-----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, FFxsF+bRHwfCaRF54VIaEvlqoUJ6CZIoNagtmZjhAWRgUNFn1Xs+EolA5nVLxi7D uIrVkw2LxhtR598KwZbPaA== 0000814430-97-000003.txt : 19970103 0000814430-97-000003.hdr.sgml : 19970103 ACCESSION NUMBER: 0000814430-97-000003 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970102 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: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15971 FILM NUMBER: 97500463 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 S-3/A 1 As Filed with the Securities and Exchange Commission on January 2, 1997 Registration No. 333-15971 =========================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _______________ AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 _______________ INTELLIGENT ELECTRONICS, INC. (Exact Name of Registrant as Specified in Charter) PENNSYLVANIA 23-2208404 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Identification Organization) Number) 411 Eagleview Boulevard Exton, Pennsylvania 19341 (610) 458-5500 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Richard D. Sanford Chairman of the Board Intelligent Electronics, Inc. 411 Eagleview Boulevard Exton, Pennsylvania 19341 (610) 458-5500 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) _______________ WITH A COPY TO: Barry M. Abelson, Esq. Pepper, Hamilton & Scheetz 3000 Two Logan Square Philadelphia, PA 19103-2799 (215) 981-4000 _______________ Approximate date of commencement of proposed sale to public: As soon as practicable after the effectiveness of this Registration Statement. _______________ If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. /__/ If any of the securities registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. /_X_/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. /__/ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. /__/ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. /__/ THIS REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1993 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. SUBJECT TO COMPLETION DATED JANUARY 2, 1997 PROSPECTUS INTELLIGENT ELECTRONICS, INC. COMMON STOCK This Prospectus relates to the sale by Capital Ventures International (the "Selling Shareholder"), a shareholder of Intelligent Electronics, Inc. (the "Company"), of up to 6,000,000 shares (the "Offered Shares") of the Company's common stock, par value $.01 per share (the "Common Stock"), which may be issued by the Company (i) upon conversion by the Selling Shareholder of Series B Convertible Preferred Stock of the Company (the "Preferred Stock") or otherwise issuable to the Selling Shareholder pursuant to the Statement with Respect to Shares in respect of the Preferred Stock, and (ii) upon the exercise by the Selling Shareholder of warrants to purchase shares of Common Stock (the "Warrants") or otherwise issuable to the Selling Shareholder pursuant to the Warrants. The issuance of shares of Common Stock upon the conversion of the Preferred Stock and the exercise of the Warrants, or otherwise issuable to the Selling Shareholder pursuant to the Statement with Respect to Shares in respect of the Preferred Stock or the Warrants, is not covered by this Prospectus. Rather, this Prospectus covers the sale of the Offered Shares of Common Stock by the Selling Shareholder. The Company will not receive any proceeds from the conversion of the Preferred Stock or from the sale of the Offered Shares of Common Stock by the Selling Shareholder. Moreover, since there is no assurance that the Warrants will be exercised, there is no assurance that the Company will receive any proceeds thereunder. "See Selling Shareholder." No underwriter is initially being utilized in connection with this offering. The Company will pay all expenses incurred in connection with this offering other than underwriting fees, discounts and commissions. See "Plan of Distribution." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospective Purchasers Should Consider The Risks Set Forth Under "Risk Factors" Commencing On Page 4. The sale, transfer and/or distribution of the Offered Shares of Common Stock by the Selling Shareholder, or by its pledgees, donees, transferees or other successors in interest, may be effected from time to time through brokers, agents, dealers or underwriters in one or more transactions (which may involve crosses and principal trades, including block transactions), in special offerings, negotiated transactions, exchange distributions or secondary distributions, or in connection with short-sale transactions, or otherwise, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. In addition, any Offered Shares of Common Stock that qualify for sale pursuant to Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), may be sold under Rule 144 rather than pursuant to this Prospectus. The Selling Shareholder may pay commissions or other compensation to broker-dealers in connection with such sales, which may be in excess of customary commissions charged for Nasdaq National Market transactions. See "Plan of Distribution." The Common Stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market ("Nasdaq") under the symbol "INEL". On December 31, 1996, the last sale price of Common Stock, as reported by the Nasdaq National Market was $8.00 per share. The date of this Prospectus is , 1997. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. AVAILABLE INFORMATION The Company has filed a Registration Statement on Form S-3 with the Securities and Exchange Commission (the "Commission") relating to the shares of Common Stock offered hereby (the "Registration Statement"). This Prospectus does not contain all the information set forth in the Registration Statement, certain portions of which have been omitted pursuant to the rules and regulations of the Commission. Reference is hereby made to the Registration Statement and to the exhibits relating thereto for further information with respect to the Company and the securities offered hereby. Any statements contained herein concerning the provisions of any document filed as an exhibit to the Registration Statement or otherwise filed with the Commission are not necessarily complete, and in each instance reference is made to the copy of such document so filed. Each such statement shall be qualified in its entirety by such reference. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Commission. Proxy statements concerning the Company, reports, and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commissions' regional offices in New York (7 World Trade Center, Suite 1300, New York, New York 10048) and Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511). Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, DC 20549 at prescribed rates. In addition, registration statements and certain other filings made with the Commission through its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly available through the Commission's site on the Internet's World Wide Web, located at http://www.sec.gov. This Registration Statement, including all exhibits thereto, has been filed with the Commission through EDGAR. The Common Stock trades on Nasdaq under the symbol "INEL". Reports, proxy statements and other information concerning the Company may be inspected at the offices of The Nasdaq Stock Market located at 1735 K Street, NW, Washington, DC 20006-1500. The Company will furnish, without charge, to any person to whom a copy of this Prospectus is delivered, upon such person's written or oral request, a copy of any and all of the documents that have been incorporated by reference in this Prospectus (not including exhibits to such documents, unless such exhibits are specifically incorporated by reference into such documents). The Company will also furnish, without a charge, to any such person on oral or written request, a copy of the Company's most recent Annual Report to Shareholders. Any such request should be directed to the Secretary, Intelligent Electronics, Inc., 411 Eagleview Boulevard, Exton, PA 19341 (phone number: (610) 458-5500). INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission are incorporated in this Prospectus by reference: (a) The Company's Annual Report on Form 10-K and Amendment No. 1 to the Company's Annual Report on Form 10-K/A for the fiscal year ended February 3, 1996. (b) The Company's Quarterly Reports on Form 10-Q for the quarters ended May 4, 1996, August 3, 1996 and November 2, 1996. (c) The Company's Current Reports on Form 8-K dated March 8, 1996 and October 16, 1996. (d) The description of the Common Stock contained in the Company's Registration Statement on Form 8-A dated June 24, 1987, including any amendments or reports filed for the purpose of updating such description. (e) In addition, all documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering shall be deemed to be incorporated by reference herein from their respective dates of filing. All financial statements included in the above-referenced filings should be read in conjunction with the Risk Factors section of this Prospectus. Any statements contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is incorporated or deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. THE COMPANY Intelligent Electronics, Inc. (together with its subsidiaries, the "Company") provides information technology products, services and solutions to network integrators and resellers (the "Network"), and to large and small corporate customers, educational institutions and governmental agencies in the United States. The principal products sold, installed and serviced by the Company include microcomputers, workstations, local and wide area network systems, computer software and peripherals and telecommunications equipment. As of October 31, 1996, the Network comprised more than 3,000 locations. The Company was founded in 1982 and is a Pennsylvania corporation. In March 1984, the Company commenced the wholesale distribution of microcomputers (the "Indirect Business"). In August 1995, the Company exchanged shares of its Common Stock for all of the remaining shares (approximately 69%) of The Future Now, Inc. ("FNOW"), not previously owned by the Company. The merger with FNOW, a computer sales and services company, expanded the Company's offerings through the acquisition of a direct hardware sales organization (the "Direct Business") and a professional services organization providing a wide range of sophisticated customer support and consulting services. In October 1996, in an initial public offering of its common stock, XLConnect Solutions, Inc. (NASDAQ: XLCT), a subsidiary of the Company ("XLConnect"), raised approximately $45.3 million (after deducting underwriting discounts and offering expenses) (the "XLConnect IPO"). After the XLConnect IPO, XLConnect remained an 80%-owned subsidiary of the Company. XLConnect is composed of the businesses of the professional services organization ("PSO") of FNOW and IntelliCom Solutions, Inc. ("IntelliCom"). IntelliCom was founded by the Company in 1994 as a wholly-owned subsidiary of the Company. XLConnect is a professional services organization providing enterprise-wide total connectivity solutions to clients with complex computing and communications requirements. The Company's principal executive offices are located at 411 Eagleview Boulevard, Exton, Pennsylvania, 19341, telephone (610) 458-5500. RISK FACTORS In addition to the other information contained in this Prospectus, potential risks and uncertainties include, without limitation: the impact of economic conditions generally and in the industry for microcomputer products and services; the potential decline in the level of demand for the Company's products and services; the potential termination or non-renewal of a supply agreement with a major vendor; continued competitive and pricing pressures in the industry; product supply shortages; open sourcing of products from vendors; rapid product improvement and technological change, short product life cycles and resulting obsolescence risks; legal proceedings and the risk of unavailability of adequate capital or financing. These and other potential risks and uncertainties are more specifically discussed below. Dependence on Key Vendors Products from four vendors comprised the following percentages of the Company's revenues during the years ended February 3, 1996, January 28, 1995 and January 29, 1994, and for the nine months ended November 2, 1996: Nine months ended Year ended ------------ ----------------------------------------- November 2, February 3, January 28, January 29, 1996 1996 1995 1994 ------------ ----------------------------------------- IBM 13% 15% 15% 15% Compaq 26% 24% 25% 25% Apple 4% 8% 12% 18% Hewlett-Packard 26% 25% 24% 22% The Company's agreements with these vendors generally are subject to termination by the vendors without cause on varying notice periods and to periodic renewals or re-authorization by the vendors. There can be no assurance that the Company's relations with these vendors will continue as presently in effect, or that changes by such vendors in their pricing policies or in the funds which they provide to the Company for marketing programs will not adversely affect the Company. The termination or non- renewal of an agreement with a major vendor, or an insufficient or interrupted supply of products from such a vendor, could have a material adverse effect on the Company. Industry Conditions Competition in the distribution of microcomputer products is intense, principally in the areas of price, breadth of product line, product availability and technical support and service. The Company and its Network compete with computer aggregators, distributors and retailers in the sale of its products and services as well as with firms offering information technology implementation consulting services. The Company faces competition from microcomputer manufacturers that sell their products through direct sales forces and from distributors that emphasize mail order and telemarketing. The Company is also subject to competition from other aggregators in recruiting and retaining Network members, as well as competition from distributors in its efforts to sell products to the Network. Certain competitors have greater financial resources than the Company. Moreover, the microcomputer products distribution industry periodically experiences significant product supply shortages and customer order backlogs due to the inability of certain manufacturers to supply certain products. By removing the historical requirement that resellers purchase their products from one source, the Company's key vendors have initiated new channels of distribution that increase competition for the available product supply and intensify prevailing price competition. Two of the Company's four key vendors had previously adopted an open-sourcing model, and the remaining two key vendors announced in the third quarter of fiscal 1996 that they have adopted an open-sourcing model, which may lead to increased competition. As a result of the foregoing, as well as the microcomputer products industry's rapid product improvement and technological change, short product life cycles and resulting obsolescence risks, there can be no assurance that the Company will continue to compete successfully in the industry. Recent Operating Results The Company has incurred net losses since fiscal 1995. Among the factors giving rise to these losses are: (i) competitive pressures and their impact on gross margins, which are expected to continue in the future; (ii) a trend of decreasing revenues in the Indirect Business due primarily to certain manufacturers' products being constrained in 1996 and decreased sales to existing resellers as a result of open sourcing and continued consolidation in the reseller channel; (iii) the higher level of operating costs associated with the Direct Business; (iv) increased depreciation related to the implementation of certain management information systems; and (v) increased interest expense as a result of the Company's more frequent use of its available financing arrangements for inventory financing and working capital purposes and the addition of long- term financing in October 1995. During the third quarter of fiscal 1996, the Company recorded a number of charges, including, among other things: (i) an impairment loss relative to its Indirect Business (consisting primarily of the write-off of goodwill) in the amount of $61.6 million; (ii) charges of $9.8 million resulting from the closing of the direct hardware portion of five branch locations, and (iii) charges of approximately $8 million relating to the estimated shortfall in future rental revenue under a program offered in the Direct Business compared to the Company's future related lease obligations in that program. There can be no assurance that the Company's results of operations will return to profitability as existed prior to fiscal 1995. Volatility of Common Stock Price There has been significant volatility in the market prices of securities of companies in the microcomputer products industry, including the Common Stock. Various factors and events, including those relating specifically to the Company, its vendors or its competitors and those relating generally to the industry, may have a significant impact on the trading price of the Common Stock. Legal Proceedings In December 1994, several class action lawsuits were filed in the United States District Court for the Eastern District of Pennsylvania against the Company and certain officers and directors. On February 13, 1996, the Court certified the class of these lawsuits as purchasers of Common Stock from January 29, 1991 through December 5, 1994. 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. A derivative lawsuit was filed in December 1994 in the Court of Common Pleas of Philadelphia County 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 seek 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 is defending 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. As of the date of this Prospectus, counsel is unable to render a legal opinion as to the probable outcome of these matters. Risks Related to XLConnect - -------------------------- In addition to the foregoing, the following potential risks and uncertainties concerning XLConnect should be considered by prospective investors in the Common Stock, bearing in mind that any material adverse change in XLConnect's financial condition or results of operations could have a material adverse effect on the Company's financial condition or results of operations. Absence of History as a Stand-Alone Company; Limited Relevance of Historical Financial Information. Prior to the XLConnect IPO, XLConnect never operated as a stand- alone company and it currently has limited name recognition. In addition, the PSO business and IntelliCom began to operate as a single, integrated business within the Company only as of May 31, 1996. There can be no assurance that XLConnect will be successful in obtaining widespread name recognition and in fully integrating the PSO business and IntelliCom. The failure to obtain widespread name recognition and to fully integrate the PSO business and IntelliCom could have a materially adverse effect on XLConnect's financial condition and results of operations, which in turn could have a materially adverse effect on the Company's financial condition and results of operations. Dependence on Key Personnel; New Management Personnel. The continued success of XLConnect will depend largely on the continued services of its key managerial employees, particularly its executive officers, several of whom, including its Chief Executive Officer, were only recently hired by XLConnect. Each executive officer has entered into an employment arrangement with XLConnect that is terminable at will by either party, subject to severance arrangements, and XLConnect does not currently maintain key person life insurance on any of its executive officers. There can be no assurance that XLConnect will retain its key employees or that the departure of one or more of them would not have a materially adverse effect on XLConnect, which in turn could have a materially adverse effect on the Company. Furthermore, there can be no assurance that XLConnect will be successful in attracting and retaining the new or additional managerial personnel it requires to conduct its operations or to meet its future needs to accommodate growth successfully. Competitive Market for Technical Personnel. XLConnect's future success also depends largely on its ability to attract, hire, train and retain highly qualified technical personnel to provide XLConnect's services. Competition for such personnel is intense. There can be no assurance that XLConnect will be successful in attracting and retaining the technical personnel it requires to conduct and expand its operations successfully and to differentiate itself from its competition. XLConnect's results of operations and growth prospects could be materially adversely affected if XLConnect was unable to attract, hire, train and retain such qualified technical personnel, which in turn could have a materially adverse effect on the Company's results of operations. Factors Affecting Operating Results; Potential Fluctuations in Quarterly Results. XLConnect's future quarterly operating results may vary and reduced levels of earnings or losses could be experienced in one or more quarters, which in turn could reduce the Company's earnings or losses in such quarters. Fluctuations in the XLConnect's quarterly operating results could result from a variety of factors, including changes in the levels of revenues derived from internetworking, applications development, managed services and telecommunications services, the size and timing of significant project orders, changes in the mix of employee and subcontractor technicians on large projects, the timing of new service offerings by XLConnect or its competitors, new branch office openings by XLConnect, changes in pricing policies by XLConnect or its competitors, market acceptance of new and enhanced services offered by XLConnect or its competitors, changes in operating expenses, availability of qualified technical personnel, disruptions in sources of supply of computer, telecommunications and related products and services, the effect of potential acquisitions and industry and general economic factors. XLConnect has limited or no control over many of these factors. XLConnect's expense levels are based, in part, on its expectations as to future revenues. If revenue levels are below expectations, operating results are likely to be adversely affected. In addition, XLConnect believes that its business is subject to some seasonality, the effects of which currently are partially obscured by XLConnect's revenue growth during the past eight quarters. Nonetheless, XLConnect believes that weaker sales generally may be expected during the fourth and first quarters due to fewer working days and some clients' decisions at year end to postpone large internetworking and applications development projects until the following year when capital budgets are renewed. Accordingly, comparisons of results of operations for XLConnect between particular periods are not necessarily meaningful and historical results of operations for XLConnect are not necessarily indicative of future performance. Management of Growth. XLConnect's business has experienced substantial growth during the past five years, in terms of revenues, employees and clients. This growth is expected to continue to place significant and increasing demands on XLConnect's management, operational and technical resources. XLConnect's future performance will depend in part on its ability to finance and manage expanding operations and to adapt its information systems to changes in its business. The failure of XLConnect to manage its growth effectively could have a materially adverse effect on XLConnect's business, financial condition and results of operations, which in turn could have a materially adverse effect on the Company's financial condition and results of operations. Competition. The markets in which XLConnect operates are characterized by intense competition from several types of solution and technical service providers. These include value added resellers, systems integrators and consultants, computer or other hardware and software vendors, and long distance carriers and the Regional Bell Operating Companies. In addition, there can be no assurance that XLConnect's potential clients will not seek to develop further their in-house capabilities and perform internally more of the services that XLConnect offers. XLConnect expects to face further competition from new market entrants and possible alliances among competitors in the future as the convergence of information processing and telecommunications continues. Many of XLConnect's current and potential competitors have greater financial, technical, marketing and other resources than XLConnect. As a result, they may be better able to respond or adapt to new or emerging technologies and changes in client requirements or to devote greater resources to the development, marketing and sales of their services than XLConnect. There can be no assurance that XLConnect will be able to continue to compete successfully. Acquisition Risk. As part of its growth strategy, XLConnect intends to evaluate the acquisition of complementary professional services organizations in attractive geographic or service markets or with desirable client relationships. The success of this strategy will depend not only upon XLConnect's ability to locate and acquire such business on a cost-effective basis but also upon its ability to integrate acquired operations into its organization effectively, to retain and motivate key personnel and to retain clients of acquired firms. In addition, although XLConnect conducts due diligence reviews of potential acquisition candidates, there can be no assurance that XLConnect can identify all material liabilities or risks related to potential acquisition candidates. There can be no assurance that XLConnect will be able to acquire any business, retain the technical and other key personnel of an acquired business or integrate any acquired business successfully, that financing for any acquisition, if necessary, will be available on acceptable terms, if at all, or that XLConnect will be able to accomplish its strategic objectives in connection with any acquisition. Substantial Reliance on Key Clients. XLConnect's client base is highly concentrated, with it top 25 clients in 1993, 1994, 1995 and the first six months of calendar 1996 accounting for approximately 24.2%, 53.6%, 52.4% and 51.5% of revenues, respectively. Sales to one client, GE Aircraft Engines, a division of General Electric Company ("GEA"), principally of managed services, accounted for approximately 10.3%, 14.8% and 16.7% of revenues in 1994, 1995 and the first six months of 1996, respectively. Based upon historical and recent results and existing relationships with clients, XLConnect believes that a substantial portion of its revenues will continue to be derived from services provided to a relatively few large clients. The loss of GEA or any other large client or a significant reduction in services provided to any of them could have a materially adverse effect on XLConnect's results of operations, which in turn could have a materially adverse effect on the Company's results of operations. XLConnect's contracts to provide professional services to its clients generally do not obligate the client to purchase any minimum level of services and are terminable upon relatively short notice, often 30 days. There can be no assurance that XLConnect's largest clients will continue to enter into new contracts with XLConnect at current levels of business, if at all, or that existing contracts will not be terminated. Risks Associated with Rapid Technological Change. The market for XLConnect's services is characterized by rapidly changing technology and frequent new product and service introductions. The development and commercialization of new technologies and the introduction of new products can render existing products and services obsolete or unmarketable. XLConnect's continued success will depend on its ability to attract and retain highly capable technical personnel, to enhance existing services and to package newly developed and introduced service offerings of its own with products and services from vendors, on a timely and cost-effective basis, that keep pace with technological developments and address increasingly sophisticated client requirements. There can be no assurance that XLConnect will be successful in identifying and marketing service enhancements or supporting new products and services introduced by vendors that respond to technological change. In addition, XLConnect may experience contractual or technical difficulties that could delay or prevent its successfully deploying newly developed and introduced products. Dependence on Industry Alliances and Relationships. XLConnect's success depends in part upon its alliances and relationships with leading hardware and software vendors, telecommunications carriers and Internet access service providers, particularly Microsoft, IBM/Lotus, Novell and MCI. Any adverse change in these relationships could have a materially adverse effect on XLConnect's results of operations and financial condition while XLConnect seeks to establish alternative relationships, which in turn could have a materially adverse effect on the Company's results of operations and financial condition. Also, XLConnect will likely need to establish additional alliances and relationships in order to keep pace with evolutions in technology and enhance its service offerings, and there can be no assurance such additional alliances will be established. Dependence on Network Management Center and Help Desk Centers. XLConnect's network management and help desk services are dependent upon XLConnect's ability to protect its computer and telecommunications equipment and the information stored in its Network Management Center and Help Desk Centers against damage from fire, power loss, telecommunications failures, unauthorized intrusion, computer viruses and disabling devices and other similar events. Notwithstanding the precautions XLConnect has taken to avoid these risks, there can be no assurance that an unforeseen event will not result in a prolonged disruption of XLConnect's network management and help desk services or that XLConnect can recover the full amount of its lost revenues from its insurance policies. Limited Protection of Intellectual Property Rights; Risks of Infringement. XLConnect relies primarily on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect its intellectual property rights, which afford only limited protection. XLConnect routinely enters into non-disclosure and confidentiality agreements with employees, contractors, consultants and clients. Despite XLConnect's efforts to protect its proprietary rights, unauthorized parties may attempt to obtain and use information that XLConnect regards as proprietary, and there can be no assurance that XLConnect's means of protecting its proprietary rights will be adequate. XLConnect does not believe that any of its intellectual property infringes on the proprietary rights of third parties. However, there can be no assurance that third parties will not claim infringement by XLConnect. Any such claim, with or without merit, could be time-consuming, result in costly litigation, cause project delays or require XLConnect to enter into royalty or licensing agreements which may not be available on terms acceptable to XLConnect, all of which could have a materially adverse effect on the business, results of operations and financial condition of the XLConnect, which in turn could have a materially adverse effect on the Company's results of operations and financial condition. A third party has asserted that XLConnect's XLConnect trademark is confusingly similar to the third party's trademark and that XLConnect should cease using the trademark. Although XLConnect believes that no such confusion exists and intends to continue to use the XLConnect trademark, there can be no assurance as to the outcome if XLConnect's use of the trademark is formally challenged. Dependence on Third Party Suppliers and Vendors. XLConnect's business depends upon the adequate and timely supply to it clients of computer and telecommunications products and services from third parties at competitive prices and on reasonable terms. To date, XLConnect has elected to procure substantially all of the products it uses on client projects from the Company, given its historic relationship with the Company. XLConnect has not entered into any long-term supply contracts with the Company or other distributors. As a result, there can be no assurance that products will be available as required by XLConnect. At times, typically due to product shortages of the specific manufacturer, XLConnect is unable to obtain products for its clients on a timely basis. Any material disruption in the supply of products and services from third party vendors could have a materially adverse effect on XLConnect's results of operations, which in turn could have a materially adverse effect on the Company's results of operations. Government Regulation of Telecommunications Services. A portion of the telecommunications services offered by XLConnect is subject to regulation at both the Federal and state levels. As a result of the passage of the Telecommunications Act of 1996, it is possible that certain services not currently subject to regulation could become subject to regulation, which could subject XLConnect to delays, additional compliance costs and mandatory contributions to Federal and state universal service funds. Such costs and delays could affect XLConnect's margins for telecommunications services and its ability to respond quickly to client requirements. If the provision of regulated telecommunications services results in substantial regulatory costs, XLConnect may elect to cease providing one or more of such services in some or all states. USE OF PROCEEDS The Company will receive no proceeds from the sale of the Offered Shares of Common Stock under this Prospectus. SELLING SHAREHOLDER The following table sets forth information with respect to the beneficial ownership of the Common Stock by the Selling Shareholder as of the date of this Prospectus.
Beneficial Ownership After Offering ----------------------------- Number of Shares Beneficially Number of Owner Prior to Shares Number of Percent of Class (if Name and Address Registration (1) Registered (1) Shares Greater than 1%) - ------------------------------------ ---------------------- ---------------- ------------- ---------------------- Capital Ventures International 2,483,898(a) 2,483,898(a) 0 -- c/o Bala International, Inc. 401 City Line Avenue, Suite 220 Bala Cynwyd, PA 19004-1122
(a) As of the date of this Prospectus, the Selling Shareholder owns 5,000 shares of Preferred Stock, stated value $1,000 per share, and Warrants to purchase 225,000 shares of Common Stock at an exercise price of $11.47 per share. Pursuant to a Securities Purchase Agreement between the Company and the Selling Shareholder, the Selling Shareholder has agreed to purchase, and the Company has agreed to sell, an additional 10,000 shares of Preferred Stock and Warrants to purchase an additional 225,000 shares of Common Stock, for an aggregate purchase price of $10,000,000 (the "Additional Preferred Stock" and the "Additional Warrants," respectively). The per share exercise price of the Additional Warrants will be 125% of the average of the closing bid prices for shares of Common Stock for the five trading days immediately prior to the later of January 14, 1997 or the date of issuance of the Additional Preferred Stock. The Preferred Stock entitles each holder to receive per share of Preferred Stock a number of shares of Common Stock determined by dividing the stated value of the Preferred Stock, plus a premium in the amount of 6% per annum of the stated value of the Preferred Stock (unless the Company chooses to redeem the premium in cash), by a conversion price equal to the lesser of (i) $9.175 and (ii) the average of the closing bid prices for shares of Common Stock for the five trading days immediately prior to conversion, subject to adjustment upon the occurrence of certain dilutive events. The number of shares of Common Stock set forth in the above table assumes that all shares of Preferred Stock (including the Additional Preferred Stock) are convertible at a conversion price of $7.375 (the conversion price which would apply if all shares of Preferred Stock (including the Additional Preferred Stock) were converted on January 2, 1997), with the Company redeeming the premium in cash, and includes the shares issuable upon exercise of the Warrants (including the Additional Warrants). In the event the Company does not redeem the 6% premium in cash, the actual number of shares of Common Stock issuable on conversion of the Preferred Stock and to be sold pursuant to this Prospectus may increase. Under the applicable conversion formula, the number of shares of Common Stock benefically owned and able to be sold hereunder by the Selling Shareholder would be higher than the number set forth in the above table if the Preferred Stock conversion price at the time of conversion is less than $7.375; provided, however, that except as set forth in the next two sentences, the number of shares of Common Stock which may be sold hereunder by the Selling Shareholder may not exceed 6,000,000 shares in the aggregate. Additional shares of Common Stock may also be issued to, and sold hereunder by, the Selling Shareholder pursuant to the anti-dilution provisions and penalty provisions contained in the Statement with Respect to Shares in respect of the Preferred Stock and in the Warrants. The shares issuable under anti-dilution provisions are offered hereby pursuant to Rule 416 under the Securities Act ("Rule 416"). Pursuant to the terms of the Preferred Stock and the Warrants issued in connection therewith, the holder thereof can only acquire shares of Common Stock upon conversion of the Preferred Stock and exercise of the Warrants to the extent that the number of shares of Common Stock thereby issuable, together with a number of shares of Common Stock then held by such holder and its affiliates (not including shares of Common Stock underlying unconverted Preferred Stock and unexercised Warrants) would not exceed 4.9% of the then outstanding Common Stock as determined in accordance with Section 13(d) of the Exchange Act. The number of shares of Common Stock which may be sold by the Selling Shareholder hereunder may not exceed 6,000,000 (subject to adjustment in accordance with Rule 416), which is the number of shares registered under the Registration Statement of which this Prospectus is a part. PLAN OF DISTRIBUTION Pursuant to this Prospectus, the Offered Shares may be sold by the Selling Shareholder from time to time while the Registration Statement to which this Prospectus relates is effective, on Nasdaq or otherwise at prices and terms prevailing at the time of sale, at prices and terms related to such prevailing prices and terms, in negotiated transactions or at fixed prices. The Selling Shareholder may choose to sell all or a portion of such Offered Shares from time to time in any manner described herein. The methods by which the Offered Shares may be sold by the Selling Shareholder include, without limitation: (i) ordinary brokerage transactions, which may include long or short sales, (ii) transactions which involve cross or block trades or any other transactions permitted by Nasdaq, (iii) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus, (iv) "at the market" to or through market makers or into an existing market for the Common Stock, (v) in other ways not involving market makers or established trading markets, including direct sales to purchasers or sales effected through agents, (vi) through transactions in options or swaps or other derivatives (whether exchange-listed or otherwise), or (vii) any combination of any such methods of sale. In addition, the Selling Shareholder may enter into hedging transactions with broker-dealers. In connection with such transactions, broker-dealers may engage in short sales of Offered Shares in the course of hedging the positions they assume with the Selling Shareholder. The Selling Shareholder may also sell Offered Shares short and deliver the Offered Shares registered hereby at any time to close out such short positions, provided such short sales were effected pursuant to this Prospectus. The Selling Shareholder may also enter into option or other transactions with broker-dealers which require the delivery to such broker-dealers of the Offered Shares offered hereby, which Offered Shares such broker-dealers may resell pursuant to this Prospectus. In effecting sales, brokers and dealers engaged by the Selling Shareholder may arrange for other brokers or dealers to participate. Brokers or dealers may receive commissions or discounts from the Selling Shareholder to sell a specified number of Offered Shares at a stipulated price per share, and, to the extent such a broker or dealer is unable to do so acting as agent for the Selling Shareholder, may purchase as principal any unsold Offered Shares at the price required to fulfill such broker or dealer commitment to the Selling Shareholder. Brokers or dealers who acquire Offered Shares as principals may thereafter resell such shares from time to time in transactions (which may involve crosses and block transactions and which may involve sales to and through other brokers or dealers, including transactions of the nature described above) in the over- the-counter market, in negotiated transactions or otherwise, at market prices and terms prevailing at the time of sale, at prices and terms related to such prevailing prices and terms, in negotiated transactions or at fixed prices, and in connection with the methods as described above. The Offered Shares held by the Selling Shareholder may also be sold hereunder by brokers, dealers, banks or other persons or entities who receive such Offered Shares as a pledgee of the Selling Shareholder. The Selling Shareholder and brokers and dealers through whom sales of Offered Shares may be effected may be deemed to be "underwriters," as defined under the Securities Act, and any profits realized by them in connection with the sale of the Offered Shares may be considered to be underwriting compensation. The Registration Rights Agreement by and between the Company and the Selling Shareholder, dated as of October 15, 1996, pursuant to which the Registration Statement has been filed, provides that the Company and the Selling Shareholder will indemnify each other against certain liabilities, including civil liabilities under the Securities Act, or will contribute to payments the other may be required to make in respect thereof. LEGAL OPINION The validity of the Offered Shares offered hereby has been passed upon for the Company by Pepper, Hamilton & Scheetz, Philadelphia, Pennsylvania. Barry M. Abelson, a member of the Board of Directors of the Company and XLConnect, is currently a partner at Pepper, Hamilton & Scheetz. Mr. Abelson owns 42,900 shares of Common Stock, 8,425 shares of common stock of XLConnect and options to purchase 25,000 shares of common stock of XLConnect. EXPERTS The financial statements of the Company incorporated in this Prospectus by reference to the Annual Report on Form 10-K for the year ended February 3, 1996 have been so incorporated in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. ========================================== ============================== No dealer, salesman or other person has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with the offer made hereby, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the securities offered hereby to any person in any state or other jurisdiction in which such offer or solicitation is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, imply that information contained herein is correct as of any time subsequent to its date or that there has not been any change in the facts set forth in this Prospectus or in the affairs of the Company since the date hereof. INTELLIGENT ELECTRONICS, INC. __________________ TABLE OF CONTENTS PROSPECTUS Page ---- Available Information ....... 2 Incorporation of Certain Information by Reference .. 2 The Company ................. 3 Risk Factors ................ 4 Use of Proceeds ............. 10 , 1997 Selling Shareholder ......... 11 Plan of Distribution ........ 12 Legal Opinion ............... 13 Experts ..................... 13 ========================================== ============================== PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS Item 14. Other Expenses of Issuance and Distribution SEC registration fee $15,164 * Printing and engraving fees 2,000 ** Legal fees and expenses 20,000 ** Accountants' fees and expenses 5,000 ** Miscellaneous 7,836 ** ------- TOTAL $50,000 ** _________________ * Actual. ** Estimated Item 15. Indemnification of Directors and Officers Sections 513 and 1741-1750 of the Pennsylvania Business Corporation Law of 1988 (the "BCL") and the Company's By-Laws provide for indemnification of the Company's directors and officers and certain other persons. Under Sections 1741-1750 of the BCL, directors and officers of the Company may be indemnified by the Company against all expenses incurred in connection with actions (including, under certain circumstances, derivative actions) brought against such director or officer by reason of his or her status as a representative of the Company, or by reason of the fact that such director or officer serves or served as a representative of another entity at the Company's request, so long as the director or officer acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Company. As permitted under Sections 1741-1750 of the BCL, the Company's By-Laws provide that the Company shall indemnify its directors and officers against all expenses incurred in connection with actions (including derivative actions) brought against such director or officer by reason of the fact that he or she is or was a director or officer of the Company, or by reason of the fact that such director or officer serves or served as an employee or agent of any entity at the Company's request, unless the act or failure to act on the part of the director or officer giving rise to the claim for indemnification is determined by a court in a final, binding adjudication to have constituted willful misconduct or recklessness. Reference is made to Item 17 of this Registration Statement for additional information regarding indemnification of directors and officers. Item 16. Exhibits * 5 Opinion of Pepper, Hamilton & Scheetz * 23.1 Consent of Price Waterhouse LLP * 23.2 Consent of Pepper, Hamilton & Scheetz (included in Exhibit 5) * 24 Power of Attorney _____________ * Previously filed. Item 17. Undertakings (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectus constituting part of Amendment No. 2 to this Registration Statement, Registration No. 333-15971, on Form S-3 of our report dated April 17, 1996, appearing on page 12 of the Company's Annual Report on Form 10-K for the year ended February 3, 1996. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICE WATERHOUSE LLP Philadelphia, Pennsylvania December 31, 1996 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant certifies that is has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Exton, Pennsylvania, on December 31, 1996. INTELLIGENT ELECTRONICS, INC. By: /s/ Richard D. Sanford ----------------------------------- Richard D. Sanford, Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Date: December 31, 1996 /s/ Richard D. Sanford ----------------------------------- Richard D. Sanford, Chief Executive Officer and Chairman of the Board Date: December 31, 1996 /s/ Thomas J. Coffey ----------------------------------- Thomas J. Coffey, Chief Financial Officer, Senior Vice President and Principal Accounting Officer Date: December 31, 1996 * ----------------------------------- Arnold S. Hoffman, Director Date: December 31, 1996 * ----------------------------------- William L. Rulon-Miller, Director Date: December 31, 1996 * ----------------------------------- Barry M. Abelson, Director Date: December 31, 1996 * ----------------------------------- Roger J. Fritz, Director Date: December 31, 1996 * ----------------------------------- Michael Norris, Director Date: December 31, 1996 * ----------------------------------- John A. Porter, Director Date: December 31, 1996 * By: /s/ Richard D. Sanford ----------------------------------- Richard D. Sanford Attorney-in-Fact -----END PRIVACY-ENHANCED MESSAGE-----