As Filed with the Securities and Exchange Commission on November 26, 1996
Registration No. 333-15971
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
_______________
INTELLIGENT ELECTRONICS, INC.
(Exact Name of Registrant as Specified in Charter)
PENNSYLVANIA 23-2208404
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification
Organization) Number)
411 Eagleview Boulevard
Exton, Pennsylvania 19341
(610) 458-5500
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Richard D. Sanford
Chairman of the Board
Intelligent Electronics, Inc.
411 Eagleview Boulevard
Exton, Pennsylvania 19341
(610) 458-5500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
_______________
WITH A COPY TO:
Barry M. Abelson, Esq.
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, PA 19103-2799
(215) 981-4000
______________
Approximate date of commencement of proposed sale to public: As soon
as practicable after the effectiveness of this Registration Statement.
_______________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. /__/
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /_X_/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. /__/
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /__/
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. /__/
THIS REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
PAGE
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SUBJECT TO COMPLETION
DATED NOVEMBER 26, 1996
PROSPECTUS
INTELLIGENT ELECTRONICS, INC.
COMMON STOCK
This Prospectus relates to the sale by Capital Ventures
International (the "Selling Shareholder"), a shareholder of Intelligent
Electronics, Inc. (the "Company"), of up to 6,000,000 shares (the "Offered
Shares") of the Company's common stock, par value $.01 per share (the "Common
Stock"), including:
(1) up to 5,000,000 shares of Common Stock which may be issued
by the Company upon conversion by the Selling Shareholder of Series B
Convertible Preferred Stock of the Company (the "Preferred Stock") or
otherwise issuable to the Selling Shareholder pursuant to the Statement with
Respect to Shares in respect of the Preferred Stock; and
(2) up to 1,000,000 shares of Common Stock which may be issued
by the Company upon the exercise by the Selling Shareholder of warrants to
purchase shares of Common Stock (the "Warrants") or otherwise issuable to the
Selling Shareholder pursuant to the Warrants.
The issuance of shares of Common Stock upon the conversion of
the Preferred Stock and the exercise of the Warrants, or otherwise issuable
to the Selling Shareholder pursuant to the Statement with Respect to Shares
in respect of the Preferred Stock or the Warrants, is not covered by this
Prospectus. Rather, this Prospectus covers the sale of the Offered Shares of
Common Stock by the Selling Shareholder. The Company will not receive any
proceeds from the conversion of the Preferred Stock or from the sale of the
Offered Shares of Common Stock by the Selling Shareholder. Moreover, since
there is no assurance that the Warrants will be exercised, there is no
assurance that the Company will receive any proceeds thereunder. "See
Selling Shareholder."
No underwriter is initially being utilized in connection with
this offering. The Company will pay all expenses incurred in connection with
this offering other than underwriting fees, discounts and commissions. See
"Plan of Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PROSPECTIVE PURCHASERS SHOULD CONSIDER THE RISKS SET FORTH UNDER
"RISK FACTORS" COMMENCING ON PAGE 3.
The sale, transfer and/or distribution of the Offered Shares
of Common Stock by the Selling Shareholder, or by its pledgees, donees,
transferees or other successors in interest, may be effected from time to
time through brokers, agents, dealers or underwriters in one or more
transactions (which may involve crosses and principal trades, including block
transactions), in special offerings, negotiated transactions, exchange
distributions or secondary distributions, or in connection with short-sale
transactions, or otherwise, at market prices prevailing at the time of sale,
at prices related to such prevailing market prices or at negotiated prices.
In addition, any Offered Shares of Common Stock that qualify for sale
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), may be sold under Rule 144 rather than pursuant to this
Prospectus. The Selling Shareholder may pay commissions or other
compensation to broker-dealers in connection with such sales, which may be in
excess of customary commissions charged for Nasdaq National Market
transactions. See "Plan of Distribution."
The Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market ("Nasdaq") under the symbol "INEL". On November 22,
1996, the last sale price of Common Stock, as reported by the Nasdaq National
Market was $7 7/16 per share.
The date of this Prospectus is , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
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AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3
with the Securities and Exchange Commission (the "Commission") relating to
the shares of Common Stock offered hereby (the "Registration Statement").
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted pursuant
to the rules and regulations of the Commission. Reference is hereby made to
the Registration Statement and to the exhibits relating thereto for further
information with respect to the Company and the securities offered hereby.
Any statements contained herein concerning the provisions of any document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is
made to the copy of such document so filed. Each such statement shall be
qualified in its entirety by such reference.
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements and other information
with the Commission. Proxy statements concerning the Company, reports, and
other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commissions' regional offices in
New York (7 World Trade Center, Suite 1300, New York, New York 10048) and
Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661-2511). Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549 at prescribed rates. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are
publicly available through the Commission's site on the Internet's World Wide
Web, located at http://www.sec.gov. This Registration Statement, including
all exhibits thereto, has been filed with the Commission through EDGAR.
The Common Stock trades on Nasdaq under the symbol "INEL".
Reports, proxy statements and other information concerning the Company may be
inspected at the offices of The Nasdaq Stock Market located at 1735 K Street,
NW, Washington, DC 20006-1500.
The Company will furnish, without charge, to any person to
whom a copy of this Prospectus is delivered, upon such person's written or
oral request, a copy of any and all of the documents that have been
incorporated by reference in this Prospectus (not including exhibits to such
documents, unless such exhibits are specifically incorporated by reference
into such documents). The Company will also furnish, without a charge, to
any such person on oral or written request, a copy of the Company's most
recent Annual Report to Shareholders. Any such request should be directed to
the Secretary, Intelligent Electronics, Inc., 411 Eagleview Boulevard, Exton,
PA 19341 (phone number: (610) 458-5500).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
are incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K and Amendment
No. 1 to the Company's Annual Report on Form 10-K/A for
the fiscal year ended February 3, 1996.
(b) The Company's Quarterly Reports on Form 10-Q for the
quarters ended May 4, 1996 and August 3, 1996.
(c) The Company's Current Report on Form 8-K dated October 16,
1996.
(d) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A dated June 24, 1987,
including any amendments or reports filed for the purpose of
updating such description.
(e) In addition, all documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act prior to the termination of the offering shall be deemed
to be incorporated by reference herein from their respective
dates of filing.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is incorporated
or deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THE COMPANY
Intelligent Electronics, Inc. (together with its subsidiaries, the
"Company") provides information technology products, services and solutions
to network integrators and resellers (the "Network"), and to large and small
corporate customers, educational institutions and governmental agencies in
the United States. The principal products sold, installed and serviced by
the Company include microcomputers, workstations, local and wide area network
systems, computer software and peripherals and telecommunications equipment.
As of October 31, 1996, the Network comprised more than 3,000 locations.
The Company was founded in 1982 and is a Pennsylvania corporation.
In March 1984, the Company commenced the wholesale distribution of
microcomputers (the "Indirect Business"). In August 1995, the Company
exchanged shares of its Common Stock for all of the remaining shares
(approximately 69%) of The Future Now, Inc. ("FNOW"), not previously owned by
the Company. The merger with FNOW, a computer sales and services company,
expanded the Company's offerings through the acquisition of a direct hardware
sales organization (the "Direct Business") and a professional services
organization providing a wide range of sophisticated customer support and
consulting services. In October 1996, in an initial public offering of its
common stock, XLConnect Solutions, Inc. (NASDAQ: XLCT), a subsidiary of the
Company ("XLConnect"), raised approximately $45.5 million (after deducting
underwriting discounts and offering expenses) (the "XLConnect IPO"). After
the XLConnect IPO, XLConnect remained an 80%-owned subsidiary of the Company.
XLConnect is composed of the businesses of the professional services
organization ("PSO") of FNOW and IntelliCom Solutions, Inc. ("IntelliCom").
IntelliCom was founded by the Company in 1994 as a wholly-owned subsidiary of
the Company. XLConnect is a professional services organization providing
enterprise-wide total connectivity solutions to clients with complex
computing and communications requirements.
The Company's principal executive offices are located at 411
Eagleview Boulevard, Exton, Pennsylvania, 19341, telephone (610) 458-5500.
RISK FACTORS
In addition to the other information contained in this Prospectus,
potential risks and uncertainties include, without limitation: the impact of
economic conditions generally and in the industry for microcomputer products
and services; the potential decline in the level of demand for the Company's
products and services; the potential termination or non-renewal of a supply
agreement with a major vendor; continued competitive and pricing pressures in
the industry; product supply shortages; open sourcing of products from
vendors; rapid product improvement and technological change, short product
life cycles and resulting obsolescence risks; legal proceedings and the risk
of unavailability of adequate capital or financing. These and other
potential risks and uncertainties are more specifically discussed below.
Dependence on Key Vendors
Products from four vendors comprised the following percentages of
the Company's revenues during the years ended February 3, 1996, January 28,
1995 and January 29, 1994, and for the six months ended August 3, 1996:
Six
Months
Ended Year Ended
----------- -------------------------------------------
August 3, February 3, January 28, January 29,
1996 1996 1995 1994
----------- ----------- ----------- ------------
IBM 14% 15% 15% 15%
Compaq 27% 24% 25% 25%
Apple 4% 8% 12% 18%
Hewlett-Packard 27% 25% 24% 22%
The Company's agreements with these vendors generally are
subject to termination by the vendors without cause on varying notice periods
and to periodic renewals or re-authorization by the vendors. There can be no
assurance that the Company's relations with these vendors will continue as
presently in effect, or that changes by such vendors in their pricing
policies or in the funds which they provide to the Company for marketing
programs will not adversely affect the Company. The termination or non-
renewal of an agreement with a major vendor, or an insufficient or
interrupted supply of products from such a vendor, could have a material
adverse effect on the Company.
Industry Conditions
Competition in the distribution of microcomputer products is
intense, principally in the areas of price, breadth of product line, product
availability and technical support and service. The Company and its Network
compete with computer aggregators, distributors and retailers in the sale of
its products and services as well as with firms offering information
technology implementation consulting services. The Company faces competition
from microcomputer manufacturers that sell their products through direct
sales forces and from distributors that emphasize mail order and
telemarketing. The Company is also subject to competition from other
aggregators in recruiting and retaining Network members, as well as
competition from distributors in its efforts to sell products to the Network.
Certain competitors have greater financial resources than the Company.
Moreover, the microcomputer products distribution industry
periodically experiences significant product supply shortages and customer
order backlogs due to the inability of certain manufacturers to supply
certain products. By removing the historical requirement that resellers
purchase their products from one source, certain vendors have initiated new
channels of distribution that increase competition for the available product
supply and intensify prevailing price competition.
As a result of the foregoing, as well as the microcomputer products
industry's rapid product improvement and technological change, short product
life cycles and resulting obsolescence risks, there can be no assurance that
the Company will continue to compete successfully in the industry.
Recent Operating Results
The Company has incurred net losses since fiscal 1995. Among the
factors giving rise to these losses are: (i) competitive pressures and their
impact on gross margins, which are expected to continue in the future; (ii)
decreased revenues in the Indirect Business due primarily to certain
manufacturers' products being constrained in 1996 and decreased sales to
existing resellers as a result of continued consolidation in the reseller
channel; (iii) the higher level of operating costs associated with the Direct
Business; (iv) increased depreciation related to the implementation and
enhancement of management information systems; and (v) increased interest
expense as a result of the Company's more frequent use of its available
financing arrangements for inventory financing and working capital purposes
and the addition of $75 million of long-term debt in October 1995. Although
the Company has reported positive income from operations in the first and
second quarters of fiscal 1996, there can be no assurance that the Company's
results of operations will return to profitability as existed prior to
fiscal 1995.
Volatility of Common Stock Price
There has been significant volatility in the market prices of
securities of companies in the microcomputer products industry, including the
Common Stock. Various factors and events, including those relating
specifically to the Company, its vendors or its competitors and those
relating generally to the industry, may have a significant impact on the
trading price of the Common Stock.
Legal Proceedings
In December 1994, several class action lawsuits were filed in the
United States District Court for the Eastern District of Pennsylvania against
the Company and certain officers and directors. On February 13, 1996, the
Court certified the class of these lawsuits as purchasers of Common Stock
from January 29, 1991 through December 5, 1994. These lawsuits have been
consolidated with a class action lawsuit filed several years ago against the
Company, certain directors and officers, and the Company's auditors in the
United States District Court for the Eastern District of Pennsylvania. A
derivative lawsuit was filed in December 1994 in the Court of Common Pleas of
Philadelphia County against the Company and certain of its directors and
officers. These lawsuits allege violations of certain disclosure and related
provisions of the federal securities laws and breach of fiduciary duties,
including allegations relating to the Company's practices regarding vendor
marketing funds, and seek damages in unspecified amounts as well as other
monetary and equitable relief. In addition, the Company is subject to a
Securities and Exchange Commission investigation. The Company believes that
all such allegations and lawsuits are without merit and intends to defend
against them vigorously. While management of the Company, based on its
investigation of these matters and consultations with counsel, believes
resolution of these matters will not have a material adverse effect on the
Company's financial position, the ultimate outcome of these matters cannot
presently be determined. As of the date of this Prospectus, counsel is
unable to render a legal opinion as to the probable outcome of these matters.
Risks Related to XLConnect
In addition to the foregoing, the following potential risks and
uncertainties concerning XLConnect should be considered by prospective
investors in the Common Stock, bearing in mind that any material adverse
change in XLConnect's financial condition or results of operations could have
a material adverse effect on the Company's financial condition or results of
operations.
Absence of History as a Stand-Alone Company; Limited Relevance of Historical
Financial Information.
Prior to the XLConnect IPO, XLConnect never operated as a
stand-alone company and it currently has limited name recognition. In
addition, the PSO business and IntelliCom began to operate as a single,
integrated business within the Company only as of May 31, 1996. There can be
no assurance that XLConnect will be successful in obtaining widespread name
recognition and in fully integrating the PSO business and IntelliCom. The
failure to obtain widespread name recognition and to fully integrate the PSO
business and Intellicom could have a materially adverse effect on XLConnect's
financial condition and results of operations, which in turn could have a
materially adverse effect on the Company's financial condition and results of
operations.
Dependence on Key Personnel; New Management Personnel.
The continued success of XLConnect will depend largely on the
continued services of its key managerial employees, particularly its
executive officers, several of whom, including its Chief Executive Officer,
were only recently hired by XLConnect. Each executive officer has entered
into an employment arrangement with XLConnect that is terminable at will by
either party, subject to severance arrangements, and XLConnect does not
currently maintain key person life insurance on any of its executive
officers. There can be no assurance that XLConnect will retain its key
employees or that the departure of one or more of them would not have a
materially adverse effect on XLConnect, which in turn could have a materially
adverse effect on the Company. Furthermore, there can be no assurance that
XLConnect will be successful in attracting and retaining the new or
additional managerial personnel it requires to conduct its operations or to
meet its future needs to accommodate growth successfully.
Competitive Market for Technical Personnel.
XLConnect's future success also depends largely on its ability to
attract, hire, train and retain highly qualified technical personnel to
provide XLConnect's services. Competition for such personnel is intense.
There can be no assurance that XLConnect will be successful in attracting and
retaining the technical personnel it requires to conduct and expand its
operations successfully and to differentiate itself from its competition.
XLConnect's results of operations and growth prospects could be materially
adversely affected if XLConnect was unable to attract, hire, train and retain
such qualified technical personnel, which in turn could have a materially
adverse effect on the Company's results of operations.
Factors Affecting Operating Results; Potential Fluctuations in Quarterly
Results.
XLConnect's future quarterly operating results may vary and reduced
levels of earnings or losses could be experienced in one or more quarters,
which in turn could reduce the Company's earnings or losses in such quarters.
Fluctuations in the XLConnect's quarterly operating results could result from
a variety of factors, including changes in the levels of revenues derived
from internetworking, applications development, managed services and
telecommunications services, the size and timing of significant project
orders, changes in the mix of employee and subcontractor technicians on large
projects, the timing of new service offerings by XLConnect or its
competitors, new branch office openings by XLConnect, changes in pricing
policies by XLConnect or its competitors, market acceptance of new and
enhanced services offered by XLConnect or its competitors, changes in
operating expenses, availability of qualified technical personnel,
disruptions in sources of supply of computer, telecommunications and related
products and services, the effect of potential acquisitions and industry and
general economic factors. XLConnect has limited or no control over many of
these factors. XLConnect's expense levels are based, in part, on its
expectations as to future revenues. If revenue levels are below
expectations, operating results are likely to be adversely affected. In
addition, XLConnect believes that its business is subject to some
seasonality, the effects of which currently are partially obscured by
XLConnect's revenue growth during the past eight quarters. Nonetheless,
XLConnect believes that weaker sales generally may be expected during the
fourth and first quarters due to fewer working days and some clients'
decisions at year end to postpone large internetworking and applications
development projects until the following year when capital budgets are
renewed. Accordingly, comparisons of results of operations for XLConnect
between particular periods are not necessarily meaningful and historical
results of operations for XLConnect are not necessarily indicative of future
performance.
Management of Growth.
XLConnect's business has experienced substantial growth during
the past five years, in terms of revenues, employees and clients. This
growth is expected to continue to place significant and increasing demands on
XLConnect's management, operational and technical resources. XLConnect's
future performance will depend in part on its ability to finance and manage
expanding operations and to adapt its information systems to changes in its
business. The failure of XLConnect to manage its growth effectively could
have a materially adverse effect on XLConnect's business, financial condition
and results of operations, which in turn could have a materially adverse
effect on the Company's financial condition and results of operations.
Competition.
The markets in which XLConnect operates are characterized by
intense competition from several types of solution and technical service
providers. These include value added resellers, systems integrators and
consultants, computer or other hardware and software vendors, and long
distance carriers and the Regional Bell Operating Companies. In addition,
there can be no assurance that XLConnect's potential clients will not seek to
develop further their in-house capabilities and perform internally more of
the services that XLConnect offers. XLConnect expects to face further
competition from new market entrants and possible alliances among competitors
in the future as the convergence of information processing and
telecommunications continues. Many of XLConnect's current and potential
competitors have greater financial, technical, marketing and other resources
than XLConnect. As a result, they may be better able to respond or adapt to
new or emerging technologies and changes in client requirements or to devote
greater resources to the development, marketing and sales of their services
than XLConnect. There can be no assurance that XLConnect will be able to
continue to compete successfully.
Acquisition Risk.
As part of its growth strategy, XLConnect intends to evaluate the
acquisition of complementary professional services organizations in
attractive geographic or service markets or with desirable client
relationships. The success of this strategy will depend not only upon
XLConnect's ability to locate and acquire such business on a cost-effective
basis but also upon its ability to integrate acquired operations into its
organization effectively, to retain and motivate key personnel and to retain
clients of acquired firms. In addition, although XLConnect conducts due
diligence reviews of potential acquisition candidates, there can be no
assurance that XLConnect can identify all material liabilities or risks
related to potential acquisition candidates. There can be no assurance that
XLConnect will be able to acquire any business, retain the technical and
other key personnel of an acquired business or integrate any acquired
business successfully, that financing for any acquisition, if necessary, will
be available on acceptable terms, if at all, or that XLConnect will be able
to accomplish its strategic objectives in connection with any acquisition.
Substantial Reliance on Key Clients.
XLConnect's client base is highly concentrated, with it top 25
clients in 1993, 1994, 1995 and the first six months of calendar 1996
accounting for approximately 24.2%, 53.6%, 52.4% and 51.5% of revenues,
respectively. Sales to one client, GE Aircraft Engines, a division of
General Electric Company ("GEA"), principally of managed services, accounted
for approximately 10.3%, 14.8% and 16.7% of revenues in 1994, 1995 and the
first six months of 1996, respectively. Based upon historical and recent
results and existing relationships with clients, XLConnect believes that a
substantial portion of its revenues will continue to be derived from services
provided to a relatively few large clients. The loss of GEA or any other
large client or a significant reduction in services provided to any of them
could have a materially adverse effect on XLConnect's results of operations,
which in turn could have a materially adverse effect on the Company's results
of operations. XLConnect's contracts to provide professional services to its
clients generally do not obligate the client to purchase any minimum level of
services and are terminable upon relatively short notice, often 30 days.
There can be no assurance that XLConnect's largest clients will continue to
enter into new contracts with XLConnect at current levels of business, if at
all, or that existing contracts will not be terminated.
Risks Associated with Rapid Technological Change.
The market for XLConnect's services is characterized by rapidly
changing technology and frequent new product and service introductions. The
development and commercialization of new technologies and the introduction of
new products can render existing products and services obsolete or
unmarketable. XLConnect's continued success will depend on its ability to
attract and retain highly capable technical personnel, to enhance existing
services and to package newly developed and introduced service offerings of
its own with products and services from vendors, on a timely and cost-
effective basis, that keep pace with technological developments and address
increasingly sophisticated client requirements. There can be no assurance
that XLConnect will be successful in identifying and marketing service
enhancements or supporting new products and services introduced by vendors
that respond to technological change. In addition, XLConnect may experience
contractual or technical difficulties that could delay or prevent its
successfully deploying newly developed and introduced products.
Dependence on Industry Alliances and Relationships.
XLConnect's success depends in part upon its alliances and
relationships with leading hardware and software vendors, telecommunications
carriers and Internet access service providers, particularly Microsoft,
IBM/Lotus, Novell and MCI. Any adverse change in these relationships could
have a materially adverse effect on XLConnect's results of operations and
financial condition while XLConnect seeks to establish alternative
relationships, which in turn could have a materially adverse effect on the
Company's results of operations and financial condition. Also, XLConnect
will likely need to establish additional alliances and relationships in order
to keep pace with evolutions in technology and enhance its service offerings,
and there can be no assurance such additional alliances will be established.
Dependence on Network Management Center and Help Desk Centers.
XLConnect's network management and help desk services are
dependent upon XLConnect's ability to protect its computer and
telecommunications equipment and the information stored in its Network
Management Center and Help Desk Centers against damage from fire, power loss,
telecommunications failures, unauthorized intrusion, computer viruses and
disabling devices and other similar events. Notwithstanding the precautions
XLConnect has taken to avoid these risks, there can be no assurance that an
unforeseen event will not result in a prolonged disruption of XLConnect's
network management and help desk services or that XLConnect can recover the
full amount of its lost revenues from its insurance policies.
Limited Protection of Intellectual Property Rights; Risks of Infringement.
XLConnect relies primarily on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its intellectual property rights, which afford only
limited protection. XLConnect routinely enters into non-disclosure and
confidentiality agreements with employees, contractors, consultants and
clients. Despite XLConnect's efforts to protect its proprietary rights,
unauthorized parties may attempt to obtain and use information that XLConnect
regards as proprietary, and there can be no assurance that XLConnect's means
of protecting its proprietary rights will be adequate. XLConnect does not
believe that any of its intellectual property infringes on the proprietary
rights of third parties. However, there can be no assurance that third
parties will not claim infringement by XLConnect. Any such claim, with or
without merit, could be time-consuming, result in costly litigation, cause
project delays or require XLConnect to enter into royalty or licensing
agreements which may not be available on terms acceptable to XLConnect, all
of which could have a materially adverse effect on the business, results of
operations and financial condition of the XLConnect, which in turn could have
a materially adverse effect on the Company's results of operations and
financial condition. A third party has asserted that XLConnect's XLConnect
trademark is confusingly similar to the third party's trademark and that
XLConnect should cease using the trademark. Although XLConnect believes that
no such confusion exists and intends to continue to use the XLConnect
trademark, there can be no assurance as to the outcome if XLConnect's use of
the trademark is formally challenged.
Dependence on Third Party Suppliers and Vendors.
XLConnect's business depends upon the adequate and timely supply to
it clients of computer and telecommunications products and services from
third parties at competitive prices and on reasonable terms. To date,
XLConnect has elected to procure substantially all of the products it uses on
client projects from the Company, given its historic relationship with the
Company. XLConnect has not entered into any long-term supply contracts with
the Company or other distributors. As a result, there can be no assurance
that products will be available as required by XLConnect. At times,
typically due to product shortages of the specific manufacturer, XLConnect is
unable to obtain products for its clients on a timely basis. Any material
disruption in the supply of products and services from third party vendors
could have a materially adverse effect on XLConnect's results of operations,
which in turn could have a materially adverse effect on the Company's results
of operations.
Government Regulation of Telecommunications Services.
A portion of the telecommunications services offered by XLConnect
is subject to regulation at both the Federal and state levels. As a result
of the passage of the Telecommunications Act of 1996, it is possible that
certain services not currently subject to regulation could become subject to
regulation, which could subject XLConnect to delays, additional compliance
costs and mandatory contributions to Federal and state universal service
funds. Such costs and delays could affect XLConnect's margins for
telecommunications services and its ability to respond quickly to client
requirements. If the provision of regulated telecommunications services
results in substantial regulatory costs, XLConnect may elect to cease
providing one or more of such services in some or all states.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the Offered
Shares of Common Stock under this Prospectus.
SELLING SHAREHOLDER
The following table sets forth information with respect to the
beneficial ownership of the Common Stock by the Selling Shareholder as of the
date of this Prospectus.
<TABLE>
<CAPTION> Beneficial Ownership
After Offering
-------------------------
Number of Shares
Beneficially Owned Number of Shares Number of Percent of Class (if
Name and Address Prior to Registration Registered Shares Greater than 1%)
---------------- --------------------- ---------------- --------- -------------------
<S> <C> <C> <C> <S>
Capital Ventures International 2,084,878(a) 2,084,878(a) 0 --
c/o Bala International, Inc.
401 City Line Avenue, Suite 220
Bala Cynwyd, PA 19004-1122
___________________________
</TABLE>
(a) As of the date of this Prospectus, the Selling Shareholder owns 5,000
shares of Preferred Stock, stated value $1,000 per share, and Warrants to
purchase 225,000 shares of Common Stock at an exercise price of $11.47 per
share. Pursuant to a Securities Purchase Agreement between the Company and
the Selling Shareholder, the Selling Shareholder has agreed to purchase, and
the Company has agreed to sell, an additional 10,000 shares of Preferred
Stock and Warrants to purchase an additional 225,000 shares of Common Stock,
for an aggregate purchase price of $10,000,000 (the "Additional Preferred
Stock" and the "Additional Warrants," respectively). The per share exercise
price of the Additional Warrants will be 125% of the average of the closing
bid prices for shares of Common Stock for the five trading days immediately
prior to the later of January 14, 1997 or the date of issuance of the
Additional Preferred Stock. The Preferred Stock entitles each holder to
receive per share of Preferred Stock a number of shares of Common Stock
determined by dividing the stated value of the Preferred Stock, plus a
premium in the amount of 6% per annum of the stated value of the Preferred
Stock (unless the Company chooses to redeem the premium in cash), by a
conversion price equal to the lesser of (i) $9.175 and (ii) the average of
the closing bid prices for shares of Common Stock for the five trading days
immediately prior to conversion, subject to adjustment upon the occurrence of
certain dilutive events. The number of shares of Common Stock set forth
herein assumes that all shares of Preferred Stock (including the Additional
Preferred Stock) are converted at the fixed conversion price of $9.175 with
the Company redeeming the premium in cash and assumes the full exercise of
the Warrants (including the Additional Warrants). In the event the Company
does not redeem the 6% premium in cash, the actual number of shares of Common
Stock issuable on conversion of the Preferred Stock and to be sold pursuant
to this Prospectus may increase. Under the applicable conversion formula,
the number of shares of Common Stock issuable upon conversion of the
Preferred Stock would be higher if the market price of the Common Stock at
the time of conversion decreases to a point at which the conversion price
falls below the fixed conversion price. Additional shares of Common Stock
may also be issued to, and sold hereunder by, the Selling Shareholder
pursuant to the anti-dilution provisions and penalty provisions contained in
the Statement with Respect to Shares in respect of the Preferred Stock and in
the Warrants. The shares issuable under anti-dilution provisions are offered
hereby pursuant to Rule 416 under the Securities Act ("Rule 416"). Pursuant
to the terms of the Preferred Stock and the Warrants issued in connection
therewith, the holder thereof can only acquire shares of Common Stock upon
conversion of the Preferred Stock and exercise of the Warrants to the extent
that the number of shares of Common Stock thereby issuable, together with a
number of shares of Common Stock then held by such holder and its affiliates
(not including shares of Common Stock underlying unconverted Preferred Stock
and unexercised Warrants) would not exceed 4.9% of the then outstanding
Common Stock as determined in accordance with Section 13(d) of the Exchange
Act. The number of shares of Common Stock which may be sold by the Selling
Shareholder hereunder may not exceed 6,000,000 (subject to adjustment in
accordance with Rule 416), which is the number of shares registered under the
Registration Statement of which this Prospectus is a part.
PLAN OF DISTRIBUTION
Pursuant to this Prospectus, the Offered Shares may be sold
by the Selling Shareholder from time to time while the Registration
Statement to which this Prospectus relates is effective, on Nasdaq or
otherwise at prices and terms prevailing at the time of sale, at prices and
terms related to such prevailing prices and terms, in negotiated
transactions or at fixed prices. The Selling Shareholder may choose to
sell all or a portion of such Offered Shares from time to time in any
manner described herein. The methods by which the Offered Shares may be
sold by the Selling Shareholder include, without limitation: (i) ordinary
brokerage transactions, which may include long or short sales, (ii)
transactions which involve cross or block trades or any other transactions
permitted by Nasdaq, (iii) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this
Prospectus, (iv) "at the market" to or through market makers or into an
existing market for the Common Stock, (v) in other ways not involving
market makers or established trading markets, including direct sales to
purchasers or sales effected through agents, (vi) through transactions in
options or swaps or other derivatives (whether exchange-listed or
otherwise), or (vii) any combination of any such methods of sale. In
addition, the Selling Shareholder may enter into hedging transactions with
broker-dealers. In connection with such transactions, broker-dealers may
engage in short sales of Offered Shares in the course of hedging the
positions they assume with the Selling Shareholder. The Selling
Shareholder may also sell Offered Shares short and deliver the Offered
Shares registered hereby at any time to close out such short positions,
provided such short sales were effected pursuant to this Prospectus. The
Selling Shareholder may also enter into option or other transactions with
broker-dealers which require the delivery to such broker-dealers of the
Offered Shares offered hereby, which Offered Shares such broker-dealers may
resell pursuant to this Prospectus.
In effecting sales, brokers and dealers engaged by the Selling
Shareholder may arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions or discounts from the Selling
Shareholder to sell a specified number of Offered Shares at a stipulated
price per share, and, to the extent such a broker or dealer is unable to do
so acting as agent for the Selling Shareholder, may purchase as principal
any unsold Offered Shares at the price required to fulfill such broker or
dealer commitment to the Selling Shareholder. Brokers or dealers who
acquire Offered Shares as principals may thereafter resell such shares from
time to time in transactions (which may involve crosses and block
transactions and which may involve sales to and through other brokers or
dealers, including transactions of the nature described above) in the over-
the-counter market, in negotiated transactions or otherwise, at market
prices and terms prevailing at the time of sale, at prices and terms
related to such prevailing prices and terms, in negotiated transactions or
at fixed prices, and in connection with the methods as described above.
The Offered Shares held by the Selling Shareholder may also be sold
hereunder by brokers, dealers, banks or other persons or entities who
receive such Offered Shares as a pledgee of the Selling Shareholder. The
Selling Shareholder and brokers and dealers through whom sales of Offered
Shares may be effected may be deemed to be "underwriters," as defined under
the Securities Act, and any profits realized by them in connection with the
sale of the Offered Shares may be considered to be underwriting
compensation.
The Registration Rights Agreement by and between the Company and
the Selling Shareholder, dated as of October 15, 1996, pursuant to which
the Registration Statement has been filed, provides that the Company and
the Selling Shareholder will indemnify each other against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the other may be required to make in respect
thereof.
LEGAL OPINION
The validity of the Offered Shares offered hereby has been passed
upon for the Company by Pepper, Hamilton & Scheetz, Philadelphia,
Pennsylvania. Barry M. Abelson, a member of the Board of Directors of the
Company and XLConnect, is currently a partner at Pepper, Hamilton & Scheetz.
Mr. Abelson owns 42,900 shares of Common Stock, 8,425 shares of common stock
of XLConnect and options to purchase 25,000 shares of common stock of
XLConnect.
EXPERTS
The financial statements of the Company incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the year
ended February 3, 1996 have been so incorporated in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
<PAGE>
================================================ ========================
No dealer, salesman or other person has
been authorized to give any information
or to make any representations other than
those contained in this Prospectus in
connection with the offer made hereby, and,
if given or made, such information or
representations must not be relied upon
as having been authorized by the Company.
This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy,
the securities offered hereby to any person
in any state or other jurisdiction in which
such offer or solicitation is unlawful.
Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any
circumstances, imply that information
contained herein is correct as of any time
subsequent to its date or that there has
not been any change in the facts set forth INTELLIGENT ELECTRONICS, INC.
in this Prospectus or in the affairs of
the Company since the date hereof.
_____________________
PROSPECTUS
___________________ _____________________
TABLE OF CONTENTS
Page
----
Available Information . . . . 2
Incorporation of Certain
Information by Reference. . 2
The Company . . . . . . . . . 3
Risk Factors. . . . . . . . . 3
Use of Proceeds . . . . . . . 9 ______________, 1996
Selling Shareholder . . . . . 10
Plan of Distribution. . . . . 11
Legal Opinion . . . . . . . . 11
Experts . . . . . . . . . . . 11
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
SEC registration fee. . . . . . . . . . . . . . . . . . . . . .$15,164 *
Printing and engraving fees . . . . . . . . . . . . . . . . . . 2,000 **
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . 20,000 **
Accountants' fees and expenses. . . . . . . . . . . . . . . . . 5,000 **
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 7,836 **
TOTAL . . . . . . . . . . . . . . . . . . . . . .$50,000 **
____________________
* Actual.
** Estimated
Item 15. Indemnification of Directors and Officers
Sections 513 and 1741-1750 of the Pennsylvania Business
Corporation Law of 1988 (the "BCL") and the Company's By-Laws provide for
indemnification of the Company's directors and officers and certain other
persons. Under Sections 1741-1750 of the BCL, directors and officers of
the Company may be indemnified by the Company against all expenses incurred
in connection with actions (including, under certain circumstances,
derivative actions) brought against such director or officer by reason of
his or her status as a representative of the Company, or by reason of the
fact that such director or officer serves or served as a representative of
another entity at the Company's request, so long as the director or officer
acted in good faith and in a manner he or she reasonably believed to be in,
or not opposed to, the best interests of the Company. As permitted under
Sections 1741-1750 of the BCL, the Company's By-Laws provide that the
Company shall indemnify its directors and officers against all expenses
incurred in connection with actions (including derivative actions) brought
against such director or officer by reason of the fact that he or she is or
was a director or officer of the Company, or by reason of the fact that
such director or officer serves or served as an employee or agent of any
entity at the Company's request, unless the act or failure to act on the
part of the director or officer giving rise to the claim for indemnification
is determined by a court in a final, binding adjudication to have constituted
willful misconduct or recklessness.
Reference is made to Item 17 of this Registration Statement
for additional information regarding indemnification of directors and
officers.
Item 16. Exhibits
* 5 Opinion of Pepper, Hamilton & Scheetz.
* 23.1 Consent of Price Waterhouse LLP.
* 23.2 Consent of Pepper, Hamilton & Scheetz (included in Exhibit 5).
* 24 Power of Attorney (included on the signature pages of this
Registration Statement).
_________________________
* Previously filed
PAGE
<PAGE>
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Exchange Act that are incorporated by reference in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that is has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Exton, Pennsylvania, on November 25, 1996.
INTELLIGENT ELECTRONICS, INC.
By: /s/ Richard D. Sanford
------------------------------------
Richard D. Sanford, Chief Executive
Officer and Chairman of the Board
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
Date: November 25, 1996 /s/ Richard D. Sanford
----------------------------------------
Richard D. Sanford, Chief Executive
Officer and Chairman of the Board
Date: November 25, 1996 /s/ Thomas J. Coffey
----------------------------------------
Thomas J. Coffey, Chief Financial Officer,
Senior Vice President and Principal
Accounting Officer
Date: November 25, 1996 *
----------------------------------------
Arnold S. Hoffman, Director
Date: November 25, 1996 *
----------------------------------------
William L. Rulon-Miller, Director
Date: November 25, 1996 *
----------------------------------------
Barry M. Abelson, Director
Date: November 25, 1996 *
---------------------------------------
Roger Fritz, Director
Date: November 25, 1996 *
----------------------------------------
Michael Norris, Director
Date: November 25, 1996 *
----------------------------------------
John A. Porter, Director
Date: November 25, 1996 *By:/s/ Richard D. Sanford
-------------------------------------
Richard D. Sanford
Attorney-in-Fact
