-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H7ckFaFncJv6B/N5WS6mOahqf0mbD16cf0MdjSvitMNWghQkDDTYsFA4/ZhsI5SI XvuJyVnN+IIa96MSwUFgoQ== 0000814430-95-000036.txt : 19951213 0000814430-95-000036.hdr.sgml : 19951213 ACCESSION NUMBER: 0000814430-95-000036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951028 FILED AS OF DATE: 19951212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELLIGENT ELECTRONICS INC CENTRAL INDEX KEY: 0000814430 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 232208404 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15991 FILM NUMBER: 95601072 BUSINESS ADDRESS: STREET 1: 411 EAGLEVIEW BLVD CITY: EXTON STATE: PA ZIP: 19341 BUSINESS PHONE: 6104585500 MAIL ADDRESS: STREET 1: 411 EAGLEVIEW BLVD CITY: EXTON STATE: PA ZIP: 19341 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED October 28, 1995. 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 0-15991 Intelligent Electronics, Inc. (Exact name of registrant as specified in its charter) Pennsylvania 23-2208404 ------------------------------- ------------------ (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 411 Eagleview Boulevard, Exton, PA 19341 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (610) 458-5500 -------------- (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: 34,536,731 shares of Common Stock, par value $0.01 per share were outstanding at December 1, 1995. Intelligent Electronics, Inc. and Subsidiaries INDEX Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets October 28, 1995 and January 28, 1995 3 Consolidated Statements of Operations Three and Nine Months Ended October 28, 1995 and October 29, 1994 4 Consolidated Statements of Cash Flows Nine Months Ended October 28, 1995 5 and October 29, 1994 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 PART I - FINANCIAL INFORMATION FORM 10-Q [CAPTION] INTELLIGENT ELECTRONICS, INC. and Subsidiaries Consolidated Balance Sheets (in thousands, except share-related data) October 28, January 28, 1995 1995 ----------- ----------- (unaudited) Assets Current assets: Cash and cash equivalents $ 28,076 $ 69,027 Marketable securities available for sale 4,520 8,398 Accounts receivable, net 197,931 77,890 Inventory 408,964 364,606 Prepaid expenses and other current assets 5,551 3,973 Deferred income taxes 17,840 11,256 ---------- ---------- Total current assets 662,882 535,150 Property and equipment, net 61,005 36,463 Intangible assets, primarily goodwill, net 156,219 71,693 Investments in affiliates 551 18,692 Other assets 13,527 8,776 ---------- ---------- Total assets $ 894,184 $ 670,774 ========== ========== Liabilities and Shareholders' Equity Current liabilities: Short-term debt $ 515 $ -- Accounts payable 572,929 467,109 Accrued liabilities 59,458 36,181 ---------- ---------- Total current liabilities 632,902 503,290 ---------- ---------- Long-term debt 75,244 -- Other long-term liabilities 2,728 -- Commitments and contingencies -- -- Shareholders' equity: Common stock $.01 par value per share: Authorized 100,000,000 shares, issued and outstanding: 39,910,649 and 39,519,949 shares 399 395 Additional paid-in capital 224,298 221,312 Treasury stock (69,143) (105,677) Retained earnings 27,433 51,758 Unrealized holding gain (loss) on securities and investments 323 (304) ---------- ---------- Total shareholders' equity 183,310 167,484 ---------- ---------- Total liabilities and shareholders' equity $ 894,184 $ 670,774 ========== ==========
See accompanying notes to consolidated financial statements. [CAPTION] INTELLIGENT ELECTRONICS, INC. and Subsidiaries FORM 10-Q Consolidated Statements of Operations (in thousands, except per-share data) (unaudited) Three months ended Nine months ended October 28, October 29, October 28, October 29, 1995 1994 1995 1994 ---------- ---------- ----------- ----------- Revenues $ 944,223 $ 831,122 $ 2,653,276 $ 2,386,710 Cost of goods sold 895,796 805,808 2,540,136 2,287,955 ---------- ---------- ----------- ----------- Gross profit 48,427 25,314 113,140 98,755 ---------- ---------- ----------- ----------- Operating expenses: Selling, general and administrative expenses 55,432 29,274 112,483 63,132 Amortization of intangibles, primarily goodwill 2,132 1,180 4,718 3,540 ---------- ---------- ----------- ----------- Total operating expenses 57,564 30,454 117,201 66,672 ---------- ---------- ----------- ----------- Income (loss) from operations (9,137) (5,140) (4,061) 32,083 Other income (expense): Investment and other income (expense), net (27) 1,394 1,654 3,704 Interest expense (2,502) (225) (3,882) (848) ---------- ---------- ----------- ----------- Income (loss) before provision (benefit) for income taxes and equity in loss of affiliate (11,666) (3,971) (6,289) 34,939 Provision (benefit) for income taxes (3,814) (1,199) (790) 13,618 ---------- ---------- ----------- ----------- Income (loss) before equity in loss of affiliate (7,852) (2,772) (5,499) 21,321 Equity in loss of affiliate (net of tax benefit of $0, $145, $0, and $5,198) (5,681) (248) (9,078) (8,853) ---------- ---------- ----------- ----------- Net income (loss) $ (13,533) $ (3,020) $ (14,577) $ 12,468 ========== ========== =========== =========== Income (loss) per common share $ (0.40) $ (0.09) $ (0.45) $ 0.35 ========== ========== =========== =========== Dividends declared per share $ 0.10 $ 0.10 $ 0.30 $ 0.28 ========== ========== =========== =========== Weighted average number of common shares and share equivalents outstanding: 33,947 34,936 32,213 35,628
See accompanying notes to consolidated financial statements. [CAPTION] INTELLIGENT ELECTRONICS, INC. and Subsidiaries FORM 10-Q Consolidated Statements of Cash Flows (in thousands) (unaudited) Nine months ended ----------------- October 28, October 29, 1995 1994 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (14,577) $ 12,468 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 13,193 7,204 Loss on disposal of fixed assets 7,978 -- Provision for deferred taxes (3,544) (12,990) Provision for losses on trade receivables 1,717 143 Provision for write-down of inventory 5,615 6,185 Equity in loss of affiliate 9,078 14,051 Changes in assets and liabilities excluding effect of business acquisition: Accounts receivable (25,184) (25,841) Inventory (13,608) (217,402) Other current assets 2,456 (5,348) Accounts payable (20,738) 223,873 Accrued liabilities 3,758 9,133 ------------ ----------- Net cash provided by (used for) operating activities (33,856) 11,476 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities -- (31,709) Sales and maturities of marketable securities 4,500 80,714 Acquisition of property and equipment (29,726) (8,646) Investment in and loan to affiliates -- (1,102) Other (351) (764) ------------ ----------- Net cash provided by (used for) investing activities (25,577) 38,493 ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Common stock repurchased -- (14,941) Cash dividends paid (9,417) (9,094) Proceeds from exercise of stock options 2,990 2,118 Proceeds from long-term debt 75,000 -- Repayment of FNOW's bank debt (50,009) -- Reduction in capital lease obligations (82) (128) ------------ ----------- Net cash provided by (used for) financing activities 18,482 (22,045) ------------ ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS (40,951) 27,924 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 69,027 122,249 ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28,076 $ 150,173 ============ ===========
See accompanying notes to consolidated financial statements. Intelligent Electronics, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Dollars in thousands, except share-related data) (unaudited) (1) Basis of Presentation --------------------- The consolidated financial statement information included herein is unaudited but, in the opinion of management, reflects all adjustments, consisting of normal recurring adjustments and changes in accounting estimates, necessary for a fair statement of the results for the interim periods presented. These financial statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended January 28, 1995. (2) Acquisition of Business ----------------------- On August 17, 1995, the Company acquired The Future Now, Inc. ("FNOW"). The Company issued 2,952,282 shares of its Common Stock in exchange for all of the remaining shares (approximately 69%) of FNOW Common Stock not previously owned by the Company. The aggregate purchase price including acquisition- related costs approximated $36.5 million. The acquisition was accounted for using the purchase method and, accordingly, the operating results of FNOW have been included in the consolidated operating results since the date of acquisition. The preliminary allocation of the purchase price to assets acquired and liabilities assumed is as follows: Accounts receivable $ 95,599 Inventory 36,365 Other current assets 3,800 Property and equipment 11,268 Intangible assets, primarily goodwill 89,440 Other long-term assets 8,742 Short-term debt (50,564) Accounts payable (126,558) Accrued liabilities, including acquisition-related accruals (29,898) Long-term debt (286) Other long-term liabilities (1,374) ----------- $ 36,534 =========== Unaudited pro forma results of operations of the Company for the three and nine months ended October 28, 1995 and October 29, 1994, assuming the FNOW acquisition was consummated on January 30, 1994, are as follows: [CAPTION] Three months ended Nine months ended October 28, October 29, October 28, October 29, 1995 1994 1995 1994 ------------ ------------ ------------ ------------ Revenues $ 949,775 $ 912,655 $ 2,769,567 $ 2,585,695 Net loss (16,941) (3,911) (23,369) (13,427) Loss per share $ (0.46) $ (0.10) $ (0.66) $ (0.35)
Pro forma financial information presented above is not necessarily indicative of the results of operations that would have occurred had the acquisition taken place at the beginning of the period presented or of future results of operations of the combined companies. (3) Credit Facilities ----------------- In September 1995, the Company's $170 million financing agreement with a finance company was increased to $270 million. In October 1995, this financing agreement was amended to reclassify $75 million as a term loan with an expiration date of February 3, 1997 and an interest rate of prime plus 1.875%. This term loan is reflected on the Consolidated Balance Sheet as long-term debt. As of October 28, 1995, the Company was not in compliance with certain financial ratio covenants under two of its inventory financing agreements. The Company has obtained waivers of such non-compliance. (4) Common Stock Dividends ---------------------- On October 26, 1995, the Board of Directors of the Company declared a $0.10 per share cash dividend to shareholders of record on November 15, 1995, which was paid on December 1, 1995. On September 1, 1995, the Company paid the $0.10 per share cash dividend which was declared on July 27, 1995. On October 27, 1994, the Board of Directors of the Company declared a $0.10 per share cash dividend to shareholders of record on November 15, 1994, which was paid on December 1, 1994. On September 1, 1994, the Company paid the $0.10 per share cash dividend which was declared on July 28, 1994. (5) Supplemental Cash Flow Information ---------------------------------- During the quarter ended October 28, 1885, the Company issued 2,952,282 shares of its Common Stock aggregating approximately $36,534 for the acquisition of FNOW. Cash payments during the nine-month periods ended October 28, 1995 and October 29, 1994 included interest of $2,046 and $1,019, respectively, and income taxes of $2,633 and $19,910, respectively. (6) Contingencies ------------- In December 1994, several purported class action lawsuits were filed in the United States District Court for the Eastern District of Pennsylvania (Civil Action Nos. 94-3753, 94-CV-7410, 94-CV-7388 and 94-CV-7405) against the Company and certain directors and officers; these lawsuits have been consolidated with a class action lawsuit filed several years ago against the Company, certain directors and officers, and the Company's auditors in the United States District Court for the Eastern District of Pennsylvania (Civil Action No. 92-CV-1905). A purported derivative lawsuit was also filed in December 1994 in the Court of Common Pleas of Philadelphia County (No. 803) against the Company and certain of its directors and officers. These lawsuits allege violations of certain disclosure and related provisions of the federal securities laws and breach of fiduciary duties, including allegations relating to the Company's practices regarding vendor marketing funds, and seeks damages in unspecified amounts as well as other monetary and equitable relief. In addition, the Company is subject to a Securities and Exchange Commission investigation. The Company believes that all such allegations and lawsuits are without merit and intends to defend against them vigorously. While management of the Company, based on its investigation of these matters and consultations with counsel, believes resolution of these matters will not have a material adverse effect on the Company's financial position, the ultimate outcome of these matters cannot presently be determined. In addition, the Company is involved in various litigation and arbitration matters in the ordinary course of business. The Company believes that it has meritorious defenses in and is vigorously defending against all such matters. During fiscal 1994, based in part of the advice of legal counsel, the Company established a reserve of $9 million in respect of all litigation and arbitration matters, some of which has been used to pay legal fees and settle various claims and suits during fiscal 1995. Although the aggregate amount of the claims may exceed the amount of the reserve, management believes that the resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations in any subsequent period. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - --------------------- Revenues increased 14% to $944 million for the quarter ended October 28, 1995 compared to $831 million for the quarter ended October 29, 1994. For the nine months ended October 28, 1995, revenues increased to $2.7 billion compared to $2.4 billion for the nine months ended October 29, 1994. These increases were primarily due to the revenues generated by the Company's branch locations which were acquired in December 1994 and the acquisition of FNOW in August 1995, the addition of new members to the network and industry growth. Gross profit as a percentage of revenues for the quarter ended October 28, 1995 increased to 5.1% compared to 3.1% for the quarter ended October 29, 1994. This increase was due primarily to the higher gross margin percent realized by the FNOW locations which sell directly to end-users and a $5 million inventory- related charge taken in the quarter ended October 29, 1994 compared to a $2 million inventory-related charge in the quarter ended October 28, 1995, offset in part by competitive pricing pressures. For the nine months ended October 29, 1995, gross margin increased to 4.3% from 4.1% when compared to the same period last year. During the nine months ended October 28, 1995, the Company recorded inventory-related charges totaling approximately $12 million. These charges reflected current estimates of inventory obsolescence, damaged merchandise and inventory losses. Management has taken and continues to take actions which it believes will minimize the inventory-related charges in the future, including consolidating warehouses and upgrading existing and implementing new management information systems. These actions have mitigated and are expected to continue to mitigate the systems stresses and outages and their impact on gross margins that the Company experienced during the last half of fiscal 1994. Competitive pressures and their impact on margins are expected to continue in the future. Selling, general and administrative expenses increased to $55.4 million and $112.5 million for the quarter and nine months ended October 28, 1995, respectively, from $29.3 million and $63.1 million, respectively, for the comparable periods last year. During the quarter ended October 28, 1995, the Company incurred charges of approximately $15 million consisting primarily of severance costs in connection with a reduction in the Company's workforce and a charge related to certain management information systems projects reevaluated and realigned following its acquisition of FNOW. Other causes of the increase in selling, general and administrative expenses include: operating costs for the FNOW locations; costs to service the higher volume of revenues, larger network, new programs and expanded vendor and SKU base; and expenses and depreciation relative to the enhancement of existing and implementation of new management information systems. These increases were offset in part by savings following the elimination of certain peripheral ventures in the quarter ended October 29, 1994. It is anticipated that the workforce reductions and other cost cutting measures implemented by the Company will somewhat mitigate the higher selling, general and administrative costs required to support the activities of FNOW. Investment and other income (expense) decreased for both the quarter and nine months ended October 28, 1995 compared to the same periods last year. These decreases can be primarily attributable to the use of available cash for the payment of cash dividends and share repurchases, the acquisition of certain assets of branch locations from FNOW in December 1994, capital expenditures and the repayment of FNOW's bank and finance company debt following the acquisition in August 1995. Interest expense increased for the quarter and nine months ended October 28, 1995 compared to the comparable periods last year primarily as a result of the Company's more frequent use of its available financing arrangements for working capital purposes. The Company's effective tax rate increased to 32.7% for the quarter ended October 28, 1995 compared to 30.2% for the quarter ended October 29, 1994. This increase is primarily due to a change in the Company's effective state tax rate. For the nine months ended October 28, 1995, the effective tax rate decreased to 12.6% compared to 39.0%. This decrease resulted primarily from the effect of non-deductible goodwill on the pre-tax loss, offset by a change in the Company's effective state tax rate. For the quarter and nine months ended October 28, 1995, the Company recognized losses of $5.7 million and $9.1 million, respectively, as its proportionate share of FNOW's net loss, compared to losses of $0.3 million and $8.9 million for the comparable periods last year. Liquidity and Capital Resources - ------------------------------- The Company has financed its growth to date from stock offerings, bank and subordinated borrowings, inventory financing and internally generated funds. The principal uses of its cash have been to fund its accounts receivable and inventory, make acquisitions, repurchase Common Stock and pay cash dividends. During the nine months ended October 28, 1995, the Company's operating activities used $34 million in cash primarily resulting from the repayment of vendor financing related to FNOW's operations. At October 28, 1995, the Company had cash, cash equivalents and marketable securities totaling $32.6 million ($77.3 million at January 28, 1995). Working capital totaled $30.0 million at October 28, 1995 compared to $31.9 million at January 28, 1995. The increase in accounts receivable from January 28, 1995 is primarily due to the acquisition of FNOW in August 1995. The Company expects accounts receivable to continue to increase as it extends credit to its network and end-users and as a result of the acquisition of FNOW. The Company may outsource some of its financing programs, which could slow the growth or reduce the level of accounts receivable. The Company has a $270 million ($75 million of which is a term loan due on February 3, 1997) financing agreement with a finance company. At October 28, 1995, the Company had approximately $56 million available under this facility after considering the borrowing base formula and trade payables outstanding to a vendor related to the finance company. During the quarter ended October 28, 1995, the Company paid the quarterly dividend of $0.10 per share which was declared on July 27, 1995. On October 26, 1995, the Company's Board of Directors declared a dividend of $0.10 per share to shareholders of record on November 15, 1995, which was paid on December 1, 1995. The Company's Board of Directors has authorized the repurchase, in open-market transactions, of up to 13.6 million shares of its Common Stock. As of October 28, 1995, the Company had repurchased approximately 8.3 million shares at a cost of approximately $105.7 million. Approximately 3 million of the repurchased shares were issued as part of the acquisition of FNOW. IE 2000, a strategy designed to transform the Company to a process-driven model, is expected to be completed by the end of fiscal 1996 and is estimated to cost up to $40 million, primarily due to upgrades in its management information systems, of which approximately $26 million was expended through October 28, 1995, including capitalized costs of approximately $15 million. Based on the Company's current level of operations, capital expenditure requirements and the integration of FNOW's operations following the acquisition, management believes that the Company's cash and marketable securities, internally-generated funds and available financing arrangements and opportunities will be sufficient to meet the Company's cash requirements for the current fiscal year and at least through the end of fiscal 1996. Inflation and Seasonality - ------------------------- The Company believes that inflation has not had a material impact on its operations or liquidity to date. The Company's financial performance does not exhibit significant seasonality, although certain computer product lines have displayed a seasonal pattern with peaks occurring near the end of the calendar year. Intelligent Electronics, Inc. and Subsidiaries Part II - Other Information Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 10 Amendment to Addendum to Agreement for Wholesale Financing and Addendum to Addendum to Agreement for Wholesale Financing - Flexible Payment Plan dated October 27, 1995. (b) Reports on Form 8-K. The Company's Report on Form 8-K dated August 17, 1995 relating to the acquisition of The Future Now, Inc. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Intelligent Electronics, Inc. /s/ Thomas J. Coffey ----------------------------------- Thomas J. Coffey Vice President, Chief Financial Officer and Chief Accounting Officer Date: December 12, 1995 EX-10 2 Exhibit 10 "TERM LOAN AMENDMENT" to ADDENDUM TO AGREEMENT TO WHOLESALE FINANCING This Amendment ("Amendment") to the Addendum to Agreement for Wholesale Financing ("AWF") and the Addendum to Addendum to Agreement for Wholesale Financing - Flexible Payment Plan ("FPP") is made as of October 27, 1995 by and between Intelligent Electronics, Inc. ("IE"), CS Computers, Inc., CS Computers of California, Inc., Intelevest Holdings, Inc., Intellicom Solutions, Inc., Intelligent Advanced Systems, Inc., Intelligent Distribution Services, Inc., Intelligent SP, Inc., Intelligent Systems Group, Inc., Intellinet, Ltd., Missing Link Communications, Inc., RND, Inc. and The Future Now, Inc. (each a "Dealer" and collectively, the "Dealers") and IBM Credit Corporation ("IBM Credit"). RECITALS: A. Dealers and IBM Credit have entered into that certain Addendum to Agreement for Wholesale Financing dated as of January 29, 1992, and the Addendum to Addendum to Agreement for Wholesale Financing - Flexible Payment Plan dated January 29, 1992 (both as amended, supplemented or otherwise modified from time to time, the "Existing Agreement"). B. Dealers have requested that IBM Credit extend a term loan of seventy-five million dollars ($75,000,000.00) to Dealers to expire as set forth below. C. The parties have agreed to modify the Existing Agreement as more specifically set forth below, upon and subject to the terms and conditions set forth herein. AGREEMENT NOW THEREFORE, in consideration of the mutual agreements provided for below and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: Section 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Existing Agreement. Section 2. Modifications to the Existing Agreement. The following modifications are made to the Existing Agreement, and shall be effective as of the date of the Term Loan (as defined herein) unless specified otherwise. The date of the Term Loan shall be the date of this Amendment ( the "Loan Date"). Page 1 of 5 (A) The FPP is hereby amended by deleting the Exhibit A thereto in its entirety and substituting, in lieu thereof, the Exhibit A attached hereto. (B) Paragraph 6 of the Letter Agreement dated January 25, 1994 between IBM Credit, IE, et. al. (the "Letter Agreement"), which Letter Agreement amended the then current Addendum to Agreement for Wholesale Financing and the then current Addendum to Addendum to Agreement for Wholesale Financing - Flexible Payment Plan, is hereby amended by inserting immediately following subparagraph (a) of such paragraph the following new subparagraphs (b) and (c): "(b) Term Loan. An advance shall be made hereunder to Dealers on the Loan Date in the principal amount of $75,000,000.00 (the "Term Loan") the proceeds of which shall be used to repay $75,000,000.00 of WCO Advances owed to IBM Credit hereunder. The Term Loan shall constitute a single advance and shall be in the form of a WCO Advance. Except as set forth in this subparagraph, the Term Loan shall be subject to all of the terms and provisions applicable to other WCO Advances. Notwithstanding any other term or provision of this Agreement applicable to WCO Advances, provided no Event of Default has occurred and is continuing: (i) the Term Loan shall accrue a finance charge each month equal to the product of the Term Loan Rate, as defined herein, multiplied by the average daily balance of the outstanding Term Loan for the applicable period, (ii) the principal amount of the Term Loan shall be due and payable the earlier of (x) the date that the Existing Agreement is terminated and (y) February 3, 1997 (the "Loan End Date"), (iii) subject to the following sentence, in the event that Dealers repay any portion of the principal amount of the Term Loan before the Loan End Date, Dealers shall pay to IBM Credit along with such repayment a pre-payment fee of $50,000 ("Pre-Payment Fee"), (iv) if on any date the principal balance of the Term Loan exceeds the Term Loan Maximum Amount, the Term Loan shall be prepaid on such date in an amount equal to such excess, and (v) repayments of the Term Loan may not be reborrowed. Provided, however, if Dealers repay such Term Loan pursuant to subsection (c) below, such Pre-Payment Fee shall be waived by IBM Credit. For purposes of this subparagraph, "Term Loan Rate" shall be the greater of (x) Prime Rate plus 1.875% and (y) the Base Rate plus 1.0%." For purposes of this subparagraph Term Loan Maximum Amount shall mean 80% of Eligible Accounts." "(c) Capital Infusions. At any time prior to the Loan End Date, if Dealers receive proceeds from an equity investment, debt issue or a capital infusion from any source, 100% of such proceeds shall be immediately paid to IBM Credit. Such proceeds shall be applied to reduce the principal outstanding on the Term Loan." Page 2 of 5 (C) Notwithstanding anything in the Existing Agreement, Dealers' total outstanding indebtedness to IBM Credit shall not exceed the Qualifying Collateral. Section 3. Loan Fee. Dealers agree to pay to IBM Credit a fee of $25,000 promptly after the Loan Date. Section 4. Conditions Precedent. The effectiveness of this Amendment is subject to the prior or simultaneous satisfaction by Dealers of the following conditions: (A) IBM Credit shall have received counterparts of this Amendment executed by a duly authorized officer of each Dealer; (B) IBM Credit shall have delivered to Dealers counterparts of this Amendment executed by a duly authorized officer of IBM Credit; Section 5. Representations and Warranties. Dealers make to IBM Credit the following representations and warranties all of which are material and are made to induce IBM Credit to enter into this Amendment. 5.1 Violation of Other Agreements. The execution and delivery of this Amendment does not violate or cause Dealers not to be in compliance with the terms of any agreement to which Dealers are a party. 5.2 Litigation. Except as has been disclosed by Dealers to IBM Credit in writing, there is no litigation, proceeding, investigation or labor dispute pending or threatened against Dealers, which if adversely determined, would materially adversely affect the ability of Dealers to perform their obligations under the Existing Agreement, and the other documents, instruments and agreements executed in connection therewith or pursuant hereto. 5.3 Enforceability of Amendment. This Amendment has been duly authorized, executed and delivered by Dealers and is enforceable against Dealers in accordance with its terms. Section 6. Rights and Remedies. IBM Credit reserves any and all rights and remedies that IBM Credit now has or may have in the future with respect to Dealers including any and all rights and remedies which it may have as a result of Dealers failure to comply with its financial covenants to IBM Credit. Except to the extent specifically waived herein neither this Amendment, any of IBM Credit's actions or IBM Credit's failure to act shall be deemed to be a waiver of any such rights or remedies. Section 7. Ratification of Agreement. Except as specifically amended hereby, all the provisions of the Existing Agreement shall remain in full force and effect. Dealers hereby ratify, confirm and agree that the Existing Agreement, as amended hereby, represents a valid and enforceable obligation of Dealers, and is not subject to any claims, offsets or defenses. Page 3 of 5 Section 8. Governing Law. This Amendment shall be governed by and interpreted in accordance with the laws of the State of Illinois, without reference to the conflict of laws principles thereof. Section 9. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one agreement. IN WITNESS WHEREOF, this Amendment has been executed by the duly authorized officers of the undersigned as of the day and year first above written. Acknowledged and agreed as of the date set forth above IBM Credit Corporation Intelligent Electronics, Inc. By: /s/ C.E. Cordulack By: /s/ Richard D. Sanford -------------------------------- -------------------------------- Name: C. E. Cordulack NAME: Richard D. Sanford Title: Director, Remarketer Financing Title: Chairman of the Board Support Chief Executive Officer Acknowledged and agreed as of the Acknowledged and agreed as of the date set forth above date set forth above CS Computers, Inc. CS Computers of California, Inc. By: /s/ T.J. Coffey By: /s/ T.J. Coffey -------------------------------- -------------------------------- Print Name: T. J. Coffey Print Name: T. J. Coffey Title: V.P., CFO & Assistant Title: V.P., CFO & Assistant Secretary Secretary Acknowledged and agreed as of the Acknowledged and agreed as of the date set forth above date set forth above Intelevest Holdings, Inc. IntelliCom Solutions, Inc. By: /s/ Alan Resneck By: /s/ T.J. Coffey -------------------------------- -------------------------------- Print Name: Alan Resneck Print Name: T. J. Coffey Title: V.P., Treasurer Title: V.P., CFO & Assistant Secretary Page 4 of 5 Acknowledged and agreed as of the Acknowledged and agreed as of the date set forth above date set forth above Intelligent Advanced Systems, Inc. Intelligent Distribution Systems, Inc. By: /s/ T.J. Coffey By: /s/ T.J. Coffey -------------------------------- -------------------------------- Print Name: T. J. Coffey Print Name: T. J. Coffey Title: V.P., CFO & Assistant Title: V.P., CFO & Assistant Secretary Secretary Acknowledged and agreed as of the Acknowledged and agreed as of the date set forth above date set forth above Intelligent SP, Inc. Intelligent Systems Group, Inc. By: /s/ T.J. Coffey By: /s/ T.J. Coffey -------------------------------- -------------------------------- Print Name: T. J. Coffey Print Name: T. J. Coffey Title: V.P., CFO & Assistant Title: V.P., CFO & Assistant Secretary Secretary Acknowledged and agreed as of the Acknowledged and agreed as of the date set forth above date set forth above Intellinet, Ltd. Missing Link Communications, Inc. By: /s/ T.J. Coffey By: /s/ Stephanie Cohen -------------------------------- -------------------------------- Print Name: T. J. Coffey Print Name: Stephanie Cohen Title: V.P., CFO & Assistant Title: V.P., Secretary & Treasurer Secretary Acknowledged and agreed as of the Acknowledged and agreed as of the date set forth above date set forth above RND, Inc. The Future Now, Inc. By: /s/ T.J. Coffey By: /s/ Stephanie Cohen -------------------------------- -------------------------------- Print Name: T. J. Coffey Print Name: Stephanie Cohen Title: V.P., CFO & Assistant Title: V.P., Secretary & Treasurer Secretary Page 5 of 5 Addendum to Agreement for Wholesale Financing Flexible Payment Plan Exhibit A CUSTOMER: Intelligent Electronics, Inc. Commencement Date: January 1, 1992 Effective Date: October 27, 1995 1. FPP Fees, Rates and Repayment and Terms (a) FPP Credit Line: $180.0 Million, plus a $90.0 Million seasonal uplift (i) 100% on IBM Inventory (ii) 80% on Eligible Accounts except for Accounts generated by The Future Now, Inc. (iii) 60% on Eligible Accounts generated by The Future Now, Inc. sales Note: The above calculations for Qualifying Collateral will be reduced by 40% of the Total Amount Financed by IBM Credit Corporation under the Term Lease Master Agreement between Customer and IBM Credit Corporation. (b) Payment due dates: 5th, 15th, and 25th of each month (c) Monthly Service Fee: $4,000.00 (d) Base Period (BP) Repayment Term: - 130 days from date of invoice for product invoices purchased by IBM Credit from the IBM Personal Computer Company and Lexmark International, Inc. (e) BP Non-Fee Period: 45 Days (f) Interest Rate after BP Non-Fee Period ("Base Rate"): - Prime Rate plus 0.875% (g) Working Capital Loan Option (WCO) Terms: 180 Days - WCO Interest Rate: Base Rate (h) Payment Reschedule Option (PRO) Term: 30 Days - PRO Interest Rate: Base Rate (i) Cash Advance Option (CAO) Term: N/A - CAO Interest Rate: N/A (j) Delinquency Fee Rate: Prime Rate Plus 6.5% 2. Definitions The following terms shall have the following respective meanings in this FPP Exhibit. All amounts shall be determined in accordance with generally accepted accounting principles (GAAP). "Current Assets" means, as of any date of determination, the consolidated assets of Dealer that would be classified as current assets in accordance with GAAP. "Current Liabilities" means, as of any date of determination, the consolidated liabilities of the Dealer, that would be classified as current liabilities in accordance with GAAP, including, without limitation, all indebtedness of the Dealer payable on demand or maturing within one year of such date, or renewable at the option of the Dealer for a period of not more than one year from such date, and all serial maturity and periodic or installment payments (including, without limitation, sinking fund payments) on any indebtedness, to the extent such payments are required to be made within one year from such date. "Net Profit After Tax" means, for any period in respect of which the amount thereof shall be determined, the aggregate of the consolidated net income after taxes for such period (taken as a cumulative whole) of the Dealer all as determined in accordance with GAAP. "Revenue" means, for any period in respect of which the amount thereof shall be determined, the aggregate of the consolidated total or gross income or sales for such period (taken as a cumulative whole) of the Dealer as determined in accordance with GAAP. Page 2 of 4 "Tangible Net Worth" means, as of any date of determination, Total Net Worth minus: (a) goodwill, organizational expenses, research and development expenses, software development costs, trademarks, names, trade names, copyrights, patents, patent applications, privileges, franchises, licenses and rights in any thereof, and other similar intangibles (but not including contract rights); (b) all deferred charges or unamortized debt discounts and expenses; and (c) all accounts receivable from officers, directors and stockholders; and (d) all callable/redeemable preferred stock "Total Liabilities" means, as of any date of determination, consolidated liabilities of the Dealer at such date, determined in accordance with GAAP. "Total Net Worth" means, as of any date of determination, the consolidated stockholders' equity of the Dealer as determined in accordance with GAAP. 3. Dealer's Financial Covenants (a) Dealer agrees to maintain the following financial covenants at all times: (i) Total Liabilities to Tangible Net Worth ratio equal to or less than 6.5 to 1, provided that Tangible Net Worth must be greater than zero; (ii) Current Assets to Current Liabilities ratio greater than or equal to 1.05 to 1; (iii) Tangible Net Worth greater than or equal to $60 million; (b) Dealer agrees to maintain the Net Profit After Tax to Revenue (in each case without regard to amounts attributable to discontinued operations) ratio greater than or equal to 0.5%, for each fiscal quarter commencing with the fiscal quarter ending October 28, 1995 and thereafter. Dealer understands and agrees that its failure to maintain the preceding financial covenants shall be an event of Default. Page 3 of 4 4. Tier Periods As used in the definitions of "Tier I Period", "Tier II Period" and "Tier III Period" below, a "period" shall mean an interval of time commencing from the date Dealers deliver to IBM Credit financial statements with respect to a fiscal period and ending on the date Dealers deliver to IBM Credit financial statements with respect to the immediately succeeding fiscal period. As used in the preceding sentence, a "fiscal period" means (i) in the case of each of the first three fiscal quarters of a fiscal year, such fiscal quarter and (ii) in the case of the fourth fiscal quarter of a fiscal year, such fiscal year. Dealers' failure to deliver the above referenced financial reports within the number of days specified in the Agreement will constitute a default under the Agreement. "Tier I Period" means each period with respect to which (i) the ratio of Dealer's Total Liabilities to Tangible Net Worth (the "Leverage Ratio") during the immediately preceding fiscal period is greater than zero and is less than or equal to 5.5 to 1, (ii) the ratio of Dealer's Current Assets to Dealer's Current Liabilities (the "Current Ratio") during such fiscal period is greater than or equal to 1.15 to 1, (iii) Tangible Net Worth during such fiscal period is greater than or equal to $70 million and (iv) the ratio of Dealer's Net Profit After Tax to Dealers Revenue (in each case determined without regard to amounts attributable to discontinued operations) (the "NAT Ratio") as of such fiscal quarter is greater than or equal to 1.0%. "Tier II Period" means each period (x) with respect to which (i) the Leverage Ratio during the immediately preceding fiscal period is greater than zero and is less than or equal to 6.0 to 1, (ii) the Current Ratio during such fiscal period is greater than or equal to 1.10 to 1, (iii) Tangible Net Worth during such fiscal period is greater than or equal to $65 million and (iv) the NAT Ratio as of such fiscal quarter is greater than or equal to 0.5% and (y) which is not a Tier I Period. "Tier III Period" means each period which is not a Tier I Period or a Tier II Period. Page 4 of 4 EX-27 3
5 1,000 9-MOS FEB-3-1996 JAN-30-1995 OCT-28-1995 28,076 4,520 206,368 8,437 408,964 662,882 87,047 26,042 894,184 632,902 0 399 0 0 182,911 894,184 2,653,276 2,653,276 2,540,136 2,540,136 115,484 1,717 3,882 (6,289) (790) (14,577) 0 0 0 (14,577) (0.45) (0.45)
-----END PRIVACY-ENHANCED MESSAGE-----