INTERCOMPANY DEBT AGREEMENT
This Intercompany Debt Agreement (this "Agreement") is made
and entered into as of the 22nd day of October, 1996 by and between Intelligent
Electronics, Inc., a Pennsylvania corporation ("IE"), and XLConnect Solutions,
Inc., a Pennsylvania corporation ("XLC").
BACKGROUND
A. XLC is an indirect wholly-owned subsidiary of IE.
B. IE and XLC have contemporaneously herewith effected an initial
public offering of shares of common stock of XLC (the "Offering").
C. IE and its subsidiaries have available to them a $225 million credit
facility (the "Credit Facility") pursuant to that certain Amended and Restated
Inventory and Working Capital Financing Agreement dated as of April 5, 1996,
among IBM Credit Corporation ("IBMCC"), and IE and its subsidiaries (as amended
from time to time, including without limitation, by Amendment No. 2 (defined
below), (the "Financing Agreement").
D. The Credit Facility is secured by all assets of IE and its
subsidiaries, including XLC and its subsidiaries, and borrowings thereunder are
subject to a collateral-based formula (the "Borrowing Base").
E. Historically, IE has provided to its subsidiaries, including XLC and
its subsidiaries, funds to support liquidity and working capital needs and cash
management, and related services.
F. Immediately preceding the Offering, XLC was indebted to IE in the
amount of $41,208,000 (the "Pre-Offering Intercompany Debt") as a result of IE's
provision of such funds to XLC.
G. In addition, immediately preceding the Offering, availability under
the Credit Facility based on the assets of XLC and its subsidiaries (the "XLC
Borrowing Base") was calculated to be an amount equal to $13,365,000 (the
"Pre-Offering XLC Borrowing Base").
H. Pursuant to Amendment No. 2 to the Intelligent Electronics Amended
and Restated Inventory and Working Capital Financing Agreement dated October 16,
1996, and effective as of the Effective Date (defined below) ("Amendment No.
2"), XLC will have borrowing availability under, and joint and several liability
with IE for up to $20,000,000 in principal amount of, the Credit Facility (the
"Sublimit").
I. As a result of the Offering, IE will receive approximately
$41,208,000 in proceeds, in reduction of the "Pre-Offering Intercompany Debt",
resulting in a deficiency of approximately $0 (the "Initial Remaining
Balance").
J. The parties hereto have agreed to (a) cause the Initial Remaining
Balance to be treated as long term debt, and (b) set forth additional
limitations on, and conditions for, the use of the Credit Facility, all on the
terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
A. Definitions. As used in this Agreement, in addition to the terms
defined in the "Background Section" hereof, the following terms shall have the
following meanings:
1. "Advance" means an IE Advance or an XLC Advance, as the case may
be.
2. "Business Day" means a day on which banks are not required or
permitted to close in New York City, New York.
3. "Effective Date" means the date on which the purchase and sale of
shares of common stock of XLC pursuant to the Offering first occurs.
4. "Interest Period" means each fiscal quarter of XLC, commencing
with the fiscal quarter ending on December 31, 1996.
5. "Indirect IBMCC Liabilities" means any and all indebtedness and
obligations of every kind and description of XLC owing to IBMCC under the
Financing Agreement, other than direct borrowings of XLC under the Sublimit and
other Primary IBMCC Liabilities, and shall include indebtedness or obligations
that are secondary, indirect, absolute or contingent, joint or several, secured
or unsecured, due or to become due, contractual or tortious, arising by
operation of law or otherwise, or now or hereafter existing, whether incurred by
IE or any of its subsidiaries other than XLC and its subsidiaries, and whether
as surety, endorser, guarantor, accommodation party or otherwise, including,
without limitation, principal, interest, fees, including, without limitation,
late fees and expenses, and including attorneys' fees and costs.
6. "IE Maturity Date" means January 1, 1998.
7. "Primary IBMCC Liabilities" means indebtedness and obligations of
every kind and description owing to IBMCC in connection with or as a result of
XLC's borrowing of funds from IBMCC under the Sublimit, including without
limitation, principal, interest, fees and costs (including cost of collection of
amounts owed by XLC that are Primary Obligations), but shall not include
Indirect IBMCC Liabilities.
8. "Remaining Balance" means the Initial Remaining Balance, as
reduced from time to time by payments, prepayments and credits, including
without limitation, as a result of (a) XLC's receipt of additional proceeds
realized from the sale of additional shares of XLC stock in connection with the
exercise of that certain over-allotment option in
-2-
connection with the Offering, (b) the exercise by XLC of its right of setoff
pursuant to Section D hereof, or (c) advances to IE under that certain Services
Agreement dated as of the date hereof, by and between IE and XLC.
9. "XLC Account" means that certain deposit account to be
established by XLC at a financial institution to be selected by XLC.
10. "XLC Lockbox Account" means that certain Lockbox Account to be
established, with the consent of IBMCC, if necessary, at a financial institution
to be selected by XLC.
B. Terms Relating to Intercompany Debt.
1. Repayment of Principal. The Remaining Balance, together with any
accrued, unpaid interest thereon shall be due and payable on the IE Maturity
Date. Prepayment of all or any portion of the Remaining Balance then outstanding
may be made at any time without penalty or premium.
2. Payment of Interest. XLC shall pay to IE interest in arrears on
the Remaining Balance on the last day of each Interest Period. Interest on the
principal portion of the Remaining Balance outstanding from time to time shall
accrue at a per annum rate equal at all times to the rate available to IE for
long term debt under the Financing Agreement, which, as of the date hereof, is
10.75% per annum. Interest shall be calculated on the basis of a 365 day year
for the actual number of days elapsed.
C. Limitation on Use of XLC Borrowing Base.
1. Initial Repayment; Initial Borrowing Availability. Immediately
upon IE's receipt of proceeds of the offering, IE shall pay to IBMCC the net
proceeds of the Offering to reduce IE's borrowings against the XLC Borrowing
Base under the Credit Facility to an amount equal to the Initial Remaining
Balance. As of such date, XLC shall be permitted to borrow under the Sublimit in
an amount equal to the excess, if any, of the XLC Borrowing Base over the
Remaining Balance.
2. Continuing Borrowings Against XLC's Assets. From and after the
Effective Date, IE may continue to borrow the entire amount available under the
Credit Facility, including amounts otherwise available to the Company under the
Sublimit; provided, however, that notwithstanding anything to the contrary
contained in or permitted under the Financing Agreement, IE's borrowings against
the XLC Borrowing Base under the Credit Facility may not at any time exceed an
amount equal to the then applicable Remaining Balance.
3. Upon Expiration of Amendment No. 2. Upon the expiration of
Amendment No. 2, IE shall repay to IBMCC an amount representing the then
outstanding borrowing against the XLC Borrowing Base.
-3-
4. XLC Account and Lockbox Account. In order to facilitate the
calculation of the XLC Borrowing Base, XLC shall establish the XLC Account and
the XLC Lockbox Account and shall maintain such accounts and in accordance with,
and otherwise comply with the provisions of the Services Agreement and the
Financing Agreement with respect to such XLC Account and XLC Lockbox Account.
D. Right of Setoff. If any of the Indirect IBMCC Liabilities shall have
been paid by XLC or any of its subsidiaries, or if IBMCC has realized on the
assets of XLC or any of its subsidiaries on account of Indirect IBMCC
Liabilities, whether by foreclosure, repossession, UCC sale or otherwise, XLC
shall have the right and is specifically authorized hereby to set-off against
and reduce to the then Remaining Balance by any amounts so paid by XLC or any of
its subsidiaries.
E. Rights of Indemnity and Subrogation.
(a) IE shall indemnify, defend and hold harmless XLC and its
subsidiaries, and their respective officers, directors, employees, agents and
representatives, successors and assigns, from, against and with respect to any
and all claims, expenses, demands, losses, costs, fines or liabilities of any
kind (including, without limitation, attorneys' fees and costs) arising from or
in any way related to payments made by XLC under the Finance Agreement in
respect of Indirect IBMCC Liabilities. The provisions of this paragraph shall
survive the termination of this Agreement and the Finance Agreement, and shall
be and remain effective notwithstanding the payment of the Indirect IBMCC
Liabilities, the release of any security interest, lien or encumbrance securing
the Indirect IBMCC Liabilities or any other action IBMCC may have taken in
reliance upon its receipt of such payment.
(b) XLC shall indemnify, defend and hold harmless IE and its
subsidiaries, and their respective officers, directors, employees, agents and
representatives, successors and assigns, from, against and with respect to any
and all claims, expenses, demands, losses, costs, fines or liabilities of any
kind (including, without limitation, attorneys' fees and costs) arising from or
in any way related to payments made by IE under the Finance Agreement in respect
of Primary IBMCC Liabilities. The provisions of this paragraph shall survive the
termination of this Agreement and the Finance Agreement, and shall be and remain
effective notwithstanding the payment of the Primary IBMCC Liabilities, the
release of any security interest, lien or encumbrance securing the Primary IBMCC
Liabilities or any other action IBMCC may have taken in reliance upon its
receipt of such payment.
(c) The provisions of this Section E shall survive any termination
of this Agreement.
F. Term of Agreement. This Agreement shall become effective on the
Effective Date and shall automatically terminate on the later of (a) date on
which the Remaining Balance, together with any accrued, unpaid interest thereon,
has been paid, or (b) the date on
-4-
which XLC no longer has any liability, whether liquidated, contingent or
otherwise, for Indirect IBMCC Liabilities.
G. Miscellaneous.
1. Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned by either
party hereto to any other person except that either party may assign this
Agreement to any of its affiliates.
2. No Third-Party Beneficiaries. Except for the persons entitled to
indemnification pursuant to Section E hereof, each of whom is an intended
third-party beneficiary hereunder, nothing expressed or implied in this
Agreement shall be construed to give any person or entity other than the parties
hereto any legal or equitable rights hereunder.
3. Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof.
4. Amendment. This Agreement may not be amended except by an
instrument signed by the parties hereto.
5. Waivers. Either party hereto may (i) extend the time for the
performance of any of the obligations or other act of the other party or (ii)
waive compliance with any of the agreements contained herein. No waiver of any
term shall be construed as a waiver of the same term, or a waiver of any other
term, of this Agreement. The failure of any party to assert any of its rights
hereunder will not constitute a waiver of any such rights.
6. Severability. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, such
provision shall be deemed severable and all other provisions of this Agreement
shall nevertheless remain in full force and effect.
7. Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
8. Notices. All notices given in connection with this Agreement
shall be in writing. Service of such notices shall be deemed complete (i) if
hand delivered, on the date of delivery, (ii) if by mail, on the fourth business
day following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid, or (iii) if sent by FedEx or
equivalent courier service, on the next business day, or (iv) if by telecopier,
upon receipt by the sender of confirmation of successful transmission. Such
notices shall be addressed to the parties at the following addresses or at such
other address for a party as shall be specified by like notice (except that
notices of change of address shall be effective upon receipt):
-5-
If to IE:
000 Xxxxxxxxx Xxxxxxxxx
Xxxxx, XX 00000
Attention: President
Telecopier: 000-000-0000
If to XLC:
000 Xxxxxxxxx Xxxxxxxxx
Xxxxx, XX 00000
Attention: President
Telecopier: 000-000-0000
9. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the Commonwealth of Pennsylvania, without giving
effect to the principles of conflict of laws thereof.
10. Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, IE and XLC have caused this Intercompany Debt
Agreement to be executed on the date first above written.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Xxxxxxxx X. Xxxx
---------------------------------
Name: Xxxxxxxx X. Xxxx
Title: Secretary
XLCONNECT SOLUTIONS, INC.
By: /s/ Xxxxxxxxx Xxxxx
----------------------------------
Name: Xxxxxxxxx Xxxxx
Title: Chief Financial Officer
-6-
