing Activities 16,481,522 (1,821,871)
--------------- ---------------
Net Change in Cash - -
Cash - beginning of period - -
--------------- ---------------
Cash - end of period $ - $ -
=============== ===============
Reconciliation of Net Loss to Net Cash Provided
(Used) by Operating Activities
Net Loss $ (10,535,016) $ (45,333,555)
Adjustments to Reconcile Net Loss to Net Cash Provided
(Used) by Operating Activities:
Restructuring 3,732,000 33,000,000
Goodwill Impairment - 6,984,642
Depreciation and Amortization 2,821,335 2,258,700
Provision for Loss on Inventories 450,000 2,000,000
Provision for Loss on Receivables 2,500,436 1,348,033
Changes in Operating Assets and Liabilities (Net of Effects
of Acquisitions, Restructuring and Proceeds from Sale of
Branches to Intelligent Electronics, Inc.):
Decrease (Increase) in:
Receivables 10,883,468 21,573,917
Inventories 540,913 (18,211,976)
Prepayments and Other 991,910 1,443,297
Other Assets (2,900,706) 103,858
Increase (Decrease) in:
Accounts Payable and Accrued Expenses (28,930,001) (2,244,388)
Deferred Income and Other 34,287 563,262
--------------- ---------------
Net Cash Provided (Used) by Operating Activities $ (20,411,374) $ 3,485,790
=============== ===============
<PAGE>
Supplemental Schedule of Non-Cash Investing and Financing Activities
Fair Value of Assets of Companies Acquired $ - $ 636,999
Cash Paid - (636,999)
--------------- ---------------
Liabilities Assumed $ - $ -
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
THE FUTURE NOW, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1- Basis of Presentation
The accompanying unaudited consolidated financial statements of The
Future Now, Inc. ("the Company") include all adjustments, which are of a
normal recurring nature, necessary to present fairly the Company's results of
operations, financial position and cash flows. As permitted by the rules and
regulations of the Securities and Exchange Commission, the consolidated
financial statements do not include all of the accounting information
normally included with financial statements prepared in accordance with
generally accepted accounting principles. Accordingly, these consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31, 1994
included in the Company's Annual Report on Form 10-K. Results for the three
and six months ended June 30, 1995 are not necessarily indicative of the
results for any other interim period or for the year as a whole.
Note 2- Significant Transactions
Significant transactions affecting the Company and its consolidated
financial statements include the following:
* Signing on April 28, 1995 of an Agreement and Plan of Merger
between the Company and Intelligent Electronics, Inc. ("IE")
(a related party) whereby IE will acquire the outstanding
stock of the Company (see Note 8);
* Sale on December 30, 1994 of certain branch assets to IE (see
Note 3); and
* Restructuring actions in 1995 and 1994 (See Note 4).
Note 3- Sale of Branches to Intelligent Electronics, Inc.
On December 30, 1994, the Company sold certain assets of five branch
locations to IE for approximately $34.2 million in cash received on December
30, 1994 and $5.0 million received January 9, 1995. The cash was used to
reduce the Company's debt. The five branch locations serve the Boston, New
York City, Orange County, San Francisco and Baltimore/Washington, D.C.
metropolitan areas. The Boston, New York City, Washington, D.C. and San
Francisco locations were acquired from IE in July 1992.
The transaction includes a Management Agreement which provides for the
Company to manage these facilities for IE and retain its employees at these
locations. All direct expenses of these branches are paid by IE and certain
indirect costs are reimbursed each month by IE in the amount of $20,000 per
branch ($100,000 per month in total). Additionally, the Management Agreement
contains an incentive compensation arrangement whereby IE shall pay incentive
compensation to the Company based upon the operating results of the branches.
During the three and six months ended June 30, 1995, no incentive
compensation was earned by the Company.
The following table sets forth for the periods indicated the revenue
and income from operations of the branches sold reflected in the Company's
Consolidated Statements of Operations (in thousands):
<PAGE>
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1994 1994
-------------- --------------
<S> <C> <C>
Revenue $ 51,455 $ 95,262
Income from Operations Before Allocation
of Corporate Overhead 239 454
</TABLE>
Note 4- Restructuring Charges
Effective second quarter 1994, in connection with the Company's
decision to use IE's CustomerCare Direct program, the Company adopted a
definitive plan for a company-wide restructuring, including the closing and
consolidation of duplicate facilities in areas where the Company has made
acquisitions. Under the CustomerCare Direct program, IE configures product
sold by the Company and ships it directly to the Company's clients, thereby
eliminating the Company's need to carry that inventory. In connection with
the restructuring in 1994, the Company consolidated or closed offices in six
geographic areas, including the consolidation of the Company's three Southern
California offices into one operation, and its two facilities into one in
each of the New York, Northeast Ohio and Dallas markets. The Company took
these actions to integrate and consolidate the 15 companies it has acquired
over the past six years. As a part of this restructuring, the Company is
centralizing certain of its operations and has reorganized management to
continue its emphasis on higher margin professional services. Professional
services will continue to be the principal focus of the Company's strategy.
The Company's consolidation plan has been delayed because of certain
implementation delays and difficulties of CustomerCare Direct. Accordingly,
as of June 30, 1995, five branch warehouses remained in operation. The
Company had planned to close or consolidate all of its branch warehouses,
other than its Akron, Ohio facility, by June 30, 1995 as the CustomerCare
Direct program, which decreases the Company's need to maintain inventory, is
fully implemented.
The restructuring actions resulted in a charge of $33.0 million
against 1994 second quarter results and $3.7 million against 1995 second
quarter results. The 1995 charge, recorded as an addition to the reserve for
loss on disposition of inventory, was made necessary by a slower than
anticipated implementation of the CustomerCare Direct program, a slower than
anticipated sell-through of restructured inventory and a decline in the
estimated recoverable value of the remaining restructured inventory.
During 1995, the Company consolidated one branch warehouse and
continued the consolidation process in the remaining branch warehouses
utilizing the restructuring reserves in the following amounts:
<PAGE>
<TABLE>
<CAPTION>
Reclass- Utilized to
ification Offset
to Other Expenses in Payment of
Reserve Balance Statement Other Additional Reserve
December Sheet of Restructur- Restructur- June 30,
31, 1994 Accounts Operations ing Costs Transfers ing Charge 1995
-------- -------- ---------- ----------- --------- ----------- --------
(in millions)
Provision for loss on
disposition of
<S> <C> <C> <C> <S> <C> <C> <C>
inventory $ 6.2 (1.5) (3.0) - .7 3.7 6.1
Closure of warehouse
facilities 4.0 - (.6) - .1 - 3.5
Personnel separation
costs 1.4 (.6) (.2) .1 - .7
Other 1.2 - - (.3) (.9) - -
-------- -------- ---------- ----------- --------- ----------- --------
Total $ 12.8 (1.5) (4.2) (.5) - 3.7 10.3
======== ======== ========== =========== ========= =========== ========
</TABLE>
Inventory reserves of $1.5 million reclassified to other balance
sheet accounts were principally transferred to reduce the carrying value of
assets received in exchange for certain of the Company's inventories.
Inventory reserves of $3.0 million were utilized to offset costs related to
the bulk disposal of inventories. As discussed above, a charge of $3.7
million was taken in the second quarter of 1995 to provide additional
provision for loss on disposal of inventory.
Reserves for closure of warehouse facilities of $.6 million were
utilized principally to offset costs related to minimum lease payments, net
of sublease receipts, from each warehouse closure date. Reserves of $.1
million were transferred to the reserve for warehouse facilities from other
based upon management's estimation of levels of reserves needed to complete
the closure of warehouse facilities and the determination that fewer reserves
were needed for other restructuring costs.
Reserves for personnel separation costs of $.6 million were utilized
principally to offset personnel separation and other transition costs
associated with terminated warehouse and administrative employees.
Approximately 65 warehouse and administrative employees have been terminated
during the six months ended June 30, 1995. Reserves of $.2 million were
utilized to offset other personnel separation costs that would not have been
incurred by the Company absent its restructuring actions.
Reserves for other costs of $.3 million were utilized to offset other
restructuring charges that would not have been incurred by the Company absent
its restructuring actions.
As a result of the Company's quarterly review of the restructuring
reserves, management determined the remaining reserves for other costs were
not expected to be required to complete the original restructuring plan.
Accordingly, the remaining $.9 million reserve for other costs was
transferred to other reserves based upon management's estimation of levels of
reserves required as follows: $.7 million to inventory reserves, $.1 million
to reserves for closure of warehouse facilities and $.1 million to reserves
for personnel separation costs.
<PAGE>
In addition, the Company expects future operating costs to be incurred
related to the restructuring that are not included in the restructuring
charge. These costs include anticipated enhancements to the management
information system of $1.6 million.
Management believes that the restructuring actions being taken will
enhance the Company's ability to compete effectively through its professional
services oriented business strategy. However, competition in this industry
is significant and the Company's ability to compete is dependent upon a
number of factors which may be beyond the Company's control, such as general
economic conditions, hardware and software margins, demand for professional
services and various other industry pressures. A significant deterioration
in anticipated levels of business or further declines in margin could require
the Company to make additional adjustments to its expense structure,
including additional restructuring actions.
Note 5- Inventories
Inventories consist of items held for resale and for rental and are
composed of the following:
June 30 December 31,
1995 1994
------------- -------------
Equipment Held for Resale $ 46,037,785 $ 50,161,456
Rental Equipment 1,061,718 1,424,357
------------- -------------
Sub-Total 47,099,503 51,585,813
Allowance (7,747,000) (7,510,397)
------------- -------------
Total $ 39,352,503 $ 44,075,41
============= =============
Note 6- Debt and Financing Agreements
As of June 30, 1995, the Company was party to a Secured Credit
Agreement ("Agreement") with certain banks. This revolving credit facility
permits borrowing of up to $70.0 million ($63.0 million as of August 1, 1995
and thereafter) with interest rates varying based on the prime rate (9.0% at
June 30, 1995) offered by the agent plus 1% and is payable in full in
September 1996. Advances against this Agreement are based on the Company's
trade receivables and are subject to eligibility requirements contained
within the Agreement. The outstanding balance on this Agreement as of June
30, 1995 was $56.7 million with an eligibility of $62.3 million. Collateral
pledged for this Agreement includes all of the Company's assets with the
exception of inventory, which is pledged as security to the third party
inventory finance companies. The provisions of the facility contain various
restrictive covenants with respect to the maintenance of minimum tangible net
worth, restrictions on fixed asset additions, restrictions on fixed charges,
maintenance of a minimum current ratio, and restrictions on certain
additional indebtedness. As a result of the restructuring charge during the
second quarter of 1994, the Company failed to comply with several of the
financial covenants required under the Agreement.
Effective July 8, 1994, an initial amendment to the Agreement waived
until September 30, 1994 any default which occurred on June 30, 1994 as a
result of the Company's failure to comply with these covenants. The Company
also failed to comply with certain of these covenants as of September 30,
1994, December 31, 1994, March 31, 1995 and June 30, 1995. Subsequent
amendments extended the waiver until August 21, 1995. The most recent waiver
reduced the maximum borrowings from $70.0 million to $63.0 million effective
August 1, 1995. The Company must complete its merger with IE, secure new
financing, or obtain a further waiver of these covenants prior to August 21,
1995. The Company expects that there will no longer be a need for this
financing when the merger with IE described in Note 8 is consummated.
The Company has agreements with third parties principally to finance
certain of its inventory purchases from IE as of June 30, 1995. Under these
credit agreements, as of June 30, 1995, the Company may purchase up to $85.0
million of inventories with extended payment terms. Such agreements
generally are secured by inventories and, in certain instances, the proceeds
related thereto, and may be terminated immediately upon default by the
Company or otherwise within 60 to 90 days by either the third party or the
Company. Further, to maintain this level of third party inventory financing,
IE guarantees up to $20.0 million on one of these agreements. One of these
agreements contains various restrictive covenants with respect to the
maintenance of a minimum level of tangible net worth and subordinated debt,
maintenance of a minimum current ratio, maintenance of a minimum ratio of
debt to tangible net worth and a prohibition against the payment of
dividends. The Company failed to comply with certain of these covenants as
of June 30, 1994, September 30, 1994, December 31, 1994, March 31, 1995 and
June 30, 1995. The Company has obtained amendments to the agreement waiving
the attainment of the financial objectives until August 21, 1995. The
Company must complete its merger with IE, renegotiate and reset these
covenants or obtain a further waiver of these covenants prior to August 21,
1995. The amounts outstanding under these agreements are included in
accounts payable and totaled $77.8 million as of June 30, 1995. If principal
payments on these payables are made on a timely basis, no interest accrues.
Interest incurred relating to these third party finance companies was as
follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1995 1994 1995 1994
---- ---- ---- ----
Interest Incurred $ 787,000 $ 224,000 $ 1,235,000 $ 340,000
Note 7- Income Taxes
The provision for income taxes for the six months ended June 30, 1995
consists primarily of state and local income tax. The Company has remaining
net operating losses approximating $17.2 million at June 30, 1995 for which
no financial statement benefit has been recognized and which are available to
offset future Federal taxable income, if any, through 2009.
Note 8- Subsequent Event and Other Related Party Transactions
IE is the Company's largest shareholder with approximately 31.1% of
the outstanding stock.
On April 28, 1995, the Company and IE signed an Agreement and Plan of
Merger ("Agreement") whereby IE will acquire the outstanding stock of the
Company. The acquisition will be a stock-for-stock, tax-free transaction.
Based on the exchange ratio set forth in the Agreement, Company shareholders
will receive .6588 shares of IE stock in exchange for each share of the
Company stock. The Agreement may, however, be terminated by IE if the
average closing price (defined as the average of the closing price per share
of IE's common stock, as reported by the NASDAQ Stock Market, for the 20
trading days ending on the second trading day prior to the closing date) of
IE common stock exceeds $11.00. If IE elects to terminate the Agreement
under this provision, the Company has the right to override any such
termination election by agreeing the conversion number of .6588 will be
changed to the quotient that results from dividing $7.2468 by the average
closing price of IE common stock. The Agreement may also be terminated by
the Company if the average closing price of IE common stock is less than
$9.00. If the Company elects to terminate the Agreement under this
provision, IE has the right to override any such termination election by
agreeing the conversion number of .6588 will be changed to the quotient that
results from dividing $5.9292 by the average closing price of IE common
stock. As of August 4, 1995, the average closing price would have been
$13.5563.
The transaction is subject to the satisfaction of customary closing
conditions, including approval of the acquisition by shareholders of the
Company. The Company has circulated its proxy statement dated August 7, 1995
and has scheduled its Special Meeting of Shareholders for August 17, 1995 at
which the shareholders will be asked to vote on the proposed merger. If the
shareholders approve the merger, it is anticipated that closing of the
transaction will take place on or before August 21, 1995.
On December 30, 1994, the Company sold certain assets of five branch
locations to IE (see Note 3). Under its Management Agreement with IE, the
Company is reimbursed for certain indirect costs of managing the five
branches for IE at a rate of $20,000 per month per branch. In the three and
six months ended June 30, 1995, the Company was reimbursed in the amounts of
$300,000 and $600,000, respectively, which are recorded as reductions in
general and administrative expenses.
Payments by the Company for purchases of inventory from IE for the
three and six months ended June 30, 1995 aggregated approximately $110
million and $219 million, respectively and for the three and six months ended
June 30, 1994 aggregated approximately $154 million and $299 million,
respectively.
IE serves as guarantor of up to $20.0 million of amounts owed by the
Company to an inventory finance company (see Note 6).
The Company uses the services of a law firm and of another professional
services firm, in each of which a director is a principal. Fees paid to
these firms for the three and six months ended June 30, 1995 and 1994 were
not material to the Consolidated Financial Statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Intelligent Electronics, Inc.
Date: September 1, 1995 /s/ Thomas J. Coffey
--------------------------------
Vice President and
Chief Financial Officer
