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.
(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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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 xxxx 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. Xxxxx & Sons Incorporated, Xxxxxxxxxx Securities and
Xxxxxx
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Xxxxxxxxxx Xxxxx 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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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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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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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 0000
Xxx) 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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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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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.
000 Xxxxxxxxx Xxxxxxxxx
Xxxxx, XX 00000
Attn: President
Telecopy No.: (000) 000-0000
If to XLC: XLConnect Solutions, Inc.
000 Xxxxxxxxx Xxxxxxxxx
Xxxxx, XX 00000
Attn: President
Telecopy No.: (000) 000-0000
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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/ Xxxxxxxx X. Xxxx
------------------------
Name: Xxxxxxxx X. Xxxx
Title: Secretary
XLCONNECT SOLUTIONS, INC.
By: /s/ Xxxxxxxxx Xxxxx
------------------------
Name: Xxxxxxxxx Xxxxx
Title: Chief Financial Officer
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SCHEDULE A
LITIGATION
A-1
