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