-----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, BG1WRN6fXHxSeq6freHAP/QzfJ8PeHSf1+Ra0BFFvd0LwSVyw/5BVV/w6dJG0SI5 IsbZYdzHxBkCQqET6mlhnQ== 0000814430-96-000025.txt : 19961027 0000814430-96-000025.hdr.sgml : 19961027 ACCESSION NUMBER: 0000814430-96-000025 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961016 ITEM INFORMATION: Acquisition or disposition of assets FILED AS OF DATE: 19961024 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11673 FILM NUMBER: 96647416 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 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Filed pursuant to Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) October 16, 1996 INTELLIGENT ELECTRONICS, INC. (Exact name of issuer as specified in charter) PENNSYLVANIA 0-15991 23-2208404 (State or Other Jurisdiction Commission (I.R.S. Employer of Incorporation or file number Identification Organization) Number) 411 Eagleview Boulevard, Exton, Pennsylvania 19341 (Address of principal executive offices) (610) 458-5500 (Registrant's telephone number, including area code) Item 5. Other Events ------------ Private Placement ----------------- On October 16, 1996, Intelligent Electronics, Inc. (the "Company") raised $5,000,000 by the sale of 5,000 shares of its Series B Convertible Preferred Stock ("Preferred Stock") and Warrants to purchase 225,000 shares of its Common Stock in a private placement. In addition, the investor has agreed, subject to the satisfaction of certain conditions, to purchase an additional 10,000 shares of Preferred Stock and Warrants to purchase 225,000 shares of Common Stock, for $10,000,000. Included among the conditions is the effective- ness of a registration statement (the "Registration Statement") to be filed with the Securities and Exchange Commission to register the resale of the Common Stock issuable upon conversion of the Preferred Stock and the exercise of the Warrants. Assuming the sale of the additional shares of Preferred Stock and Warrants (but not assuming any exercise of the Warrants), the net proceeds to the Company from the private placement will be approximately $14,300,000 after deduction of placement fees and transaction expenses. The placement agents in the private placement were Susquehanna Financial Group, Inc. and Janney Montgomery Scott, Inc. The Preferred Stock is convertible into Common Stock at the option of the holder at a conversion ratio based on average trading prices of the Company's Common Stock, but in any event not exceeding $9.175 per share (subject to other adjustments under certain circumstances), and converts automatically into Common Stock in five years. The rights of the Preferred Stock are set forth in a Statement With Respect to Shares filed with the Pennsylvania Secretary of State. The Warrants sold on October 16, 1996 are exercisable for five years at an exercise price of $11.469 per share. The Warrants to be issued in connection with the issuance of the additional 10,000 shares of Preferred Stock will have an exercise price based on average trading prices of the Company's Common Stock prior to the issuance of the Warrants. The sale of the shares of Preferred Stock and the Warrants (including the underlying Common Stock) were exempt from the registration provisions of the Securities Act (the "Act") pursuant to Section 4(2) of the Act and Rule 506 under the Act for transactions not involving a public offering, based on the fact that the private placement was made to one accredited investor which had access to financial and other relevant data concerning the Company, its financial condition, business and assets. The securities sold in the private placement may not be reoffered or resold absent registration under the Act or available exemptions from such registration requirements. The Company has agreed to promptly file the Registration Statement with the Securities and Exchange Commission and use its best efforts to obtain effectiveness of the Registration Statement as soon as practicable. A copy of each of the Securities Purchase Agreement, the Statement With Respect to Shares, the Stock Purchase Warrant, and Registration Rights Agreement relating to the sale of the Preferred Stock is attached as an exhibit to this report. Initial Public Offering of XLConnect Solutions, Inc. ---------------------------------------------------- On October 22, 1996, in an initial public offering of 3,330,000 shares of its common stock, XLConnect Solutions, Inc. (NASDAQ: XLCT), a subsidiary of the Company, raised approximately $45.5 million (after deducting underwriting discounts and offering expenses). Approximately $43 million of the net proceeds of the offering were used by XLConnect to repay indebtedness owed to the Company. As a result of the offering, XLConnect is now an 80%-owned subsidiary of the Company. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits ------------------------------------------------------------------ (c) Exhibits 99.1 Securities Purchase Agreement, dated October 15, 1996. 99.2 Statement With Respect to Shares of the Company, filed with the Pennsylvania Secretary of State on October 16, 1996. 99.3 Stock Purchase Warrant issued October 16, 1996. 99.4 Registration Rights Agreement dated October 16, 1996. SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. INTELLIGENT ELECTRONICS, INC. Date: October 24, 1996 By:/s/ Thomas J. Coffey ------------------------------------ Thomas J. Coffey, Senior Vice President and Chief Financial Officer EX-99 2 EXHIBIT 99.1 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of October 15, 1996 by and among INTELLIGENT ELECTRONICS, INC., a Pennsylvania corporation, with headquarters located at 411 Eagleview Boulevard, Exton, Pennsylvania 19341 (the "Company"), and the purchaser set forth on the signature pages hereto (the "Buyer"). WHEREAS: A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 under Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"); B. The Company has authorized a new series of preferred stock, designated as its Series B Convertible Preferred Stock (the "Preferred Stock"), having the rights, preferences and privileges set forth in the Statement with Respect to Shares attached hereto as Exhibit "A" (the "Statement with Respect to Shares"); C. The Preferred Stock is convertible into shares of Common Stock, par value $.01 per share, of the Company (the "Common Stock"), upon the terms and subject to the limitations and conditions set forth in the Statement with Respect to Shares; D. The Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement, (i) an aggregate of Fifteen Thousand (15,000) shares of Preferred Stock, having a stated value of One Thousand Dollars ($1,000) per share, upon the terms and subject to the limitations and conditions set forth in the Statement with Respect to Shares, (ii) warrants (the "First Warrants") in the form attached hereto as Exhibit "B" to acquire 225,000 shares of Common Stock at the per share price provided in Section 1(a)(ii) hereof and (iii) additional warrants (the "Second Warrants" and, together with the First Warrants, the "Warrants") in the form attached hereto as "Exhibit B" to acquire an additional 225,000 shares of Common Stock at the per share price provided in Section 1(a)(iii) hereof, for an aggregate purchase price, as determined in accordance with Section 1(d) hereof (the "Aggregate Purchase Price"), of Fifteen Million Dollars ($15,000,000); E. Contemporaneous with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, in the form attached hereto as Exhibit "C" (the "Registration Rights Agreement"), pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws. NOW THEREFORE, the Company and the Buyer hereby agree as follows: 1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS. -------------------------------------------------- a. Purchase of Preferred Shares and Warrants. On the terms and subject to the conditions set forth herein, the Company shall issue and sell to Buyer and Buyer shall purchase from the Company (i) 15,000 shares of Series B Preferred Stock (collectively, together with any Preferred Stock issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the "Preferred Shares"), (ii) First Warrants to purchase shares of Common Stock at a price per share equal to 125% of the average of the closing bid prices for the Common Stock as reported by NASDAQ-NM (as defined herein), or on the principal securities market on which the Common Stock is then being traded (such closing bid price being hereinafter referred to as the "Closing Bid Price"), for the five (5) consecutive Trading Days (as defined in the Statement with Respect to Shares) ending on the last Trading Day immediately prior to the Closing Date in respect of the First Closing and (iii) Second Warrants to purchase shares of Common Stock at a price per share, subject to the antidilution protections contained in Sections 4(a)-(f) of the Warrants as if the Second Warrants had been issued at the First Closing, equal to 125% of the average of the closing bid prices for the Common Stock as reported by NASDAQ-NM, or on the principal securities exchange or other securities market on which the Common Stock is then being traded, for the five (5) consecutive Trading Days ending on the last Trading Day immediately prior to the Second Warrant Issue Date (as defined below). The issuance, sale and purchase of the Preferred Shares and Warrants shall take place in two (2) separate closings, the first of which is hereinafter referred to as the "First Closing" and the second of which is hereinafter referred to as the "Second Closing." Subject to the satisfaction (or waiver) of the conditions thereto set forth in Section 6 and Section 7 below (A) at the First Closing, the Company shall issue and sell to the Buyer and the Buyer shall purchase from the Company Five Thousand (5,000) Preferred Shares and the First Warrants for an aggregate purchase price of Five Million Dollars ($5,000,000) and (B) at the Second Closing, subject to the penultimate sentence of this paragraph 1(a), the Company shall issue and sell to the Buyer and the Buyer shall purchase from the Company Ten Thousand (10,000) Preferred Shares for an aggregate purchase price of Ten Million Dollars ($10,000,000). On the later of (i) the Second Closing and (ii) the ninetieth (90th) day following the Closing Date (as defined below) in respect of the First Closing (such later date is referred to herein as the "Second Warrant Issue Date"), the Company shall issue to Buyer the Second Warrants. If the registration statement(s) (the "Registration Statement") filed by the Company pursuant to Section 2(a) of the Registration Rights Agreement covering the resale of the Registrable Securities (as defined in the Registration Rights Agreement) has not been declared effective within 165 days of the filing of such Registration Statement, then, in such event, between 166 days after the filing of such Registration Statement and 256 days after such filing, the Buyer shall have the right, but shall not be obligated, to purchase the Ten Thousand (10,000) Preferred Shares issuable at the Second Closing. Notwithstanding the foregoing, if there shall occur any Mandatory Redemption Event (as defined in the Statement with Respect to Shares) prior to the Second Closing, the Company shall, on the date of such occurrence, issue to the Buyer, for no additional consideration, the Second Warrants. b. Form of Payment. (i) On the Closing Date in respect of the First Closing, (a) Buyer shall pay Five Million Dollars ($5,000,000) for Five Thousand (5,000) Preferred Shares and all of the First Warrants issuable hereunder by wire transfer of immediately available funds to the Company, in accordance with the Company's written wiring instructions, against delivery of duly executed certificates representing such number of Preferred Shares and First Warrants which the Buyer is then purchasing, and (b) the Company shall deliver such certificates against delivery of such funds. (ii) On the Closing Date in respect of the Second Closing, (a) Buyer shall pay $10,000,000 (such amount herein referred to as the "Second Closing Price") for (i) Ten Thousand (10,000) Preferred Shares and (ii) if such date is the Second Warrant Issue Date, all of the Second Warrants issuable hereunder by wire transfer of immediately available funds to the Company, in accordance with the Company's written wiring instructions, against delivery of duly executed certificates representing such number of Preferred Shares and Second Warrants which the Buyer is then purchasing and (b) the Company shall deliver such certificates against delivery of such funds. c. Closing Dates. Subject to the satisfaction (or waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Preferred Shares and Warrants pursuant to this Agreement (the "Closing Dates") shall be (i) in the case of the First Closing, 12:00 noon Eastern Time in Philadelphia, PA on October 16, 1996 (subject to a two (2) business day grace period at either party's option), (ii) in the case of the Second Closing, 12:00 noon Eastern Time in Philadelphia, PA on the fifth (5th) business day following notification of satisfaction (or waiver) of the conditions to such closing set forth in Sections 7(a) and 7(b) below or, in each case, such other mutually agreed upon time. The closings shall occur on the Closing Dates at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers, 1401 Walnut Street, Philadelphia, Pennsylvania. d. Aggregate Purchase Price. Subject to the terms and conditions of Sections 1 and 7 of this Agreement, the Aggregate Purchase Price shall be Fifteen Million Dollars ($15,000,000), which shall be allocated $14,995,500.00 to the Preferred Stock and $4,500.00 to the Warrants. 2. BUYER'S REPRESENTATIONS AND WARRANTIES. --------------------------------------- Buyer represents and warrants (which representations and warranties shall be true and correct on date hereof and on the date of each closing hereunder as if made on each of such dates) to the Company that: a. Organization. The Buyer is an unlimited liability company duly organized and existing and in good standing under the laws of the Cayman Islands, and has the requisite corporate power to own its properties and to carry on its business as it is now being conducted. b. Authorization; Enforcement. (i) The Buyer has the requisite corporate power and authority to enter into and perform this Agreement and the Registration Rights Agreement, (ii) the execution and delivery of this Agreement and the Registration Rights Agreement by the Buyer and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action required by the Buyer's Articles of Association and Memorandum of Association, Certificate of Incorporation and otherwise under applicable corporate (or equivalent) law, and no further consent or authorization of the Buyer, its directors or members is required with respect thereto, (iii) this Agreement has been duly executed and delivered by the Buyer, and (iv) this Agreement constitutes, and upon execution and delivery by the Buyer of the Registration Rights Agreement such instrument will constitute, a valid and binding obligation of the Buyer enforceable against the Buyer in accordance with its terms. c. No Conflicts. The execution, delivery and performance of this Agreement and the Registration Rights Agreement by the Buyer and the consummation by the Buyer of the transactions contemplated hereby and thereby will not result in a violation of the Buyer's Certificate of Incorporation, Memorandum of Association or Articles of Association. d. Investment Purpose. The Buyer is purchasing (i) the Preferred Shares, (ii) the shares of Common Stock or other securities issuable upon conversion thereof (including, without limitation, upon conversion of any Premium Amount (as defined in the Statement with Respect to Shares) and such additional shares, if any, as are issuable as a result of the events described in Articles VI.E. and VI.F. of the Statement with Respect to Shares) (collectively, the "Conversion Shares"), (iii) the Warrants and (iv) the shares of Common Stock or other securities issuable upon exercise of the Warrants (the "Warrant Shares") (collectively, the "Securities" and individually, a "Security") for its own account for investment only and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered under the 1933 Act. e. Accredited Investor Status. The Buyer is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D. f. Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Preferred Shares and Warrants. Upon each conversion of Preferred Shares which is not exempt from registration under the 1933 Act pursuant to Section 3(a)(9) thereof, and upon each exercise of Warrants, the Buyer shall be deemed to have restated the representations and warranties set forth in paragraphs 2(a) through (f) of this Agreement on and as of the date of each conversion or exercise. g. Information. The Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and have received what the Buyer believes to be satisfactory answers to any such inquiries. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer's right to rely on the Company's representations and warranties contained in Section 3 below. The Buyer understands that its investment in the Securities involves a high degree of risk. h. Governmental Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. i. Transfer or Resale. The Buyer understands that (i) except as provided in the Registration Rights Agreement, the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be transferred unless (a) subsequently registered thereunder, or (b) the Buyer shall have delivered to the Company an opinion of counsel, in form, substance and scope customary to opinions typically delivered in transactions of this nature, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (c) sold pursuant to Rule 144 promulgated under the 1933 Act (or a successor rule); (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case, other than pursuant to the Registration Rights Agreement). j. Legends. The Buyer understands that the certificates for the Preferred Shares, Warrants and, until such time as the Conversion Shares and Warrant Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement, the Conversion Shares and Warrant Shares, may bear a restrictive legend in substantially the following form (and a stop- transfer order may be placed against transfer of the certificates for such Securities): "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended. The securities have been acquired for investment and may not be sold, transferred or assigned in the absence of an effective registration statement for the securities under said Act, or an opinion of counsel, in form, substance and scope customary to opinions typically delivered in transactions of this nature, that registration is not required under said Act or unless sold pursuant to Rule 144 under said Act." The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by state securities laws, (a) the sale of such Security is registered under the 1933 Act, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary to opinions typically delivered in transactions of this nature, to the effect that (i) a public sale or transfer of such Security may be made without registration under the 1933 Act or (ii) such Security can be sold pursuant to Rule 144 under the 1933 Act (or a successor rule thereto) without any restriction as to the number of Securities acquired as of a particular date that can then be immediately sold. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable securities law. k. Authorization; Enforcement. This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of the Buyer and are valid and binding agreements of the Buyer enforceable in accordance with their terms. l. Residency. The Buyer is a resident of the Cayman Islands. m. Hedged Position. The Buyer has not established, and prior to the Closing Date in respect of the First Closing, the Buyer will not establish, a hedged position in anticipation of the transactions provided for herein. n. Compliance with Laws. The Buyer represents and warrants to the Company that it has complied, and the Buyer covenants that it will comply, with all applicable laws and regulations with respect to the acquisition, holding and disposition of the Securities. o. No Brokers. The Buyer has taken no action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby, except for dealings with Susquehanna Financial Group, Inc. ("SFG") and Janney Montgomery Scott, Inc. ("JMS"), whose commissions and fees will be paid by the Company as contemplated by Section 3(l) hereof. p. Balance Sheet. The Buyer has delivered to the Company a true and complete copy of its July 31, 1996 balance sheet. Such balance sheet fairly presents in all material respects the consolidated financial position of the Buyer as of the date thereof. The Buyer's financial position as of the date of the First Closing has not materially deteriorated from its financial position as of July 31, 1996. q. Other Information. The Buyer has delivered to the Company a true and complete copy of item 2 to the Schedule 13D filed by the Buyer with the SEC with respect to its beneficial ownership of SC&T International, Inc. Common Stock and the information provided therein is true and correct in all material respects as of the date hereof. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. --------------------------------------------- The Company represents and warrants (which representations and warranties shall be true and correct on date hereof and on the date of each closing hereunder as if made on each of such dates) to Buyer that: a. Organization and Qualification. The Company and each of its subsidiaries is a corporation duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company and each of its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary and where the failure so to qualify would have a Material Adverse Effect. "Material Adverse Effect" means any material adverse effect on the operations, properties, condition (financial or otherwise) or prospects of the Company and its subsidiaries, taken as a whole, or on the transactions contemplated hereby. b. Authorization; Enforcement. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Statement with Respect to Shares, the Registration Rights Agreement and the Warrants, and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Registration Rights Agreement and the Warrants by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation the issuance of the Preferred Shares and the Warrants and the issuance and reservation for issuance of the Conversion Shares and Warrant Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company's Board of Directors and no further consent or authorization of the Company, its Board or Directors, or its stockholders is required with respect thereto, (iii) this Agreement has been duly executed and delivered by the Company, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Registration Rights Agreement and the Warrants, each of such instruments will constitute, a valid and binding obligation of the Company enforceable against the Company in accordance with its terms. c. Capitalization. As of September 30, 1996, the authorized capital stock of the Company consists of (i) 100,000,000 shares of Common Stock of which 34,789,062 shares are issued and outstanding, 9,020,786 shares are reserved for issuance pursuant to the Company's stock option plans, no shares are reserved for issuance pursuant to securities (other than the Preferred Shares and the Warrants) exercisable for, or convertible into or exchangeable for shares of Common Stock and 6,000,000 shares are reserved for issuance upon conversion of the Preferred Shares and exercise of the Warrants (subject to adjustment pursuant to the Company's covenant set forth in Section 4(h) below); and (ii) 15,000,000 shares of preferred stock, of which no shares are issued and outstanding (exclusive of the Preferred Shares). All of such outstanding shares of capital stock have been, or upon issuance will be, validly issued, fully paid and nonassessable. No shares of capital stock of the Company are subject to (x) preemptive rights or any other similar rights of the securityholders of the Company under any statute to which the Company is subject or pursuant to the Company's Articles of Incorporation (as defined below) or By-laws (as defined below) or through any action or failure to act of the Company or (y) any liens or encumbrances imposed through the actions or failure to act of the Company. Except as disclosed in Schedule 3(c), as of September 30, 1996, there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its subsidiaries, or arrangements by which the Company or any of its subsidiaries is or will become bound to issue additional shares of capital stock of the Company or any of its subsidiaries. Except as disclosed in Schedule 3(c), there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act (except the Registration Rights Agreement). Since September 30, 1996, except as disclosed in Schedule 3(c), neither the Company nor any of its subsidiaries has issued any shares of capital stock (other than shares of Common Stock issuable upon exercise of stock options) or any options, warrants, scrip or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its subsidiaries (other than options issued under stock option plans). The Company has furnished to the Buyer true and correct copies of the Company's Articles of Incorporation as in effect on the date hereof ("Articles of Incorporation"), the Company's By-laws, as in effect on the date hereof (the "By-laws"). The Company shall provide the Buyer with a written update of this representation signed by the Company's Chief Executive, President or Chief Financial Officer on behalf of the Company as of each Closing Date. d. Issuance of Shares. The Preferred Shares, Conversion Shares and Warrant Shares are duly authorized and, upon issuance in accordance with the terms of this Agreement or the Statement with Respect to Shares, upon conversion of the Preferred Shares and upon proper exercise of the Warrants, as applicable, the Preferred Shares, Conversion Shares and Warrant Shares shall be validly issued, fully paid and non-assessable, and free from all taxes, liens and charges with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of securityholders of the Company (other than any such rights created by Buyer). e. No Conflicts. The execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Warrants by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Preferred Shares, Conversion Shares and Warrant Shares) will not (i) result in a violation of the Articles of Incorporation or By-laws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or otherwise result in an adverse change in the terms currently in effect under, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations, changes and violations as would not, individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its subsidiaries is in violation of its Articles of Incorporation, By-laws or other organizational documents and neither the Company nor any of its subsidiaries is in default (and no event has occurred which with notice or lapse of time or both would put the Company or any of its subsidiaries in default) under, and neither the Company nor any of its subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, or otherwise result in an adverse change in the terms currently in effect under, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its subsidiaries are not being conducted, and shall not be conducted so long as a Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity, except for possible violations which either singly or in the aggregate do not have a Material Adverse Effect. Except as specifically contemplated by this Agreement or as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self regulatory agency or any other person in order for it to execute, deliver or perform any of its obligations under this Agreement, the Registration Rights Agreement or the Warrants in accordance with the terms hereof or thereof, other than the filing of the Statement with Respect to Shares with the Pennsylvania Department of State. f. SEC Documents, Financial Statements. Since August 1, 1994, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act of 1934, as amended (the "1934 Act") on a timely basis (all of the foregoing filed prior to the date hereof, together with all reports, schedules, forms, statements and other documents filed by the Company's subsidiaries with the SEC prior to the date hereof, and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits) incorporated by reference therein, being hereinafter referred to herein as the "SEC Documents"). The Company has delivered to Buyer true and complete copies of its August 3, 1996 financial statements, and the SEC Documents, except for such exhibits, schedules and incorporated documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the consolidated financial statements of the Company dated as of August 3, 1996 which were included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth or disclosed in the financial statements of the Company dated as of August 3, 1996 or in the SEC Documents, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to August 3, 1996 and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. g. Absence of Certain Changes. Since February 3, 1996, there has been no (and no event has occurred which could reasonably be expected to have a future) material adverse change and no material adverse development in the business, properties, operations, financial condition, results of operations of the Company and its subsidiaries, taken as a whole, except as disclosed in Schedule 3(g), the SEC Documents or the August 3, 1996 financial statements of the Company. h. Absence of Litigation. Other than as disclosed in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company or any of its subsidiaries, of a nature which would be required to be disclosed in the SEC Documents pursuant to applicable securities laws and regulations. i. Disclosure. All information relating to or concerning the Company set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. j. Acknowledgment Regarding Buyer's Purchase of Preferred Shares and Warrants. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of an arm's length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by the Buyer or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Buyer's purchase of the Preferred Shares and Warrants. The Company further represents to each Buyer that the Company's decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives. k. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offer to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. l. No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby, except for dealings with SFG and JMS, whose commissions and fees will be paid for by the Company. At the First Closing, the Company shall pay SFG a fee equal to $200,000. At the Second Closing, or if this Agreement is terminated at any time prior to the Second Closing (other than because of a breach by the Buyer of any of its representations, warranties or covenants set forth herein), the Company shall pay SFG and JMS, in the aggregate, a fee equal to $400,000, of which amount $300,000 shall be paid to JMS and $100,000 shall be paid to SFG. m. Listing. The Common Stock is authorized for quotation on NASDAQ-NM and trading in the Common Stock (or on NASDAQ-NM generally) is not currently suspended by the SEC or NASDAQ. Further, after reasonable investigation of the NASDAQ-NM listing requirements, the Company does not have any knowledge, reason to know or notice that the Common Stock may not be listed on NASDAQ-NM or that the SEC or NASDAQ plans to suspend or is considering suspending trading in the Common Stock (or in NASDAQ-NM generally). 4. COVENANTS. --------- a. Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement. b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing. The Company shall, on or before each Closing Date, use it best efforts to take such action as the Company shall reasonably determine is necessary to qualify the Securities for, or obtain exemption for the Securities for, sale to the Buyer at the applicable closing pursuant to this Agreement under applicable securities or "blue sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the Buyer on or prior to such Closing Date. c. Reporting Status. So long as the Buyer beneficially owns any of the Securities, the Company shall use its best efforts to timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination. d. Use of Proceeds. The Company shall use the proceeds from the sale of the Preferred Shares for working capital and general corporate purposes and shall not, directly or indirectly, use such proceeds for any loan to or investment in any other corporation, partnership, enterprise or other person (except in connection with its direct or indirect subsidiaries). e. Additional Equity Capital; Right of First Offer. The Company will not conduct any equity financing (including debt with an equity component) during the period beginning on the date hereof and ending two hundred seventy (270) calendar days from the date hereof (the "Offer Period") unless it shall have first conducted good faith negotiations with the Buyer for at least twenty-one (21) days to sell to the Buyer securities on such terms and in such amounts that it intends to otherwise offer to a third party (the "Offered Securities"). The Company shall have no obligation to sell the Offered Securities to the Buyer except pursuant to definitive purchase documentation mutually acceptable to the Company and the Buyer in their sole discretion. If the Company and the Buyer fail to reach an agreement with respect to the sale of all of the Offered Securities within such twenty-one (21) day period, the Company shall have forty-five (45) days from the expiration of such twenty-one (21) day period to sell or enter into an agreement (pursuant to which the sale of the remaining securities covered thereby shall be closed, if at all, within seventy-five (75) days (or up to 105 days with the consent of the Buyer, which consent will not be unreasonably withheld) from the date of said agreement) to sell an aggregate amount of securities not to exceed the amount of Offered Securities offered to the Buyer at a price and upon general terms no more favorable in any material respect to the purchaser(s) of such securities than those last offered to the Buyer by the Company. If the Company has not so sold such securities or entered into an agreement to sell such securities within said forty-five (45) day period (or sold and issued such remaining securities in accordance with the foregoing within seventy-five (75) days from the date of said agreement), the Company shall not thereafter conduct any equity financing (including debt with an equity component) during the Offer Period without first conducting good faith negotiations with the Buyer as provided above (the transactions and limitations referred to in this and the immediately preceding sentences in this Section 4(e) are each collectively referred to as the "Capital Raising Transactions" and "Capital Raising Limitations," respectively). The Capital Raising Transactions and Limitations shall not apply to any transaction involving the Company's commercial banking or vendor financing arrangements or issuances of securities in connection with a merger, consolidation or sale or acquisition of assets, or in connection with any strategic partnership or joint venture (the primary purpose of which is not to raise equity capital), or in connection with the disposition or acquisition of a business, product or license by the Company or exercise of options by current or former employees, consultants, franchisees, customers or directors. The Capital Raising Transactions and Limitations also shall not apply to the issuance of securities in underwritten public offerings or the issuance of securities or the incurrence of indebtedness by a subsidiary of the Company or upon exercise or conversion of the Company's options, warrants or other convertible securities outstanding as of the date hereof or to the grant of options, warrants or other securities to employees, former employees, consultants, franchisees, customers, directors and affiliates under any Company stock option or restricted stock plan. f. Expenses. SFG acknowledges the receipt of the sum of Fifty Thousand Dollars ($50,000) from the Company, as a non-accountable expense allowance to be applied by SFG against all expenses incurred by it and the Buyer in connection with the due diligence investigation with respect to the Company and the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith, including, without limitation, the Buyer's and SFG's attorneys' fees and expenses. The Company shall have no further obligation to SFG, JMS or Buyer on account of any expenses incurred by any of them under or in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith or that certain document captioned "Term Sheet" dated July 29, 1996 by and between the Company and SFG. g. Financial Information. The Company agrees to send the following reports to the Buyer until the Buyer transfers, assigns, or sells all of the Securities: (i) within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; and (ii) within one (1) day after release, copies of all press releases issued by the Company or any of its subsidiaries. The Buyer agrees to notify the Company promptly upon the transfer, assignment or sale of all of the Securities. h. Reservation of Shares. The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion of the outstanding Preferred Shares and the Preferred Shares then issuable hereunder and issuance of the Conversion Shares in connection therewith and the full exercise of the Warrants then outstanding and then issuable hereunder and the issuance of the Warrant Shares in connection therewith (based on the Conversion Price of the Preferred Shares and the exercise price of the Warrants in effect from time to time). The Company shall use its best efforts to ensure that at the end of each fiscal quarter commencing with the fiscal quarter in which this Agreement is executed, the number of shares of Common Stock so reserved for issuance shall be no less than two (2) times the number that is actually issuable upon full conversion of the Preferred Shares then outstanding plus one (1) times the number that is actually issuable upon full exercise of the Warrants then outstanding (based on the Conversion Price of the Preferred Shares and the exercise price of the Warrants in effect on the last Trading Day of such fiscal quarter); provided, however, that, so long as the Preferred Shares or Warrants are outstanding, the Company shall not (except in relation to a reduction in the number of shares of Common Stock required to be reserved as a result of the conversion or exercise of Preferred Stock or Warrants, respectively) (x) effectuate any reduction in the number of shares of Common Stock so reserved for issuance below such number that the Company would have been required to reserve for issuance pursuant to this sentence based on the lowest daily Closing Bid Price of the Common Stock during the ten (10) Trading Day Period ending on the last Trading Day immediately preceding the effective date of such reduction or (y) remove from reserved status any of the 6,000,000 shares of Common Stock initially reserved for issuance upon conversion of the Preferred Shares and full exercise of the Warrants. i. Listing. The Company shall promptly secure the listing of the Conversion Shares and Warrant Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall use its best efforts to maintain, until no Preferred Shares or Warrants are outstanding and so long as any other shares of Common Stock shall be so listed (or, if earlier, until such time as the outstanding Common Stock is acquired or converted pursuant to a merger, going private transaction, or other transaction which results in the deregistration of the Common Stock under Section 12 of the Securities Exchange Act of 1934), such listing of all Conversion Shares from time to time issuable upon conversion of the Preferred Shares and Warrant Shares issuable upon exercise of the Warrants. The Company will use its best efforts to take all action necessary to continue the listing and trading of its Common Stock on the NASDAQ National Market ("NASDAQ-NM"), the New York Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX") and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the NASD and such exchanges, as applicable. j. Corporate Existence. So long as the Buyer beneficially owns any Preferred Shares or Warrants, the Company shall use its best efforts to maintain its corporate existence, except in the event of a merger, consolidation or sale of all or substantially all of the Company's assets, as long as the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading on NASDAQ-NM, NYSE or AMEX, and except in the event of a liquidation or dissolution of the Company. 5. TRANSFER AGENT INSTRUCTIONS. --------------------------- The Company shall instruct its transfer agent to issue certificates, registered in the name of the Buyer or its nominee, for the Conversion Shares and Warrant Shares in such denominations as specified from time to time by the Buyer to the Company upon conversion of the Preferred Shares or exercise of the Warrants. Prior to registration of the Conversion Shares and Warrant Shares for resale under the 1933 Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no instruction other than such instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof, in the case of the Conversion Shares and Warrant Shares, prior to registration of the Conversion Shares and Warrant Shares for resale under the 1933 Act, will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. Nothing in this Section shall affect in any way the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply with all applicable securities laws upon resale of the Securities. If the Buyer provides the Company with an opinion of counsel, in form, substance and scope customary to opinions typically delivered in transactions of this nature, that registration of a resale by such Buyer of any of the Securities is not required under the 1933 Act, the Company shall permit the transfer, and, in the case of the Conversion Shares and Warrant Shares promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by the Buyer. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. ---------------------------------------------- The obligation of the Company hereunder to issue and sell the Preferred Shares and the First Warrants to the Buyer at the First Closing, to issue and sell the Preferred Shares and, under certain circumstances, the Second Warrants at the Second Closing, as applicable, is subject to the satisfaction, at or before the Closing Date in respect of such closing, of each of the following conditions thereto, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion. With respect to the First Closing and the Second Closing: (i) The Buyer shall have executed this Agreement and the Registration Rights Agreement and a mutual release in form reasonably satisfactory to Buyer (the "Mutual Release"), and delivered the same to the Company. (ii) The Buyer shall have delivered the applicable Purchase Price in accordance with Section 1(b) above. (iii) The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of each Closing Date as though made at that time (except for representations and warranties that speak as of a specific date which is other than the Closing Date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to each Closing Date. (iv) SFG shall have delivered a letter to the Company at the First Closing, in form and substance reasonably satisfactory to the Company, with respect to certain matters relating to the financial condition of the Buyer. 7. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE. -------------------------------------------- The obligation of the Buyer hereunder to purchase the Preferred Shares and the First Warrants at the First Closing, to purchase the Preferred Shares and, under certain circumstances, the Second Warrants at the Second Closing, as applicable, is subject to the satisfaction, at or before the Closing Date in respect of such closing of each of the following conditions, provided that these conditions are for the Buyer's sole benefit and may be waived by the Buyer at any time in its sole discretion: a. With respect to the First Closing and the Second Closing: (i) The Company shall have executed this Agreement and the Registration Rights Agreement and the Mutual Release, and delivered the same to the Buyer. (ii) The Statement with Respect to Shares shall have been accepted for filing with the Secretary of State of the Commonwealth of Pennsylvania. (iii) The Company shall have delivered to the Buyer duly executed certificates (in such denominations as the Buyer shall request) representing the Preferred Shares and First Warrants (with respect to the First Closing) or, under certain circumstances, Second Warrants (with respect to the Second Closing) being so purchased in accordance with Section 1(b) above. (iv) The Common Stock shall be authorized for quotation on NASDAQ-NM, and trading in the Common Stock (or on NASDAQ-NM generally) shall not have been suspended by the SEC or NASDAQ. Further, the Company shall, after reasonable investigation of the NASDAQ-NM listing requirements, have no knowledge, reason to know or notice that the Common Stock may not be listed on NASDAQ-NM or that the SEC or NASDAQ plans to suspend or is considering suspending trading in the Common Stock (or on NASDAQ-NM generally). (v) The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of each Closing Date as though made at such time (except for representations and warranties that speak as of a specific date which is other than the Closing Date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to each Closing Date. The Buyer shall have received a certificate, executed by the chief financial officer of the Company, dated as of each Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyer. (vi) The Buyer shall have received an opinion of the Company's counsel, dated as of each Closing Date, in substantially the same form as Exhibit "D" attached hereto. (vii) The Buyer shall have received an officer's certificate described in Section 3(c) above, dated as of each Closing Date. (viii) The Company shall have permitted inspection by Klehr, Harrison, Harvey, Branzburg & Ellers, at least two (2) business days prior to the applicable Closing Date, of the certificates representing the Preferred Shares to be issued on such Closing Date. b. With respect to the Second Closing: (i) The Registration Statement registering (i) the Conversion Shares issuable upon conversion of the Preferred Shares issued or issuable at the First Closing and the Second Closing, (ii) the Warrant Shares issuable upon exercise of the First Warrants issued at the First Closing and (iii) the Warrant Shares issuable upon exercise of the Second Warrants issuable on the Second Warrant Issue Date, shall be effective within 165 days of the filing of such Registration Statement and no stop order shall have been issued in respect thereof. (ii) The Company shall not have failed, and shall not have announced that it will refuse, to issue shares of Common Stock to any holder of Preferred Stock upon exercise by a holder of its conversion rights in accordance with the Statement with Respect to Shares. (iii) The Company or any subsidiary of the Company shall not have made an assignment for the benefit of creditors, or applied for or consented to the appointment of a receiver or trustee for it or for all or substantially all of its property or business; or such a receiver or trustee shall not otherwise have been appointed. (iv) Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under bankruptcy law or any law for relief of debtors shall not have been instituted by or against the Company or any subsidiary of the Company. 8. GOVERNING LAW; MISCELLANEOUS. ---------------------------- a. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Pennsylvania without regard to the principles of conflict of laws. The parties hereto hereby submit to the exclusive jurisdiction of the United States Federal Courts located in Philadelphia, Pennsylvania with respect to any dispute arising under this Agreement, the agreements entered into in connection herewith or the transactions contemplated hereby or thereby. b. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. c. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. e. Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement. f. Notices. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier, in each case addressed to a party. Any such notice may be sent by facsimile, but shall in such case be subsequently confirmed by a writing personally delivered or sent by certified or registered mail or by recognized overnight mail courier, in each case addressed to a party. The addresses for such communications shall be: If to the Company: Intelligent Electronics, Inc. 411 Eagleview Boulevard Exton, PA 19341 Attention: Chief Financial Officer Telecopy: (610) 458-0599 With copy to: Pepper, Hamilton & Scheetz 3000 Two Logan Square 18th and Arch Streets Philadelphia, PA 19103-2799 Telecopy: (215) 981-4750 Attn: Barry M. Abelson, Esquire With copy to: Steven M. Kawalick General Counsel Intelligent Electronics, Inc. 5700 S. Quebec Street Englewood, CO 80111 Telecopy: (303) 486-8939 If to the Buyer: Capital Ventures International c/o Bala International, Inc. 401 City Line Avenue Suite 220 Bala Cynwyd, PA 19004-1122 Telecopy: (610) 617-2707 Attention: Andrew Frost With copy to: Joel Greenberg, Esq. 401 City Line Avenue Suite 220 Bala Cynwyd, PA 19004-1122 Telecopy: (610) 617-2707 And: Klehr, Harrison, Harvey, Branzburg & Ellers 1401 Walnut Street Philadelphia, PA 19102 Telecopy: (215) 568-6603 Attention: Stephen T. Burdumy, Esquire Each party shall provide notice to the other party of any change in address. g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor the Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, the Buyer may assign its rights hereunder to any of its "affiliates," as that term is defined under the 1934 Act, (and any such assignment prior to the Second Closing, shall require the prior written consent of the Company), provided, that no assignment shall be valid unless such assignee joins in this Agreement and agrees to be treated as the "Buyer" for all purposes of this Agreement; provided, further, that any such assignment by the Buyer shall not relieve the Buyer of any liability under this Agreement. h. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. i. Survival. The representations and warranties of the Company and the Buyer and their respective agreements and covenants set forth in Sections 2, 3, 4, 5 and 8 shall survive the closings hereunder for a period of three (3) years and shall not be affected by any due diligence investigation conducted by or on behalf of the Buyer or the Company, provided, however, that the Company's covenants contained in Sections 4(c) and 4(h)-(j) shall survive such closings indefinitely and the Buyer's representations contained in Section 2(f) shall survive such closings until such time as none of the Preferred Shares or Warrant are outstanding. The Company agrees to indemnify and hold harmless the Buyer for loss or damage arising as a result of or related to any breach by the Company of any of its representations or covenants set forth in Section 3, 4, or 5 hereof, including advancement of expenses (including attorneys fees and expenses) as they are incurred. The Buyer agrees to indemnify and hold harmless the Company for loss or damage arising as a result of or related to any breach by the Buyer of its obligation set forth in Section 1(b) hereof, including advancement of expenses (including attorneys fees and expenses) as they are incurred. j. Publicity. The Company and the Buyer shall have the right to review and approve before issuance any press releases, SEC, NASDAQ or NASD filings, or any other public statements with respect to the issuance of the Preferred Stock and the Warrants hereunder. The obligations under this paragraph (j) shall expire and be of no further force or effect from and after 30 days following the Second Warrant Issuance Date. k. Further Assurances. Each party shall use its best efforts do and perform, or cause to be done and performed, all such further acts and things, and shall use its best efforts execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. l. Termination. In the event that the First Closing shall not have occurred on or before fifteen (15) business days from the date hereof, unless the parties agree otherwise, this Agreement shall terminate at the close of business on such date, and neither party shall have any further obligations to the other pursuant to this Agreement. If the Second Closing shall not have occurred on or before 260 days after the initial filing of the Registration Statement, unless the parties agree otherwise, this Agreement shall terminate on the close of business on such date, and neither party shall have any further obligations to the other with respect to the shares of Preferred Stock and the Second Warrants to be issued and sold at the Second Closing. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written. INTELLIGENT ELECTRONICS, INC. By: /s/ Thomas J. Coffey --------------------------------- Name: Thomas J. Coffey Its: Sr. V.P. and CFO BUYER: CAPITAL VENTURES INTERNATIONAL By: Bala International, Inc., as authorized agent By: /s/ Andrew Frost ------------------------------- Name: Andrew Frost Its: Director EX-99 3 EXHIBIT 99.2 Filed with the Department of State on October 16, 1996 Entity Number 751424 STATEMENT WITH RESPECT TO SHARES-DOMESTIC BUSINESS CORPORATION In compliance with the requirements of 15 Pa.C.S. Section 1522(b) (relating to statement with respect to shares), the undersigned corporation, desiring to state the designation and voting rights, preferences, limitations, and special rights, if any, of a class or series of its shares, hereby states that: 1. The name of the corporation is Intelligent Electronics, Inc. 2. (Check and complete one of the following): _____ The resolution amending the Articles under 15 Pa.C.S. Section 1522(b) (relating to divisions and determinations by the board set forth in full, is as follows: __X__ The resolution amending the Articles under 15 Pa.C.S. Section 1522(b) is set forth in full in Exhibit A attached hereto and made a part hereof. 3. The aggregate number of shares of such class or series established and designated by (a) such resolution, (b) all prior statements, if any, filed under 15 Pa.C.S. Section 1522 or corresponding provisions of prior law with respect thereto, and (c) any other provision of the Articles is 200,000 shares. 4. The resolution was adopted by the Board of Directors or an authorized committee thereof on: 10/16/96 5. (Check, and if appropriate complete, one of the following): __X__ The resolution shall be effective upon the filing this statement with respect to shares in the Department of State. _____ The resolution shall be effective on: ____________ at _________ Date Hour IN TESTIMONY WHEREOF, the undersigned corporation has caused this statement to be signed by a duly authorized officer thereof this 16th day of October 19 96 INTELLIGENT ELECTRONICS, INC. ------------------------------------- (Name of Corporation) By: /s/ Thomas J. Coffey ---------------------------------- (Signature) TITLE: Thomas J. Coffey, Chief Financial Officer ----------------------------------------- Officer EXHIBIT A TO STATEMENT WITH RESPECT TO SHARES - DOMESTIC BUSINESS CORPORATION SERIES B CONVERTIBLE PREFERRED STOCK OF INTELLIGENT ELECTRONICS, INC. Intelligent Electronics, Inc., a corporation organized and existing under the Business Corporation Law of the Commonwealth of Pennsylvania (the "Corporation"), hereby certifies that the following resolutions were adopted by the Board of Directors of the Corporation on October 15, 1996 pursuant to authority of the Board of Directors as required by Section 1522(b) of the Pennsylvania Business Corporation Law ("PBCL"): RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (the "Board of Directors" or the "Board") in accordance with the provisions of its Articles of Incorporation (the "Articles of Incorporation"), the Board of Directors hereby authorizes a series of the Corporation's previously authorized Preferred Stock, par value $50.00 per share (the "Preferred Stock"), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof as follows: Series B Convertible Preferred Stock: I. Designation and Amount ---------------------- The designation of this series, which consists of 15,000 shares of Preferred Stock, is Series B Convertible Preferred Stock (the "Series B Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000) per share (the "Stated Value"). II. Rank ---- The Series B Preferred Stock shall rank (i) prior to the Corporation's common stock, par value $.01 per share (together with any rights attached thereto issued or issuable pursuant to the Rights Plan (as defined herein), the "Common Stock"); (ii) prior to any class or series of capital stock of the Corporation hereafter created (unless, with the consent of the holders of Series B Preferred Stock obtained in accordance with Article IX hereof, such class or series of capital stock specifically, by its terms, ranks senior to or pari passu with the Series B Preferred Stock) (collectively, with the Common Stock, "Junior Securities"); (iii) pari passu with any class or series of capital stock of the Corporation hereafter created (with the consent of the holders of Series B Preferred Stock obtained in accordance with Article IX hereof) specifically ranking, by its terms, on parity with the Series B Preferred Stock ("Pari Passu Securities"); and (iv) junior to any class or series of capital stock of the Corporation hereafter created (with the consent of the holders of Series B Preferred Stock obtained in accordance with Article IX hereof) specifically ranking, by its terms, senior to the Series B Preferred Stock ("Senior Securities"), in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary. III. No Dividends ------------ The Series B Preferred Stock will bear no dividends, and the holders of shares of Series B Preferred Stock shall not be entitled to receive dividends on the Series B Preferred Stock. IV. Liquidation Preference ---------------------- A. If the Corporation shall commence a voluntary case under the Federal bankruptcy laws or any other applicable Federal or State bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws or any other applicable Federal or State bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of sixty (60) consecutive days and, on account of any such event (a "Liquidation Event"), the Corporation shall liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up, no distribution shall be made to the holders of any shares of capital stock of the Corporation (other than Senior Securities) upon liquidation, dissolution or winding up unless prior thereto, the holders of shares of Series B Preferred Stock, subject to Article VI, shall have received the Liquidation Preference (as defined in Article IV.C) with respect to each share of Series B Preferred Stock. If upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the holders of the Series B Preferred Stock and holders of Pari Passu Securities shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds of the Corporation legally available for distribution to the Series B Preferred Stock and the Pari Passu Securities shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares. B. At the option of any holder of Series B Preferred Stock, the sale, conveyance or disposition of all or substantially all of the assets of the Corporation, the effectuation of a transaction or series of related transactions approved by the Corporation's Board of Directors through either a resolution of the Board or a redemption of rights granted under the Rights Agreement dated as of March 22, 1996 by and between the Company and Chemical Mellon Shareholder Services L.L.C. or any successor agreement (the "Rights Plan") in which more than 50% of the voting power of the Corporation is disposed of, or the consolidation, merger or other business combination of the Corporation with or into any other Person (as defined below) or Persons when the Corporation is not the survivor shall either: (i) be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Article IV; or (ii) be treated pursuant to Article VI.C(c) hereof. "Person" shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization. C. For purposes hereof, the "Liquidation Preference" with respect to a share of the Series B Preferred Stock shall mean an amount equal to the sum of the Stated Value thereof plus an amount equal to six percent (6%) per annum of such Stated Value for the period beginning on the date of issuance of such share and ending on the date of final distribution to the holder thereof. The Liquidation Preference with respect to any Pari Passu Securities shall be as set forth in the Statement with Respect to Shares filed in respect thereof. V. Cash Redemption of Premium by Corporation; Redemption of Series B Preferred Stock ----------------------------------------- A. The Corporation shall have the right, in its sole discretion, upon receipt of a Notice of Conversion pursuant to Article VI.E or in the event of an Automatic Conversion (as defined in Article VII) effected in accordance with Article VII hereof, to redeem all or any portion of the Premium Amount (as defined in Article VI.A below) subject to such conversion for a sum of cash equal to the amount of the Premium Amount being so redeemed; provided, however, that upon receipt of a Notice of Conversion, the Corporation shall notify such holder, on or before the third business day following the Corporation's receipt of such Notice of Conversion, as to whether it will elect to redeem such Premium Amount in cash. All cash redemption payments hereunder shall be paid in lawful money of the United States of America at such address for the holder as appears on the record books of the Corporation (or at such other address as such holder shall hereafter give to the Corporation by written notice). In the event the Corporation elects, pursuant to this Article V.A, to redeem all or any portion of the Premium Amount in cash and fails to pay such holder the applicable redemption amount to which such holder is entitled by depositing a check in the U.S. Mail to such holder within seven (7) business days of receipt by the Corporation of a Conversion Notice (in the case of a redemption in connection with an Optional Conversion) or October 15, 2001 (in the case of a redemption in connection with an Automatic Conversion), the Corporation shall forfeit its right to redeem in cash such Premium Amount and 110% of such Premium Amount shall be converted into shares of Common Stock in accordance with Article VI hereof. B. If (i) the Corporation fails to issue shares of Common Stock (or makes an announcement that it will not issue shares of Common Stock) to any holder of Series B Preferred Stock upon exercise by a holder of its conversion rights in accordance with the terms of this Statement with Respect to Shares, (ii) fails to transfer any certificate for shares of Common Stock issued to the holders upon conversion of the Series B Preferred Stock and when required by this Statement with Respect to Shares or the Registration Rights Agreement, dated as of October 15, 1996, by and among the Corporation and the other signatory thereto (the "Registration Rights Agreement") or (iii) fails to remove any restrictive legend on any certificate or any shares of Common Stock issued to the holders of Series B Preferred Stock upon conversion of the Series B Preferred Stock as and when required by this Statement with Respect to Shares, the Securities Purchase Agreement dated as of October 15, 1996, by and between the Corporation and the other signatory thereto (the "Purchase Agreement") or the Registration Rights Agreement, and any such failure described in clauses (i), (ii) or (iii) above shall continue uncured (or an announcement shall not be retracted) for twenty (20) business days after the Corporation shall have been notified thereof in writing by the holder (or, with respect to clause (i) above, such failure continues for a period of at least ninety (90) days if such failure is solely as a result of the circumstances governed by the second paragraph of Article VI.F below, and the Corporation is using all commercially reasonable efforts to authorize a sufficient number of shares of Common Stock as soon as practicable) (each of the events described in clauses (i) - (iii) above after expiration of the applicable cure period being an "Optional Redemption Event"); then, upon the occurrence and during the continuation of any Optional Redemption Event, at the option of the holders of at least 50% of the then outstanding shares of Series B Preferred Stock whose rights have been violated as described in clauses (i), (ii) or (iii) above by written notice (the "Optional Redemption Notice") to the Corporation of such Optional Redemption Event, the Corporation shall purchase all of the shares of Series B Preferred Stock then held by the holders whose rights have been violated as aforesaid for an amount per share (the "Optional Redemption Amount") equal to the Redemption Price in effect at the time of the redemption hereunder, provided that such purchase would not constitute (with or without notice or the passage of time) a default under any agreement or commitment to which the Corporation is a party. If such a default would result from such a purchase, no such purchase shall be required hereunder. The "Redemption Price" with respect to each share of Series B Preferred Stock shall mean the amount equal to the sum of (i) the Stated Value thereof plus (ii) the amount equal to six percent (6%) per annum of such Stated Value for the period beginning on the issuance of such share and ending on the effective date of redemption hereunder. The holder of any shares of Series B Preferred Stock being redeemed pursuant to an Optional Redemption Event shall not be entitled to receive payment of the Optional Redemption Price for such shares until such holder shall cause to be delivered to the Corporation or its designated transfer agent (i) the certificates representing such shares of Series B Preferred Stock and (ii) appropriate endorsements and transfer documents sufficient to transfer such shares of Series B Preferred Stock to the Corporation free of any adverse interest. At any time after an Optional Redemption Price becomes due, the Corporation may deposit for the pro rata benefit of the holders of the shares of Series B Preferred Stock to be redeemed the funds necessary for such redemption with a bank or trust company having a capital and surplus of at least $100,000,000. Any monies so deposited by the Corporation and unclaimed at the end of two years from the date designated for such redemption shall revert to the general funds of the Corporation. After such reversion, such bank or trust company shall, upon demand, pay over to the Corporation such unclaimed amounts and thereupon such bank or trust company shall be relieved of all responsibility in respect thereof to such holder and such holder shall look only to the Corporation for the payment of the Optional Redemption Price. Any interest accrued on funds so deposited pursuant to this paragraph shall be paid from time to time to the Corporation for its own account. Upon the deposit of funds pursuant to the preceding paragraph in respect of shares of Series B Preferred Stock to be redeemed, notwithstanding that any certificates for such shares shall not have been surrendered for cancellation, the Optional Redemption Price shall be fixed and no longer be deemed outstanding, and such shares shall be deemed redeemed for all purposes, and all rights of the holders of the shares of Series B Preferred Stock to be redeemed shall cease and terminate, excepting only the right to receive the Optional Redemption Price therefor, without interest. If the Corporation fails to pay the Optional Redemption Amount for each share or deposit such amount with a bank or trust company as set forth above within ten (10) business days of written notice that such amount is due and payable, then each holder of Series B Preferred Stock shall have the right at any time, so long as the Optional Redemption Event continues, to require the Corporation, upon written notice, to immediately issue (in accordance with the terms of Article VI below), in lieu of the Optional Redemption Amount with respect to each outstanding share of Series B Preferred Stock held by such holder, the number of shares of Common Stock of the Corporation equal to the Optional Redemption Amount divided by the Conversion Price then in effect. VI. Conversion at the Option of the Holder -------------------------------------- A. Each holder of shares of Series B Preferred Stock may, at its option at any time and from time to time, upon surrender of the certificates therefor, convert any or all of its shares of Series B Preferred Stock into Common Stock as follows (an "Optional Conversion"). Each share of Series B Preferred Stock shall be convertible into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (x) the sum of (I) the Stated Value thereof, plus (II) unless the Corporation has timely redeemed such Premium Amount in cash in accordance with Article V.A, the product of the Stated Value, multiplied by .06, multiplied by a fraction, the numerator of which is "N" and the denominator of which is 365 (where "N" equals the number of days elapsed from the date of issuance of the Series B Preferred Stock to and including the Conversion Date (as defined below)) (the "Premium Amount"), multiplied by 1.10 if required by the last sentence of Article V.A, by (y) the then effective Conversion Price (as defined below); provided, however, that, at any time prior to the delivery of an Optional Redemption Notice to the Corporation pursuant to Article V.B., in no event shall a holder of shares of Series B Preferred Stock be entitled to convert any such shares in excess of that number of shares upon conversion of which the sum of (x) the number of shares of Common Stock beneficially owned by the holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the shares of Series B Preferred Stock or the unexercised or unconverted portion of any other securities of the Corporation (including, without limitation, the Warrants issued pursuant to the Purchase Agreement) subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (y) the number of shares of Common Stock issuable upon the conversion of the shares of Series B Preferred Stock with respect to which the determination of this proviso is being made would result in beneficial ownership by a holder and such holder's affiliates of more than 4.9% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder, except as otherwise provided in clause (x) of such proviso. The restriction contained in the proviso of this Article V.A shall not be altered, amended, deleted or changed in any manner whatsoever unless the holders of a majority of the Common Stock shall approve such alteration, amendment, deletion or change. The delivery by any holder to the Corporation of a Notice of Conversion (as defined in paragraph VI.E below) shall constitute the representation and warranty of such holder to the Corporation that such holder is entitled to convert the shares of Series B Preferred Stock to which such Notice of Conversion relates in compliance with this paragraph, upon which the Corporation shall be entitled to rely without investigation. B. The "Conversion Price" shall be the lesser of (i) the average of the closing bid prices for the Common Stock as reported by the NASDAQ National Market ("NASDAQ-NM"), or on the principal securities exchange or other securities market on which the Common Stock is then being traded, for the five (5) consecutive Trading Days ending one Trading Day prior to the Conversion Date (as defined below) (the "Variable Conversion Price"), and (ii) $9.175 (the "Fixed Conversion Price") (subject to equitable adjustments from time to time pursuant to the antidilution provisions of Article VI.C below). "Trading Day" shall mean any day on which the Common Stock is traded for any period on NASDAQ-NM, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. C. The Conversion Price shall be subject to adjustment from time to time as follows: (a) Adjustment to Fixed Conversion Price Due to Stock Split, Stock Dividend, Etc. If at any time when any Series B Preferred Stock is issued and outstanding, the number of outstanding shares of Common Stock is increased by a stock split, stock dividend, reclassification or other similar event, by a below-Market Price (as defined in Article VI.D) rights offering of securities of the Corporation to all holders of Common Stock or by an exercise of rights granted under the Rights Plan (a "Rights Plan Exercise") (unless such rights become exercisable as a result of the Common Stock ownership of Capital Ventures International, Susquehanna Financial Group, Inc. and/or their respective affiliates), the Fixed Conversion Price shall be proportionately and equitably reduced, or if the number of outstanding shares of Common Stock is decreased by a reverse stock split, combination or reclassification of shares, or other similar event, the Fixed Conversion Price shall be proportionately and equitably increased. In such event, the Corporation shall notify its transfer agent ("Transfer Agent") of such change as promptly as reasonably practicable, and the Corporation shall use its best efforts to notify the Transfer Agent of such change on or before the effective date thereof. (b) Adjustment to Variable Conversion Price. If at any time when Series B Preferred Stock is issued and outstanding, the number of outstanding shares of Common Stock is increased or decreased by a stock split, stock dividend, combination, reclassification or other similar event, by a below-Market Price rights offering to all holders of Common Stock or by a Rights Plan Exercise (unless such rights become exercisable as a result of the Common Stock ownership of Capital Ventures International, Susquehanna Financial Group, Inc. and/or their respective affiliates), which event shall have taken place during the reference period for determination of the Conversion Price for any Optional Conversion or Automatic Conversion of the Series B Preferred Stock, then the Variable Conversion Price shall be recalculated by the Corporation in good faith, giving appropriate and equitable effect to the stock split, stock dividend, combination, reclassification or other similar event, the below-Market Price rights offering or the Rights Plan Exercise, for all five (5) Trading Days immediately preceding the Conversion Date. In such event, the Corporation shall notify the Transfer Agent of such change as promptly as reasonably practicable, and the Corporation shall use its best efforts to notify the Transfer Agent of such change on or before the effective date thereof. (c) Adjustment Due to Merger, Consolidation, Etc. If, at any time when any Series B Preferred Stock is issued and outstanding and prior to the conversion of all Series B Preferred Stock, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Corporation shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Corporation or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Corporation other than in connection with a plan of complete liquidation of the Corporation, then the holders of Series B Preferred Stock shall thereafter have the right to receive upon conversion of the Series B Preferred Stock, upon the bases and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the holders of Series B Preferred Stock would have been entitled to receive in such transaction had the Series B Preferred Stock been converted in full immediately prior to such transaction, and in any such case appropriate provisions shall be made with respect to the rights and interests of the holders of Series B Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Corporation shall not effect any transaction described in this subsection (c) unless (a) it first gives, to the extent practical, thirty (30) days' prior written notice (but in any event at least fifteen (15) business days prior written notice) of such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the holders of Series B Preferred Stock shall be entitled to convert the Series B Preferred Stock) and (b) the resulting successor or acquiring entity (if not the Corporation) assumes by written instrument the obligations of this subsection (c). (d) [Intentionally Omitted] (e) Treatment of Unexercised Rights. If, in any case, the total number of shares of Common Stock issuable upon exercise of rights issued pursuant to any below-Market Price rights offering for which an adjustment to the Conversion Price was made under Article VI.C.(a) or VI.C.(b) hereof or the Rights Plan is not, in fact, issued and such rights shall have been redeemed, expired or terminated, the Conversion Price then in effect will be readjusted to the Conversion Price which would have been in effect at the time of such expiration or termination had such rights, to the extent outstanding immediately prior to such redemption, expiration or termination (other than in respect of the actual number of shares of Common Stock issued upon exercise thereof), never been issued. D. "Market Price," as of any date, (i) means the average of the closing bid prices for the shares of Common Stock as reported by NASDAQ-NM for the five (5) Trading Days immediately preceding such date, or (ii) if NASDAQ-NM is not the principal trading market for the shares of Common Stock, the average of the last reported sale prices on the principal trading market for the Common Stock during the same period, or (iii) if market value cannot be calculated as of such date on any of the foregoing bases, the Market Price shall be the average fair market value as reasonably determined by a nationally recognized investment banking firm selected by the Corporation and reasonably acceptable to the holder, with the costs of the appraisal to be borne by the Corporation. The manner of determining the Market Price of the Common Stock set forth in the foregoing definition shall apply with respect to any other security in respect of which a determination as to market value must be made hereunder. E. In order to convert Series B Preferred Stock into full shares of Common Stock, a holder of Series B Preferred Stock shall: (i) submit a copy of the fully executed notice of conversion in the form attached hereto as Exhibit A ("Notice of Conversion") to the Corporation by facsimile dispatched no later than the Conversion Date (or by other means resulting in notice to the Corporation no later than the Conversion Date) at the office of the Corporation or its designated Transfer Agent for the Series B Preferred Stock that the holder elects to convert the same, which notice shall specify the number of shares of Series B Preferred Stock to be converted (assuming conversion of the Premium Amount), the applicable Conversion Price (if calculable) and a calculation of the number of shares of Common Stock issuable upon such conversion (if calculable) (together with a copy of the first page of each certificate to be converted) prior to Midnight, New York City time (the "Conversion Notice Deadline") on the Conversion Date; and (ii) surrender the original certificates representing the Series B Preferred Stock being converted (the "Preferred Stock Certificates"), duly endorsed, along with a copy of the Notice of Conversion to the office of the Corporation or the Transfer Agent for the Series B Preferred Stock as soon as practicable thereafter. The Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless either the Preferred Stock Certificates are delivered to the Company or its Transfer Agent as provided above, or the holder notifies the Corporation or its Transfer Agent that such certificates have been lost, stolen or destroyed (subject to the requirements of subparagraph (a) below). In the case of a dispute as to the calculation of the Conversion Price, the Corporation shall promptly issue such number of shares of Common Stock that are not disputed in accordance with subparagraph (b) below, and the Corporation shall submit the disputed calculations to its outside accountant via facsimile within five (5) business days of receipt of the Notice of Conversion. The Corporation shall use its best efforts to have the accountant audit the calculations and notify the Corporation and the holder of the results no later than 48 hours from the time it receives the disputed calculations. The accountant's calculation shall be deemed conclusive absent manifest error. (a) Lost or Stolen Certificates. Upon receipt by the Corporation of evidence of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing shares of Series B Preferred Stock, and (in the case of loss, theft or destruction) of indemnity and such security (if any) as is reasonably satisfactory to the Corporation, and upon surrender and cancellation of the Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and deliver new Preferred Stock Certificate(s) of like tenor and date. However, the Corporation shall not be obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the holder contemporaneously requests the Corporation to convert such Series B Preferred Stock. (b) Delivery of Common Stock Upon Conversion. Upon the surrender of certificates as described above from a holder of Series B Preferred Stock accompanied by a Notice of Conversion, the Corporation shall issue and, within two (2) business days after such surrender (or, in the case of lost, stolen or destroyed certificates, after provision of agreement and indemnification pursuant to subparagraph (a) above) (the "Delivery Period"), deliver to or upon the order of the holder (i) that number of shares of Common Stock for the portion of the shares of Series B Preferred Stock converted as shall be determined in accordance herewith and (ii) a certificate representing the balance of the shares of Series B Preferred Stock not converted, if any. Other than a failure due to the circumstances described in Article VI.F below, which failure shall be governed by such Article, in addition to any other remedies available to the holder, including actual damages and/or equitable relief, commencing on the seventh (7th) business day after the expiration of the Delivery Period, the Corporation shall pay to a holder $1000 in cash for each day computed from the first business day after the expiration of the Delivery Period until such time as the Corporation has delivered all such Common Stock. Such cash amount shall be paid to such holder by the third (3rd) day of the month following the month in which it has accrued or, at the option of the holder (by written notice to the Corporation by the first day of the month following the month in which it has accrued), shall be convertible into Common Stock in accordance with the terms of this Article VI. (c) No Fractional Shares. If any conversion of Series B Preferred Stock would result in a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock shall be the next higher number of shares. At the Corporation's option, the Corporation may instead pay cash in lieu of any fractional share, valued at the Market Price. (d) Conversion Date. The "Conversion Date" shall be the date specified in the Notice of Conversion, provided (i) that if the advance copy of the Notice of Conversion is not submitted by facsimile (or by other means resulting in notice) to the Corporation or its designated Transfer Agent before Midnight, New York City time, on the Conversion Date indicated in the Notice of Conversion, then the Conversion Date shall be the date the Corporation or its designated Transfer Agent receives the Notice of Conversion. Upon submission by a holder of Series B Preferred Stock of a Notice of Conversion with respect to shares of Series B Preferred Stock, such shares shall be deemed converted in shares of Common Stock and the holder's rights as a holder of such converted shares of Series B Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock in accordance with and subject to Paragraph VI.E hereof. Notwithstanding the foregoing, if the holder has not received certificates for such shares of Common Stock prior to the tenth (10th) day after the later of the Conversion Date and the delivery by the holder of the stock certificates and any agreement and indemnity required by Paragraph VI.E(b) above, then the holder may notify the Corporation in writing of such failure and if the holder has not received certificates for such shares of Common Stock prior to the twentieth (20th) day after the date of such notice, then (i) the holder shall regain the rights of a holder of Series B Preferred Stock with respect to the shares to which the Notice of Conversion relates and shall retain all of such holder's rights and remedies (including the right to receive cash payments pursuant to Article VI.E(b) above to the extent required thereby) with respect to the Corporation's failure to deliver such shares of Common Stock and (ii) the Conversion Price in respect of each of the shares identified in the Notice of Conversion shall thereafter be the lesser of (A) the Conversion Price on the Conversion Date set forth in the initial Notice of Conversion and (B) the Conversion Price on the Conversion Date subsequently selected by the holder in respect thereof by submission to the Corporation of a subsequent Notice of Conversion. F. A number of shares of the authorized but unissued Common Stock sufficient to provide for (i) the conversion of the Series B Preferred Stock outstanding at the then current Conversion Price and (ii) the exercise of Warrants shall at all times be reserved by the Corporation, free from preemptive rights, for such conversion or exercise. If the Corporation shall issue any securities or make any change in its capital structure which would change the number of shares of Common Stock into which each share of the Series B Preferred Stock shall be convertible at the then current Conversion Price, the Corporation shall at the same time also make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Series B Preferred Stock and exercise of the Warrants on the new basis, if applicable. If, at any time a holder of shares of Series B Preferred Stock submits a Notice of Conversion, and the Corporation does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in accordance with the provisions of this Article VI (a "Conversion Default"), the Corporation shall issue to the holder all of the shares of Common Stock which are available to effect such conversion (including, with the holder's written consent, any shares underlying Warrants issued or then issuable ("Borrowed Shares")). The number of shares of Series B Preferred Stock included in the Notice of Conversion (the "initial Notice of Conversion") which exceeds the amount which is then convertible into available shares of Common Stock (after utilizing Borrowed Shares, if any) (the "Excess Amount") shall, notwithstanding anything to the contrary contained herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the holder's option on or at any time after) the date additional shares of Common Stock are authorized by the Corporation to permit such conversion, at which time the Conversion Price in respect thereof shall be the lesser of (i) the Conversion Price on the Conversion Date set forth in the initial Notice of Conversion and (ii) the Conversion Price on the Conversion Date subsequently elected by the holder in respect thereof by submission to the Corporation of a subsequent Notice of Conversion. The Corporation shall pay to the holder payments ("Conversion Default Payments") for a Conversion Default in the amount of (a) (N/365), multiplied by (b) the sum of the Stated Value plus the Premium Amount per share of Series B Preferred Stock calculated through the Authorization Date (as defined below), multiplied by (c) the Default Amount (as defined below) on the Conversion Date set forth in the initial Notice of Conversion giving rise to the Conversion Default (the "Conversion Default Date"), multiplied by (d) .36, where (i) N = the number of days from the Conversion Default Date to the date (the "Authorization Date") that the Corporation authorizes a sufficient number of shares of Common Stock to effect conversion of the full number of shares of Series B Preferred Stock and the Warrants and (ii) "Default Amount" means the Excess Amount plus the number of shares of Series B Preferred Stock that would not be convertible as a result of this Article VI.E but for the Borrowed Shares. The Corporation shall send notice to the holder of the authorization of additional shares of Common Stock, the Authorization Date and the amount of holder's accrued Conversion Default Payments. The accrued Conversion Default Payment for each calendar month shall be paid in cash or shall be convertible into Common Stock at the Conversion Price, at the holder's option, as follows: (a) In the event holder elects to take such payment in cash, cash payment shall be made to holder by the third (3rd) day of the month following the month in which it has accrued; and (b) In the event holder elects to take such payment in Common Stock, the holder may convert such payment amount into Common Stock at the Conversion Price (as in effect at the time of Conversion) at any time after the fifth day of the month following the month in which it has accrued in accordance with the terms of this Article VI. Nothing herein shall limit the holder's right to pursue actual damages for the Corporation's failure to maintain a sufficient number of authorized shares of Common Stock as required pursuant to the terms of this Article VI.F, and each holder shall have the right to pursue all remedies available at law or in equity (including a decree of specific performance and/or injunctive relief). G. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Article VI, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series B Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series B Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of a share of Series B Preferred Stock. VII. Automatic Conversion -------------------- Each share of Series B Preferred Stock issued and outstanding on October 15, 2001 (the "Automatic Conversion Date"), automatically shall be converted into shares of Common Stock on such date at the then effective Conversion Price in accordance with the provisions of Article VI hereof (the "Automatic Conversion"). The Automatic Conversion Date shall be the Conversion Date for purposes of determining the Conversion Price and the time within which certificates representing the Common Stock must be delivered to the holder. VIII. Voting Rights ------------- The holders of the Series B Preferred Stock have no voting power whatsoever, except as otherwise provided by the PBCL and in this Article VIII, and in Article IX below. Notwithstanding the above, the Corporation shall provide each holder of Series B Preferred Stock with prior notification of any meeting of the shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Corporation of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Corporation, or any proposed liquidation, dissolution or winding up of the Corporation, the Corporation shall mail a notice to each holder, at least twenty (20) days prior to the record date specified therein (or 20 days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time; provided, however, that the failure of the Corporation to provide any such notice shall not affect the validity of any shareholder or corporate action or proceeding. To the extent that under the PBCL the vote of the holders of the Series B Preferred Stock, voting separately as a class or series as applicable, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the shares of the Series B Preferred Stock represented at a duly held meeting at which a majority of the outstanding shares of Series B Preferred Stock is present or by written consent of a majority of the outstanding shares of Series B Preferred Stock (except as otherwise may be required under the PBCL) shall constitute the approval of such action by the class. To the extent that under the PBCL holders of the Series B Preferred Stock are entitled to vote on a matter with holders of Common Stock, voting together as one class, each share of Series B Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which it is then convertible using the record date for the taking of such vote of shareholders as the date as of which the Conversion Price is calculated. Holders of the Series B Preferred Stock shall be entitled to notice of (and copies of proxy materials and other information sent to shareholders) all shareholder meetings or written consents with respect to which they are entitled to vote, which notice would be provided pursuant to the Corporation's Bylaws and the PBCL. IX. Protective Provisions --------------------- So long as shares of Series B Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by the PBCL) of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock: (a) alter or change the rights, preferences or privileges of the Series B Preferred Stock or any other capital stock of the Corporation so as to affect adversely the Series B Preferred Stock; (b) create any new class or series of capital stock having a preference over the Series B Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation (as previously defined in Article II hereof, "Senior Securities"); (c) create any new class or series of capital stock ranking pari passu with the Series B Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation (as previously defined in Article II hereof, "Pari Passu Securities"); (d) increase the authorized number of shares of Series B Preferred Stock; (e) issue any shares of Series B Preferred Stock other than pursuant to the Purchase Agreement, as the same may be amended from time to time; or (f) do any act or thing not authorized or contemplated by this Statement with Respect to Shares which would result in taxation of the holders of shares of the Series B Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended). In the event holders of at least a majority of the then outstanding shares of Series B Preferred Stock agree to allow the Corporation to alter or change the rights, preferences or privileges of any class of capital stock of the Corporation, pursuant to subsection (a) above, so as to affect the Series B Preferred Stock, then the Corporation will deliver notice of such approved change to the holders of the Series B Preferred Stock that did not agree to such alteration or change (the "Dissenting Holders") and Dissenting Holders shall have the right for a period of thirty (30) days to convert their shares pursuant to the terms of this Statement with Respect to Shares as they exist prior to such alteration or change or continue to hold their shares of Series B Preferred Stock. X. Limitations on Transfer ----------------------- Prior to the delivery of an Optional Redemption Notice to the Corporation pursuant to Article V.B., no "Subject Holder" (as defined below) may sell or otherwise transfer shares of Series B Preferred Stock, except (i) to the Corporation or to a shareholder or a group of shareholders who immediately prior to the sale control a majority of the Corporation's voting shares (a "Controlling Shareholder" or "Controlling Group", as applicable); (ii) to an affiliate of such holder; (iii) in connection with any merger, consolidation, reorganization, tender offer or sale of more than 50% of the outstanding Common Stock of the Corporation (a "Reorganization"); (iv) in a registered public offering or a public sale pursuant to Rule 144 or other applicable exemption from the registration requirements of the Securities Act (or any successor rule or regulation); or (v) in a private sale (otherwise than to the Corporation, to a Controlling Shareholder or a Controlling Group, to an affiliate of such holder, or in a Reorganization), provided that the holder shall not sell or otherwise transfer during any ninety (90) day period a number of shares of Series B Preferred Stock, a portion(s) of the Warrants or any other securities of the Corporation subject to a limitation on sale or transfer analogous to the limitation contained herein, which, if exercised for or converted into Common Stock at the time of the transfer, would represent, in the aggregate (together with any other shares of Common Stock transferred), beneficial ownership by the transferee(s) of more than 4.9% of the Common Stock then outstanding. Subject Holder means any holder who, but for Article VI.A hereof and this Article X., would beneficially own 5% or more of the outstanding Common Stock of the Corporation. The restriction contained in the proviso of this Article X shall not be altered, amended, deleted or changed in any manner whatsoever unless the holders of a majority of the Common Stock shall approve such alteration, amendment, deletion or change. The Corporation or the Transfer Agent may require, prior to the recording of any transfer of any shares of Series B Preferred Stock, that the record holder of such shares of Series B Preferred Stock deliver to the Corporation and/or the Transfer Agent a written certification that the proposed transfer does not violate the terms and provisions contained in this Article X, and the Corporation and the Transfer Agent shall be entitled to rely on such certification without investigation. XI. Tax Withholding --------------- A. Notwithstanding anything contained in this Statement with Respect to Shares to the contrary, (i) If any portion of a distribution is to be paid by the Corpora- tion in cash in accordance with the provisions of Articles V.A, VI.E(b) or VI.F hereof to a holder that is a Foreign Person (as defined below), the Corporation may withhold from such distribution an amount of cash sufficient to enable the Corporation to satisfy its withholding tax obligations (if any) (the "Withholding Amount") with respect to the portion of such distribution to be paid in cash. The Withholding Amount shall equal the amount that is necessary to enable the Corporation to satisfy its withholding obligations at the applicable statutory withholding rates (or at a reduced withholding rate if the holder delivers to the Corporation such certificates, documents or other evidence reasonably satisfactory to the Corporation or as otherwise may be required under the Internal Revenue Code of 1986, as amended (the "Code"), or treasury regulations promulgated thereunder, establishing that such cash payments either are not subject to withholding tax or are subject to tax at a rate reduced by an appropriate tax treaty). The Corporation shall inform the holder of the amount of the Withholding Amount (a) at the time the Corporation notifies the holder of the Corporation's election to redeem the Premium Amount pursuant to Article V.A hereof, (b) on or before the third business day preceding the date of the cash distribution required pursuant to the terms of Article VI.E(b) hereof or (c) on or before the third business day preceding the date of the cash distribution required pursuant to the terms of Article VI.F hereof, applicable. (ii) If any portion of a distribution is to be paid by the Corpor- ation in shares of Common Stock (the "Distributed Shares") in accordance with the provisions of Articles V.A. or VI (including but not limited to Articles VI. E and VI.F hereof) to a holder that is a Foreign Person, and the holder has not paid the Withholding Amount with respect to the Distributed Shares in cash to the Corporation on or before the second business day preceding the date on which the Distributed Shares are required to be delivered pursuant to the terms hereof, the Corporation may withhold such number of shares of Common Stock or other securities issuable with respect to the Distributed Shares having an aggregate value (with each share valued at the closing bid price for the Common Stock as reported by NASDAQ-NM, or on the principal securities exchange or other securities market on which the Common Stock is then being traded, on the Trading Day immediately preceding the date of the distribution) equal to the Withholding Amount with respect to the Distributed Shares. On or before the third business day preceding the date on which the shares of Common Stock or other securities representing the distribution are required to be delivered pursuant to the terms hereof, the Corporation shall notify the holder as to the amount of the Withholding Amount. B. For purposes of this Article XI, the term "Foreign Person" means a person other than (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or of any state or political subdivision thereof or (iii) an estate or trust that is a United States Person (as defined in the Code). C. The Corporation shall pay the full amount of any Withholding Amount set forth in Article XI.A to the relevant taxing authority in accordance with applicable law. NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Series B Preferred Stock) The undersigned hereby irrevocably elects to convert ______ shares of Series B Preferred Stock, represented by stock certificate No(s). __________ (the "Preferred Stock Certificates") into shares of common stock ("Common Stock") of Intelligent Electronics, Inc. (the "Corporation") according to the conditions of the Statement with Respect to Shares of Series B Preferred Stock, as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. A copy of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof). The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Series B Preferred Stock shall be made pursuant to registration of the securities under the Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption from registration under the Act. Date of Conversion:___________________________ Applicable Conversion Price:____________________ Number of Shares of Common Stock to be Issued:_____________________ Signature:____________________________________ Name:_______________________________________ Address:______________________________________ *The Corporation is not required to issue shares of Common Stock until the original Series B Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Corporation or its Transfer Agent. The Corporation shall issue and deliver shares of Common Stock to an overnight courier not later than two (2) business days following receipt of the original Preferred Stock Certificate(s) to be converted and shall make payments if and to the extent required by the Statement with Respect to Shares for the number of business days such issuance and delivery is late. EX-99 4 EXHIBIT 99.3 Warrant No. CVI- EXHIBIT B to Securities Purchase Agreement THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED AS OF OCTOBER 15, 1996, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SUCH ACT OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE SECURITIES LAWS. Right to Purchase 225,000 Shares of Common Stock, $.01 par value Date: INTELLIGENT ELECTRONICS, INC. STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, CAPITAL VENTURES INTERNATIONAL or its registered assigns, is entitled to purchase from INTELLIGENT ELECTRONICS, INC., a Pennsylvania corporation (the "Company"), at any time or from time to time during the period specified in Paragraph 2 hereof, Two Hundred and Twenty-five Thousand (225,000) fully paid and nonassessable shares of the Company's Common Stock, par value $.01 per share (together with any rights attached thereto issued or issuable pursuant to the Rights Plan (as defined herein), the "Common Stock"), at an exercise price of $11.469 per share. The term "Warrant Shares", as used herein, refers to the shares of Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price are subject to adjustment as provided in Paragraph 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued or to be issued pursuant to the Securities Purchase Agreement (as hereinafter defined). This Warrant is subject to the following terms, provisions, and conditions: 1. Manner of Exercise; Issuance of Certificates; Payment for Shares. Subject to the provisions hereof, this Warrant may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant, together with a completed exercise agreement in the form attached hereto (the "Exercise Agreement"), to the Company during normal business hours on any business day at the Company's principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), and upon (i) payment to the Company in cash, by certified or official bank check or by wire transfer for the account of the Company of the Exercise Price for the Warrant Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant Shares by the holder is not registered pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), on or before October 16, 1998, delivery to the Company of a written notice of an election to effect a "Cashless Exercise" (as defined in Paragraph 11(c) below) for the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered, the completed Exercise Agreement shall have been delivered, and payment shall have been made for such shares as set forth above. Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the holder hereof within a reasonable time, not exceeding three (3) business days, after this Warrant shall have been so exercised. The certificates so delivered shall be in such denominations as may be requested by the holder hereof and shall be registered in the name of such holder or such other name as shall be designated by such holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. If, at any time a holder of this Warrant submits this Warrant, an Exercise Agreement and payment to the Company of the Exercise Price, and the Company does not have sufficient authorized but unissued shares of Common Stock available to effect such exercise in accordance with the provisions of this Section 1 (an "Exercise Default"), the Company shall issue to the holder all of the shares of Common Stock which are available to effect such exercise and, within three (3) business days of the attempted exercise of this Warrant, refund to the holder that portion of the holder's payment of the Exercise Price allocable to the number of shares of Common Stock included in the Exercise Agreement which exceeds the amount which is then issuable by the Company (the "Excess Amount"). The Excess Amount shall, notwithstanding anything to the contrary contained herein, not be exercisable for Common Stock in accordance with the terms hereof until (and at the holder's option on or at any time after) the date additional shares of Common Stock are authorized by the Company to permit such exercise. The Company shall pay to the holder payments ("Exercise Default Payments") for an Exercise Default in the amount of (a) (N/365), multiplied by (b) the difference between the Market Price (as defined in Section 4(1) below) on the Exercise Default Date (as defined below) less the Exercise Price, multiplied by (c) the Excess Amount on the date the Exercise Agreement giving rise to the Exercise Default is transmitted in accordance with this Section 1 (the "Exercise Default Date"), multiplied by (d) .36, where N = the number of days from the Exercise Default Date to the date (the "Authorization Date") that the Company authorizes a sufficient number of shares of Common Stock to effect exercise of this Warrant in full. The Company shall send notice to the holder of the authorization of additional shares of Common Stock, the Authorization Date and the amount of holder's accrued Exercise Default Payments. The accrued Exercise Default Payment for each calendar month shall be paid in cash or shall be convertible into Common Stock at the Exercise Price, at the holder's option, as follows: (a) In the event holder elects to take such payment in cash, cash payment shall be made to holder by the third (3rd) day of the month following the month in which it has accrued; and (b) In the event holder elects to take such payment in Common Stock, the holder may convert such payment amount into Common Stock at the Exercise Price (as in effect at the time of conversion) at any time after the fifth day of the month following the month in which it has accrued in accordance with the terms contained in Article VI.A. of the Statement with Respect to Shares governing the Company's Series B Convertible Preferred Stock ("Statement with Respect to Shares"). Nothing herein shall limit the holder's right to pursue actual damages for the Company's failure to maintain a sufficient number of authorized shares of Common Stock as required pursuant to the terms of Section 4(h) of the Securities Purchase Agreement (as defined below), and each holder shall have the right to pursue all remedies available at law or in equity (including a decree of specific performance and/or injunctive relief). Notwithstanding anything in this Warrant to the contrary, in no event shall the Holder of this Warrant be entitled to exercise a number of Warrants (or portions thereof) in excess of the number of Warrants (or portions thereof) upon exercise of which the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unexercised Warrants and the unconverted portion of the Company's Series B Convertible Preferred Stock) and (ii) the number of shares of Common Stock issuable upon exercise of the Warrants (or portions thereof) with respect to which the determination described herein is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.9% of the outstanding shares of Common Stock. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided in clause (i) hereof. The delivery by Holder to the Company of an Exercise Agreement shall constitute the representation and warranty of Holder to the Company that Holder is entitled to exercise this Warrant in compliance with this Paragraph, upon which the Company shall be entitled to rely without investigation. 2. Period of Exercise. This Warrant is exercisable at any time or from time to time on or after the Vesting Date (as defined herein), and before 5:00 p.m., New York City time on October 15, 2001 (the "Exercise Period"). The term "Vesting Date" shall mean the date on which the Second Closing (as defined in that certain Securities Purchase Agreement, dated as of October 15, 1996, by and among the Company and the Buyer listed on the execution page thereof (the "Securities Purchase Agreement") occurs or, if earlier, the date on which the Securities Purchase Agreement is terminated other than because of a breach by said Buyer of any of its representation warranties or covenants set forth therein. 3. Certain Agreements of the Company. The Company hereby covenants and agrees as follows: (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all taxes, liens, and charges with respect to the issue thereof. (b) Reservation of Shares. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. (c) Listing. The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of the Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (d) Certain Actions Prohibited. The Company will not, by amendment of its charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (e) Successors and Assigns. This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation, or acquisition of all or substantially all the Company's assets. 4. Antidilution Provisions. During the Exercise Period, the Exercise Price and the number of Warrant Shares shall be subject to adjustment from time to time as provided in this Paragraph 4. In the event that any adjustment of the Exercise Price as required herein results in a fraction of a cent, such Exercise Price shall be rounded up to the nearest cent. (a) Adjustment of Exercise Price and Number of Shares upon Issuance of Common Stock. Except as otherwise provided in Paragraphs 4(c) and 4(e) hereof, if and whenever on or after October 16, 1996, the Company issues or sells, or in accordance with Paragraph 4(b) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Market Price (as hereinafter defined) on the date of issuance (a "Dilutive Issuance"), then immediately upon the Dilutive Issuance, the Exercise Price will be reduced to a price determined by multiplying the Exercise Price in effect immediately prior to the Dilutive Issuance by a fraction, (i) the numerator of which is an amount equal to the sum of (x) the number of shares of Common Stock actually outstanding immediately prior to the Dilutive Issuance, plus (y) the aggregate consideration, calculated as set forth in Paragraph 4(b) hereof, received by the Company upon such Dilutive Issuance, divided by the Market Price in effect immediately prior to the Dilutive Issuance, and (ii) the denominator of which is the total number of shares of Common Stock Deemed Outstanding (as hereinafter defined) immediately after the Dilutive Issuance. (b) Effect on Exercise Price of Certain Events. For purposes of determining the adjusted Exercise Price under Paragraph 4(a) hereof, the following will be applicable: (i) Issuance of Rights or Options. If the Company in any manner issues or grants any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities exercisable, convertible into or exchangeable for Common Stock ("Convertible Securities") (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "Options") and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Market Price on the date of issuance ("Below Market Options"), then the maximum total number of shares of Common Stock issuable upon the exercise of all such Below Market Options (assuming full exercise, conversion or exchange of Convertible Securities, if applicable) will, as of the date of the issuance or grant of such Below Market Options, be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon the exercise of such Below Market Options" is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or granting of all such Below Market Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such Below Market Options, plus, in the case of Convertible Securities issuable upon the exercise of such Below Market Options, the minimum aggregate amount of additional consideration payable upon the exercise, conversion or exchange thereof at the time such Convertible Securities first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Below Market Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Exercise Price will be made upon the actual issuance of such Common Stock upon the exercise of such Below Market Options or upon the exercise, conversion or exchange of Convertible Securities issuable upon exercise of such Below Market Options. (ii) Issuance of Convertible Securities. (A) If the Company in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options but including upon any Convertible Securities issued upon exercise of rights granted under that certain Rights Agreement dated as of March 22, 1996 by and between the Company and Chemical Mellon Shareholder Services L.L.C. or any successor agreement (the "Rights Plan"), and the price per share for which Common Stock is issuable upon such exercise, conversion or exchange (as determined pursuant to Paragraph 4(b)(ii)(B) if applicable) is less than the Market Price on the date of issuance, then the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Convertible Securities will, as of the date of the issuance of such Convertible Securities, be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For the purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon such exercise, conversion or exchange" is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise, conversion or exchange thereof at the time such Convertible Securities first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Convertible Securities. No further adjustment to the Exercise Price will be made upon the actual issuance of such Common Stock upon exercise, conversion or exchange of such Convertible Securities. (B) If the Company in any manner issues or sells any Convertible Securities with a variable conversion or exercise price or exchange ratio (a "Variable Rate Convertible Security"), then the price per share for which Common Stock is issuable upon such exercise, conversion or exchange for purposes of the calculation contemplated by Paragraph 4(b)(ii)(A) shall be deemed to be the lowest price per share which would be applicable (assuming all holding period and other conditions to any discounts contained in such Convertible Security have been satisfied) if the Market Price on the date of issuance of such Convertible Security were 75% of the actual Market Price on such date (the "Assumed Variable Market Price"). Further, if the Market Price at any time or times thereafter is less than or equal to the Assumed Variable Market Price last used for making any adjustment under this Section 4 with respect to any Variable Rate Convertible Security, the Exercise Price in effect at such time shall be readjusted to equal the Exercise Price which would have resulted if the Adjusted Variable Market Price at the time of issuance of the Variable Rate Convertible Security had been 90% of the Market Price existing at the time of the adjustment required by this sentence. (iii) Change in Option Price or Conversion Rate. If there is a change at any time in (i) the amount of additional consideration payable to the Company upon the exercise of any Options; (ii) the amount of additional consideration, if any, payable to the Company upon the exercise, conversion or exchange of any Convertible Securities; or (iii) the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock (other than under or by reason of provisions designed to protect against dilution), the Exercise Price in effect at the time of such change will be readjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (iv) Treatment of Expired Options and Unexercised Convertible Securities. If, in any case, the total number of shares of Common Stock issuable upon exercise of any Option or upon exercise, conversion or exchange of any Convertible Securities is not, in fact, issued and the rights to exercise such Option or to exercise, convert or exchange such Convertible Securities shall have expired or terminated, the Exercise Price then in effect will be readjusted to the Exercise Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination (other than in respect of the actual number of shares of Common Stock issued upon exercise, conversion or exchange thereof), never been issued. (v) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued, granted or sold for cash, the consideration received therefor for purposes of this Warrant will be the amount received by the Company therefor, before deduction of reasonable commissions, underwriting discounts or allowances or other reasonable expenses paid or incurred by the Company in connection with such issuance, grant or sale. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration part or all of which shall be other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Market Price thereof as of the date of receipt. The fair value of any consideration other than cash or securities will be determined in good faith by an investment banker or other appropriate expert of national reputation selected by the Company and reasonably acceptable to the holder hereof, with the costs of such appraisal to be borne by the Company. (vi) Exceptions to Adjustment of Exercise Price. No adjustment to the Exercise Price will be made under Section 4(a) or this Section 4(b) (i) upon the exercise of any warrants, options or convertible securities issued and outstanding on October 16, 1996 (other than rights granted under the Rights Plan); (ii) upon the issuance, grant or exercise of any stock or options which may hereafter be issued, granted or exercised under any employee benefit plan, franchisee stock option plan or customer stock option plan of the Company now existing or to be implemented in the future, so long as the issuance of such stock or options is approved by the Board of Directors of the Company or a committee of directors established for such purpose; (iii) upon the exercise of the Warrants or issuance or conversion of the Series B Preferred Stock (including, without limitation, any Premium Amount (as defined in the Statement with Respect to Shares) or any other issuance of securities pursuant to the Statement with Respect to Shares); (iv) upon the issuance of any securities in connection with an acquisition by the Company of or a merger of the Company with an entity (or an interest therein) in exchange for securities of the Company, so long as the aggregate purchase price or merger consideration to be paid to acquire or merge with such entity (or interest therein) by the Company is approved by the Board; (v) upon the issuance of any securities in an underwritten public offering to the extent that the offering price of such Securities is not less than 90% of the Market Price of such Securities on the date the price of such public offering is determined; or (vi) in connection with the exercise of rights granted under the Rights Plan to the extent such rights became exercisable as a result of the Common Stock ownership of Capital Ventures International, Susquehanna Financial Group, Inc. and/or their respective affiliates. (c) Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares, then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) the shares of Common Stock acquirable hereunder into a smaller number of shares, then, after the date of record for effecting such combination, the Exercise Price in effect immediately prior to such combination will be proportionately and equitably increased. (d) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to the provisions of this Paragraph 4 (other than an adjustment pursuant to Section 4(f) hereof), the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (e) Consolidation, Merger or Sale. In case of any consolidation of the Company with, or merger of the Company into any other corporation, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company, then as a condition of such consolidation, merger or sale or conveyance, adequate provision will be made whereby the holder of this Warrant will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of this Warrant had such consolidation, merger or sale or conveyance not taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this Paragraph 4 hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company will not effect any consolidation, merger or sale or conveyance unless prior to the consummation thereof, the successor corporation (if other than the Company) assumes by written instrument the obligations under this Paragraph 4 and the obligations to deliver to the holder of this Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, the holder may be entitled to acquire. (f) Distribution of Assets. In case the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Company's shareholders of cash or shares (or rights to acquire shares) of distribution to the Company' shareholders of cash or shares (or rights to acquire shares) of capital stock of a subsidiary, including, but not limited to XLConnect Solutions, Inc. (i.e. a spin-off, but excluding any dividends payable in cash in the ordinary course out of retained earnings consistent with the Company's past practices) (a "Distribution"), the Exercise Price will be reduced, effective on the day immediately following the date of record for determining shareholders entitled to such Distribution, by an amount equal to the fair market value of the assets distributable in such Distribution with respect to each share of the Company's Common Stock then outstanding (calculated as if all shares of Common Stock then issuable upon exercise, conversion or exchange of this Warrant and of all other securities issued by the Company which contain a provision affording the holders of such securities antidulution rights with respect to such Distribution were outstanding). For purposes of determining the fair market value of any assets to be so distributed, the fair market value of any cash to be distributed shall be the amount of such cash, the fair market value of any security to be distributed shall be the Market Price of such security as determined pursuant to Section 4(l)(ii) hereof and the fair market value of any other assets to be so distributed shall be determined by an expert of national reputation in appraising the value of assets of the type so distributed, which expert shall be selected by the Company and be reasonably acceptable to the holder, with the costs of such expert to be borne by the Company. No adjustment to the number of shares issuable upon exercise of this Warrant shall be made as a result of an adjustment to the Exercise Price in accordance with this Paragraph (f). In the event there is any change after the effective date of any adjustment required under this Section 4(f) in the type, quality or amount of any assets included as part of any Distribution for which an adjustment under this Section 4(f) was required (other than a change solely in the fair market value of the assets comprising such Distribution), the Exercise Price in effect at the effective time of such change will be readjusted to the Exercise Price which would have been in effect at such time had the adjustment initially made under this Section 4(f) been determined based on the changed Distribution. (g) Notice of Adjustment. Upon the occurrence of any event which requires any adjustment of the Exercise Price, then, and in each such case, the Company shall give notice thereof to the holder of this Warrant, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease in the number of Warrant Shares purchasable at such price upon exercise, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Such calculation shall be certified by the chief financial officer of the Company. (h) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than 1% of such Exercise Price. (i) No Fractional Shares. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fractional share which would otherwise be issuable in an amount equal to the same fraction of the Market Price of a share of Common Stock on the date of such exercise. (j) Other Notices. In case at any time: (i) the Company shall declare any dividend upon the Common Stock payable in shares of stock of any class of the Company or make any other distribution (other than dividends or distributions payable in cash out of retained earnings consistent with the Company's past practices with respect to declaring dividends and making distributions) to the holders of the Common Stock; (ii) the Company shall offer for subscription pro rata to the holders of the Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any capital reorganization of the Company, or reclassification of the Common Stock, or consolidation or merger of the Company with or into, or sale of all or substantially all its assets to, another corporation or entity; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in each such case, the Company shall give to the holder of this Warrant (a) notice of the date on which the books of the Company shall close or a record shall be taken for determining the holders of Common Stock entitled to receive any such dividend, distribution, or subscription rights or for determining the holders of Common Stock entitled to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, notice of the date (or, if not then known, a reasonable approximation thereof by the Company) when the same shall take place. Such notice shall also specify the date on which the holders of Common Stock shall be entitled to receive such dividend, distribution, or subscription rights or to exchange their Common Stock for stock or other securities or property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, as the case may be. Such notice shall be given at least 20 days prior to the record date or the date on which the Company's books are closed in respect thereto (but in no event more than 10 days prior to the date notice of such event is to be given by the Company to the public). Failure to give any such notice or any defect therein shall not affect the validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv) above. (k) Intentionally Omitted. (l) Certain Definitions. (i) "Common Stock Deemed Outstanding" shall mean the number of shares of Common Stock actually outstanding (not including shares of Common Stock held in the treasury of the Company), plus (x) pursuant to Paragraph 4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon the exercise of Options and the exercise, conversion or exchange of Convertible Securities (including any Convertible Securities issuable upon the exercise of Options), as of the date of such issuance or grant of such Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum total number of shares of Common Stock issuable upon the exercise of Options and the exercise, conversion or exchange of Convertible Securities (including any Convertible Securities issuable upon the exercise of Options), as of the date of issuance of such Convertible Securities, if any. (ii) "Market Price," as of any date, (i) means the average of the closing bid prices for the shares of Common Stock as reported by the National Association of Securities Dealers Automated Quotation National Market ("NASDAQ-NM") for the five (5) trading days immediately preceding such date, or (ii) if the NASDAQ-NM is not the principal trading market for the shares of Common Stock, the average of the last reported sale prices on the principal trading market for the Common Stock during the same period, or (iii) if market value cannot be calculated as of such date on any of the foregoing bases, the Market Price shall be the average fair market value as reasonably determined by a nationally recognized investment banking firm selected by the Company and reasonably acceptable to the holder, with the costs of the appraisal to be borne by the Company. The manner of determining the Market Price of the Common Stock set forth in the foregoing definition shall apply with respect to any other security in respect of which a determination as to market value must be made hereunder. (iii) "Common Stock," for purposes of this Paragraph 4, includes the Common Stock, par value $.01 per share, and any additional class of stock of the Company having no preference as to dividends or distributions on liquidation, provided that the shares purchasable pursuant to this Warrant shall include only shares of Common Stock, par value $.01 per share, in respect of which this Warrant is exercisable, or shares resulting from any subdivision or combination of such Common Stock, or in the case of any reorganization, reclassification, consolidation, merger, or sale of the character referred to in Paragraph 4(e) hereof, the stock or other securities or property provided for in such Paragraph. 5. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the holder of this Warrant or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the holder of this Warrant. 6. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company. No provision of this Warrant, in the absence of affirmative action by the holder hereof to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 7. Transfer, Exchange, and Replacement of Warrant. (a) Restriction on Transfer. This Warrant and the rights granted to the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office or agency of the Company referred to in Paragraph 7(e) below, provided, however, that any transfer or assignment shall be subject to the conditions set forth in Paragraph 7(f) hereof and to the applicable provisions of the Securities Purchase Agreement. Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered holder hereof as the owner and holder hereof for all purposes, and the Company shall not be affected by any notice to the contrary. Notwithstanding anything to the contrary contained herein, the registration rights described in Paragraph 8 are assignable only in accordance with the provisions of that certain Registration Rights Agreement, dated as of October 16, 1996, by and among the Company and the other signatory thereto (the "Registration Rights Agreement"). (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the holder hereof at the office or agency of the Company referred to in Paragraph 7(e) below, for new Warrants of like tenor representing in the aggregate the right to purchase the number of shares of Common Stock which may be purchased hereunder, each of such new Warrants to represent the right to purchase such number of shares as shall be designated by the holder hereof at the time of such surrender. (c) Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement and security (if any) reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in connection with any transfer, exchange, or replacement as provided in this Paragraph 7, this Warrant shall be promptly canceled by the Company. The Company shall pay all taxes (other than securities transfer taxes) and all other expenses (other than legal expenses, if any, incurred by the Holder or transferees) and charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Paragraph 7. (e) Register. The Company shall maintain, at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. (f) Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel, in form, substance and scope customary to opinions typically delivered in transactions of this nature, to the effect that such exercise, transfer, or exchange may be made without registration under said Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter or status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. 8. Registration Rights. The initial holder of this Warrant (and certain assignees thereof) is entitled to the benefit of such registration rights in respect of the Warrant Shares as are set forth in the Registration Rights Agreement. 9. Notices. All notices, requests, and other communications required or permitted to be given or delivered hereunder to the holder of this Warrant shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to such holder at the address shown for such holder on the books of the Company, or at such other address as shall have been furnished to the Company by notice from such holder. All notices, requests, and other communications required or permitted to be given or delivered hereunder to the Company shall be in writing, and shall be personally delivered, or shall be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid and addressed, to the office of the Company at 411 Eagleview Boulevard, Exton, Pennsylvania 19341, Attention: Chief Financial Officer, or at such other address as shall have been furnished to the holder of this Warrant by notice from the Company. Any such notice, request, or other communication may be sent by facsimile, but shall in such case be subsequently confirmed by a writing personally delivered or sent by certified or registered mail or by recognized overnight mail courier as provided above. All notices, requests, and other communications shall be deemed to have been given either at the time of the receipt thereof by the person entitled to receive such notice at the address of such person for purposes of this Paragraph 9, or, if mailed by registered or certified mail or with a recognized overnight mail courier upon deposit with the United States Post Office or such overnight mail courier, if postage is prepaid and the mailing is properly addressed, as the case may be. 10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW. THE UNITED STATES FEDERAL COURTS LOCATED IN PHILADELPHIA, PENNSYLVANIA SHALL HAVE EXCLUSIVE JURISDICTION WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS WARRANT. 11. Miscellaneous. (a) Amendments. This Warrant and any provision hereof may only be amended by an instrument in writing signed by the Company and the holder hereof. (b) Descriptive Headings. The descriptive headings of the several paragraphs of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provi- sions hereof. (c) Cashless Exercise. Notwithstanding anything to the contrary contained in this Warrant, if the resale of the Warrant Shares by the holder is not then registered pursuant to an effective registration statement under the Securities Act on or before the later of (i) October 15, 1998 and (ii) the date of any exercise of this Warrant, this Warrant may be exercised by presentation and surrender of this Warrant to the Company at its principal executive offices with a written notice of the holder's intention to effect a cashless exercise, including a calculation (to the extent then calculable) of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a "Cashless Exercise", and the date of such presentation and surrender being herein referred to as the "Cashless Exercise Date"). In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder shall surrender this Warrant for that number of shares of Common Stock determined by multiplying the number of Warrant Shares to which it would otherwise be entitled by a fraction, the numerator of which shall be the excess, if any, of the Market Price as of the Cashless Exercise Date over the Exercise Price, and the denominator of which shall be the Market Price as of the Cashless Exercise Date. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. INTELLIGENT ELECTRONICS, INC. By: /s/ Thomas J. Coffey --------------------------------- Name: Thomas J. Coffey Title: Sr. V.P. & CFO FORM OF EXERCISE AGREEMENT Dated: ________, ____. To:_____________________________ The undersigned, pursuant to the provisions set forth in the within Warrant, hereby agrees to purchase ________ shares of Common Stock covered by such Warrant, and makes payment herewith in full therefor at the price per share provided by such Warrant in cash or by certified or official bank check in the amount of, or, if the resale of such Common Stock by the undersigned is not registered pursuant to an effective registration statement under the Securities Act of 1933, as amended, on or before October 16, 1998, by surrender of securities issued by the Company (including a portion of the Warrant) having a market value (in the case of a portion of this Warrant, determined in accordance with Section 11(c) of the Warrant) equal to $_________. Please issue a certificate or certifi- cates for such shares of Common Stock in the name of and pay any cash for any fractional share to: Name:________________________________ Signature:___________________________ Address:_____________________________ _____________________________ Note: The above signature should correspond exactly with the name on the face of the within Warrant. and, if said number of shares of Common Stock shall not be all the shares purchasable under the within Warrant, a new Warrant is to be issued in the name of said undersigned covering the balance of the shares purchasable thereunder less any fraction of a share paid in cash. FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock covered thereby set forth hereinbelow, to: Name of Assignee Address No of Shares , and hereby irrevocably constitutes and appoints ______________ ________________________ as agent and attorney-in-fact to transfer said Warrant on the books of the within-named corporation, with full power of substitution in the premises. Dated: _____________________, ____, In the presence of __________________ Name: ____________________________ Signature: _______________________ Title of Signing Officer or Agent (if any): ___________________________ Address: ________________________ ________________________ Note: The above signature should correspond exactly with the name on the face of the within Warrant. EX-99 5 EXHIBIT 99.4 EXHIBIT C REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of October 15, 1996 by and among INTELLIGENT ELECTRONICS, INC., a Pennsylvania corporation, with headquarters located at 411 Eagleview Boulevard, Exton, PA 19341 (the "Company"), and the undersigned (together with its affiliates and any assignee or transferee of all of its rights hereunder, the "Initial Investor"). WHEREAS: A. In connection with the Securities Purchase Agreement by and between the parties hereto of even date herewith (the "Securities Purchase Agreement"), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue and sell to the Initial Investor (i) shares of its Series B Convertible Preferred Stock (the "Preferred Stock") that are convertible into shares (the "Conversion Shares") of the Company's common stock (the "Common Stock") upon the terms and subject to the limitations and conditions set forth in the Statement with Respect to Shares in respect thereof (the "Statement with Respect to Shares"), (ii) warrants (the "First Warrants") to acquire 225,000 shares of Common Stock (the "Closing Warrant Shares") and (iii) under certain circumstances, additional warrants (together with the First Warrants, the "Warrants") to acquire 225,000 shares of Common Stock (together with the Closing Warrant Shares, the "Warrant Shares"); and B. To induce the Initial Investor to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 Act"), and applicable state securities laws; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each of the Initial Investors hereby agree as follows: 1. DEFINITIONS. ----------- a. As used in this Agreement, the following terms shall have the following meanings: (i) "Investors" means the Initial Investor and any transferees or assignees who agrees to become bound by the provisions of this Agreement in accordance with Section 9 hereof. (ii) "register," "registered," and "registration" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the "SEC"). (iii) "Registrable Securities" means the Conversion Shares and the Warrant Shares issued or issuable and any shares of capital stock issued or issuable as a dividend on or in exchange for or otherwise with respect to any of the foregoing (including all shares of capital stock issuable pursuant to Articles V.B., VI.E. and VI.F. of the Statement with Respect to Shares) together with all rights issuable under the Rights Plan (as defined in the Statement with Respect to Shares) with respect to other Registrable Securities. (iv) "Registration Statement" means a registration statement of the Company under the 1933 Act. b. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. 2. REGISTRATION. ------------ a. Mandatory Registration. The Company shall prepare, and, on or prior to the date which is twenty (20) business days after the date with respect to the First Closing under the Securities Purchase Agreement (the "Closing Date"), file with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then available to the Company, on such form of Registration Statement as is then available to effect a registration of the Registrable Securities, subject to the consent of the Initial Investor, which consent will not be unreasonably withheld, provided that the Company's obligation hereunder to file a Registration Statement shall be suspended so long as the Investor's consent is withheld for any reason and the Investor fails to consent to the use of another form available and which is reasonable for use by the Company) covering the resale of at least 6,000,000 shares of Registrable Securities underlying the securities issued or issuable at the First Closing and Second Closing, which Registration Statement, to the extent allowable under the 1933 Act and the Rules promulgated thereunder (including Rule 416), shall state that such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of the Preferred Stock and exercise of the Warrants (i) to prevent dilution resulting from stock splits, stock dividends or similar transactions or (ii) by reason of changes in the Conversion Price (as defined in the Statement with Respect to Shares) of the Preferred Stock or the Exercise Price of the Warrants in accordance with the terms thereof. b. Underwritten Offering. If any offering pursuant to a Registration Statement pursuant to Section 2(a) hereof involves an underwritten offering, the Investors who hold a majority in interest of the Registrable Securities subject to such underwritten offering, with the consent of the Initial Investor, shall have the right to select one legal counsel and an investment banker or bankers and manager or managers to administer the offering, which investment banker or bankers or manager or managers shall be reasonably satisfactory to the Company. c. Effectiveness of Registration Statement. The Company shall use its best efforts to obtain effectiveness of the Registration Statement as soon as practicable and shall continue to use such best efforts to maintain such effectiveness for the Registration Period (as defined herein). Notwithstanding the foregoing, if the Second Closing does not occur under the Securities Purchase Agreement as a result of a material breach by the Initial Investor of its obligations thereunder, the Company shall have no further obligation to maintain the effectiveness of the Registration Statement after the first anniversary of the First Closing thereunder. For the avoidance of doubt, the Company's obligations to use its best efforts to cause the Registration Statement to become effective and to maintain the effectiveness of such Registration Statement through the first anniversary of the First Closing under the Securities Purchase Agreement shall continue notwithstanding any breach by the Initial Investor of its obligations under the Securities Purchase Agreement. d. Piggy-Back Registrations. Subject to the last sentence of this Section 2(d), if at any time prior to the expiration of the Registration Period (as hereinafter defined) the Company shall file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the 1933 Act of any of its equity securities (other than on Form S-4 or Form S-8 or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans), the Company shall send to each Investor who is entitled to registration rights under this Section 2(d) written notice of such determination and, if within fifteen (15) days after the effective date of such notice, such Investor shall so request in writing, the Company shall include in such Registration Statement all or any part of the Registrable Securities such Investor requests to be registered, except that if, in connection with any underwritten public offering for the account of the Company the managing underwriter(s) thereof shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in such underwriter(s)' judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which such Investor has requested inclusion hereunder as the underwriter shall permit, if any. Any exclusion of Registrable Securities shall be made pro rata among the Investors seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Investors; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities; and provided, further, however, that, after giving effect to the immediately preceding proviso, any exclusion of Registrable Securities shall be made pro rata with holders of other securities having the right to include such securities in the Registration Statement other than holders of securities entitled to inclusion of their securities in such Registration Statement by reason of demand registration rights. No right to registration of Registrable Securities under this Section 2(d) shall be construed to limit any registration required under Section 2(a) hereof. If an offering in connection with which an Investor is entitled to registration under this Section 2(d) is an underwritten offering, then each Investor whose Registrable Securities are included in such Registration Statement shall, unless otherwise agreed by the Company, offer and sell such Registrable Securities in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering. Notwithstanding anything herein to the contrary, at any time a Registration Statement is effective and available for use by Investors to resell all of the Registrable Securities then held by the Investors, the rights and obligations contained in this Section 2(d) shall only be applicable to a Registration Statement relating to an underwritten offering. e. Eligibility for Form S-3. The Company represents and warrants that it meets as of the date hereof the requirements for the use of Form S-3 for registration of the sale by the Initial Investor and any other Investor of the Registrable Securities and the Company shall use its best efforts to file all reports required to be filed by the Company with the SEC in a timely manner so as to maintain such eligibility for the use of Form S-3. 3. OBLIGATIONS OF THE COMPANY. -------------------------- In connection with the registration of the Registrable Securities, the Company shall have the following obligations: a. The Company shall prepare promptly, and file with the SEC not later than twenty (20) business days after the Closing Date, a Registration Statement with respect to the number of Registrable Securities provided in Section 2(a), and thereafter use its best efforts to cause such Registration Statement relating to Registrable Securities to become effective as soon as possible after such filing, and keep the Registration Statement effective pursuant to Rule 415 at all times until such date as is the earlier of (i) the date on which all of the Registrable Securities have been sold and (ii) the date on which all Registrable Securities (in the reasonable opinion of counsel to the Initial Investor or the Company) may be immediately sold without registration (the "Registration Period"), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein not misleading. The Registration Statement will include a broad description of the Plan of Distribution, which description shall be substantially in the form attached hereto as Schedule 3(a). b. The Company shall use its best efforts to prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective at all times during the Registration Period, and, during such period, comply with the Company's obligations under the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement. In the event the number of shares available under a Registration Statement filed pursuant to this Agreement is insufficient to cover all of such Registrable Securities then reserved for issuance by the Company, the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover all of the Registrable Securities, in each case, as soon as practicable, but in any event within twenty (20) business days after the necessity therefor arises and is brought to the attention of the Company by written notice (based on the market price of the Common Stock and other relevant factors on which the Company reasonably elects to rely after consultation with the Initial Investor). The Company shall use its best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. c. The Company shall furnish to each Investor whose Registrable Securities are included in the Registration Statement and its legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of the Registration Statement and any amendment thereto, each preliminary prospectus and prospectus and each amendment or supplement thereto, and, in the case of the Registration Statement referred to in Section 2(a), each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents in the Company's possession as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor. d. The Company shall use reasonable efforts to (i) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or "blue sky" laws of such jurisdictions in the United States, to the extent required pursuant to such laws, as the Investors who hold a majority in interest of the Registrable Securities being offered reasonably request, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (a) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (b) subject itself to general taxation in any such jurisdiction, (c) file a general consent to service of process in any such jurisdiction, (d) provide any undertakings that cause the Company undue expense or burden, or (e) make any change in its charter or bylaws, which in each case the Board of Directors of the Company determines to be contrary to the best interests of the Company and its stockholders. e. In the event Investors who hold a majority in interest of the Registrable Securities being offered in the offering (with the approval of the Initial Investor) select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriters of such offering. f. As promptly as practicable after becoming aware of such event, the Company shall notify each Investor of the happening of any event, of which the Company has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request; provided, that, not more than once in any twelve month period, for up to a period of thirty (30) days, the Company may delay the disclosure of material non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company, in the best interest of the Company and, in the opinion of counsel to the Company, otherwise required by applicable law (an "Allowed Delay"); provided, further, that the Company shall promptly (i) notify the Investors in writing of the existence of material non-public information giving rise to an Allowed Delay and (ii) advise the Investors in writing to cease all sales under the Registration Statement until the end of the Allowed Delay. Notwithstanding the first proviso of the immediately preceding sentence, the provisions of Section 2(c) shall be applicable during the period of an Allowed Delay. Upon expiration of the Allowed Delay, the Company shall again be bound by the first sentence of this Section 3(f) with respect to the information giving rise thereto. g. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, and, if such an order is issued, to obtain the withdrawal of such order at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof. h. The Company shall permit a single firm of counsel designated by the Initial Investor to review the Registration Statement and all amendments and supplements thereto (as well as all requests for acceleration or effectiveness thereof) a reasonable period of time prior to their filing with the SEC, and not file any document in a form to which such counsel reasonably objects. The Company's obligations pursuant to Sections 2(c), 3(f) and 6 hereof shall be suspended during any period in which any filing by the Company which is necessary in order to comply with such Sections is delayed as a result of review or objection by such counsel. i. The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement. j. At the request of any Investor, the Company shall furnish on the date that Registrable Securities are delivered to an underwriter, if any, for sale in connection with the Registration Statement or, if such securities are not being sold by an underwriter, on the date of effectiveness thereof, (i) an opinion, dated as of such date, from counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering by issuer's counsel, addressed to the underwriters, if any, and the Investors and (ii) a letter, dated such date from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and the Investors (to the extent permitted in accordance with applicable accounting rules). k. The Company shall make available for inspection by (i) any Investor, (ii) any underwriter participating in any disposition pursuant to the Registration Statement, (iii) one firm of attorneys and one firm of accountants or other agents retained by the Initial Investor, (iv) one firm of attorneys and one firm of accountants or other agents retained by all other Investors, and (v) one firm of attorneys retained by all such underwriters (collectively, the "Inspectors") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably deemed necessary by each Inspector to enable each Inspector to exercise its due diligence responsibility, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to an Investor) of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement after a failure by the Company to make such disclosure for a period of ten (10) business days after receiving written notice from the Inspector of the need to make such disclosure (provided that no such disclosure shall be made during any thirty (30) day period referred to in Section 3(f) hereof), (b) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to disclose any confidential information in such Records to any Inspector until and unless such Inspector shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 3(k). Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein shall be deemed to limit the Investor's ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations. The Investors shall cause all Inspectors to coordinate their review of the Records at the Company's offices in the manner reasonably requested by the Company. l. The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities or other laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to such Investor prior to making such disclosure, and allow the Investor, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. m. The Company shall use its best efforts either to (i) cause all the Registrable Securities covered by the Registration Statement to be listed on each national securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure the designation and quotation, of all the Registrable Securities covered by the Registration Statement on the NASDAQ National Market ("NASDAQ- NM") or, if not eligible for the NASDAQ-NM on the NASDAQ Small Cap Market and, without limiting the generality of the foregoing, to arrange for at least two market makers to register with the National Association of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable Securities. n. The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement. o. The Company shall cooperate with the Investors who hold Registrable Securities being offered and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the managing underwriter or underwriters, if any, or the Investors may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or the Investors may request, and, within three (3) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) an instruction in the form attached hereto as Exhibit 1 and an opinion of such counsel in the form attached hereto as Exhibit 2. 4. OBLIGATIONS OF THE INVESTORS. ---------------------------- In connection with the registration of the Registrable Securities, the Investors shall have the following obligations: a. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least three (3) business days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor of the information the Company requires from each such Investor if such Investor elects to have any of such Investor's Registrable Securities included in the Registration Statement. b. Each Investor, by such Investor's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statement. c. In the event Investors holding a majority in interest of the Registrable Securities being registered (with the approval of the Initial Investor) determine to engage the services of an underwriter, each Investor agrees to enter into and perform such Investor's obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statement. d. Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or 3(g), such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. e. No Investor may participate in any underwritten registration hereunder unless such Investor (i) agrees to sell such Investor's Registrable Securities on the basis provided in any underwriting arrangements in usual and customary form entered into by the Company, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant to Section 5 below. f. Each Investor agrees to comply with all applicable laws and regulations in connection with any sale, transfer or other disposition of Registrable Securities. 5. EXPENSES OF REGISTRATION. ------------------------ All reasonable expenses, other than underwriting fees, discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and the Company's accounting fees, the fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel selected by the Initial Investor pursuant to Section 2(b) hereof ("Initial Investor Counsel Fees") shall be borne by the Company; provided, however, that the Company shall not be responsible for Initial Investor Counsel Fees to the extent they aggregate in excess of $15,000 for all registrations under this Agreement (except for Initial Investor Counsel Fees incurred in connection with any registrations effectuated pursuant to the penultimate sentence of Section 3(b) hereof, for each of which registrations there shall be a separate $15,000 limitation). The Initial Investor Counsel Fees are in addition to the expenses payable by the Company pursuant to Section 4(f) of the Securities Purchase Agreement. 6. INDEMNIFICATION. --------------- In the event any Registrable Securities are included in a Registration Statement under this Agreement: a. To the extent permitted by law, the Company will indemnify, hold harmless and defend (i) each Investor who holds such Registrable Securities, (ii) the directors, officers, partners, employees, agents and each person who controls any Investor within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), if any, and (iii) any underwriter (as defined in the 1933 Act) for the Investors; and the directors, officers, partners, employees and each person who controls any such underwriter within the meaning of the 1933 Act or the 1934 Act, if any, (each, an "Indemnified Person"), against any joint or several losses, claims, damages, liabilities or expenses (collectively, together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threatened, in respect thereof, "Claims") to which any of them may become subject insofar as such Claims arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or the omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, (the matters in the foregoing clauses (i) and (ii) being, collectively, "Violations"). Subject to the restrictions set forth in Section 6(c) with respect to the number of legal counsel, the Company shall reimburse the Investors and each such underwriter or controlling person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim to the extent it arises out of or is based upon a Violation which is based upon or arises out of information furnished in writing to the Company by any Indemnified Person or underwriter for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld; and (iii) with respect to any preliminary prospectus or prospectus, shall not inure to the benefit of any Indemnified Person if the untrue statement or omission of material fact contained therein was corrected on a timely basis in the final prospectus or a corrected prospectus, as then amended or supplemented, such final or corrected prospectus was timely made available by the Company pursuant to Section 3(c) hereof, and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a Violation and such Indemnified Person, notwithstanding such advice, used it. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. b. In connection with any Registration Statement in which an Investor is participating, each such Investor agrees severally and not jointly to indemnify, hold harmless and defend, to the same extent and in the same manner set forth in Section 6(a), the Company, each of its directors, officers, employees, agents and each person who controls the Company within the meaning of the 1933 Act or the 1934 Act, any underwriter and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder or underwriter within the meaning of the 1933 Act or the 1934 Act (collectively, an "Indemnified Party"), against any Claim to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out of or is based upon any Violation, in each case to the extent (and only to the extent) that such Violation is based upon or arises out of written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and subject to Section 6(c) such Investor will reimburse any legal or other expenses (promptly as such expenses are incurred and are due and payable) reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Agreement (including this Section 6(b) and Section 7) for only that amount as does not exceed the net proceeds (i.e., after deduction of selling commissions and discounts) to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or likely differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The indemnifying party shall pay for only one separate legal counsel for the Indemnified Persons or the Indemnified Parties, as applicable, and such legal counsel shall be selected by Investors holding a majority-in-interest of the Registrable Securities included in the Registration Statement to which the Claim relates (with the approval of the Initial Investor), if the Investors are entitled to indemnification hereunder, or the Company, if the Company is entitled to indemnification hereunder, as applicable. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is actually prejudiced in its ability to defend such action. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 7. CONTRIBUTION. ------------ To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6, (ii) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation, and (iii) contribution (together with any indemnification or other obligations under this Agreement) by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities and provided, further, that such contribution shall be made in such proportion as is appropriate to reflect the relative fault of the Company on the one hand, and the Investor or Investors on the other, in connection with the statements or omissions which resulted in such claims. 8. REPORTS UNDER THE 1934 ACT. -------------------------- With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the investors to sell restricted securities of the Company to the public without registration ("Rule 144"), the Company agrees to use its best efforts to: a. make and keep public information available, as those terms are understood and defined in Rule 144; b. file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 4(c) of the Securities Purchase Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and c. furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company as to the status of its compliance with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration. 9. ASSIGNMENT OF REGISTRATION RIGHTS. --------------------------------- The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein, (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement, and (vi) such transferee shall be an "accredited investor" as that term defined in Rule 501 of Regulation D promulgated under the 1933 Act. 10. AMENDMENT OF REGISTRATION RIGHTS. -------------------------------- Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with written consent of the Company, the Initial Investor (to the extent the Initial Investor still owns Registrable Securities) and Investors who hold a majority interest of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. 11. MISCELLANEOUS. ------------- a. A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. b. Notices required or permitted to be given hereunder shall be in writing and shall be deemed to be sufficiently given when personally delivered (by hand, by courier, by telephone line facsimile transmission or other means) or which receipt is refused if delivered by hand or by courier or sent by certified mail, return receipt requested, properly addressed and with proper postage pre-paid, If to the Company: Intelligent Electronics, Inc. 411 Eagleview Boulevard Exton, PA 19341 Attention: Chief Financial Officer Telecopy: (610) 458-0599 With copy to: Pepper, Hamilton & Scheetz 3000 Two Logan Square Philadelphia, PA 19103-2799 Telecopy: (215)981-4750 Attention: Barry Abelson, Esquire and: Steven M. Kawalick General Counsel Intelligent Electronics, Inc. 5700 S. Quebec Street Englewood, CO 80111 Telecopy: (303) 486-8939 if to Capital Ventures International, Capital Ventures International c/o Bala International, Inc. 401 City Line Avenue, Suite 220 Bala Cynwyd, PA 19004-1122 Telecopy: (610) 617-2707 Attention: Andrew Frost with copy to: Joel Greenberg, Esq. c/o Bala International, Inc. 401 City Line Avenue, Suite 220 Bala Cynwyd, PA 19004-1122 Telecopy: (610) 617-2707 and: Klehr, Harrison, Harvey, Branzburg & Ellers 1401 Walnut Street Philadelphia, PA 19102 Telecopy: (215) 568-6603 Attention: Stephen T. Burdumy, Esquire and if to any other Investor, at such address as such Investor shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 11(b), and shall be effective, when personally delivered, upon receipt and, when so sent by certified mail, four days after deposit with the United States Postal Service. c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. d. This Agreement shall be enforced, governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania applicable to agreements made and to be performed entirely within such State. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof. The parties hereto hereby submit to the exclusive jurisdiction of the United States Federal Courts located in Philadelphia, Pennsylvania with respect to any dispute arising under this Agreement or the transactions contemplated hereby. e. This Agreement and the Securities Purchase Agreement (including all schedules and exhibits thereto) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Securities Purchase Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. f. Subject to the requirements of Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. j. All consents and other determinations to be made by the Investors pursuant to this Agreement shall be made by Investors holding a majority of the Registrable Securities, determined as if all shares of Preferred Stock and Warrants then outstanding (including Warrants issuable pursuant to the Securities Purchase Agreement) have been converted into or exercised for Registrable Securities. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the Company and the undersigned Initial Investor have caused this Agreement to be duly executed as of the date first above written. INTELLIGENT ELECTRONICS, INC. By: /s/ Thomas J. Coffey ------------------------------ Name: Thomas J. Coffey Its: Sr. V.P. & CFO CAPITAL VENTURES INTERNATIONAL By: Bala International, Inc., as authorized agent By: /s/ Andrew Frost ------------------------------------- Name: Andrew Frost Its: Director EXHIBIT 1 to Registration Rights Agreement [Company Letterhead] [Date] [Name and address of Transfer Agent] Ladies and Gentlemen: This letter shall serve as our irrevocable authorization and direction to you (1) to transfer or re-register the certificates for the shares of Common Stock, $.01 par value (the "Common Stock"), of Intelligent Electronics, Inc., a Pennsylvania corporation (the "Company"), represented by certificate numbers _____ for an aggregate of _____ shares (the "Outstanding Shares") of Common Stock presently registered in the name of [Name of Investor] (which shares were previously issued upon conversion or exercise of the Company's Series A Convertible Preferred Stock (the "Preferred Stock") or Warrants (as hereinafter defined) upon surrender of such certificates to you (or evidence of loss, theft or destruction thereof), notwithstanding the legend appearing on such certificates, and (2) to issue shares (the "Conversion Shares") of Common Stock to or upon the order of the registered holder from time to time upon conversion of the Preferred Stock upon surrender to you of a properly completed and duly executed Conversion Notice and such Preferred Stock, notwithstanding the legend appearing on such Preferred Stock and (3) to issue shares (the "Warrant Shares") of Common Stock to or upon the order of the registered holder from time to time upon exercise of the warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated as of October __, 1996 between the Company and Capital Ventures International (the "Warrants") upon surrender to you of a properly completed and duly executed Exercise Agreement and such Warrants (or evidence of loss, theft or destruction thereof) and confirmation from the Company that the exercise price has been paid to the Company, notwithstanding the legend appearing on such Warrants. The transfer or re- registration of the certificates for the Outstanding Shares by you should be made at such time as you are requested to do so by the record holder of the Outstanding, subject to the surrender and confirmation requirements set forth in the preceding sentence. The certificate issued upon such transfer or re- registration should be registered in such name as requested by the holder of record of the certificate surrendered to you and should not bear any legend which would restrict the transfer of the shares represented thereby. In addition, you are hereby directed to remove any stop-transfer instruction relating to the Outstanding Shares. Certificates for the Conversion Shares and Warrant Shares should not bear any restrictive legend and should not be subject to any stop-transfer restriction. Contemporaneous with the delivery of this letter, the Company is delivering to you an opinion of ___________________ as to registration of the Outstanding Shares, the Conversion Shares and the Warrant Shares under the Securities Act of 1933, as amended. Should you have any questions concerning this matter, please contact me. Very truly yours, INTELLIGENT ELECTRONICS, INC. By: _________________________ Name: Title: Enclosures: cc: [Name of Investor] EXHIBIT 2 to Registration Rights Agreement [Date] [Name and address of transfer agent] RE: Intelligent Electronics, Inc. Ladies and Gentlemen: We are counsel to Intelligent Electronics, Inc., a Pennsylvania corporation (the "Company"), and we understand that [Name of Investor] (the "Holder") has purchased from the Company (i) shares of the Company's Series A Convertible Preferred Stock (the "Preferred Stock") that is convertible into the Company's Common Stock, par value $.01 (the "Common Stock") and (ii) warrants (the "Warrants") to acquire Common Stock. The Preferred Stock and Warrants were purchased by the Holder pursuant to a Securities Purchase Agreement, dated as of October ___, 1996, between the Holder and the Company (the "Agreement"). Pursuant to a Registration Rights Agreement, dated as of October ___, 1996, between the Company and the Holder (the "Registration Rights Agreement"), the Company agreed with the Holder, among other things, to register the Registrable Securities (as that term is defined in the Registration Rights Agreement) under the Securities Act of 1933, as amended (the "Securities Act"), upon the terms provided in the Registration Rights Agreement. In connection with the Company's obligations under the Registration Rights Agreement, on _____ __, 1996, the Company filed a Registration Statement on Form S-___ (File No. 333- _____________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities, which names the Holder as a selling stockholder thereunder. [Other reasonable introductory and scope of examination language to be inserted by counsel rendering the opinion] Based on the foregoing, we are of the opinion that the Registrable Securities have been registered under the Registration Statement for resale by the Holder under the Securities Act. Very truly yours, cc: [Name of investor] -----END PRIVACY-ENHANCED MESSAGE-----